10000000051

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE

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In re:
ALLIED SYSTEMS HOLDINGS, INC.,
Alleged Debtor.
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In re:
ALLIED SYSTEMS, LTD. (L.P.),
Alleged Debtor.
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Chapter 11
Case No. 12-11564 (CSS)
Chapter 11
Case No. 12-11565 (CSS)
Objection Deadline: May 29, 2012 at 5:00p.m.
Hearing Date: May 31, 2012, 2:00p.m.
Ref. No. 29
OBJECTION OF THE PETITIONING CREDITORS
TO MOTION OF THE ALLEGED DEBTORS TO TRANSFER VENUE OF THESE
INVOLUNTARY CASES TO THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF GEORGIA, ATLANTA DIVISION
The Petitioning Creditors, BDCM Opportunity Fund II, LP, ("BDCM"), Black Diamond
CLO 2005-1 Ltd. ("Black Diamond"), and Spectrum Investment Partners, L.P. ("Spectrum"
collectively with BDCM and Black Diamond, "Petitioning Creditors"), by and through their
undersigned counsel, hereby object to the motion of Allied Systems Holdings, Inc. ("Allied") and
Allied Systems, Ltd. (L.P.) ("Systems", collectively with Allied, the "Alleged Debtors") to
transfer venue of the above-captioned involuntary bankruptcy cases (the "Involuntary Cases") to
the Atlanta Division of the Bankruptcy Court for the Northern District of Georgia (the "Georgia
Bankruptcy Court"), dated May 21, 2012 (the "Transfer Motion"), and respectfully represent as
follows:
{935.000-W0021082.}
PRELIMINARY STATEMENT
1. The Petitioning Creditors filed involuntary chapter 11 petitions against the
Alleged Debtors on May 17, 2012. It is undisputed that venue of these Involuntary Cases is
proper in Delaware because Allied is domiciled in Delaware. The Alleged Debtors have not
responded to the involuntary petitions. At a status conference before this Court on May 22,
2012, counsel for the Alleged Debtors informed the Court, "it does appear ... subject [to] board
approval ... that Allied will likely, in the future, convert these cases to voluntary Chapter 11
cases, but the timing is not ripe today for that. rtl However, until the Alleged Debtors decide to
consent to the orders for relief or there is a trial on the merits on the involuntary petitions, the
Alleged Debtors are not subject to court supervision. It is an untenable and unstable situation for
both the Alleged Debtors and their creditors.
2. The Petitioning Creditors object to the Transfer Motion on two grounds. First, the
Transfer Motion is procedurally defective because it is premature to address venue until an order
for relief is entered. Second, the Transfer Motion is substantively objectionable because the
Alleged Debtors' arguments in favor of the Georgia Bankruptcy Court are not sufficient to meet
the Alleged Debtors' burden of showing, by a preponderance of the evidence that such a transfer
would be "in the interests of justice or for the convenience of the parties."
3. Both the Bankruptcy Rules and principles of judicial economy require that this
Court first address whether an order for relief should be entered before addressing a request to
transfer venue. Rule 1011 (b) of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy
Rules") provides a short and exclusive list of permitted responses to an involuntary petition, and
Bankruptcy Rule 1011(e) unambiguously states "that no other pleading shall be permitted." A
1
Transcript of Status Conference, May 22,2012 at 12:1-6. A copy is attached hereto as Exhibit A.
{935.000-W0021082.}
2
request for a transfer of venue is not on the list of responses permitted by Rule 1011 (b), and is
thus prohibited until an order for relief is entered. Further, it makes little sense to undertake a
hearing on venue until an order for relief has been entered, either on consent or after a hearing on
the merits. Finally, a venue dispute now would prevent the Court from consideration of the
"contested petition at the earliest practicable time." Bankruptcy Rule 1013(a).
4. The Transfer Motion should be denied because venue is appropriate in this
District. Given the national and international scope of the Alleged Debtors' businesses, the
location of their assets, the geographical location of the Alleged Debtors' creditors, professionals
and major parties-in-interest, the Petitioning Creditors' decision to commence involuntary
chapter 11 cases in Delaware, is in conformity with the venue provisions of 28 U.S.C. 1408,
should not be disturbed.
5. As shown below, the Alleged Debtors' arguments in favor of the Georgia
Bankruptcy Court are not sufficient to satisfy the Alleged Debtors' burden of showing, by a
preponderance of the evidence, that such a transfer would be "in the interests of justice or for the
convenience of the parties." For these reasons, the Petitioning Creditors request that the Court
deny the Transfer Motion in its entirety.
