IN THE UNITED STATES BANKRUPTCY COURT FOR …omnimgt.com/cmsvol2/pub_47137/595341_459.pdf · response brief in further support of the artis plaintiffs’ motion for appointment of

PHIL1 5725241v.1

IN THE UNITED STATES BANKRUPTCY COURTFOR THE SOUTHERN DISTRICT OF INDIANA

:In re: : Chapter 7

:ITT EDUCATIONAL SERVICES, INC., : Case No. 16-07207-JMC-7A

:Debtor. :

:

RESPONSE BRIEF IN FURTHER SUPPORT OF THE ARTIS PLAINTIFFS’ MOTION FOR APPOINTMENT OF KLEHR HARRISON HARVEY BRANZBURG LLP AS INTERIM CLASS COUNSEL PURSUANT TO FED. R. BANKR. PROC. 7023(g)

LEWIS & KAPPES, P.C.Kevin A. Morrissey2500 One American SquareIndianapolis, IN 46282

KLEHR HARRISON HARVEY Telephone: (317) 639-1210BRANZBURG LLP Facsimile: (317) 639-4882Charles A. Ercole, EsquireLee D. Moylan, EsquireSally E. Veghte, Esquire1835 Market Street, Suite 1400Philadelphia, PA 19103Telephone: (215) 569-2700 Counsel for the Artis Plaintiffs,Facsimile: (215) 568-6603 individually and on behalf of all other

persons similarly situatedOctober 21, 2016

Case 16-07207-JMC-7A Doc 459 Filed 10/21/16 EOD 10/21/16 22:19:28 Pg 1 of 11

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TABLE OF CONTENTS

Summary of the Artis Plaintiffs’ Argument ....................................................................................1

Argument .........................................................................................................................................2

A. Response to the Outten & Golden LLP Motion...........................................................2

B. Response to the Chimicles & Tikellis LLP Motion......................................................4

Conclusion.......................................................................................................................................7


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TABLE OF AUTHORITIES

CASES PAGE(S)

Anderson v. Fiserv, Inc.,2010 WL 571812 (S.D.N.Y. Jan. 29, 2010) ..............................................................................6

In re Bank of Am. Corp. Secs., Derivative & ERISA Litigs.,258 F.R.D. 260 (S.D.N.Y. 2009)...............................................................................................6

Droste v. Vert Captial Corp. and Wolff Fording & Co.,Civ. Act. No. 3:14-cv-467 .........................................................................................................5

Justin Abreau v. Oakwood Homes Corp., et al.,C.A. 0213396 (Bankr. D. Del. 2002) ........................................................................................5

Matthews v. The Truland Group, Inc., et al., Adv. Proc. No. 14-01136 BFK (Bankr. E.D. Va. 2014)............................................................5

McDermott v. Premium Protein Prods., LLC, Adv. Proc. Nos. 09-04076 and 09-04077 (Bankr. Nebraska 2009)...........................................6

Mehan v. CPI, Adv. Proc. Nos. 13-51038 BLS and 13-51037 BLS (Bankr. D.Del. 2013) ..............................5

In re Mun. Derivatives Antitrust Litig.,252 F.R.D. 184 (S.D.N.Y. 2008)...............................................................................................6

In re Qimonda N. Am., et al.,Adv. No. 09-50192 (Bankr. D. Del.) .........................................................................................5

Riley v. Hoboken Wood Flooring,C.A. No. 2:07-cv-05666 (D.N.J. 2009) .....................................................................................5

Smith v. Arrow Trucking,No. 09-cv-810 (N.D. Okla. 2011)..............................................................................................5

Theilmann, et al. v. MF Global Finance USA, Inc., et al. (In re MF Global Holdings Ltd., et al.), Adv. Proc No. 11-02880-mg (Bankr. S.D.N.Y.) ......................................................................4

In re USF Red Star Worker Notification Litigation,MDL 1655 (E.D. Pa. 2005) .......................................................................................................5


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OTHER AUTHORITIES

Fed. R. Civ. P. 23(a)(4) ...................................................................................................................1

Fed. R. Civ. P. 23(g)........................................................................................................................7

Fed. R. Civ. P. 23(g)(1)(A) and (B).................................................................................................6

Federal Rule of Bankruptcy Procedure 7023(g)..........................................................................1, 7


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Summary of the Artis Plaintiffs’ Argument

Plaintiffs Dennis Artis, Donna A. Lindsay and Patricia Marshall (the “Artis Plaintiffs”),

by and through their undersigned counsel, Klehr Harrison Harvey Branzburg, LLP (“Klehr

Harrison”), hereby move this Honorable Court for entry of an Order appointing Klehr Harrison

as Interim Class Counsel pursuant to Federal Rule of Bankruptcy Procedure 7023(g). In the

alternative, should the Court appoint more than one firm as interim class counsel, Klehr Harrison

seeks appointment as the lead firm. The Artis Plaintiffs file this Response in further support of

their Motion for the Appointment of Klehr Harrison as interim class counsel, and state as

follows:

Klehr Harrison recognizes that each of the firms that have applied for appointment as

interim class counsel are qualified. The Artis Plaintiffs reiterate, as set forth in their opening

brief, that nothing prevents the Court from appointing more than one firm as interim class

counsel. However, for the reasons set forth below, if the Court chooses to select only one firm as

interim class counsel, or if the Court chooses to select two or three firms as interim class counsel

and appoint one of those firms as the “lead” co-class counsel, the Court should appoint Klehr

Harrison. Klehr Harrison has worked cooperatively, successfully and efficiently with co-class

counsel in many other WARN Act actions. It would be a pleasure to work with co-class counsel

in this litigation as well.

Counsel for the Artis Plaintiffs are more than able to “fairly and adequately represent the

interests of the class.” Fed. R. Civ. P. 23(a)(4); 23(g)(1)(B). Klehr Harrison not only has a

wealth of experience litigating WARN Act claims, it has a full-blown bankruptcy practice that

has worked hand-and-hand with its WARN Act litigators on numerous cases. In addition, Klehr

Harrison has retained Kevin A. Morrissey and the firm of Lewis Kappes as local co-counsel.


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Mr. Morrissey is well-versed in creditors’ rights litigation and is partnered with a firm of

additional strong litigators.

Argument

While the Artis Plaintiffs do not intend to address each and every point made by the other

moving parties, they will respond to certain statements raised in the papers by others seeking

appointment as interim class counsel.

A. Response to the Outten & Golden LLP Motion

In paragraph 14 of the Federman Plaintiffs’ Brief filed by Outten & Golden, LLP

(“O&G”), counsel discusses the burden on the Chapter 7 trustee having to deal with multiple

WARN Act cases which necessitates the appointment of interim class-counsel. This concern is

slightly overstated because, clearly, the Court controls the pace of the litigation and, more

practically, none of the firms seeking relief pursuant to the WARN Act want to waste time

litigating if there will ultimately be no money available for a distribution to former employees.

The real reason that the Federman Plaintiffs seek appointment of O&G as sole interim class

counsel and ask the Court to “abate and dismiss” the other actions1 is purely fee-related.

The fact is that there are three most likely scenarios:

1) the bankruptcy estate is administratively insolvent and no funds can be recovered

for the former employees – and, hence, no fees are paid, but class counsel performs little work;

2) at some point during the WARN Act litigation, there are sufficient funds in the

estate and the Trustee believes it is in the best interest of the estate to mediate or otherwise

negotiate a WARN Act settlement. In this scenario, only a modest amount of legal work would

1 Rather, the most efficient way to manage the WARN Act matters is to consolidate the actions into a single Class Proof of Claim with multiple lead plaintiffs added from each claim/adversary proceeding.


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be performed by class counsel and there could potentially be a fee windfall for a sole interim

class counsel; or

3) at some point there are sufficient assets in the estate and the Trustee chooses to

vigorously litigate WARN Act liability. In such a case, there would be more than enough work

for multiple firms and the employees would be best served by having co-class counsel.

The Federman Plaintiffs tout that O&G is the largest plaintiffs employment law firm in

the country and, moreover, that its WARN Act practice is the largest in the country. While it

may be true that O&G has filed more WARN Act lawsuits than any other law firm and has

achieved success in some of those cases, the practice has consisted primarily of two excellent

attorneys: Jack A. Raisner and Renee S. Roupinian – with the assistance of paralegal(s) and only

recently the addition of an associate, Robert Fisher. On the other hand, Klehr Harrison files far

fewer WARN Act cases, but has a much deeper bench of lawyers who have successfully litigated

WARN Act matters. The practice is led by Charles A. Ercole and he is assisted by a half-dozen

partners, Of Counsel, and associates – currently including Lee D. Moylan and Sally E. Veghte

(who are appearing pro hac vice in the present case – and who both worked with O&G as co-

class counsel on the MF Global litigation).2

In paragraph 42 of the Federman Plaintiffs’ Brief, Mr. Raisner states that O&G was

selected over Klehr Harrison as interim class counsel in the MF Global matter. This is a

misleading characterization of what occurred in that litigation. In MF Global, three firms (O&G,

Klehr Harrison and Lankenau & Miller/The Gardener firm3) each filed an action within the first

36 hours of the employee layoffs. The firms, having worked together previously in other cases -

2 In addition, other members of Klehr Harrison’s litigation and bankruptcy departments have been involved in WARN Act litigation including, but not limited to, Domenic Pacitti, Linda Richenderfer, David Eagle, Carianne Torrissi, Sean Brennecke and Zachary Sanders.3 Per a business agreement, L&M/Gardner act as a single firm for WARN Act cases.


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agreed to litigate the case together – and share any fees equally. Approximately one month later,

a firm with no WARN Act experience filed an adversary complaint and also moved for

appointment as interim class counsel. The initial firms (O&G, Klehr Harrison and Lankenau &

Miller/the Gardner firm) opposed the motion and cross-moved to be appointed collectively as

interim class counsel. During oral argument, Mr. Raisner stated that the firms operated

“seamlessly” in prior cases and, for that reason, there was no need to appoint one single firm as

class counsel. See Transcript of January 19, 2012 hearing in Theilmann, et al. v. MF Global

Finance USA, Inc., et al. (In re MF Global Holdings Ltd., et al.), Adv. Proc No. 11-02880-mg

(Bankr. S.D.N.Y.) attached hereto as Exhibit A; Transcript, p. 78, lines 7-14. The Honorable

Martin Glenn ultimately ruled that he desired to have a point of contact so he nominally

appointed O&G as interim class counsel. See Memorandum Opinion and Order issued in

Theilmann, et al. v. MF Global Finance USA, Inc., et al., Adv. Proc No. 11-02880-mg (Bankr.

S.D.N.Y.) attached hereto as Exhibit B, p.11. As Mr. Raisner had represented to the court, the

firms did operate seamlessly and interchangeably throughout the litigation, including on filings,

pleadings, discovery, trial prep, etc. Ultimately the firms were able to recover $5MM in WARN

Act damages and $2.8MM in vacation pay for approximately 1150 former MF Global

employees.

B. Response to the Chimicles &Tikellis LLP Motion

Chimicles & Tikellis LLP is an outstanding class-action firm, however, it has a dearth of

WARN Act experience as compared to Klehr Harrison. As noted in its opening brief, Klehr

Harrison has prosecuted nearly two-dozen WARN Act cases in the past dozen years with some

of the top recoveries in the field.


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By way of example, in the Qimonda case, Klehr Harrison has recovered nearly $20MM

to date in WARN Act damages and severance pay for approximately 2000 former employees.

In re Qimonda N. Am., et al., Adv. No. 09-50192 (Bankr. D. Del.). Mr. Ercole was the primary

lead counsel and continues to sit on the Liquidating Trust Oversight Committee -- which may

ultimately recover close to $35MM million dollars for the employees.4

Just a few of Klehr Harrison’s other notable WARN Act successes and achievements

include:

• In Re USF Red Star Worker Notification Litigation, MDL 1655 (E.D. Pa. 2005): $6.775 million for approximately 2000 former employees;

• Justin Abreau v. Oakwood Homes Corp., et al., C.A. 0213396 (Bankr. D. Del. 2002):$2.8 million for approximately 1100 former employees;

• Matthews v. The Truland Group, Inc., et al., Adv. Proc. No. 14-01136 BFK (Bankr. E.D. Va. 2014): $5 million in administrative and wage priority claims and a $10 million general unsecured claim for approximately 750 former employees;

• Smith v. Arrow Trucking, No. 09-cv-810 (N.D. Okla. 2011):$1.97 million for 564 former employees;

• Fleetwood Travel Trailers, No. 6:09-ap-01114-MJ (Bankr. C.D. Ca. 2010): $1.55 million for approximately 600 former employees;

• Riley v. Hoboken Wood Flooring, C.A. No. 2:07-cv-05666 (D.N.J. 2009):$1.050 million for approximately 375 former employees;

• Mehan v. CPI, Adv. Proc. Nos. 13-51038 BLS and 13-51037 BLS (Bankr. D.Del. 2013):$2.8MM for approximately 3000 former employees;

• Droste v. Vert Captial Corp. and Wolff Fording & Co., Civ. Act. No. 3:14-cv-467 (E.D. Va. 2014: $1.3MM for approximately 150 former employees;

4 O&G also was co-counsel in the Qimonda matter and agreed to accept a lesser role in the litigation as reflected in the fee agreement with Klehr Harrison and its lodestar value in the fee application. O&G recognizes KlehrHarrison’s WARN capabilities and has allowed Klehr Harrison to take the lead in co-counsel situations in other cases beyond Qimonda and MF Global (see, e.g., Hoboken Wood Flooring, C.A. No. 2:07-cv-05666 (D.N.J. 2009) and Excel Storage Products, Adv. Proc. No. 5:10-ap-00368 (Bankr. M.D. Pa. 2010).


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• McDermott v. Premium Protein Prods., LLC, Adv. Proc. Nos. 09-04076 and 09-04077 (Bankr. Nebraska. 2009): $1.250 million for approximately 400 former employees.

Conclusion

Generally, in selecting interim counsel where multiple law firms are seeking

appointment, courts have initially relied on the criteria for determining the adequacy of class

counsel set forth in Rule 23(g)(1)(A). Rule 23(g)(1)(A) provides that the court must factor “(i)

the work counsel has done in identifying or investigating potential claims in the action; (ii)

counsel’s experience in handling class actions, other complex litigation, and the types of claims

asserted in the action; (iii) counsel’s knowledge of the applicable law; and (iv) the resources

counsel will commit to representing the class.” In re Bank of Am. Corp. Secs., Derivative &

ERISA Litigs., 258 F.R.D. 260, 272 (S.D.N.Y. 2009); see also In re Mun. Derivatives Antitrust

Litig., 252 F.R.D. 184, 186 (S.D.N.Y. 2008).

Moreover, under Rule 23(g)(1)(B), courts may consider “any other matter pertinent to

counsel’s ability to fairly and adequately represent the interests of the class,” including: “(1) the

quality of the pleadings; (2) the vigorousness of the prosecution of the lawsuits; and (3) the

capabilities of counsel, as well as whether . . . their charges will be reasonable.” In re Bank of

Am. Corp. Secs., 258 F.R.D. at 272. Finally, as stated above, “the court must appoint the

applicant that is best able to represent the interests of the class.” Fed. R. Civ. P. 23(g)(2); see

also Anderson v. Fiserv, Inc., 2010 WL 571812, at *2 (S.D.N.Y. Jan. 29, 2010).