BACKGROUND
6. Allied is incorporated in Delaware, having filed its certificate of incorporation
with the Secretary of State of Delaware on May 8, 2007. Allied and its direct and indirect
subsidiaries are providers of distribution and transportation services to the automotive industry,
specializing in the delivery of new vehicles from automobile manufacturing plants to automobile
dealerships in the United States and Canada.
7. On July 31, 2005, Allied Holdings, Inc. and certain of its direct and indirect
subsidiaries commenced voluntary chapter 11 bankruptcy cases in the Georgia Bankruptcy Court
{935.000-W0021082.} 3
that resulted in a plan of reorganization ("Plan"), which was confirmed in May 2007 and became
effective soon thereafter. In re Allied Holdings Inc., Case No. 05-12515 (the "Georgia
Bankruptcy Case").
8. According to statements filed by the Alleged Debtors, Allied was specifically
excluded as a "Debtor" under the Plan in the Georgia Case. (Declaration of Scott Macaulay,
dated May 21, 2012 [D.I. 30] ~ 8 n.1) ("Macaulay Decl.") ("Thus, in connection with the
Original Chapter 11 Case, the terms "Allied" and "Debtors" exclude Allied Systems Holdings,
Inc. and include Allied Holdings Inc.").
9. On April 24, 2012, the debtors in the Georgia Bankruptcy Case filed an
application for a final decree closing the case. In re Allied Holdings Inc., Case No. 05-12515
[D.I. 4182]. On May 21, 2012, the United States Trustee filed a statement of no objection to
entry ofthe final decree. !d. [D.I. 4184]. The Alleged Debtors concede "the Original Chapter 11
Case is ready to be closed." (Macaulay Decl. ~ 8).
10. On May 17, 2012, the Petitioning Creditors filed involuntary petitions against the
Alleged Debtors. No trustee or examiner has yet to be appointed in these cases. The Alleged
Debtors have not filed an answer or responsive pleading to the involuntary petitions, although
the Alleged Debtors have indicated that they are planning to either consent to the entry of orders
for relief or file voluntary chapter 11 bankruptcy cases. (Transfer Motion ~ 19); Transcript of
Status Conference, May 22,2012 at 12:1-6?
2
The Alleged Debtors assert without any basis that the Petitioning Creditors were "well aware" of a potential
voluntary filing. (Transfer Motion ~ 19). The Alleged Debtors have never advised the Petitioning Creditors of a an
intent to file a case nor can they point to any evidence supporting such an assertion nor does the Transfer Motion
state that they informed the Petitioning Creditors of such a potential voluntary filing. Rather, the Alleged Debtors
are the ones that have long been aware of the Petitioning Creditors' desire to resolve the Alleged Debtors' financial
issues outside of the bankruptcy process.
{935.000-W0021082.}
4
ARGUMENT
I. The Relief Requested in the Transfer Motion is Prohibited Until an Order for Relief
is Entered.
11. The Alleged Debtors seek entry of an order from the Court (i) transferring these
cases to the Georgia Bankruptcy Court "in the interest of justice or for the convenience of the
parties," and (ii) staying the adjudication of all motions and other matters until the "relief
requested in this Transfer Motion has been adjudicated and the proper venue of these Chapter 11
cases has been determined on a final basis." (Transfer M o t i o n ~ 16). Importantly, the Alleged
Debtors do not argue that Delaware is an improper venue for these Involuntary Cases.
12. The relief requested by the Alleged Debtors is clearly prohibited by Bankruptcy
Rule 1 011 which provides a short and exclusive list of responses that may be filed to an
involuntary petition. A request to transfer venue is not on that list. Bankruptcy Rule 1011 states
in relevant part:
Rule 1011. Responsive Pleading or Motion in Involuntary and Cross-Border Cases
(b) Defenses and objections; When presented Defenses and
objections to the petition shall be presented in the manner
prescribed by Rule 12 F. R. Civ. P. and shall be filed and served
within 21 days after service of the summons, except that if service
is made by publication on a party or partner not residing or found
within the state in which the court sits, the court shall prescribe the
time for filing and serving the response.
(e) Other pleadings. No other pleadings shall be permitted, except
that the court may order a reply to an answer and prescribe the
time for filing and service.
13. Bankruptcy Rule 1011(b) authorizes the Alleged Debtors to do only two things--
either (a) file an answer contesting the petition, or (b) make a motion asserting defenses and
objections to the petitions as provided for under Rule 12 of the Federal Rules of Civil Procedure
("Federal Rules" or "FRCP"). Further, Bankruptcy Rule 1011(e) unambiguously states that "no
{935.000-W0021082.}
5
other pleading shall be permitted." See In re David J Ross, 135 B.R. 230, 233 (Bankr. E.D. Pa
1991) (scope of a debtor's answer to an involuntary petition is limited to those issues which
address the merits of granting involuntary relief); COLLIER ON BANKRUPTCY ,-r 1011.05 (16th ed.