Despite the somewhat misleading statements by the counsel to the Federman Plaintiffs,

any one of the three firms seeking appointment as interim class counsel likely are capable of

adequately representing the class if the Court believes that administrative and judicial efficiency

is best served in this case by appointing only one law firm as interim class counsel. Klehr

Harrison has extensive experience handling complex litigation, including class actions within the


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context of a bankruptcy, in addition to a wealth of experience in representing WARN Act

plaintiffs and in working effectively with other co-counsel.

For all of these reasons, the Artis Plaintiffs respectfully request that the Court appoint

Klehr Harrison Harvey Branzburg LLP as interim class counsel, pursuant to Fed. R. Civ. P.

23(g), made applicable by Federal Rule of Bankruptcy Procedure 7023(g), or as lead co-class

counsel.

Respectfully submitted,

Dated: October 21, 2016 LEWIS & KAPPES, P.C.

/s/ Kevin A. Morrissey______________

Kevin A. Morrissey2500 One American SquareIndianapolis, IN 46282Telephone: (317) 639-1210Facsimile: (317) [email protected]

Local Counsel for the Artis Plaintiffs

- And -

KLEHR HARRISON HARVEYBRANZBURG LLP

/s/ Charles A. Ercole__________Charles A. Ercole, Esquire*Lee D. Moylan, Esquire*Sally E. Veghte, Esquire*1835 Market Street, Suite 1400Philadelphia, PA 19103Telephone: (215) 569-2700Facsimile: (215) [email protected]@[email protected]

Attorneys for the Artis Plaintiffs

*Attorneys Admitted Pro Hac Vice


EXHIBIT A

Case 16-07207-JMC-7A Doc 459-1 Filed 10/21/16 EOD 10/21/16 22:19:28 Pg 1 of 90

1

2 UNITED STATES BANKRUPTCY COURT

3 SOUTHERN DISTRICT OF NEW YORK

4 - - - - - - - - - - - - - - - - - - - - -x

5 In the Matter of:

6 MF GLOBAL HOLDINGS LTD., ET AL., Main Case No.

7 Debtors. 11-15059-mg

8 - - - - - - - - - - - - - - - - - - - - -x

9 SECURITIES INVESTOR PROTECTION

10 CORPORATION, ET AL. ,

11 Plaintiffs,

12

13 - against - Adv. Proc. No.

14 11-02790-mg

15 MF GLOBAL, INC.,

16 Defendant.

17 - - - - - - - - - - - - - - - - - - - - -x

18 THEILMANN, ET AL.,

19 Plaintiffs,

20


22 11-02880-mg

23 MF GLOBAL FINANCE USA, INC., ET AL.,

24 Defendants.

25 - - - - - - - - - - - - - - - - - - - - -x

Page 1

VERITEXT REPORTING COMPANY212-267-6868 www.veritext.com 516-608-2400

11-02880-mg Doc 36 Filed 01/20/12 Entered 02/06/12 14:55:35 Main Document Pg 1 of 89


1 GENITRA GREENE and VICTOR HURTADO,

2 Plaintiffs,

3


5 11-02921-mg

6 MF GLOBAL GLOBAL HOLDINGS LTD., ET AL.,

7 Defendants.

8 - - - - - - - - - - - - - - - - - - - - -x

9

10

11

12

13 United States Bankruptcy Court

14 One Bowling Green

15 New York, New York

16

17 January 19, 2012

18 11:03 AM

19

20 B E F O R E:

21 HON. MARTIN GLENN

22 U.S. BANKRUPTCY JUDGE

23

24

25

Page 2




1

2 Adversary proceeding: 11-02790-mg Securities Investor

3 Protection Corporation, et al. v. MF Global, Inc.

4 (doc no. 807) Trustee's Application to Retain and Employ

5 Slaughter and May as English Counsel, Nunc Pro Tunc to December

6 21, 2011 filed by Christopher K. Kiplock on behalf of James W.

7 Giddens, Trustee for the SIPA Liquidation of MF Global Inc.

8 Marked Up Documents: 807, 813

9

10 Doc# 806 Motion to Extend Time/Trustees Motion for an Order

11 Pursuant to 28 U.S.C. 1452 and Bankruptcy Rules 9006(b) and

12 9027 Extending Time to File Notices of Removal of Actions

13 Document #: 806

14 Marked Up Documents: 806

15

16 (cc: doc no. 834)Status Report on non-Liquid Assets Being

17 Transferred by Third Bulk Transfer


19

20 Doc#277 Motion for Relief from Stay to the extent applicable,

21 by New Hampshire Insurance Company

22 Document #: 277


24

25

Page 3




1 (CC: Doc no. 310) Application to Employ Dewey & LeBoeuf LLP as

2 Attorneys to the Statutory Creditors' Committee


4

5 (ptbs: doc. No. 325, 326) Motion Extending the Trustee's Time

6 to File Notices of Removal of Civil Actions

7 Marked Up Documents: 325, 326, 331

8

9 (ptbs: doc no. 217, 278) MOTION BY SAPERE WEALTH MANAGEMENT,

10 LLC, GRANITE ASSET MANAGEMENT AND SAPERE CTA FUND, L.P. TO

11 DIRECT THE DEBTORS ESTATE TO BE ADMINISTERED PURSUANT TO 11

12 U.S.C. SECTIONS 761-767 AND 17 C.F.R. SECTION 190 filed by Jon

13 R. Grabowski on behalf of Sapere

14 Marked Up Documents: 217, 231, 243, 278, 339, 341, 342, 345,

15 355, 356, 357, 358, 364, 368, 370

16

17 Adversary proceeding: 11-02880-mg Thielmann, et al. v. MF

18 Global Finance USA, Inc., et al.

19 (cc: Doc# 3) Motion to Joint and Consolidate Related Cases 11-

20 02921, 11-02880, 11-02881, and 11-02882

21 Marked Up Documents: 3, 17, 31, 32, 33, 34

22

23

24

25

Page 4




1 (CC: Doc No. 11) Motion to Appoint Interim Class Counsel filed

2 by Rene S. Roupinian on behalf of Pierre-Yvan Desparois, Todd

3 Thielmann

4 Marked Up Documents: 11, 13, 17, 31, 32, 33, 34

5

6 Adversary proceeding: 11-02921 Genitra Greene and Victor

7 Hurtado, on behalf of themselves v. MF Global Holdings Ltd., et

8 al.

9 (cc: Doc#3) Motion to Join and Consolidate Related Cases 11-

10 02921, 11-02880, 11-02881 and 11-02882

11 Marked Up Documents: 3, 4, 10, 11, 12, 13, 14, 15

12

13 Adversary proceeding: 11-02880-mg Thielmann, et al. v. MF

14 Global Finance USA, Inc., et al.

15 Pre-trial conference


17

18 Adversary proceeding: 11-02921 Genitra Greene and Victor

19 Hurtado, on behalf of themselves v. MF Global Holding Ltd., et

20 al.

21 Pre-trial conference


23

24

25 Transcribed by: Avigayil Roth

Page 5




1

2 A P P E A R A N C E S :

3 HUGHES HUBBARD & REED LLP

4 Attorneys for SIPA Trustee

5 One Battery Park Plaza

6 New York , NY 10004

7

8 BY: JEFFREY S. MARGOLIN, ESQ.

9 JOSIAH S. TRAGER, ESQ.

10

11

12 DEWEY & LEBOEUF

13 Attorneys for Statutory Creditors' Committee

14 1301 Avenue of the Americas

15 New York, NY 10019

16

17 BY: MARTIN J. BIENENSTOCK, ESQ.

18

19

20 KLEHR HARRISON HARVEY BRANZBURG LLP

21 Attorneys for Thielmann, et al.

22 1835 Market Street

23 Philadelphia, PA 19103

24

25 BY: CHARLES A. ERCOLE, ESQ.

Page 6




1 MORRISON & FOERSTER LLP

2 Attorneys for Chapter 11 Trustee

3 1290 Avenue of the Americas


5

6 BY: LORENZO MARINUZZI, ESQ.

7 BRETT H. MILLER, ESQ.

8

9

10 WILKIE FARR & GALLAGHER LLP

11 Attorneys for Bank of America, N.A.

12 787 Seventh Avenue


14

15 BY: JOSEPH G. MINIAS, ESQ.

16 MARGOT B. SCHONHOLTZ, ESQ.

17

18

19 COMMODITY FUTURES TRADING COMMISSION

20 Office of the General Counsel

21 1155 21st Street, N.W.

22 Washington, DC 20581

23

24 BY: ROBERT A. SCHWARTZ, ESQ.

25

Page 7




1 BARNES & THORNBURG LLP

2 Attorneys for Robert Galterman & other Physicals Holders

3 Suite 4400

4 One North Wacker Drive

5 Chicago, IL 60606

6

7 BY: VINCENT P. (TRACE) SCHMELTZ, III, ESQ.

8

9

10 BARNES & THORNBURG LLP

11 Attorneys for Robert Galterman & other Physicals Holders

12 1000 N. West Street

13 Suite 1200

14 Wilmington, DE 19801

15

16 BY: DAVID M. POWLEN, ESQ.

17

18

19 SIMPSON THACHER & BARTLETT LLP

20 Attorneys for JPMorgan Chase, N.A.

21 425 Lexington Avenue


23

24 BY: MORRIS J. MASSEL, ESQ.

25

Page 8




1 SECURITIES AND EXCHANGE COMMISSION

2 Three World Financial Center


4

5 BY: PATRICIA SCHRAGE

6

7

8 ARENT JOX LLP

9 Attorneys for George Lichtenstein, customer with silver

10 certificates

11 1675 Broadway


13

14 BY: GEORGE V. UTLIK, ESQ.

15

16

17 FORD MARRIN ESPOSITO WITMEYER & GLESER, L.L.P.

18 Attorneys for Sapere

19 Wall Street Plaza


21

22 BY: STEPHEN R. CHUK, ESQ.

23

24

25

Page 9




1 HARWOOD FEFFER LLP

2 Attorneys for Genitra Greene and Victor Hurtrado

3 488 Madison Avenue


5

6 BY: PETER W. OVERS, JR., ESQ.

7

8

9 LANKENAU & MILLER, LLP

10 Attorneys for Anthony Abruzzo

11 132 Nassau Street

12 Suite 423


14

15 BY: STUART J. MILLER, ESQ.

16

17

18 WILSON ELSER MOSKOWITZ EDELMAN & DICKER LLP

19 Attorneys for New Hampshire Insurance Company

20 3 Gannett Drive

21 White Plains, NY 10604

22

23 BY: MARK G. LEDWIN, ESQ.

24

25

Page 10




1 SLAUGHTER AND MAY

2 Attorneys for Debtors

3 One Bunhill Row

4 London, UK EC1Y 8YY

5

6 BY: GEORGE E. S. SELIGMAN, ESQ. (TELEPHONICALLY)

7

8

9 STUTZMAN, BROMBERO, ESSERMAN & PLIFKA, PC

10 Attorneys for Jeff Stern & Richard Stark, et al.

11 2323 Bryan Street

12 Suite 2200

13 Dallas, TX 75201

14

15 BY: SANDER L. ESSERMAN, ESQ. (TELEPHONICALLY)

16

17

18 PEPPER HAMILTON LLP

19 Attorneys for Debtors

20 1313 Market Street

21 Suite 5100

22 Wilmington, DE 19899

23

24 BY: DAVID M. FOURNIER, ESQ. (TELEPHONICALLY)

25

Page 11




1 MCGUIREWOODS LLP

2 Attorneys for Dominion Energy

3 One James Center

4 901 East Cary Street

5 Richmond, VA 23219

6

7 BY: DION W. HAYES, ESQ. (TELEPHONICALLY)

8

9

10 PEPPER HAMILTON LLP

11 Attorneys for Lois Freeh, Trustee

12 Suite 1800

13 4000 Town Center

14 Southfield, MI 48075

15

16 BY: DEBORAH KOVSKY-APAP, ESQ. (TELEPHONICALLY)

17

18

19 THE GARDNER LAW FIRM, P.C.

20 Attorneys for Theilmann, et al.

21 201 S. Washington Avenue

22 Mobile, AL 36602

23

24 BY: MARY OLSEN, ESQ. (TELEPHONICALLY)

25

Page 12




1 OUTTEN & GOLDEN LLP

2 Attorneys for Thielmann, et al.

3 3 Park Avenue

4 29th Floor


6

7 BY: JACK A. RAISNER, ESQ.

8

9

10 TYPHON CAPITAL MANAGEMENT, LLC

11 BY: JAMES L. KOUTOULAS, ESQ., CEO

12

13

14 DARIA FANE, PRO SE

15

16

17

18

19

20

21

22

23

24

25

Page 13




MF GLOBAL HOLDINGS LTD., ET AL. and adversaries

1 P R O C E E D I N G S

2 THE COURT: All right. Please be seated. All right.

3 We're here -- I'm going to take the MF Global, Inc. matters

4 first. It's number 11-02790.

5 MR. MARGOLIN: Good morning, Your Honor. Jeffrey

6 Margolin, Hughes Hubbard & Reed for the SIPA trustee.

7 THE COURT: Good morning, Mr. Margolin.

8 MR. MARGOLIN: We have a relatively brief agenda this

9 morning in the SIPA proceeding. Unless Your Honor advises

10 otherwise, we'll proceed with the matters in the order

11 presented in the agenda filed with the court yesterday.

12 THE COURT: Go ahead.

13 MR. MARGOLIN: The first uncontested matter on the

14 agenda is the trustee's application to retain and employ

15 Slaughter and May as English counsel nunc pro tunc to December

16 21st, 2011.

17 Given the claims and potential disputes with the

18 special administrators for MF Global UK as detailed in the

19 application and the trustee's sixty-day report filed on January

20 12th. And the fact that the trustee's primary counsel --

21 Hughes Hubbard & Reed, my firm -- does not maintain offices in

22 England, the trustee in consultation with the Securities

23 Investor Protection Corporation respectfully submits that it's

24 appropriate and necessary to retain Slaughter and May as

25 English counsel pursuant to SIPA Section 78eee(b)(3) to assist

Page 14





1 with matters in connection with the UK special administration.

2 As detailed in the application, the trustee's

3 application provides a nonexclusive list of matters that the

4 trustee anticipates seeking advice and counsel from Slaughter

5 and May on regarding the UK special administration. Let me

6 emphasize that none of this work will be duplicative of the

7 work that's performed by Hughes Hubbard & Reed or any other

8 special counsel retained by the trustee.

9 Slaughter and May has agreed to a public interest

10 discount on its rates that depending on the level of attorney

11 seniority, a purchase twenty percent from their standard rates

12 charge on other insolvency and bankruptcy assignments.

13 Slaughter and May will make appropriate applications to the

14 Court for compensation and professional fees and reimbursements

15 of expenses pursuant to SIPA, the Bankruptcy Code, Bankruptcy

16 Rules and all orders entered in this court in this proceeding.

17 Your Honor, accompanying the application was a

18 declaration of disinterest in this from George Seligman, the

19 Slaughter and May partner in charge of this engagement. Mr.

20 Seligman is on the line from London. No responses were

21 received to the application. Unless the Court has any

22 questions regarding the application or declaration for Mr.