2012) ("In general, the involuntary petition ... and the responsive answer or motions filed by the
debtor ... are the only pleadings permitted").
14. The relief sought in the Transfer Motion is not prescribed by FRCP 12:
(b) How to Present Defenses. Every defense to a claim for relief in
any pleading must be asserted in the responsive pleading if one is
required. But a party may assert the following defenses by motion:
(1) lack of subject-matter jurisdiction; (2) lack of personal
jurisdiction; (3) improper venue; ( 4) insufficient process; ( 5)
insufficient service of process; ( 6) failure to state a claim upon
which relief can be granted; and (7) failure to join a party under
Rule 19.
15. Federal Rule 12(b) provides grounds for dismissal of a case, including dismissal
for "improper venue." The Transfer Motion neither requests dismissal for improper venue nor
does it assert any other defenses or objections to the petitions as provided in FRCP 12(b).
Because the Alleged Debtors' motion to transfer is not permitted under FRCP 12(b ), it is
prohibited by Bankruptcy Rule 1 011 (e). Therefore, the Transfer Motion is prohibited until an
order for relief is entered either on consent or after a hearing on the merits. See In re Raytech
Corp., 222 B.R. 19, 22 n.l (Bankr. D. Conn. 1998) (venue transfer motion premature until court
first determines whether the case would be administered in that court).
16. Further, consideration of the Transfer Motion prior to entry of an order for relief
or trial on the merits of the involuntary would prevent "consideration of the contested petition at
the earliest possible practicable time" as required by Bankruptcy Rule 1013. Bankruptcy Rule
1013(a) ("The court shall determine the issues of a contested petition at the earliest practicable
{935.000-W0021082.}
6
time and forthwith enter an order for relief, dismiss the petition, or enter any other appropriate
order") (emphasis supplied).
17. Finally, if the relief sought in the Transfer Motion was granted, the Petitioning
Creditors would be denied the right to litigate, if necessary, the involuntary petition in the
jurisdiction oftheir choice. See In re PWS Holding Corp., 1998 Bankr. LEXIS 549, *4-5 (Bankr.
D. Del. Apr. 28, 1998) (SLR) ("when venue is proper, a debtor's/plaintiffs choice of forum is to
be accorded substantial weight and deference").
18. The Federal Rules require that the Alleged Debtors must wait until after an order
for relief is entered in these cases before they can request a transfer of venue under Bankruptcy
Rule 1014. The Alleged Debtors have indicated in papers and before this Court that they were
planning ;;t voluntary chapter 11 filing or are "likely" to consent to the entry of orders for relief in
the within cases. (Transfer Motion ~ 19). Until the Alleged Debtors commit to a plan of action
or a judicial determination on the propriety of the involuntary petitions is made, the Transfer
Motion must be denied.
II. Venue is Proper in Delaware Pursuant to 28 U.S.C. 1408.
19. Venue in chapter 11 cases is governed by section 1408 of title 28 of the United
States Code. Pursuant to 1408(1 ), the venue of a chapter 11 case is proper when the case is
commenced in the district in which the debtor is domiciled or maintains its principal place of
business. See In re Segno Communications, Inc., 264 B.R. 501, 506, 511 (Bankr. N.D. Ill. 2001)
(debtor's state of incorporation was proper venue for involuntary case). A corporation is
domiciled in the state where it is incorporated. See Fourco Glass Co. v. Transmirra Products
Corp., 353 U.S. 222, 226 (1957) (equating terms "resident" and "domicile" in respect of
corporations to state of incorporation). As a Delaware corporation, Allied is domiciled in
{935.000-W0021082.}
7
Delaware.
20. The Alleged Debtors do not dispute that venue is proper in Delaware. Having
chosen to incorporate in Delaware, and reap the attendant benefits, Allied must now live with the
rights and responsibilities that come with its choice. Instead, the Alleged Debtors cite to a string
of cases for the argument that the "mere fact that Allied [Systems Holding, Inc.] is incorporated
in Delaware is not a compelling factor for retaining venue." (Transfer Motion ~ 22). The
Alleged Debtors are incorrect: in each of the cases they cite, the balancing of equities were
wholly distinguishable and therefore are not applicable to our case. E.g., In re Innovative
Commcn's Co., 358 B.R. 120 (Bankr. D. Del. 2006) (debtors owned companies that operated
telephone, newspaper and other public communication vehicles, thereby giving the U.S. Virgin
Islands a great public interest in being the venue for the case); In re B.L. of Miami, Inc., 294 B.R
325, 331 (Bankr. D. Nev. 2003) (debtor's primary asset, a nightclub, was subject of extensive
state court litigation in Florida, the outcome of which would have had a large effect on the
administration of the debtor's estate); In re Malden Mills Indus., Inc., 361 B.R. 1, 10 (Bankr. D.
Mass. 2007) (counsel opposing transfer "made no attempt to deal with the traditional factors,"
while the movant's counsel "discussed them at length").
21. This Court and others have found the domicile or place of incorporation entirely
sufficient to support venue on its own. In In re PWS Holding Corp., this Court found that it was
entirely "just" that the chapter 11 case be prosecuted in the state of incorporation of only one of
the family of corporations that had filed petitions. See 1998 Bankr. LEXIS 549, *14 (Bankr. D.
Del. Apr. 28, 1998) ("[i]t is undisputed that American businesses which choose to operate in a
corporate form may choose their state of incorporation. With the choice of citizenship comes
various rights and responsibilities"). In In re Segno Communications, the alleged debtor was a
{935.000-W0021082.}
8
dissolved Illinois corporation, whose principal place was business was in Indiana. See 264 B.R.
501 (Bankr. N.D. Ill. 2001). Despite these facts, the bankruptcy court concluded that the
petitioning creditors' choice of venue, based solely on the alleged debtor's state of incorporation,
was proper and permitted the case to proceed in Illinois. Id. at 506, 511.
III. Transfer of the Alleged Debtors' Involuntary Cases Would Neither Be in the
Interest of Justice Nor for the Convenience of the Parties.
A. The Alleged Debtors Fail to Show that Transferring Venue is Warranted by
a Preponderance of the Evidence.
22. A bankruptcy court may transfer venue of a bankruptcy case "in the interest of
justice or for the convenience of the parties." 28 U.S.C. 1412; Bankruptcy Rule 1014(a)(l).
The Alleged Debtors bear the burden of demonstrating by a preponderance of the evidence that a
transfer of venue is necessary to achieve the statutory purposes of the Bankruptcy Code. See
PWS, 1998 Bankr. LEXIS 549 at *4-5.
23. When venue is proper, deference is given to the venue selection and should only
be changed based on a strong showing that the interest of justice or convenience of the parties
would be served by transfer. See id. ("when venue is proper, a debtor's/plaintiffs choice of
forum is to be accorded substantial weight and deference") (citing In re Del. and Hudson
Railway Co., 96 B.R. 469 (D. Del 1988)); In re Enron Corp, 274 B.R. 327, 342 (Bankr.
S.D.N.Y. 2002) ("Transferring venue of a bankruptcy case is not to be taken lightly."); In re
Walbridge, 51 B.R. 137, 139 (Bankr. D. Mass. 1985) ("Where a transfer would merely shift the
inconvenience from one party to the other or where after the balancing all the factors, the
equities lean but slightly in favor of the movant the ... choice of forum should not be disturbed.")
{935.000-W0021082.}
9
(omission in original) (citing Moore's Federal Practice ,-r 145(5) at 1616, n.5 (2d ed. 1979)). The
Alleged Debtors have not made any such a showing.
3
24. Although the standard in the applicable rule and statute allows for significant
discretion, courts have adopted six factors, among others, to guide the use of that discretion. The
six factors are:
(a) proximity of creditors of every kind to the court;
(b) proximity of the debtor;
(c) proximity of witnesses who are necessary to the administration of the
estate;
(d) location of the debtors' assets;
(e) economic administration of the estate;
(f) necessity for ancillary administration in the event of liquidation.
Matter ofCommonwealth Oil Refining Co., 596 F.2d 1239, 1247 (5th Cir. 1979); see also In re
Safety-Kleen Corporation, 2001 Bankr. LEXIS 1296, *6-7 (D.Del. 2001); PWS, 1998 Bank.
LEXIS 549 at *5.
4
3
The Alleged Debtors cite In re Rehoboth Hospitality, LP, 2011 WL 5024267, *3 (Bankr. D. Del. Oct. 19, 2011) in
support of the argument that there is a presumption in favor of maintaining the debtor's choice of forum. (Transfer
M o t i o n ~ 19). However, the Alleged Debtors' reliance on this proposition and case is misplaced for two reasons.
First, such a presumption necessarily presumes that the debtor was the one that first selected the venue, i.e., that
there is a presumption in maintaining the debtor's choice of forum. Second, Rehoboth only confirms that any
presumption in favor of a debtor's choice of venue may be overcome. In Rehoboth, this Court granted a creditors'
motion to transfer venue of the case to Texas even though the debtor, which owned and operated a single hotel in
Texas, chose to file its voluntary petition in Delaware. There, the creditor presented compelling evidence and
satisfied its evidentiary burden; here, as presented below, the Alleged Debtors have presented no convincing
evidence in support of its burden.