23 Seligman or me, we respectfully request that the Court approve

24 the application and authorize the trustee to retain Slaughter

25 and May nunc pro tunc as of December 21st.

Page 15





1 THE COURT: I do have some questions. And if you

2 would look at paragraph 13 of the application, it indicates

3 that Slaugher and May is advising various clients unnamed on

4 issues arising out of the special administration. It goes on

5 "a number of these and future engagements include advising

6 clients of potential claims against MFG UK, the actual

7 preparation and submission of claims on their behalf against

8 the MFG UK estate or the purchase of assets from the MFG UK

9 estate". That paragraph goes on, it talks about an ethical

10 screen that Slaughter and May is establishing.

11 My question is can Slaughter and May argue on behalf

12 of other clients that they should receive a priority of

13 recovery of distribution over claims of MFGI or its customers?

14 MR. SELIGMAN: This is George Seligman, Your Honor.

15 THE COURT: I'm sorry. Just identify yourself again.

16 MR. SELIGMAN: George Seligman, Your Honor.

17 THE COURT: Okay, Mr. Seligman.

18 MR. SELIGMAN: I'm a partner in Slaughter and May.


20 MR. SELIGMAN: We are representing five clients who

21 have general claims against MFG UK; our work has concluded for

22 the time being on all but one of those. We're also

23 representing one client who is acquiring assets from MFG UK.

24 So I believe, Your Honor, your question relates really to the

25 first five clients who were claimants. So far as I'm aware,

Page 16





1 they are general claimants. I am not aware, because of the

2 information screen, of the precise details of the work that we

3 are doing for those clients.

4 THE COURT: Okay.

5 Mr. Margolin, I am not prepared to approve the

6 retention of Slaughter and May unless there is a clear

7 statement in writing that they will not argue or advise other

8 clients that they should receive a priority of recovery or

9 distribution over claims of MFGI or its customers. I

10 appreciate Mr. Seligman's comments, but the application makes

11 clear that it is reserving -- he focused on five clients whom

12 they've given advice to. But the application makes clear

13 they're reserving the right to perform -- or will perform in

14 the future such services for other clients.

15 The reasons given in your application for the

16 retention of UK counsel, which I certainly agree with and

17 appreciate, is that the UK administrators have taken the

18 position that at this time they will not return funds to MFGI

19 of customers who traded in the UK. The issues appear, from

20 what little knowledge I have, to go to a quality of

21 distribution among customers, with Mr. Giddens taking the

22 position that the money should be returned. It is not clear to

23 me from the application whether Slaughter and May -- I

24 understand they're setting up an ethical screen, but you're

25 going to have to brief why that is sufficient; why some lawyers

Page 17





1 at Slaughter and May could advise its clients that they're

2 entitled to a priority over MFGI's U.S. customers in any

3 distribution. That's first.

4 Second, they don't identify the customers who they're

5 advising. I believe that all the connections need to be

6 sufficiently disclosed. I am not prepared to sign off on the

7 retention without an identification of who the clients are even

8 though they're setting up an ethical screen. If you want to

9 further brief the issue of ethical screens, I'm prepared to

10 hear that. But the issue of the greatest concern to me was

11 this issue not addressed, as to whether Slaughter and May has,

12 can or will argue on behalf of some of its UK clients that

13 they're entitled to a priority over MFGI and its customers.

14 And you -- I mean, so Mr. Seligman's answer really

15 didn't address that issue. He addressed the five clients

16 they've advised so far. He described them as a general cr -- I

17 assume he means that they're general creditors, not customers

18 that might have arguments about priority. But the issue that

19 you have framed in your pleading as to why you need UK

20 counsel -- which I agree is completely appropriate -- is that

21 the UK special administrators were refusing to return money

22 here. You want to address that issue?

23 Hold on, Mr. Seligman. Let me --

24 Please, Mr. Margolin.

25 MR. MARGOLIN: Your Honor, what we would think would

Page 18





1 be appropriate is that you had mentioned that you wanted a

2 submission in writing on this.

3 THE COURT: I want an absolute -- I'll hear anybody

4 else who wants to be heard. I know there were no objections

5 filed. But I've already written one opinion about

6 disinterestedness. This is a serious issue in my view, and the

7 application simply doesn't address it. If Slaughter and May is

8 free to argue on behalf of some its clients that they're

9 entitled to priority I want to know it.

10 I'm not going to approve the application if they're

11 free to do that. I don't believe an ethical screen is

12 sufficient to allow one law firm in the same matter to be

13 representing conflicting interests, and that's what this would

14 be. If they are going to advise or advocate on behalf of

15 clients that they're entitled to a priority over the very party

16 who is seeking to retain them, it's a nonstarter for me.

17 MR. MARGOLIN: Understood, Your Honor. We will go

18 back and speak with Mr. Seligman and Slaughter and May and

19 address the issues that Your Honor raised at this hearing and

20 submit a further pleading and a supplemental declaration.

21 THE COURT: Oki. Thank you.

22 MR. MARGOLIN: If Mr. Seligman --

23 THE COURT: I think we can -- we don't -- if you can

24 resolve this issue, we don't have to wait for the next omnibus

25 hearing date. I'm prepared to hear it on shorter notice, but I

Page 19





1 need to see more in writing.

2 MR. MARGOLIN: Understood.

3 THE COURT: And if this issue can't be resolved, you

4 better find other UK counsel.

5 MR. MARGOLIN: Understood, Your Honor.

6 THE COURT: Okay.

7 MR. MARGOLIN: May we go on to the next uncontested

8 matter?

9 THE COURT: Yes, you can.

10 MR. MARGOLIN: On the agenda next is the trustee's

11 motion for an order pursuant to 28 U.S.C. 1452 and Bankruptcy

12 Rules 9006(b) and 9027 extending the time to file notices of

13 removal of actions from January 30th, 2012 to May 29th, 2012;

14 an additional 120 days.

15 As of the filing date, MF Global, Inc. was a party to

16 various civil actions pending in other courts and tribunals.

17 The trustee is currently evaluating whether to seek to remove a

18 certain number of actions from state to federal court, and

19 subsequently transfer some or all of these actions either to

20 this district or this court. Our counsel, Hughes Hubbard &

21 Reed is currently evaluating several pending actions and case

22 files --

23 THE COURT: All right. Let me hear. Does anybody

24 else wish to be heard with respect to this motion to extend the

25 time to file notices of removal of actions?

Page 20





1 All right. Court has reviewed the motion. No

2 objections were filed, no one wishing to be heard. The motion

3 is granted.

4 MR. MARGOLIN: Thank you, Your Honor. I'll submit an

5 order to chambers at the end of the hearing.

6 THE COURT: Thank you.

7 MR. MARGOLIN: The next matter is a status report

8 which my colleague, Josiah Trager, will be handling.

9 THE COURT: Thank you. Mr. Trager?

10 MR. TRAGER: Josiah Trager, Hughes Hubbard & Reed for

11 the SIPA trustee. Good morning, Your Honor.

12 THE COURT: Good morning.

13 MR. TRAGER: Your Honor requested at the hearing for

14 the third bulk transfer back in December, one of the items to

15 be trued up, if you will, were physical property. And Your

16 Honor requested the filing that we made last week and an update

17 here today.

18 So briefly regarding the letter that we submitted

19 January 12th. So summarize, there were 151 accounts that

20 contained warehouse receipts or other certificates of title for

21 physical commodities; there were 1,616 such physicals.

22 Primarily precious metals: gold, silver, copper, palladium,

23 and such. And agricultural commodities such as: soybean oil,

24 soybeans, rice, et cetera.

25 So Your Honor, we had submitted to you that last week

Page 21





1 that there are remaining with us 114 such customers who had at

2 that time not yet gotten their third bulk transfer distribution

3 because the value of their physicals exceeded seventy-two

4 percent of their combined net equity of their account, and

5 therefore they must either deposit with the trustee the

6 difference, or choose to liquidate or some of the physical

7 commodities in order to get to the seventy-two percent

8 threshold that Your Honor approved as parts of the third bulk

9 transfer.

10 We -- in conjunction with some of the attorneys for

11 some of the physical claimants -- were working out the details

12 of the mechanisms. One of the, I'll say, delays in approaching

13 the clients with the option were that one of the counsel for

14 some of the claimants was actually negotiating on behalf of all

15 customers an opportunity to have an FCM receive a hundred

16 percent of the physicals, and deposit with the trustee the

17 difference that would be owed and encumber the physicals. And

18 the details of that transaction were taking some time as part

19 of their negotiations.

20 But ultimately we were able to send a notice to all

21 the customers who had either contacted us or that from our

22 books and records we believe had physicals associated with

23 their accounts -- the 114 accounts remaining. We have spoken,

24 in the last week, to forty-one of those customers. We have

25 already transferred seven of them, with an additional nine

Page 22





1 going today; the remainder of those forty-one have asked for a

2 portion to be liquidated and we're working out the details of

3 the liquidation. Going forward we're going to be contacting

4 the remaining seventy-three and arriving at their instructions.

5 And then beginning with the end of next month for those who

6 have no instructions pending, we will begin liquidating their

7 physicals.

8 So that is the current status. We will obviously

9 update the Court as things proceed, along with all the other

10 matters that we will be updating the Court with. But I'm here

11 for questions, and I'm sure there are others who would like to

12 be heard.

13 THE COURT: All right. Does anybody else wish to be

14 heard with respect to the status of the nonliquid assets?

15 Please come on up in line and identify yourself on the record,

16 and then go ahead.

17 MR. SCHMELTZ: Your Honor, Vincent Schmeltz from

18 Barnes & Thornburg on behalf a number of physicals clients.

19 One of the things that drives or animates this process

20 is an explicit or implicit promise by the trustee to liquidate

21 the physicals of anyone who hasn't either agreed to a deal or

22 posted their twenty-eight percent collateral by January 31st,

23 2012. We would submit, Your Honor, given the briefing that has

24 been done on the various liquidation issues -- matters that are

25 now fully briefed and before the Court -- that one, that

Page 23





1 January 31 date may be premature. But two, given the

2 practicality of the situation in which many people don't

3 actually know the status or have a complete understanding of

4 the status of their account and their physicals, that January

5 31 date of potential liquidation is completely unworkable. Let

6 me give one --

7 THE COURT: I had understood Mr. Trager to say that

8 the trustee has reached out to everybody with physicals.

9 MR. SCHMELTZ: The trustee has -- let me give one as a

10 concrete example. One of my clients, Verner Morovitz had five

11 gold bars on or about October 31st, and just prior to the

12 liquidation asked for them to be loaded out. He received a

13 load-out of two of those bars, and he has them in his vault at

14 Brink's. Three of his bars remain in limbo; it's not clear

15 whether they were loaded out, it's not clear where they are --

16 THE COURT: What do you mean they remain in limbo?

17 MR. SCHMELTZ: The trust -- they don't appear on his

18 account, the trustee's people can't tell us what the status of

19 the load-out was, why they weren't loaded out, why they aren't

20 at Brink's with the other two bars.

21 THE COURT: Tell me what you mean by loaded out.

22 MR. SCHMELTZ: Removed from MF Global and loaded to a

23 specific -- literally physically transported to a specific

24 vault of the client's choosing -- of the customer's choosing.

25 So in a case like Mr. Morovitz's case, it's not even clear at

Page 24





1 this point what the status of those bars are, yet he remains

2 under this explicit or implicit promise to have his good

3 liquidated by January 31st if he doesn't post twenty-eight

4 percent security for something that's quite possibly not

5 property of the debtors' estate. And by the debtors' own

6 admission, they're not sure where it stands.

7 With that issue pending, and with the --

8 THE COURT: But when you say -- where has the debtor

9 admitted that they're not sure?

10 MR. SCHMELTZ: I have an e-mail from last night from

11 Ben Thompson saying that that investigation continues. Ben

12 Thompson of Hughes Hubbard & Reed --

13 THE COURT: But that doesn't tell me that they're not

14 sure that --

15 MR. SCHMELTZ: That they don't know -- and I could --

16 THE COURT: They don't know what?

17 MR. SCHMELTZ: That they don't know the status of the

18 bars, Your Honor. And it is -- I apologize, I had it right in

19 front of me here. My e-mail: "Benjamin, I represent Mr.

20 Morovitz with whom I understand you have been corresponding. I

21 would appreciate an update as to your understanding of his

22 situation". And there had been prior correspondence to that

23 situation being the load-out and the status of his bars.

24 Mr. Thompson's response to me at 7:22 p.m.: "We are

25 investigating the timing of Mr. Morovitz's load-out and will

Page 25





1 report as soon as we have concluded". In other words --

2 THE COURT: It sounds like they're being responsive to

3 you. You sent an inquiry and they're responding to you.

4 MR. SCHMELTZ: But however, Your Honor, the status --

5 the question of whether or not his bars are property of the

6 debtors' estate that the debtor can act on is still in limbo.

7 As a result -- what we're asking -- let me get to the ask, Your

8 Honor. We would simply ask -- whether it be through court

9 order or agreement of the trustee -- that the January 31, 2012

10 liquidation date for people who haven't posted twenty-eight

11 percent collateral, be put off until the status of their

12 property can be determined and until the Court can rule --

13 THE COURT: I don't know when those issues are going

14 to be resolved. I set a briefing schedule; a new stack of

15 briefs came in yesterday. I didn't set a date for a hearing.

16 There's an enormous amount of material that the Court is going

17 to have to digest, research, et cetera. So there's no

18 assurance that what you described as those issues are going to

19 be resolved anytime soon.

20 MR. SCHMELTZ: Your Honor, given that we've waited

21 two-and-a-half months while the trustee has held what it

22 believes to be market risk for metals. And given that the

23 market risk for metals is not all that huge and --

24 THE COURT: But you haven't waited two-and-a-half

25 months because some of your clients have gotten back portions

Page 26





1 of their prop --

2 MR. SCHMELTZ: No. No. None of my clients have

3 gotten their metals back.

4 THE COURT: Well, your -- others have, though.

5 MR. SCHMELTZ: But my simple point is, for two-and-a-

6 half months the trustee has held the "market risk" of holding

7 physicals. We'd simply suggest that another month or so is not

8 a significant amount of time while we wait on ruling from the

9 Court rather than have people post twenty-eight percent -- give

10 twenty-eight percent cash back to an estate that already has

11 their stuff. And they may be entitled to a hundred percent

12 under a variety of theories. That's our ask, Your Honor.

13 THE COURT: Okay. Who else wants to be heard?

14 MR. UTLIK: Good morning, Your Honor. George Utlik

15 from Arent Fox on behalf of George Lichtenstein, the client of

16 MFGI that has silver certificates.

17 We have a number of, I guess, practical issues and

18 concerns. And we do not support the liquidation January 31st

19 deadline, which was proposed for the first time by the trustee

20 in its notice filed on the SIPA website on January 12th.

21 Without, obviously, any motion before Your Honor, without any

22 procedural setup for this, without any approval by Your Honor.

23 But let me get to, I guess, some factual, practical

24 considerations that Your Honor has to be aware of. The options

25 that are available for customers holding physicals is supposed

Page 27





1 to work in a certain way; and however, they do not really. We

2 made a request, for example, last Thursday, for validation of

3 our property held at the account. We did not hear back on

4 Friday, Monday was a holiday. On Tuesday we did not hear back;

5 we followed up. We were told, for example, that a contact at

6 CME Group is sick, out of office. Information is not

7 available.