4
The Alleged Debtors' reliance on the factors articulated in Jumara v. State Farm Insurance Company (an
underinsured motorist case governed by Pennsylvania law) is misplaced because Jumara was decided under the
general federal venue transfer statute, 28 U.S.C. 1404(a), not the specific statute dealing with transfer of venue in
bankruptcy cases, 28 U.S.C. 1412. See Jumara v. State Farm Insurance Company, 55 F.3d 873 (3d Cir. 1995).
While motions to transfer venue generally tum on similar issues, the test articulated with respect to bankruptcy
venue statute more properly focuses on the interest of the estate and its creditors rather than only on the interest of
the plaintiff and defendants.
{935.000-W0021082.}
10
B. Proximity of Court to Parties-in-Interest Supports Venue in Delaware.
(a) Creditors, Debtors and Other Parties-in-Interest
25. The Alleged Debtors have not demonstrated either significant (in amount or
number) creditor presence in Georgia or that the convenience of the Alleged Debtors' creditors
and other parties-in-interest would be best served by transfer of venue to the Georgia Bankruptcy
Court. While the Petitioning Creditors do not have the benefit of the Alleged Debtors'
statements or schedules, the Alleged Debtors by their own admission, acknowledge that because
of its "international presence . . . its creditors are spread over a wide geographic area" and not
concentrated in Georgia. (Macaulay Decl. ~ 17). Further, the Alleged Debtors admit that
because 60% of their business is tied to American automobile manufacturers, their creditors are
more heavily concentrated in Michigan, not Georgia. (!d. ~ 17).
26. In addition to the many customers, vendors, and creditors in Michigan, many of
the Alleged Debtors' major creditors are not located in Georgia, and upon information and belief,
Allied's chief executive officer and Allied's chairman of the board of directors, do not reside in
Georgia. More specifically,
The Pension Benefit Guaranty Corporation ("PBGC") one of Allied's
largest creditors, is located in Washington, D.C.;
5
The International Brotherhood of Teamsters (the "Teamsters") is
headquartered in Washington D.C. and has locations across the United
States
6
'
5
Pension Benefit Guaranty Corp., http://www.pbgc.gov/about/pg/other/pbgc-office-locations.html (last visited May
29, 2012). The PBGC has previously appeared in the Georgia Bankruptcy Case and listed the PBGC's Office of the
General Counsel located in Washington, DC as its principal contact information.
6
Teamsters, http://www.teamster.org/?splash=off(last visited May 29, 2012). Several Teamster entities appeared in
the Georgia Bankruptcy Case and listed counsel or locations in the following cities: (1) Central Pennsylvania
Teamsters Pension Fund c/o Stevens & Lee in Philadelphia, PA; (2) International Brotherhood of Teamsters c/o
Previant Goldberg in Milwaukee, WI; (3) New England Teamsters and Trucking Industry Pension Funds in Boston,
MA; (4) Teamsters Pension Fund of Philadelphia & Vicinity c/o Stevens & Lee in Philadelphia, PA; (5) Teamsters
Union 25 Health Services & Insurance Plan in Charlestown, MA; and (6) Western Conference of Teamsters Pension
Fund c/o Reid, Pendersen, McCarthy, eta!. in Seattle, W A.
{935.000-W0021082.}
11
Yucaipa American Alliance Fund I, LP and Yucaipa American Alliance
(Parallel) Fund I, LP (collectively, "Yucaipa"), the alleged largest lender
and controlling shareholder, has offices in New York and California;
The Petitioning Creditors have offices in New York and Connecticut;
The CIT Group/Business Credit, Inc., another major secured lender, is
headquartered in New Jersey/
Derex Walker, the Chairman of the Alleged Debtors' Board of Directors,
resides in California; and
Mark Gendregske, the Alleged Debtors' Chief Executive Officer, either
resides in Michigan or has a home in Michigan where he spends
significant time.
27. The Alleged Debtors' argument that venue should be transferred based on the
proximity of the Alleged Debtors to the Georgia Bankruptcy Court is equally unconvincing.
(Transfer M o t i o n ~ 21). A debtor's employees are rarely required to participate in chapter 11
cases. Even if these cases were to proceed in Delaware, the vast majority of the Alleged Debtors'
management and other key employees will not often, if ever, be required to travel to Delaware to
testify or otherwise appear in Court. The Alleged Debtors' other employees, the majority of
whom are unionized drivers and terminal employees (approximately 1062 out of 1835 people),
operate out of the numerous terminals owned by Allied located across the United States and
Canada. (Macaulay Decl. ~ ~ 5, 6). Thus, it appears from the Alleged Debtors' papers that only
128 of 1835 employees or approximately seven percent of its workforce is located in Georgia.