8 So, for example, when a customer makes a request for

9 validation in order to exercise an option and to essentially

10 effectuate a cash deposit and get its physical property back,

11 may not take for another week or so. Obviously the market

12 fluctuates every day, and essentially the customer is bearing

13 all the risk here. So while we did get the information

14 yesterday, on Wednesday, about --

15 THE COURT: So you got the information you were asking

16 for?

17 MR. UTLIK: Yesterday; so almost a week after. The

18 information was incomplete, and it took us approximately a full

19 day yesterday, phone calls and e-mails, and --

20 THE COURT: Do you have the information now?

21 MR. UTLIK: I do have the information now. In fact,

22 we did have --

23 THE COURT: Okay. So what are you complaining about?

24 MR. UTLIK: Okay. First of all, the delay. Second of

25 all --

Page 28





1 THE COURT: You have the information, though. The

2 deadline is January 31; isn't that sufficient time for your

3 client to act?

4 MR. UTLIK: I believe that every day that goes by and

5 the market fluctuates, the amount of the deposit, Your Honor,

6 could be significant. Meaning that today it could be --

7 THE COURT: I can't alter that. I mean, that's the

8 reality that you're -- anybody with physicals is faced with;

9 markets that fluctuate in value on a daily basis.

10 MR. UTLIK: Yes.

11 THE COURT: The issue of how the physicals were going

12 to be dealt with has been raised in this court at multiple

13 hearings. And the letter from Mr. Kobak -- the January 12th

14 letter refers in the first paragraph back to my instructions at

15 the December 9th hearing for an update. So this is not like

16 you're being -- this issue is being sprung on you at the last

17 minute; it's been on the table for a very long time.

18 MR. UTLIK: Your Honor, if I --

19 THE COURT: So your complaints that oh, this is -- it

20 sounds like something new and draconian is happening is far

21 from the truth.

22 MR. UTLIK: Yes and no. Yes, it's been sprinkled all

23 over in this court and in some of its pleadings. But in

24 reality it's --

25 THE COURT: More than sprinkled. I mean, this issue

Page 29





1 was front and center at at least one hearing and it's been

2 raised on several occasions. And I pressed the trustee to meet

3 and confer to try and resolve these issues, and it sounds like

4 that has been happening and you're just not satisfied with the

5 resolution.

6 MR. UTLIK: Because there are delays. Because it's

7 not reasonable. It's not best efforts that are --

8 THE COURT: Okay. Any other points? That point I

9 have from you.

10 MR. UTLIK: All right. There is one more glitch, I

11 suppose: wire instructions.

12 We got the wire instructions last night and the bank

13 refused to wire them because allegedly the information -- the

14 wire would be misdirected because there are two accounts, not

15 one. There are two names --

16 THE COURT: So clear it up.

17 MR. UTLIK: We are trying.

18 THE COURT: Okay. You've got plenty of time to clear

19 up any confusion about the wire instructions. Any other

20 issues?

21 MR. UTLIK: Because of the delays we do request that

22 the liquidation deadline be postponed.

23 THE COURT: Anybody else wish to be heard?

24 MR. UTLIK: Thank you.

25 THE COURT: Come on up to the microphone. Anybody

Page 30





1 else who wants to be heard, come in front of the bar. Let's

2 go. We're got to move this along.

3 Identify yourself for the record, please.

4 MS. FANE: Good morning, Your Honor. My name is Daria

5 Fane, and I'm speaking on behalf of myself as an MF Global

6 customer representing myself pro se.

7 THE COURT: Okay.

8 MS. FANE: And my brother, Jason Fane, who's 0--

9 THE COURT: Are you a lawyer?

10 MS. FANE: No, I'm not.

11 THE COURT: Okay.

12 MS. FANE: I'm a customer.

13 THE COURT: That's fine. Go ahead.

14 MS. FANE: Just a victim in this whole system.

15 THE COURT: Okay.

16 MS. FANE: I am also speaking on behalf of postponing

17 the January 31st deadline. I'm supporting the arguments that

18 Vincent Schmeltz made that the status of various accounts is

19 completely unclear. I'm speaking in the case of my brother's

20 accounts where he's got various gold bars and silver bars tied

21 in an HSBC interpleader suit, and also has physicals that are

22 in his MF Global accounts.

23 I feel that the request of the trustee that customers

24 be asked to put up twenty-eight percent for property that they

25 own a hundred percent is unreasonable.

Page 31





1 THE COURT: Well, whether they own a hundred percent

2 of it has been an issue in this case from the start. They may

3 have owned a hundred percent in property before this case

4 started, but the issue of what they own now has been in this

5 case virtually since the first day. This is not a new issue.

6 MS. FANE: But part --

7 THE COURT: The issue of how to deal with physicals is

8 not a new issue.

9 MS. FANE: Part of the issue is the selection of legal

10 framework in which to deal with the physicals. In a SIPA

11 proceeding one could argue that SIPA law should predominate.

12 In SIPA specifies that in the case of physicals they should be

13 returned a hundred percent as specifically identifiable

14 property --

15 THE COURT: That's far from --

16 MS. FANE: -- and only then remaining assets divided

17 pro rata.

18 THE COURT: Ms. Fane, that's far from clear. The

19 trustee and Mr. Wasserman from the CFTC has taken the

20 position -- it's one of the reasons that I ordered briefing --

21 that there's pro rate distribution from all property; that's

22 the reason for the seventy-two percent return. I understand

23 that customers -- some pro se, many represented by counsel --

24 take a different position that they're entitled -- that it's a

25 different category of property and they're entitled to a

Page 32





1 hundred percent of it. That's an issue that ultimately will

2 have to be resolved.

3 MS. FANE: So that's something for the judge to

4 resolve. But there is a legal argument for a hundred percent

5 return.

6 Now, I'd also like to offer one more argument. The

7 trustee maintains that there will be further distribution after

8 the claims are processed, and deadline for claims filing is

9 January 31st. So after that we expect that there will be

10 further return of assets. The question --

11 THE COURT: Well, they haven't said when. They said

12 that the claims --

13 MS. FANE: No. He hasn't said when, but the trustee

14 is currently sitting on enough reserve assets -- one-and-a-half

15 billion -- that he's keeping for contingencies, that he could

16 bring customers up to ninety percent today. So asking us to

17 give back twenty-eight percent because of the seventy-two

18 percent when there's enough resources to bring everybody up to

19 ninety percent is premature. If the deadline were postponed,

20 then after that next bulk transfer or the satisfaction of

21 claims there'll be a different percentage, and we won't be

22 asked to put up this cash.

23 THE COURT: Okay. Thank you, Ms. Fane.

24 Anybody else wish to be heard?

25 All right. Mr. Trager. Just let me ask you the first

Page 33





1 question, Mr. Trager.

2 MR. TRAGER: Sure.

3 THE COURT: Is there any order of this Court where I

4 set this January 31 deadline?

5 MR. TRAGER: No, Your Honor there is not. It is based

6 on the CFTC's rule that the other property held by MF Global

7 must be liquidated by the trustee promptly and in an orderly

8 manner. Your Honor did however extend the must be liquidated

9 promptly and orderly manner for this type of property from I

10 believe it was November 15th, Your Honor after the fact

11 extended it and it was extended well into December for us to

12 give an opportunity to include as part of the third bulk

13 transfer, the third bulk transfer still being the transfer

14 mechanism before the prompt and orderly liquidation.

15 The trustee expects to be completed with the third

16 bulk transfers by the end of the month and therefore will

17 commence the liquidation promptly and in an orderly manner, not

18 necessarily all on one day and certainly not all on one day on

19 February 1st, but promptly and in an orderly manner as the

20 trustee is required to do, following the transfer mechanism's

21 completion, that Your Honor has approved.

22 THE COURT: Mr. Schmeltz has asserted that his clients

23 have been trying to get information from the trustee and that

24 the trustee's been unresponsive in providing information on the

25 status of the accounts. Your response to that?

Page 34





1 MR. TRAGER: Your Honor, I take --

2 THE COURT: I continue to get letters from customers

3 making essentially that same assertion, that they e-mail, they

4 call, they don't get any response from the trustee.

5 MR. TRAGER: Your Honor I take exception to that. We

6 have been getting as many letters and phone calls, probably

7 exponentially more so, we have teams of dozens of attorneys,

8 plus a call center taking calls, returning calls, returning

9 e-mails. I promise you that we are not in the position to

10 respond to everyone's e-mail or phone call instantaneously.

11 Moreover we are, still in the mode of the bulk transfers,

12 reliant a lot on the records as CME and other DCO's have them,

13 because they have not been audited. In order to proceed with

14 the bulk transfer at breakneck speed in the way we have over

15 the last few months, we've had to rely on external, unaudited

16 information.

17 So when a customer comes to us with a request for

18 specific information sometimes we don't have it at all,

19 sometimes we can't get it, sometimes it takes a while for us to

20 get it. Your Honor may know that we released unaudited

21 statements for November for the end of October to give people

22 more information, as we had it.

23 In regards to his client's specific issue, the answer

24 will be when we find out, if we have the items associated with

25 his account, then they are going to be treated as though they

Page 35





1 are part of the account, with the deferred issue as to whether

2 or not they should have been as a final resolution to that

3 particular customer's factual-based account.

4 THE COURT: I don't follow what you've just said.

5 MR. TRAGER: Mr. Schmeltz pointed out that his client

6 allegedly requested a load out of five gold bars, two of which

7 made the cut before liquidation, three of which have not.

8 Whether or not we still have claim to them on our books and

9 records I can't tell you, I can't tell you right now because we

10 don't have the books and records, and this is the first I've

11 heard of it. But we will find out, and we will find out -- if

12 they are in fact associated with his account they will be

13 subject to the third bulk transfer pro rata distribution.

14 If it turns out at the end of the day, as again the

15 whole purpose of this was to defer factual issues for the

16 appropriate time, if it turns out that the load out was

17 received at a certain time and it should have gone out, and

18 that person should have gotten a hundred cents on the dollar

19 for that particular item because they shouldn't have been on

20 the books and records, then we'll have the money, the twenty-

21 eight percent in which to them.

22 The whole purpose of the third bulk transfer is to

23 give people an opportunity to get something that may have more

24 value to them than its actual face value, i.e. that they don't

25 want a tax implication, so they're willing to put up the

Page 36





1 twenty-eight percent. Or they have sentimental attachment to

2 the gold or silver, or anything else for that matter. This is

3 the opportunity to do it, this is the again imperfect solution

4 but the solution that Your Honor has approved as part of the

5 third bulk transfer.

6 We're in a position to ask people to post the funds,

7 or -- many of the forty-one people we've heard from have asked

8 for the liquidation of a particular item to allow for them to

9 minimize their tax consequences and still get their third bulk

10 transfer distribution immediately. Not everyone's going to be

11 happy and I don't think since we started anyone has been happy,

12 but these are the circumstances at MF Global that the trustee

13 finds himself in with regards to MF Global. This is our best

14 solution.

15 THE COURT: I'm not prepared on a blanket basis to

16 extend the January 31 deadline, but it does seem to me that

17 where customers or lawyers from customers raise good-faith

18 issues about the status of their property, is it appropriate to

19 go ahead and liquidate their property unless you're able to

20 respond to legitimate factual questions?

21 MR. TRAGER: Your Honor respectfully, it is.

22 THE COURT: Tell me why.

23 MR. TRAGER: We have an obligation to reduce the

24 market risk to the estate on behalf of all customers.

25

Page 37





1 THE COURT: Don't you have to -- aren't they entitled

2 to know what it is that you're holding that you're going to

3 liquidate before you liquidate it?

4 MR. TRAGER: Obviously we're telling them, to the best

5 of our ability, if they choose not to respond to our

6 inquiries --

7 THE COURT: Whoa, time out, I see a difference where

8 you tell them what you have and you get no response and then

9 you go ahead with the liquidation. Isn't that different

10 than -- I'm not sure, it's not clear to me that this applies to

11 Mr. Schmeltz's clients, any of his clients, but let's assume

12 that it does, that they've raised what appears to be a good-

13 faith question, whether it's three gold bars or five gold bars.

14 And they are able to make some sort of showing that they had

15 five gold bars, but right now you can't account for five gold

16 bars. You can only account for three gold bars. Is it

17 appropriate for you to go forward with the liquidation with

18 those issues unresolved?

19 MR. TRAGER: Well presumptively, Your Honor, in that

20 particular case the issue will be resolved. We won't be able

21 to liquidate --

22 THE COURT: Well don't tell me it's presumptively

23 resolved, it's either --

24 MR. TRAGER: No, Your Honor --

25

Page 38





1 THE COURT: What if it's not? What I hear is concern

2 from customers or lawyers from customers that they raise

3 questions, they don't get answers. You've set a January 31

4 deadline. If you don't hear from the customers or they don't

5 come forward with some good-faith showing that they hold more

6 property than you say -- I'm not particularly sympathetic to

7 the arguments that are made, and I ought to put all of this on

8 hold until the legal issues about the rules for distribution

9 are resolved. That's not going to happen for a couple of

10 months, I'm just telling you right now, that's not going to

11 happen.

12 So I'm not sympathetic to that argument. On the other

13 hand, the argument that somebody comes forward to you and sends

14 you documents, or a declaration that says I've got this

15 property, this property was on deposit with MF Global, and you

16 can't confirm it or resolve the issue, you want to be free to

17 just go ahead and liquidate everything.

18 MR. TRAGER: Well to be honest, Your Honor, what we'd

19 be doing with liquidating the known items associated with the

20 account in order to generate a seventy-two percent

21 distribution, so we're not going to be doing some kind of mass,

22 whatever-we-have fire sale, the idea is that for each one of

23 these 114 accounts we will have either gotten instructions or

24 we will not have gotten instructions.

25

Page 39





1 The hypothetical that Your Honor is posing is not

2 applicable. Either we have three gold bars or we have five

3 gold bars associated with that account. If it turns out that

4 after upon investigation we have three but we should have had

5 five, we're going to have figure out where the other two went.

6 Maybe that will already count as a distribution to that

7 customer.

8 THE COURT: And what if you had five and you went

9 ahead and liquidated the five, but for now you couldn't find

10 the records that it was five, you only had records that it was

11 three? So you've gone ahead and --

12 MR. TRAGER: They actually have certificate numbers,

13 Your Honor, we can't -- thankfully it's not a situation where

14 we can just throw them out into the street and see what kind of

15 money comes back. We actually have a certificate number that's

16 associated with an account. So I don't understand how Your

17 Honor's hypothetical would work. It flies in the face of the

18 actual scenario that we are posed with. If we have three

19 associated with the account, and we've been brought to the

20 attention that we've already gotten two as a distribution or as

21 a pre-liquidation --

22 THE COURT: Tell me what you told them. What notices

23 have you given to the customers physically?

24 MR. TRAGER: We've attached a notice, the most recent

25 notice to the letter of July --

Page 40





1 THE COURT: I have the letter in front of me.

2 MR. TRAGER: Okay, the notice is attached as Annex A,

3 that's the most recent notice. There are several others.

4 THE COURT: Yes, but did you give the customer notice

5 specifically of what your records show that the customer holds?

6 MR. TRAGER: No, that Your Honor --

7 THE COURT: I don't see that. I'm looking at page 7

8 of 8 of ECF834.