(Macaulay Decl. ~ ~ 5, 6, 17); see Pic 'N Pay Stores, Inc., Case No. 96-182 (PJW), bench
decision at 16 (Bankr. D. Del. Mar. 8, 1996) ("my experience suggest[s] that rank and file
employees do not participate in a bankruptcy proceeding").
8
7
CIT, http://www.cit.com/contact-us/index.htm (last visited May 29, 2012).
8
A copy of the Pic 'N Pay bench decision is attached hereto as Exhibit B.
{935.000-W0021082.}
12
28. Rather, practice shows that it is the professionals who are routinely required to
appear in court. See In re Safety-Kleen Corp., Case No. 00-2303 (PJW), bench decision at 48
(Bankr. D. Del. July 11, 2000) ("the vast majority of activities in this court involve lawyering
and only a very, very limited number of principals have to appear on very, very limited
occasions ");
9
Enron, 274 B.R. at 347 ("While substantially all of the Debtors' officers are
located in Houston, most will not be required to attend hearings before this Court. Rather, the
certain participants in the proceedings before this Court will be the professionals retained in
these cases."). To that end, it appears that the professionals engaged to date have offices in or
around the Northeast corridor:
The Alleged Debtors' lead counsel, Troutman Sanders LLP, has offices in
New York, Washington D.C. and New Jersey as well as Georgia.
Yucaipa's lead counsel, Latham & Watkins, LLP has offices in New York
and Washington, D.C.
The Petitioning Creditors' lead counsel, Schulte Roth & Zabel LLP, has
offices in New York and Washington D.C.
29. Finally, as a practical matter, any travel costs incurred by the Alleged Debtors'
management, counsel and other professionals will ultimately be borne by the bankruptcy estates
and their creditors. In effect, the Alleged Debtor's secured creditors are underwriting any costs
the Alleged Debtors will incur in travelling to Delaware. The lenders, however, must bear their
own costs.
30. Based upon the foregoing, the proximity of creditors prong does not support the
Transfer Motion.
9
A copy of the Safety-Kleen bench decision is attached hereto as Exhibit C.
{935.000-W0021082.}
13
C. Location of the Alleged Debtors' Assets Offers Little Weight to Venue
Transfer Analysis.
31. The Alleged Debtors have failed to show that the location of their assets supports
transfer of venue to Georgia. The Alleged Debtors' business is national and international in
scope. Thus, the location of their assets offers little, if any weight, to the venue transfer analysis.
See, e.g., Pic 'N Pay, bench decision at 4 ("Unlike the number of reported decisions in this
district and elsewhere and unreported decisions in this district which resulted in a transfer of
venue, this case does not involve a debtor whose principal asset is commercial real estate located
in a district other than this one."); PWS, 1998 Bankr. LEXIS 549 at *12-13 (denying transfer of
venue, recognizing that "bankruptcy practice and jurisdiction reflect American business" and that
"most American businesses (certain those with assets and liabilities counted in the hundreds of
millions of dollars) are truly interstate in practice, national in character" thereby diminishing the
importance ofthe 'convenience' factor).
32. Even if the location of Alleged Debtors' assets favored Georgia as the appropriate
venue, (which it does not), courts have found that the location of the Alleged Debtors' assets is
not a significant factor in deciding whether venue should be transferred where, as here, the goal
of the Chapter 11 case is rehabilitation, not liquidation. See Enron, 274 B.R. at 347-48 ("The
location of the assets is not as important where the ultimate goal is rehabilitation rather than
liquidation.... [W]hile a debtor's location and the location of its assets are often important
considerations in single asset real estate cases, these factors take on less importance in a case
where a debtor has assets in various locations.") (internal citation omitted); Commonwealth Oil,
596 F.2d at 1248 (location of the debtor's assets has greater weight in liquidation proceeding).
33. Likewise, the location of the principal place of business is not conclusive. In
Safety-Kleen, Judge Walsh denied a request to transfer venue to South Carolina despite the fact
{935.000-W0021082.}
14
that the debtor's corporate headquarters, assets, books, records and employees were located there.
See Case No. 00-2303 (PJW), bench decision. There, Judge Walsh concluded that:
[t]he issue of convenience of the parties is not where the headquarters may be or
what operations come out of those headquarters ... [The principals] don't have to
move out of South Carolina [to Delaware] to continue the cash management
system, to continue the day-to-day management and operations, and none of that
has anything in particular to do with appearances in this court .... [R]arely do we
have extended hearings in this court which would require any significant
dislocation from one's operating services in a headquarters.