9 MR. TRAGER: Correct Your Honor, we can't give a

10 general notice to everyone about what they hold. What happens

11 is when they contact us we tell them what our records show.

12 Mostly, by the way Your Honor, the names and addresses and e-

13 mail correspondence have come from the original notice back on

14 November 4th of 5th or whatever date it was, where people were

15 asked to identify to us what physical property they believed to

16 be associated with the account.

17 THE COURT: And did you receive that information as to

18 the 1,616 individual physical assets?

19 MR. TRAGER: Not all of them, Your Honor, that's a

20 reconciled record from us. Not everyone contacted us to tell

21 us that they wanted to avoid liquidation. That was the

22 original notice. Let us know if you want to avoid liquidation

23 and we'll be in touch with you, otherwise they will be

24 liquidated according to the CFTC rules. And that comes from,

25 Your Honor, I believe the notice requirement is 190.10.

Page 41





1 THE COURT: I don't have a problem, if you sent out a

2 notice and they didn't respond to you, fine.

3 MR. TRAGER: And then we extended that deadline and

4 put an additional notice --

5 THE COURT: So right now we're dealing with those who

6 did respond and there's a dispute as to facts.

7 MR. TRAGER: Your Honor, for the most part there are

8 no disputes as to facts, there are disputes as to legal

9 applications. The disputes as to facts are we don't like the

10 fact that you have the opportunity to liquidate this stuff.

11 THE COURT: I've already said I'm not -- I've already

12 said I'm not particularly sympathetic to that argument.

13 MR. TRAGER: But that's really, Your Honor, the only

14 one that we're up against at this point. In the case of Mr.

15 Schmeltz's client, I can't tell you today whether or not,

16 because I've just heard about it, whether or not the account

17 associated with it has three gold bars listed, five gold bars

18 listed, or no gold bars listed.

19 If it's none, then they've already gotten their

20 distribution and we just have to let Brinks know -- I'm sorry,

21 not distribution, they've already gotten a load out pre-

22 liquidation, and we just have to let Brinks know that it's not

23 associated with the customer's account. If in fact it's still

24 three, then we have to determine whether or not the other

25 two --

Page 42





1 THE COURT: Mr. Schmeltz, come up to the podium. Is

2 there factual dispute, Mr. Schmeltz? Specifically, don't give

3 me generalities.

4 MR. SCHMELTZ: With respect to Verner Morovitz

5 (ph.) --

6 THE COURT: Your customers, are there factual disputes

7 about what property MF Global, Inc. was holding?

8 MR. SCHMELTZ: With respect to Verner Morovitz, it is

9 unclear where the three gold bars are.

10 THE COURT: Is that the only one of your customers as

11 to which there is a factual dispute?

12 MR. SCHMELTZ: As I stand here right now it's the only

13 one I'm aware of that has this type of we don't know where the

14 stuff is dispute.

15 THE COURT: Okay, and how many clients do you have?

16 MR. SCHMELTZ: Ten Physicals clients.

17 THE COURT: All right.

18 MR. TRAGER: Your Honor, this is Josiah Trager, I can

19 assure the Court that we would not be liquidating the assets

20 associated with this account without identifying them first and

21 identifying them for Mr. Schmeltz, saying what our records

22 show, what we believe to be the case, and having a discussion

23 thereafter.

24 It seems from what he's telling me that either five

25 were loaded out beforehand and three didn't make it out in

Page 43





1 time, and to whether or not those are still associated with the

2 customer account or not; or that three are in fact still

3 associated with the customer account and they're ready for the

4 third bulk transfer.

5 Look, it's not a factual dispute, it's just an

6 investigation that we have to do. And it's an investigation

7 that we have been doing for the last month, prior to the third

8 bulk transfer that gave us --

9 THE COURT: Stop.

10 MR. TRAGER: Yes Your Honor.

11 THE COURT: Stop. With respect to the -- and I want

12 the two of you to confer in a form of an order, with respect to

13 the liquidation of Physicals, the customers will have until 5

14 p.m. January 25th to provide written evidence to the trustee's

15 counsel of property which the customer contends has not been

16 accounted for by the trustee. The trustee shall respond in

17 writing to the customer or attorney by 5 p.m. Friday, January

18 27th, with respect to information regarding any factual

19 disputes. The Court will hold a telephonic hearing on Monday,

20 January 30th at 4 p.m., to address any remaining factual issues

21 only.

22 And Mr. Schmeltz, I'm making it crystal clear now if

23 what you have to say on January 30th is we don't think that the

24 date should be delayed. I'm rejecting that argument now. The

25 only issue that resonates with me at all is if there are

Page 44





1 factual issues about what the property is, how many bars. You

2 don't have to wait until these deadlines that I've given each

3 side. I expect you'll deal with it immediately, and resolve

4 them before these deadlines.

5 So the only think I want to hear about, Mr. Schmeltz,

6 is if you believe there's a factual dispute in that the

7 trustee's about to liquidate property that you believe should

8 not be liquidated, not because of what the ultimate rules for

9 distribution will be, but because there's a disagreement about

10 what the property is. That's what I will hear on Monday,

11 January 30th.

12 Mr. Trager?

13 MR. TRAGER: Your Honor, for clarity, the narrow issue

14 is as to whether or not there is a dispute about the amount, or

15 the number and amount of certificates being held by the

16 trustee.

17 THE COURT: Correct.

18 MR. TRAGER: Notwithstanding the fact that we may both

19 agree ultimately that we are holding three, but Mr. Schmeltz

20 factually disagrees about the fact that they shouldn't have

21 been held by the trustee because the load out came out before.

22 I just want to be clear that that to me is an application of a

23 law question.

24 THE COURT: It is. If you agree there are three being

25 held and that's what you're going to liquidate, and you both

Page 45





1 agree that that's the number being held, that's not a factual

2 dispute.

3 MR. SCHMELTZ: His point about a factual dispute is if

4 there was an order for a load out and the load out order was

5 not complied with, that would suggest that those three bars are

6 not property of the debtor's estate and they should --

7 THE COURT: It doesn't suggest that at all. I've

8 given you these dates. I'm willing to hear -- what I'm saying,

9 this will apply to any customers, not just to Mr. Schmeltz's

10 clients, so talk to Mr. Trager or others from Hughes Hubbard &

11 Reed, to the extent that you have issues about it, but I'm not

12 moving back the January 31 date. And for any customers who

13 have not responded to any of the notices that the trustee sent

14 out, so be it. I'm only --

15 MR. SCHMELTZ: Thank you, Your Honor.

16 THE COURT: I don't want to see property liquidated

17 when you can't respond to reasonable issues about what the

18 property is, so that a customer knows well what do I have to

19 post twenty-eight -- what value is it that I have to post

20 twenty-eight percent for.

21 MR. TRAGER: That's correct Your Honor, and we are

22 dealing with every client on an individual basis. Again, this

23 is the first we've heard of this one but it's not without --

24 we're going to address it immediately.

25

Page 46





1 THE COURT: All right, that's how we're going to

2 proceed. Consult, confer on the form of an order submitted to

3 chambers, okay?

4 MR. TRAGER: Absolutely, Your Honor. Your Honor

5 unless Your Honor has anything else on this particular matter,

6 the remaining issues have been adjourned or otherwise withdrawn

7 and that would conclude the SIPA trustee's --

8 THE COURT: Thank you, Mr. Trager.

9 MR. TRAGER: Thank you, Your Honor.

10 THE COURT: All right, let's move to MF Global

11 Holdings Limited, number 11-15059. Mr. Marinuzzi.

12 MR. MARINUZZI: Good morning Your Honor, for the

13 record Lorenzo Marinuzzi, Morrison & Foerster proposed counsel

14 for Louis Freeh, the Chapter 11 Trustee.

15 Your Honor, as has been customary in this case, we

16 thought we'd begin the hearing by providing Your Honor with a

17 brief status update.

18 THE COURT: Thank you, please.

19 MR. MARINUZZI: There have been a number of

20 developments in the case, many of which are in the nature of

21 gathering information and sharing information with affiliates

22 and third parties. First and foremost, the trustee continues

23 to be motivated by a sincere desire to understand what happened

24 in the month leading up to the bankruptcy filing.

25

Page 47





1 As I said last time I was here, Your Honor, this is a

2 puzzle. And the pieces are located all over the world. The

3 Chapter 11 trustee has some, the SIPA trustee has some, KPMG as

4 special administrator for entities located in the U.K., Hong

5 Kong, and elsewhere have some.

6 We firmly believe that the interests of every party,

7 all the estate administrators and creditors are best served by

8 coordinating our efforts to put the puzzle pieces together and

9 solve this. We'd like to think that desire is shared by all of

10 our colleagues administering their respective estates, but only

11 time will tell if that's true.

12 In furtherance of these efforts, the trustee and his

13 professionals have been participating in regular informational

14 calls with representatives of other estates. We're fortunate

15 to be working with the debtors' remaining executives Henry

16 Steinkamp, Brad Abelow, and Laurie Ferber. They provided us

17 with a great deal of information regarding the MF Global

18 internal processes and have directed us to helpful personnel

19 within MF Global. And the trustee is happy sharing this

20 knowledge with the other estate representatives.

21 Last week, representatives of all of the major

22 affiliates from New York, the U.K., Canada, Singapore, Hong

23 Kong, and Australia met in New York to update one another on

24 the status of their respective proceedings. It was very

25 helpful and informative.

Page 48





1 During the meeting, the representatives were able to

2 discuss their views on a proposed agreement outlining the terms

3 for obtaining information from one another in furtherance of

4 each other's own and prospective internal investigations. The

5 agreement we believe recognizes an important principle here in

6 this case; each estate can and likely will have disagreements

7 on the law and the priority of claims and entitlements to

8 property, but developing an agreed-upon set of facts serves

9 every estate and their constituents, and allows the parties to

10 move through these cases as quickly and efficiently as

11 possible.

12 Consistent with this concept, the Chapter 11 trustee

13 has urged the affiliated entities to participate in a global

14 close of the MF Global books and records for the month end

15 October 31st. Let me explain generally because I think this is

16 an important point.

17 After the close of every month, each of the affiliates

18 fed information into an Oracle computer system financed and

19 maintained by the parent entity. And it was a centralized

20 process that was performed for the benefit of the entire group.

21 And after the raw information was punched into the computer by

22 the representatives from the global companies, the Oracle

23 system would allow the parties to understand at the end of the

24 month who owed who what and how much. The process takes a few

25 business days to complete but provides an efficient way to get

Page 49





1 a picture of the net result of the thousands of transactions

2 between and among MF Global affiliates that occurred in the

3 prior month.

4 Importantly, the process as being proposed utilizes

5 the expertise of existing MF Global accounting employees that

6 know this system and are still for the time being currently

7 employed at MF Global, and not just the Chapter 11 debtors but

8 elsewhere. What they can accomplish through the Oracle system

9 will otherwise need to be performed by far, far more expensive

10 armies of financial professionals lacking the basic historical

11 knowledge of the affiliates' accounting process and would take

12 substantially longer to complete. And even after that

13 considerable time and effort to complete that process, the

14 results obtained in pure bilateral discussions and

15 reconciliations would still, we believe, fail to capture the

16 overall picture of the money that moved through MF Global.

17 So the trustee has urged the parties to participate in

18 a global close process while these employees are still employed

19 by MF Global. This way all of the affiliates could save

20 significant time and money and pool their resources to

21 collectively put some of the puzzle pieces together.

22 We're hopeful that we can get there with our

23 affiliates, including the SIPA trustee, but they need to have a

24 desire --

25

Page 50





1 THE COURT: Do you have to figure out where the 1.2

2 billion dollars went in order to close?

3 MR. MARINUZZI: Well that, Your Honor, is part of the

4 reason why we think this process is important. We're trying to

5 understand frankly where the 1.2 million dollar number --

6 THE COURT: Billion.

7 MR. MARINUZZI: Billion, I'm sorry, billion number

8 we've seen repeatedly comes from. When we sit down together

9 without the benefit of the information that the SIPA trustee

10 has that has represented this 1.2 billion as missing, we can't

11 quite figure out how to make the numbers work. So that's part

12 of the reason why we'd like this process to unfold.

13 Now, as I mentioned, if every --

14 THE COURT: For this process to work do you have to

15 figure out where the money went, how much and where?

16 MR. MARINUZZI: I think in order for us to understand,

17 because money moved throughout, there were lots of transactions

18 from the top, including draws on the financing facility that

19 was made through holdings at the top level that went through

20 the system to finance obligations at various companies. Where

21 that money went after it went into Inc., how much of it went

22 into the U.K., what was the flow coming back; all of that is

23 stuff that SIPA knows from its books and records, what went in

24 and out of its accounts.

25

Page 51





1 THE COURT: Can you close the books without figuring

2 out how much money is unaccounted for and what happened to it?

3 MR. MARINUZZI: Your Honor, the answer to that is it

4 can be done at considerable cost and expense and delay. And

5 even then, you're left with getting, for example, a claim filed

6 by one of the affiliates and to our estate, and we'd look at

7 the information, and they have their own information, and we're

8 going to have that process back and forth between the two of us

9 to understand how that reconciliation came to different numbers

10 between the two sides. Whereas, with the global close system

11 and the Oracle system, it allows us to use the same data going

12 into the system and the numbers come out. If we have a

13 disagreement, at least we understand how it was all put

14 together.


16 MR. MARINUZZI: Okay. Now as I mentioned if every

17 administrator of estate has an every estate for itself

18 mentality these cases are going to stay end up staying in

19 bankruptcy likely for a long period of time. And we think

20 that's a disservice.

21 THE COURT: Let me just interrupt you for this part.

22 This global close process that you're referring to, does it

23 include the foreign administrators, the administrators in each

24 of the foreign proceedings?

25 MR. MARINUZZI: Yes.

Page 52





1 THE COURT: Are they agreeable to go forward with

2 this?

3 MR. MARINUZZI: Your Honor, I think that we had

4 positive discussions with KPMG and as I'm going to get to,

5 we've had a couple of breakthroughs with KPMG as the U.K.

6 administrator. This is all not negative, I want to highlight

7 the positives as well for the Court.

8 THE COURT: Okay.

9 MR. MARINUZZI: We believe we're quite close to

10 arriving at an agreement with KPMG as special administrator for

11 the U.K. facilities -- I'm sorry, U.K. entities, that will

12 facilitate between our respective estates the sharing of

13 information.

14 At the request of the Chapter 11 trustee, the U.K.

15 administrator has agreed to delay the creditors' meeting for

16 two of the entities in administration, not the broker-dealer,

17 the other two entities to allow for the negotiation of a

18 memorandum of understanding between the parties.

19 Also at the same time, we're negotiating amendments to

20 the proposals that will be addressed at that committee meeting

21 to include, for example, mechanisms for interim distributions

22 on value received, as well as a process for terminating those

23 administration proceedings to save cost. We're very pleased

24 with the progress on that front with the U.K.

25

Page 53





1 They have not committed to the global close, but I

2 think it's fair to say that our last conversations with them

3 have been pretty positive. I think from their perspective it

4 was mostly a cost issue and I think we're addressing the cost

5 issue in a way that they'll find it to be advantageous.

6 We've been working with the U.K. administrator for

7 weeks now on the sale of MF Global businesses located outside

8 of the U.S. under their administration. The cooperation

9 recognizes that together we can achieve more than we would be

10 able to achieve individually.