Id. at 47-48. Similarly in Pic 'N Pay, transfer was denied even where there was "no doubt" that
the debtor's contacts in North Carolina were "much more significant" than those within Delaware
and debtor had most of its stores in the Southeast (including over 100 of approximately 800
stores in North Carolina) and most of the debtor's assets and landlords were located in the
Southeast. See Case No. 96-182 (PJW), bench decision at 3-5, 7.
34. The fact that the Alleged Debtors' books and records are located in Georgia is also
of minor relevance to the venue transfer analysis. With modern technology that information,
which is ordinarily computerized, can be readily transported electronically. See In re Enron
Corp., 284 B.R. 376 (Bankr. S.D.N.Y. 2002) (financial data can be easily transported from
Houston to New York if there was a need for the information).
10
35. The objective of the present cases, if an order for relief is entered, is
reorganization and not liquidation. (Transfer Motion ,-r 8). Thus, the location of the Alleged
Debtors' assets and its headquarters have little significance to the venue transfer analysis.
10
Indeed, in a state court action pending in the New York Supreme Court, the Court directed Yucaipa, the Alleged
Debtors' purported largest lender and controlling shareholder, to share with the Petitioning Creditors, within 72
hours, two years of financial information that Yucaipa had caused Allied to withhold from other lenders. BDCM
Opportunity Fund II LP v. Yucaipa Am. Alliance Fund I, LP, Case No. 65105/2012, Transcript of2/28/2012 Hearing
at 3:6-23; 6:11- 7:13 (a copy is attached hereto as Exhibit D). The Alleged Debtors were able to comply with the
electronic transfer.
{935.000-W0021082.}
15
D. The Alleged Debtors Failed to Show that Transfer to the Georgia
Bankruptcy Court would Promote the Efficient and Economic
Administration of these Cases.
36. The Alleged Debtors have failed to show by a preponderance of the evidence that
transfer of these cases to the Georgia Bankruptcy Court would promote the efficient and
economic administration of the Alleged Debtors' involuntary cases. The vast majority of
negotiations concerning financing and reorganization will take place among the legal and
financial advisors retained in these cases. Experience shows that these negotiations can and will
take place telephonically, through in person meetings in mutually convenient locations, and via
e-mail. The location of the Court in which the cases are pending is generally not relevant.
37. The Alleged Debtors also rely on the argument that assignment of these cases to
Judge Mullins of the Georgia would be the "most economically efficient option for the Alleged
Debtors." (Transfer Motion ~ 25). However, the Alleged Debtors' acknowledge that there is no
guaranty that Judge Mullins would be assigned to these cases. (Transfer Motion ~ 25)
("transferring these Involuntary Petitions to the Georgia Bankruptcy Court, where they would
probably, under the rules of case assignment, be administered by a [sic] Bankruptcy Judge
(Judge Mullins) who is already familiar with Allied and most of the rest of the parties-in-
interest .... ") (emphasis supplied).
-Even if Judge Mullins were to be assigned to these cases, the Plan in the Georgia
Case was confirmed five years ago and thus the Georgia Bankruptcy Court, like the Delaware
Court, would need to be educated by counsel on changes to the Alleged Debtors' capital
structure, business operations, as well as the events resulting in the Alleged Debtors need for
Chapter 11
{935.000-W0021082.}
16
E. Transfer to the Georgia Bankruptcy Court is Not Necessary.for Ancillary
Administration.
IV. The Alleged Debtors Improperly Rely on Bankruptcy Rule 1014(b).
A. The Alleged Debtors Elevate Form Over Substance to Conclude that the
Georgia Bankruptcy Case is Still Open.
40. The Alleged Debtors' argument that the Georgia Bankruptcy Case is still pending
elevates form over substance and should be given little weight in the venue transfer analysis.
Bankruptcy Rule 1 0 14(b) states in relevant part:
11
If petitions commencing cases under the Code . . . are filed in
different districts by, regarding, or against (1) the same debtor ...
11
While the Alleged Debtors rely on Bankruptcy Rule 1014(b) to support their venue transfer request (arguing that
the Georgia Bankruptcy Case is still technically open), the Alleged Debtors have actually failed to comply with
Bankruptcy Rule 1014(b). Technical compliance would have required that the Transfer Motion be filed in the
Georgia Bankruptcy Court.
{935.000-W0021082.}
17
on motion filed in the district in which the petition filed first is
pending and after hearing on notice to the petitioners, the United
States Trustee, and other entities as directed by the court, the court
may determine, in the interest of justice or for the convenience of
the parties, the district or districts in which the case or cases should
proceed. (emphasis supplied).
41. A confirmation order was entered in the Georgia Bankruptcy Case in 2007, over
five years ago. On April 24, 2012, the debtors in the Georgia Bankruptcy Case filed an
Application for Final Decree. In re Allied Holdings, Inc., Case No. 05-12515-CRM (Bankr.