11 Now, Your Honor, we're happy with the cooperation. We

12 really think it has progressed the case materially from the

13 Chapter 11 perspective. We'd like all the administrators to

14 see that and for everybody to work hand-in-hand to move the

15 case forward.

16 Now Your Honor asked as part of the Court's approval

17 of the final cash collateral order, that the Chapter 11 trustee

18 undertake an analysis of the FinCo JP Morgan cash-collateral

19 account, to determine whether any customer cash was in that

20 account, and to issue a report in sixty days or such later date

21 as may be necessary.

22 Your Honor also directed the SIPA trustee to cooperate

23 in these efforts. I'm happy to report that after some initial

24 resistance by the SIPA trustee to providing the Chapter 11

25 trustee with the account statements for the Inc. accounts, that

Page 54





1 fed cash into the FinCo accounts, we've finally been provided

2 with the account statements the day before yesterday.

3 We're a bit concerned about the time that lapsed

4 between the request and the delivery of the statements. While

5 we remain concerned, we want to adopt a positive attitude, we

6 want to believe that the delivery of this information by the

7 SIPA trustee is reflective of a spirit of cooperation that will

8 continue and will avoid the delay, distraction, and expense of

9 formal discovery between and among the estates. We are in the

10 process of reviewing the account statements, as I said, we just

11 received them. We hope to be able to complete a report within

12 that sixty-day period which expires I think on February 14th.

13 THE COURT: Is there additional information you've

14 requested from the SIPA trustee that has not been provided so

15 far?

16 MR. MARINUZZI: There is a long-standing list of

17 information, Your Honor, that the financial advisors for our

18 side and the SIPA side have been reviewing, there are calls

19 happening twice a week. I can't tell you specifically what

20 information we're waiting for but I know there's information

21 that we've been asking for that's being put together and we've

22 spent a lot of time on a process to try to get that information

23 over to us, but at some point the information is either going

24 to come or it's not.

25

Page 55





1 THE COURT: Is there information that the SIPA

2 trustee's requested from the Chapter 11 trustee that hasn't

3 been provided?

4 MR. MARINUZZI: I'm not aware of any. I know that

5 there had been a little bit of noise regarding the assertion by

6 the Chapter 11 trustee of a privilege.

7 THE COURT: I saw that -- some reference --

8 MR. MARINUZZI: And that was an assertion of privilege

9 by the Chapter 11 debtors before the trustee had even become a

10 part of this process. And what had happened, as we learned, is

11 there was a large volume of information that was stored on

12 legal's computers and it was set aside while the governmental

13 agencies reviewed the other information that was made available

14 to them from traders, and sort of sat out there while we

15 figured it out because there was obviously a cost involved in

16 reviewing all that data to determine what was privileged and

17 what wasn't.

18 What we're trying to do is negotiate with the

19 regulatory agencies and the SIPA trustee, sort of to protect

20 ourselves, an agreement where we would deliver the documents,

21 and they would agree that it wouldn't amount to a waiver of the

22 privilege, and that it wouldn't affect third-party requests,

23 that we could assert the privilege to the extent that we

24 believe necessary. And that would be in the form of a

25 stipulation we'd be presenting to the Court. So other than

Page 56





1 that particular information, I'm not aware of any that has been

2 requested and not delivered. Unless Your Honor has any

3 questions, I just want to highlight some meetings.

4 THE COURT: I consider the cooperation between the

5 SIPA trustee and the Chapter 11 trustee in sharing information

6 needed for each of the respective trustees to carry out their

7 roles to be really essential. I would like a written status

8 report, hopefully it'll be a joint status report between

9 counsel for the two trustees by 5 p.m. Thursday, February 2nd,

10 two weeks from today, on the status of all -- I won't call it

11 discovery because I don't think there has to be formal

12 discovery. Hopefully there's a written record reflecting what

13 each side has been requesting, but I want a written status

14 report with respect to -- I'll call it information sharing, but

15 the exchange of information that's been requested by each

16 trustee.

17 After receiving that written status report, I'll

18 decide whether to schedule a conference with counsel for the

19 two trustees to review any discovery/information sharing

20 issues. So basically in two weeks I want to see a written

21 report. There's a lot that has to be -- I understand both

22 trustees have a huge amount on their plates, but I think that

23 there needs to be full cooperation. I mean, if there are

24 privilege issues -- privilege is important and I'm not

25 suggesting if there is privilege that it should be waived, I'm

Page 57





1 not making any assertion. There may be very good reasons to do

2 that but that's not the issue that I'm focusing on. So I do

3 want a status report two weeks from today and then I'll decide

4 if it's necessary to have a conference thereafter.

5 MR. MARINUZZI: That's fine, Your Honor, we'll work

6 with counsel to put a joint statement together.

7 THE COURT: Okay.

8 MR. MARINUZZI: On the subject of meetings, Your

9 Honor, we've met many times recently, in person and

10 telephonically with the professionals and members of our

11 official committee of unsecured creditors. We believe we have

12 a constructive relationship with our committee and we

13 compliment them for their dedication and efforts to date.

14 We held our first 341 meeting for the original two

15 debtors on January 5th, it was well attended. And it's been

16 continued to January 26th, a week from today, where we will

17 hold our initial 341 meeting for the three additional debtors

18 that were filed last month.

19 We expect to be filing two additional debtor cases in

20 the coming weeks. I know that Your Honor, last time I was here

21 I thought we'd be filing more than two cases by the 15th of

22 this month, but we're continuing to evaluate each of the

23 affiliates, their liabilities, at least the affiliates over

24 which the trustee has in direct control, to verify the need for

25 bankruptcy and understand the implications on the employees and

Page 58





1 implications on other affiliates that are in and outside of

2 bankruptcy.

3 Unless the Court has any further questions, I'll go

4 through the agenda Your Honor. The first item is an

5 uncontested motion filed by New Hampshire Insurance Company,

6 and I'll cede the podium to counsel, Mr. Ledwin.

7 THE COURT: Okay

8 MR. LEDWIN: Good morning, Your Honor, Mark Ledwin

9 from the Wilson Elser firm appearing on behalf of movant New

10 Hampshire Insurance Company. Your Honor, this is a motion that

11 seeks relief from the automatic stay --

12 THE COURT: Let me just stop you there because there

13 have been no objections that have been filed to the motion.

14 I've reviewed all of the papers for the whole hearing, I've

15 reviewed everything. Does anybody else wish to be heard with

16 respect to the motioned relief from stay with respect to New

17 Hampshire Insurance Company? All right. Hearing no one, the

18 motion is granted.

19 MR. LEDWIN: We will submit an order to chambers, Your

20 Honor, which we've already run past the Chapter 11 trustee.

21 THE COURT: Thank you, counsel.

22 MR. LEDWIN: Thank you.

23 MR. MARINUZZI: Your Honor, the next item on the

24 agenda is the application by the committee authorizing the

25 employment and retention of counsel Dewey LeBoeuf.

Page 59





1 THE COURT: Okay, Mr. Bienenstock?

2 MR. BIENENSTOCK: Good morning, Your Honor. I'm

3 here --

4 THE COURT: Afternoon actually.

5 MR. BIENENSTOCK: By motion dated December 30, 2011,

6 the committee applied for an order approving its retention of

7 the Dewey LeBoeuf firm, my firm. This obviously was after

8 extensive reviews, conferences, et cetera, with the United

9 States Trustee, which I believe is the reason why there are no

10 pending objections. We think we worked everything out and if

11 the Court has any questions, I'll do my best to answer them.

12 THE COURT: Mr. Masumoto do you want to be heard?

13 MR. MASUMOTO: No Your Honor, as counsel indicated we

14 had substantial discussions and the current submission reflects

15 those agreements.

16 THE COURT: Thank you very much, does anybody else

17 wish to be heard with respect to the Dewey LeBoeuf retention

18 application?

19 That motion's granted, thank you very much.

20 MR. MASUMOTO: Thank you, Your Honor.

21 MR. MARINUZZI: Your Honor, the next item on the

22 agenda is the trustee's motion for an order extending the time

23 to file notices and removal of civil actions. I know an order

24 was submitted to the Court. I don't believe it's been entered

25 yet, but there's been no opposition to it.

Page 60





1 THE COURT: No, does anybody wish to be heard with

2 respect to the motion to extend the time to file notices of

3 removal? All right, the motion's granted, it'll be entered.

4 MR. MARINUZZI: Thank you, Your Honor. The next item

5 on the agenda, Your Honor, as we move into contested matters,

6 is the motion by Sapere Wealth Management, Granite Asset

7 Management, and Sapere CTA Fund to direct the debtors' estate

8 to be administered pursuant to 11 U.S.C. 761 through 767. I'll

9 turn the podium over to counsel for Sapere.

10 THE COURT: All right.

11 MR. WITMEYER: Good afternoon, Your Honor, John

12 Witmeyer for Sapere. Your Honor, I think that our motion

13 fundamentally asks three questions, and I think the answers to

14 those three questions will turn out to be relatively clear. I

15 think the first question is can a commodities broker circumvent

16 Part 190 and the Code provisions that were cited by the

17 debtors' counsel, merely by filing its petition under Chapter

18 11. And I think the answer there is no.

19 THE COURT: Do you have any cases that support that

20 position?

21 MR. WITMEYER: Your Honor, there are cases that were

22 cited by both parties where bankruptcy courts have looked in

23 fact at whether or not a company was a commodities broker to

24 determine how to treat it.

25 THE COURT: Let me ask you --

Page 61





1 MR. WITMEYER: In specific context of Chapter 11 --

2 THE COURT: Mr. Witmeyer, let me ask you this

3 question.

4 MR. WITMEYER: Yes Your Honor.

5 THE COURT: Do you have any evidence that Sapere

6 placed orders with MF Global Holdings, Inc. or gave

7 instructions or transferred money to MF Global Holdings, Inc.?

8 MR. WITMEYER: Your Honor, we placed them with MF

9 Global, Inc., which was --

10 THE COURT: I know --

11 MR. WITMEYER: Which was centrally managed, Your

12 Honor.

13 THE COURT: Well my question is specifically do you

14 have any evidence whatsoever that you placed any orders, gave

15 any instructions directly to MF Global Holdings, Inc.?

16 MR. WITMEYER: Not --

17 THE COURT: The answer to that is no, am I correct?

18 MR. WITMEYER: Not as a joint entity (ph.), Your

19 Honor. That's not the theory on which our motion is based.

20 THE COURT: That may not be your theory but we'll go

21 one step at a time.

22 MR. WITMEYER: Yes Your Honor, I understand.

23 THE COURT: So the answer is you don't have any such

24 evidence?

25 MR. WITMEYER: That is correct, Your Honor.

Page 62





1 THE COURT: All right. Let me -- I want to make this

2 comment to everybody because -- to you as well Mr. Witmeyer.

3 There's a case management order that sets deadlines for filing

4 of pleadings with respect to omnibus hearings. There were late

5 filed pleadings by the SIPA Trustee, by you, Mr. Witmeyer.

6 I've read everything for this hearing but I want to put

7 everybody on notice, there's no suCh thing as a surreply

8 without leave of Court. There's nothing in the case management

9 order that permits it. The case management order is very clear

10 on what the deadline for pleadings for hearing. You filed

11 yesterday.

12 MR. WITMEYER: No, Your Honor, we filed on time.

13 After the SIPA Trustee filed, we responded to him.

14 THE COURT: Well, you didn't file on time after the

15 SIPA -- the last pleading you filed was not a timely pleading

16 for today's hearing.

17 MR. WITMEYER: I would agree, Your Honor.

18 THE COURT: Okay.

19 MR. WITMEYER: We responded to the SIPA Trustee which

20 was late.

21 THE COURT: And in the future, and this goes to

22 everybody, late filed pleadings will be disregarded unless

23 someone specifically ask for leave to file it which is very

24 unlikely to be granted. Okay.

25

Page 63





1 I set deadlines for a reason so that the Court has a

2 reasonable opportunity to read everything. I've read

3 everything for this hearing, okay, but I just want to put

4 everybody on notice, no more. So, go ahead with your argument.

5 MR. WITMEYER: Okay. Thank you, Your Honor.

6 I don't think there's any law directly on the point

7 here, Your Honor, I think what we have here is a case that's

8 never occurred in American history.

9 THE COURT: Well, there is law directly on point.

10 It's in the Bankruptcy Code and it provides that these certain

11 provisions that you want applicable, 761 at sec apply in a

12 Chapter 7 case, this is not a Chapter 7 case. You didn't move

13 to convert the case under 1112(b) and isn't that very clear

14 law, the statute?

15 MR. WITMEYER: Your Honor, I respectfully disagree. I

16 think that the debtor shouldn't have filed in Chapter 11. As

17 its own petition says, which is a judicial admission, it is a

18 leading commodities property.

19 THE COURT: Okay. I reject the argument.

20 MR. WITMEYER: It should not have filed.

21 THE COURT: I read -- you know you attached in your

22 late field pleadings copies of 10Ks or 8Ks or whatever, I read

23 everything, okay. I don't consider it a judicial admission

24 that MF Global Holdings, Inc. is a future commission merchant.

25

Page 64





1 MR. WITMEYER: Thank you, Your Honor. With all due

2 respect, that pleading was filed on time.

3 THE COURT: It was hard for me to keep track of what

4 was on time and what was not on time. Pleadings kept coming.

5 MR. WITMEYER: Well, unfortunately, we merely

6 responded to the SIPA Trustee, Your Honor. But the petition

7 itself says in Exhibit A --

8 THE COURT: Okay. I have that argument. What's your

9 next point.

10 MR. WITMEYER: Your Honor, MFG Holdings by its own

11 admission centrally managed, centrally administered, centrally

12 operated everything.

13 THE COURT: Are you saying that any holding company

14 structure where there is central management at a holding

15 company that if one three tiers down is an FCM that

16 automatically the parent company becomes an FCM?

17 MR. WITMEYER: If it centrally manages the regulatory

18 aspects of the business which was --

19 THE COURT: What evidence do you have that supports

20 your argument?

21 MR. WITMEYER: Your Honor, I think that's actually

22 what is admitted in the 10Ks but if it's not sufficient, we

23 have requested discovery to provide that information to the

24 Court.

25 THE COURT: All right. What's your next point?

Page 65





1 MR. WITMEYER: Your Honor, the next point is the

2 importance of the ruling on this motion for all people involved

3 which comes to the question of is now the time to decide it, is

4 now the time to start discovery?

5 THE COURT: Well, you're trying -- what you're trying

6 to do is do an end run around what are serious issues in this

7 case about what the priority and distribution rules will be.

8 Issues as to which in the SIPA case I ordered further briefing

9 and in which Mr. Bienenstock in his letter in the SIPA case and

10 now in his brief in opposition to your motion addresses some of

11 those arguments. The CFTC in a response to Mr. Bienenstock's

12 letter in the SIPA case addresses some of those issues. But

13 what it seems to me the CFTC brief that they filed in

14 connection with your motion says there are rules, there are

15 theories. It doesn't require joint administration. You're

16 trying to an end run about requiring a decision about what the

17 rules on priorty and distribution are by an argument that these

18 cases should be jointly administered on the provisions that

19 only apply to a Chapter 7 action when there are other theories.

20 The CFTC goes through various constructive trust theories and

21 other theories under the Commodities Exchange Act, that's what

22 you're trying to do.

23 MR. WITMEYER: Your Honor, I don't think it's an end

24 run.

25 THE COURT: It's crystal clear.

Page 66





1 MR. WITMEYER: There are other theories but --

2 THE COURT: Okay.

3 MR. WITMEYER: -- if we are correct, and I

4 respesctfully submit we are, the commodities customers have

5 their rights within the proceeding of holdings. They don't

6 have to do any more discovery after that.

7 THE COURT: They may. They may. They may have -- and

8 I think in your reply, you argued that in response to the

9 argument that you didn't have standing, that at a minimum your

10 tort claims --

11 MR. WITMEYER: That's at a minimum, Your Honor.

12 THE COURT: -- and that you would be -- that would

13 give you standing in holding states. I don't think I have to

14 decide that issue today but I understand that argument.

15 MR. WITMEYER: What we --

16 THE COURT: That doesn't require a decision that these

17 cases be jointly administered. It may mean that you have

18 arguments why either other creditors' claims should be

19 subordinated or that under the CEA or other applicable law, the

20 distribution and priority rules should be altered to what they

21 might otherwise be. Those issues all would be preserved even

22 if there's no joint administration of this case.

23 MR. WITMEYER: Your Honor, I'm not specifically

24 requesting joint administration but was is important -- for

25 example, out in the real world of the farmers and the investors

Page 67





1 and people like Sapere, we need to tell the IRS what happens

2 because we don't have ninety million dollars. We need to tell

3 financial accounting people, we need to make decisions on

4 hedging. People need to decide can they trust the market going

5 forward and we need to know the rules.

6 The money that was our money, customers' money, nobody

7 else's money, never, is gone and the question is are people

8 just at risk or is there some rememdy in the judicial system

9 that exists both at MF Global, Inc. and at Holdings for the

10 loss.

11 THE COURT: There may be a remedy but I'm not so sure

12 it's the one that you're seeking today. What's your next

13 point?

14 MR. WITMEYER: Your Honor, those are my points.

15 THE COURT: Okay. Thank you. Who wants to be

16 heard -- anyone else in support of the motion? Mr. Tillis

17 (ph.), your brief was not timely filed. I don't wish to hear

18 from you today. Yours was very late. I did review it. I

19 don't think it adds anything to what was already in Mr.

20 Witmeyer's papers. Okay?

21 MR. TILLIS: Thank you, Your Honor.

22 THE COURT: Who wants to be heard in opposition? Mr.

23 Miller?

24

25

Page 68





1 MR. MILLER: Thank you, Your Honor. Brett Miller,

2 Morrison & Foester on behalf of the Chapter 11 Trustee of MF

3 Global Holdings, Ltd. and four other debtors.

4 I think our pleading is extremely clear. We have five

5 debtors in Chapter 11 being administered with the Chapter 11

6 Trustee. None of them were commodities brokers. What is very

7 clear from the 10K and all of the pre-petition filings is yes

8 subsidiaries of Holdings included commodity brokers in the

9 U.S., that's the estate that's being administered by Mr.

10 Giddens under the SIPA proceeding as well as in the U.K. and

11 certain foreign adiminstrations. There's absolutely no record,

12 no evidence that any of the five debtors that are in Chapter 11

13 were ever commodity brokers. They were not FCMs, period.

14 When --

15 THE COURT: Any other points?

16 MR. MILLER: The only other point would be a clear

17 one. We're in the middle of an investigation. Mr. Marinuzzi

18 commented on where we are in terms of reviewing documents

19 regarding the Court's questions raised in the cash management,

20 the cash collateral order. We are approximately three weeks or

21 so away from a report by the Chapter 11 Trustee which at that

22 time will determine whether any of the some twenty-six million

23 dollars or so that is being held by the Chapter 11 debtors

24 included any customer money. If the answer is no this argument

25 is completely moot because there would be proof that there's

Page 69





1 no --

2 THE COURT: The trustee may not have the final word on

3 tha.

4 MR. MILLER: So, to the extent that counsel seeks

5 discovery, we and the statutory creditors' committee raised the

6 point that once you file a motion that becomes a contested

7 matter, 2004 is not available. The same with the 341 meeting

8 that they comment on which is completely inappropriate for a

9 U.S. Trustee 341 meeting to be seeking discovery for an action.

10 I don't think we really need to go into it, but the

11 10K actually has footnotes and further information -- I'm not

12 going to submit it to Your Honor unless you think it's

13 necessary -- that specify that MFGI was the commodities broker

14 and the "we" throughout are qualified by the footnote. So,

15 there is no evidence.

16 THE COURT: Why don't you file that on ECF. I'm going

17 to take this matter under submission so I would like to see --

18 MR. MILLER: We'd be happy to file.

19 THE COURT: And just as a cover pleading, point to the

20 specific references. This is a very long document.

21 MR. MILLER: Certainly, Your Honor.

22 THE COURT: Thank you, Mr. Miller.

23 Mr. Bienenstock, did you want to be heard?

24 MR. BIENENSTOCK: Unless -- Your Honor, unless the

25 Court has questions, the committee rests on its pleadings.

Page 70





1 THE COURT: No, your brief was very clear. Anybody

2 else wish to be heard?

3 (No response)

4 All right. Matter is going to be taken under

5 submission.

6 MR. MARINUZZI: Your Honor, that brings us to

7 adversary proceedings but before we get there, I just wanted to

8 raise for the Court the fact that a proposed final order

9 approving the cash management system for the three new debtors

10 was submitted to the Court. By operation of the order itself,

11 it would become a final order if no objection was filed. No

12 objection was filed. A new formal objection was resolved.

13 THE COURT: Let me just make -- I want to be sure

14 about this. Do I need to enter anything? I think the order

15 that was already entered becomes self-executing.

16 MR. MARINUZZI: I think that the proposed order that

17 was submitted clarified -- let me backup.

18 THE COURT: There's an additional proposal?

19 MR. MARINUZZI: There was a limitation on how much

20 could be spent during the time of the interim order and we took

21 that out.

22 THE COURT: I'm aware of that change.

23 MR. MARINUZZI: Right. That's it.

24 THE COURT: It'll get -- the motion is granted.

25 MR. MARINUZZI: Thank you.

Page 71





1 THE COURT: Thank you.

2 MR. MARINUZZI: Your Honor, that brings us to the

3 adversary proceedings. On the telephone participating in the

4 hearing on behalf of Pepper Hamilton, proposed special counsel

5 for the Chapter 11 Trustee, is Deborah Kovsky. And I will cede

6 the podium to the movants here in the Thielmann v. MF Global

7 Holdings, Ltd. case so they can address the Court on their

8 motions.

9 THE COURT: Okay. Thank you, Mr. Marinuzzi.

10 MR. MARINUZZI: Thank you.

11 MS. KOVSKY: Your Honor, this is Deb Kovsky, Pepper

12 Hamilton, proposed special counsel for the Chapter 11 Trustee.

13 If the Court wishes, I could provide a brief status update just

14 to give the Court an overview of what's going on with the WARN

15 adversary proceedings.

16 THE COURT: That would be helpful. And let me just --

17 am I correct that the Chapter 11 Trustee has not taken any

18 position with respect to the issue of selection of interim lead

19 counsel. Am I correct in that?

20 MS. KOVSKY: That's correct. We have no position on

21 that matter. The other matter that is up is the consolidation

22 of the purported class actions and we do support consolidation

23 since it doesn't make sense to be fighting on multiple fronts.

24 THE COURT: All right. All right. Who's going to --

25 anything else you want to add?

Page 72





1 MS. KOVSKY: No. If there's nothing else the Court

2 needs to know about the overview, the case has been -- I would

3 defer to plaintiff's counsel.

4 THE COURT: Okay.

5 MR. OVERS: Good morning, Your Honor. May it please

6 the Court, my name is Peter Overs. I'm counsel to Harwood

7 Feffer who are attorneys for plaintiffs Greene and Hurtado. We

8 filed our -- the motion for consolidation.

9 THE COURT: I'm sorry; just tell me your name again.

10 MR. OVERS: Peter Overs.

11 THE COURT: Okay. Thank you.

12 MR. OVERS: We filed a motion for lead counsel and

13 consolidation prior to the Thielmann counsel's motion so I'm

14 taking the liberty to argue first.

15 I believe the papers are pretty clear. What the issue

16 resolves to is whether our firm possesses the necessary

17 experience and skill set.

18 THE COURT: Let me ask you this because I think the

19 issue really comes down to whether I should dismiss your case

20 based on the other actions pending before you filed. You

21 acknowledge in your motion papers that the cases raise the same

22 issues, the same putative classes. Your brief essentially

23 acknowledged that there's nothing unique about your case that

24 was later filed and was a carbon copy of an earlier filed

25 pleading save the caption.

Page 73





1 MR. OVERS: I would say that wasn't a carbon copy to

2 the extent that it was similar to the other complaints.

3 THE COURT: You had to retype it.

4 MR. OVERS: Well, the other two complaints out of the

5 three were all substantially similar to ours.

6 THE COURT: I take it you have not been able to

7 resolve -- the other -- there were three other cases --

8 MR. OVERS: No, I meant --

9 THE COURT: Stop.

10 MR. OVERS: Excuse me.

11 THE COURT: There were three other cases. They filed

12 a consolidated amended complaint. So, I'm really dealing with

13 one other case plus yours, correct?

14 MR. OVERS: And we filed an amended complaint that's

15 more intelligent --

16 THE COURT: But I'm dealing with one case filed by

17 your firm.

18 MR. OVERS: That's right.

19 THE COURT: And now one case in which the three other

20 counsel have joined in a single complaint, correct?

21 MR. OVERS: Correct. And it's unclear as to who they

22 represent.

23 THE COURT: Why shouldn't your case be dismissed on

24 the grounds of another action pending between the same parties

25 on the same issues?

Page 74





1 MR. OVERS: To the extent that we have a skill set

2 that would represent plaintiffs better than their combined

3 skill set I -- we submit that --

4 THE COURT: How many one act cases, not ERISA cases or

5 securities cases -- your firm is very experienced in securities

6 class actions. I recognize that.

7 MR. OVERS: And also -- and ERISA cases.

8 THE COURT: And in ERISA cases.

9 MR. OVERS: And other cases as well.

10 THE COURT: But the -- I mean this has turned into a

11 dog fight between law firms. I sat and I read all these

12 pleadings last night again and I -- you know, I think -- well,

13 I'll leave further commentary aside on it.

14 MR. OVERS: We were --

15 THE COURT: You haven't been able to reach an

16 agreement for a single consolidation -- single consolidated

17 amended complaint?

18 MR. OVERS: It was made clear to us as I explain in my

19 declaration, from the outset that they have this cabal set up

20 and nobody else --

21 THE COURT: They have a cabal, okay.

22 MR. OVERS: -- nobody else can join. They started

23 their practice and WARN Act a couple of years ago according to

24 a New York Times article from scratch.

25 THE COURT: All right. Let me ask this.

Page 75





1 MR. OVERS: We have the same --

2 THE COURT: Have you -- have you litigated to

3 settlement or judgment WARN Act cases?

4 MR. OVERS: No.

5 THE COURT: Okay.

6 MR. OVERS: No. No. But I don't think that that's

7 necessarily decisive here to the extent --

8 THE COURT: Why should there be a further

9 proliferation of the number of cases raising identical issues?

10 If I had been faced with three separate complaints from the

11 plaintiffs, they'd probably be hearing the same thing from me.

12 Okay. But they got together and they filed a single

13 consolidated amended complaint. But why should -- because

14 let's assume that this case ultim -- the cases -- case

15 ultimately goes to settlement or judgment and I can see the fee

16 applications coming and why should these estates have to bear

17 any additional -- assuming as the cases aren't just dismissed

18 because I suspect the defendants will be moving to dismiss

19 but -- assuming that these cases are resolved by settlement or

20 judgment that results in a recovery, why should four law firms

21 get to share versus three law firms for cure?

22 MR. OVERS: That's not my -- that's not my suggestion

23 at all. My suggestion would be that there be two law firms at

24 most. One of these firms who have the better WARN Act

25 experience plus our firm who has more experience --

Page 76





1 THE COURT: All right. Any other points you want to

2 raise?

3 MR. OVERS: -- in analyzing the issues that will be

4 raised in this case.

5 THE COURT: I read what your -- I read everything that

6 you filed. Anything else you want to raise?

7 MR. OVERS: No. That's it.

8 THE COURT: All right. Who wants to be heard for

9 counsel in the other cases?

10 MR. RAISNER: Good morning, Your Honor. Jack Raisner,

11 Outten & Golden for the Thielmann plantiffs.

12 Your Honor we -- one of the hallmarks of the practice

13 of the Thielmann plantiff's counsel is not to be in court on

14 motions at all in the WARN case if it can be avoided. The

15 hallmark of our case is to be outside of court working now with

16 the debtors, with committees, with the two entities, to have a

17 sensible approach and save money to the estates which is all

18 done on our dime which doesn't cost the estate anything.

19 THE COURT: Let me ask you a different question. Your

20 motion collectively ask that all three firms be appointed as

21 interim lead counsel. Why shouldn't only one firm be lead

22 counsel?

23 The Court's concern is that leadership needs to be

24 centralized and focused so that if a Court has a question, we

25 know who to call whether it's from the defendants or for the

Page 77





1 plaintiffs. I understand that appropriately if multiple firms

2 are involved, lead counsel ought to be making sure that work

3 isn't duplicated, that work is appropriately being allocated if

4 it results in settlement or judgment that fees are appropriate

5 in the circumstances. But I generally have been of the view

6 that there ought to be one firm that's lead counsel, not three.

7 MR. RAISNER: A valid point for case management

8 purposes. We have all partnered amongst ourselves in cases

9 such as this where that has never been raised by the Court or

10 anyone as a difficulty. We can, for the case management

11 purpsoes, with Your Honor's clerk, we can assign or identify

12 what a heirarchy should be for a contact but we have worked

13 very seemlessly and cost efficiently amongs ourselves before

14 and we're prepared to do that again.

15 THE COURT: Then appointing one firm as lead counsel

16 doesn't alter that coordination, cooperation, sharing of work,

17 it just -- the buck stops with whoever gets appointed as lead

18 counsel.

19 MR. RAISNER: Fair enough point. It hasn't been

20 raised. It's sort of a administerial --

21 THE COURT: I'm raising it.

22 MR. RAISNER: Well, yes. And now that you -- if it

23 would help Your Honor to deal with the matter and would have no

24 great further significance beyond that, then we would be

25 amenable to that.

Page 78





1 THE COURT: Well, this, of course, is under 23(g),

2 you're looking for interim class counsel?

3 MR. RAISNER: Absolutely. This has nothing to do with

4 whether you will ultimate -- or whether we will ever move to be

5 class counsel; we may not have to. We may be able to resolve

6 this whole matter without further motions in that regard. So,

7 yes, it is not indicative of any further motion practice or

8 designations.

9 THE COURT: So, why shouldn't the Greene case be

10 consolidated with your case?

11 MR. RAISNER: If the two plaintiffs wanted to join our

12 complaint, the question would be why should they have to join

13 our complaint? What do they bring to the table? Why can't

14 they be class members --

15 THE COURT: Well, I've got two complaints before me

16 now and why shouldn't they just be consolidated? It doesn't

17 alter what the Court may do in terms of appointment of lead

18 counsel but -- look, it seems to me I've got a number of

19 choices. I could consolidate the cases. I could dismiss the

20 Greene case. I could stay the Greene case. Those seem to me

21 to be three choices that I have. And I guess my question, I

22 asked Mr. Overs why I shouldn't dismiss it but I'm asking you

23 why I shouldn't consolidate it?

24 MR. RAISNER: First of all, I think your answer to Mr.

25 Overs is right. That it invites people to assume that by

Page 79





1 filing a copycat complaint, they are going to have a piece of

2 the action.

3 THE COURT: Well, you were the second filed complaint

4 by a couple of days, weren't you?

5 MR. RAISNER: Not really. The first complaint was

6 filed late Friday and did not come up on the ECF until the date

7 that we filed. So, we had no knowledge of that being first

8 filed.

9 You know, the first filed rule really looks to the

10 value of --

11 THE COURT: I'm not -- I'm not deciding this on the

12 basis of -- the three of you were -- the three firms were able

13 to agree on consolidated amended complaint, it made a lot of

14 sense. I have the pleading. I'm not questioning that.

15 MR. RAISNER: We did it immediately to avoid this,

16 being a four, Your Honor, on this question altogether.

17 THE COURT: But now, I read all these pleadings and

18 with this vitriol going on between the three firms on one side

19 and Harwood Feffer on the other side and it just kept going on

20 and on and on.

21 MR. RAISNER: It shouldn't have. It shouldn't have.

22 It should have been resolved by reasoning that there really

23 isn't some need --

24 THE COURT: Then tell me --

25

Page 80





1 MR. RAISNER: -- for further attorneys of billing, as

2 you said, to be part of an action by -- that's to be avoided.

3 THE COURT: Well, let me make clear. If I consolidate

4 the case, it isn't going to change if there's a settlement or

5 judgment and, therefore, fees awarded how the Court would look

6 at the issue of awarding fees, okay. I don't think even been

7 before Mr. Miller has had WARN Act cases in front of me and

8 other cases and they were settled.

9 MR. RAISNER: Sure. We have the Steve & Barry's case

10 which was before Your Honor which was settled with the 7

11 Trustee --

12 THE COURT: Well, you went to Judge McMahon.

13 MR. RAISNER: Well, I saved Your Honor some work in

14 that case. But as you know, you read the decision, you read

15 her approval of the final order --

16 THE COURT: I did.

17 MR. RAISNER: -- and there was no motion practice

18 between us and the trustee. We were able to do it very

19 efficiently as we would hope to be able to do here.

20 THE COURT: Okay. So, but just tell me, why shouldn't

21 I just consolidate the cases, appoint interim lead counsel,

22 proceed from there making it clear to all of you that four

23 firms as opposed to three firms isn't going to result in a

24 larger award of fees if there is anything on which fees can be

25 awarded and leave it to lead counsel to deal with how work is

Page 81





1 going to be done and coordinate it. Why shouldn't that be the

2 right result?

3 MR. RAISNER: It's a distraction to have multiple

4 counsel on files. We just have to duplicat --

5 THE COURT: Well, just because you're not getting

6 along for the moment.

7 MR. RAISNER: -- you have to duplicate, you have to --

8 it adds a layer of extra work --

9 THE COURT: Well, it doesn't --

10 MR. RAISNER: -- administrative work for -- with no

11 benefit. That's the reason.

12 THE COURT: -- if I appoint one firm as the lead and

13 it makes it -- makes the -- appropriately makes the decisions

14 of who's going to do what so that work isn't being duplicated,

15 that's the real question for me is -- because one of two things

16 is going to -- I'm going to appoint one firm, I don't know

17 which on yet, I'm going to appoint one firm as an interim lead

18 counsel. And I'm either going to consolidate the cases or I'm

19 going to dismiss the later filed case. I don't know which I'm

20 going to do yet.

21 MR. RAISNER: It's, I think, the signal that you

22 mention which is that a duplicative case should be dismissed.

23 You have the perogative expensive lows. To keep --

24

25

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1 THE COURT: You had -- you're in duplicate cases and

2 you came to an agreement but you don't -- you don't have an

3 agreement with Harwood Feffer.

4 MR. RAISNER: These three firms have unique

5 experience, deep exeperince between themselves that will

6 benefit the estate and the punitive class. The fourth

7 complaint does not have any benefit and its counsel doesn't

8 provide any benefit except to learn maybe more about WARN which

9 may ultimately be a virtue but why should this case from this

10 estate bear that expense?

11 THE COURT: So, I'll read in their affidavit in the

12 next one that they've had experience in this case and the WARN

13 Act case.

14 MR. RAISNER: Well, again, I think this is not --

15 THE COURT: Okay. Let me hear from --

16 MR. RAISNER: -- a training or an exercise --

17 THE COURT: -- let me hear from Mr. Overs and then

18 we'll -- I'm going to take it under submission but, Mr. Overs,

19 last chance, briefly.

20 MR. OVERS: Well, it's -- I'll keep it simple. The

21 other counsel at the table might have deep experience; his firm

22 does not. He's been doing this for a few years. One case

23 that's similar that we found was Lehman Brothers.

24 THE COURT: Outten is very experienced.

25 MR. OVERS: He filed a complaint and nothing

Page 83





1 happened --

2 THE COURT: Mr. Overs?

3 MR. OVERS: -- and he dismissed it.

4 THE COURT: Mr. Overs?

5 MR. OVERS: Yes.

6 THE COURT: I consider the Outten firm to be very

7 experienced in all employment law matters, WARN Act cases, all

8 employment law matters, so, don't make that argument, okay?

9 MR. OVERS: Okay.

10 THE COURT: It's a very experienced firm. Very -- all

11 the firms involved are respected. Your firm is respected, it's

12 just not in the case of WARN Act.

13 MR. OVERS: Well, the issues that will be raised here,

14 the important issues it raised here are very similar to the

15 ones that we litigate everyday in ERISA and other contexts --

16 THE COURT: Okay. Any other point you want to make?

17 MR. OVERS: That's it.

18 THE COURT: Matter is under submission.

19 Mr. Marinuzzi?

20 MR. MARINUZZI: Your Honor, my recollection is that --

21 THE COURT: I think that's it?

22 MR. MARINUZZI: -- that's it. Yes. I just want to

23 talk to the agenda to make sure we didn't leave anything out

24 but we're done, Your Honor, unlesss you have any questions.

25 THE COURT: When do I see you again.

Page 84





1 MR. MARINUZZI: The 9th, February 9th, we'll be back.

2 THE COURT: Okay. Let me just -- status of briefing,

3 okay. I guess, really, the briefing issues are really in the

4 SIPA case. You just filed your brief, Mr. Bienenstock, on

5 standing. Is that correct?

6 MR. BIENENSTOCK: We did. There's an agreed

7 stipulation and we understand the trustee is supporting our

8 position. That is correct. The Chapter 11 Trustee will be

9 supporting the creditors' committee position in the proceeding.

10 THE COURT: The committee of standing?

11 MR. BIENENSTOCK: Yes. We believe that the case law

12 and the facts are pretty clear that it would be great to work

13 out an agreement with the SIPA Trustee, we just haven't had a

14 conversation.

15 THE COURT: Okay. Mr. Witmeyer, when -- when is your

16 brief due?

17 MR. WITMEYER: The SIPA Trustee's brief is due

18 February 17th, Your Honor.

19 THE COURT: Okay. Are you still seeking whether -- or

20 you trying to resolve the issue with Mr. Bienenstock? I

21 mean --

22 MR. WITMEYER: We'd be happy to have a discussion with

23 Mr. Bienenstock.

24 THE COURT: If the Chapter 11 Trustee is supporting

25 the position of the -- what I want to make sure is that there

Page 85





1 aren't from the standpoint of the Chapter 11 debtors that Mr.

2 Miller, you're not -- your firm's not duplicating the work that

3 Mr. Bienenstock's firm is doing. If you're supporting each

4 other's positions, you ought to be agreeing who's going to take

5 the lead if you want to file a two page to me too, that's one

6 thing, but what I don't want is twenty page briefs. I gather,

7 Mr. Bienenstock, your's is a thirty-nine page brief.

8 MR. BIENENSTOCK: Yes, Your Honor, and we appreciate

9 chambers advising us yesterday that --

10 THE COURT: I made a terrible blunder is what my

11 chambers advised you. Because my standard case management

12 order always imposes a twenty-five page limit and I failed to

13 do it so far.

14 MR. BIENENSTOCK: We didn't fight it.

15 THE COURT: But I'm going to do that going and we're

16 going to put an amended order in that if somebody wants longer

17 than twenty-five pages they have to get permission with the

18 Court and ten pages on reply. But since I didn't do it, I

19 gather you have a thirty-nine page -- I'm sure it's beautiful

20 prose and well done.

21 MR. BIENENSTOCK: We will even it out. We will file

22 something much less than thirty-nine so it will be less than

23 twenty-five but my average you will see.

24 THE COURT: You're just supporting the committees'

25 position --

Page 86





1 MR. BIENENSTOCK: It will be very brief.

2 THE COURT: -- if you keep it really short.

3 MR. BIENENSTOCK: And we'd like to work it out with

4 the SIPA Trustee.

5 THE COURT: But, Mr. Margolin, you really ought to see

6 if you can work this out. If that happens, we'll keep Mr.

7 Bienenstock's brief for posterity and you won't have to go

8 forward and write your brief.

9 MR. MARGOLIN: Your Honor, I will speak to my

10 colleagues and we'd be happy to speak to Mr. Bienestock.

11 THE COURT: Okay.

12 MR. MARGOLIN: We'd be happy to work with him.

13 THE COURT: All right. Thank you very much. We're

14 adjourned.

15 (Whereupon these proceedings were concluded at 12:42 PM)

16

17

18

19

20

21

22

23

24

25

Page 87




1

2 I N D E X

3

4 RULINGS

5 Page Line

6 Trustee's Motion for an Order to Extend Time 21 3

7 to File Notices of Removal of Actions,

8 Granted

9

10 Motion by New Hampshire Insurance Company for 59 18

11 Relief from Automatic Stay, Granted

12

13 Committee Motion for Order Approving 60 19

14 Retention of Dewey LeBoeuf Firm, Granted.

15

16 Trustee's Motion to Extend Time to File 61 3

17 Notices and Removals, Granted

18

19 Proposed final order approving the cash 71 24

20 management system granted

21

22

23

24

25

Page 88




1

2 C E R T I F I C A T I O N

3

4 I, Avigayil Roth, certify that the foregoing transcript is a

5 true and accurate record of the proceedings.

6

7

8

9 ______________________________________

10 AVIGAYIL ROTH

11 AAERT Certified Electronic Transcriber CET**D-640

12

13 Also transcribed by:

14 TAMARA BENTZUR

15

16 ELLEN S. KOLMAN

17 AAERT Certified Electronic Transcriber CET**D 568

18

19 Veritext

20 200 Old Country Road

21 Suite 580

22 Mineola, NY 11501

23

24 Date: January 20, 2012

25

Page 89


AvigayilRoth

Digitally signed by Avigayil Roth DN: cn=Avigayil Roth, o, ou, [email protected],c=USDate: 2012.01.20 11:42:25 -05'00'















PHIL1 5733507v.1

CERTIFICATE OF SERVICE

I hereby certify that on October 21, 2016, a copy of the foregoing Response Brief in

Further Support of Plaintiffs Dennis Artis, Donna A. Lindsay and Patricia Marshall’s Motion

to Appoint Klehr Harrison Harvey Branzburg LLP as Interim Class Counsel Pursuant to

Federal Rule of Bankruptcy Procedure 7023(g) was filed electronically. Notice of this filing

will be sent to the following parties through the Court’s Electronic Case Filing System. Parties

may access this filing through the Court’s system.

Scott S. Anders [email protected], [email protected] Dee Baird [email protected], [email protected]; [email protected] I. Baird [email protected], [email protected] Flynn Bartram [email protected], [email protected] James Bernard [email protected] Ligocki Blackwell [email protected] D. Britton [email protected], [email protected];

[email protected] E. Carlberg [email protected], [email protected];

[email protected] Caruso [email protected], [email protected];[email protected] J. Caruso [email protected], [email protected]; mcruser@rubinlevin.

netJoshua W. Casselman [email protected], [email protected] A. Chae [email protected] Edward Collins [email protected] D. Coppel [email protected] M. Crockett [email protected], [email protected] H DeCelles [email protected] R. DeNeal [email protected], [email protected];

[email protected] A DuVall [email protected], [email protected] Engen [email protected] Anthony Ercole [email protected], [email protected] W Ferich [email protected] Eve French [email protected] Ari Hammond [email protected], [email protected] Craig Harris [email protected] Herrera [email protected], [email protected] W. Hile [email protected], [email protected] C. Hoard [email protected], [email protected];[email protected] A Hokanson [email protected], [email protected];

[email protected] L Hunter [email protected], [email protected];

[email protected];[email protected]


PHIL1 5733507v.1

James C Jacobsen [email protected], [email protected] K. Jacobson [email protected], [email protected];

[email protected] Jaffe [email protected], [email protected] F Johns [email protected], [email protected] R. Jost [email protected], [email protected] Q. Karcher [email protected] Kim [email protected] M King [email protected], [email protected];[email protected] Joel Kotler [email protected] Scott Kulback [email protected] D Levenhagen [email protected] Hoover MacAnally [email protected], [email protected] J. Marwil [email protected], [email protected];[email protected];

[email protected] Francis Mastrian [email protected] K. McCrory [email protected], [email protected] W. Miller [email protected] P Moloy [email protected], [email protected];[email protected] J. Moore [email protected] F Morris [email protected] Alonzo Morrissey [email protected],

[email protected];[email protected];[email protected]

Whitney L Mosby [email protected], [email protected] Daniel Motsinger [email protected], [email protected];

[email protected];[email protected] Duck Moylan [email protected], [email protected] M. Nann [email protected] A Raisner [email protected] Hjalmer Reischl [email protected] E Rossow [email protected], [email protected];robin@rubinlevin.

net;[email protected] Sara Roupinian [email protected], [email protected];

[email protected];[email protected];[email protected];[email protected]

Craig Damon Rust [email protected], [email protected] Michael Sanders [email protected] C Scherer [email protected], [email protected] C. Sorrell [email protected] David Sundheimer [email protected] R. Theisen [email protected], [email protected];mcruser@rubinlevin.

netJessica L Titler [email protected] M. Tucker [email protected], [email protected],[email protected]. Trustee [email protected] E Veghte [email protected], [email protected] Benton Willey [email protected]


PHIL1 5733507v.1

I further certify that on the 21st day of October, 2016, a copy of the foregoing was mailed by first-class United States mail, postage prepaid, and properly addressed to the following:

Eboney CobbPerdue Brandon Fielder Collins Mott LLP500 E Border Street Suite 640Arlington, TX 76010

Alan M Grochal100 East Pratt Street 26th FloorBaltimore, MD 21202

Paul Weiser Esq.Bachalter Nemer16435 North Scottsdale Road, Suite 440Scottsdale, AZ 85254-1754

Elizabeth WellerLinebarger Goggan Blair & Sampson, LLP2777 N. Stemmons Freeway, Suite 1000Dallas, TX 75207

/s/ Charles A. Ercole___________________Charles A. Ercole (Admitted Pro Hac Vice)