N.D. Ga., Aug. 1, 2005) [D.I. 4182]. The United States Trustee filed a Statement of No
Objection to the final decree on May 21, 2012. The Alleged Debtors concede in their papers "the
[Georgia Bankruptcy Case] is ready to be closed (indeed, a motion for a final decree was
recently filed)." (Transfer Motion ~ 9).
42. Bankruptcy Rule 1014(b) is permissive and requires the Court to evaluate the
same standard (and therefore the same analysis) for transfer as in Bankruptcy Rule 10 14( a). As
set forth above, the Alleged Debtors' have failed to meet their burden of showing that transfer
would be "in the interests of justice or for the convenience of the parties."
B. Allied Systems Holding, Inc. is not a "Debtor" under
Bankruptcy Rule 1014(b).
43. The Alleged Debtors argue that "[b]oth of the Alleged Debtors, [Allied Systems
Holdings, Inc.] and Allied Systems [Ltd. (L.P.)] are debtors in the Chapter 11 cases pending in
the Northern District of Georgia, Atlanta Division. Therefore, petitions against the same Debtor
have been commenced in different districts, triggering the application of Fed. R. Bank. P.
1014(b)." (Transfer M o t i o n ~ 28).
44. The Alleged Debtors' argument is contradicted by their acknowledgement that
Allied was specifically excluded from the Plan confirmed in the Georgia Bankruptcy Case:
{935.000-W0021082.}
18
Allied Systems Holdings, Inc. is the successor by merger with
Allied Holdings, Inc., which was the ultimate parent when the
Original Chapter 11 Case was filed. When the Allied Plan of
Reorganization became effective, Allied Systems Holdings, Inc.
was created as a subsidiary of Allied Holdings, Inc. which was
merged into Allied Systems Holdings, Inc., the surviving
corporation. Thus, in connection with the Original Chapter 11
Case, the terms "Allied" and Debtors" exclude Allied Systems
Holdings, Inc. and include Allied Holdings Inc. Also, in
connection with the Original Chapter 11 Case, the term "Debtors"
includes certain indirect Allied subsidiaries that no longer exist.
Certain indirect Allied subsidiaries formed under the law of
Mexico and Bermuda were not Debtors.
(Transfer Motion at 4, n.1) (emphasis supplied). Under the Bankruptcy Code a "debtor" means a
"person ... concerning which a case under this title has been commenced." 11 U.S.C. 101(33).
Allied is not a debtor since it was formed post confirmation and is not a "person concerning
which a case under this title has been commenced." Thus, Allied should not be considered a
"debtor" pursuant Bankruptcy Rule 1014(b).
45. Finally, while the Alleged Debtors may argue that Allied Systems Ltd. (L.P.) was
a debtor in a prior pending proceeding, the test under Bankruptcy Rule 1014(b) is nevertheless
permissive ("the court may determine"), and for the reasons set forth above venue of these cases
should remain in Delaware.
CONCLUSION
46. The Alleged Debtors have failed to sustain their burden to show by a
preponderance of the evidence that a transfer of venue is "in the interests of justice or for the
convenience of the parties." Rather, the only thing the Alleged Debtors have shown is that
transfer to the Georgia Bankruptcy Court might be more convenient for the Alleged Debtors and
their counsel. That, however, is not the criteria. Thus, the Petitioning Creditors' choice of proper
venue in Delaware should not be disturbed. See In re Enron Corp, 274 B.R. 327, 343 (Bankr.
{935.000-W0021 082.}
19
S.D.N.Y. 2002) (where transfer would merely shift the inconvenience from one party to the
other, choice of venue should not be disturbed).
WHEREFORE, the Petitioning Creditors request that the Court (i) deny the relief
requested in the Transfer Motion, and (ii) grant such other and further relief as is proper.
Dated: May 29,2012
Wilmington, Delaware
{935.000-W0021082.}
20
A am G. Landis (No. 3407)
Kerri K. Mumford (No. 4186)
919 Market Street, Suite 1800
Wilmington, Delaware 19801
Telephone: (302) 467-4400
Facsimile: (302) 467-4500
-and-
Adam C. Harris
Robert J. Ward
SCHULTE ROTH & ZABEL LLP
919 Third A venue
New York, New York 10022
Telephone: (212) 756-2000
Facsimile: (212) 593-5955
Attorneys for BDCM Opportunity Fund II, LP,
Black Diamond CLO 2005-1 Ltd, and
Spectrum Investment Partners, L.P.
EXHIBIT A
ALLIED SYSTEMS HOLDINGS, INC.
Page 1
1 UNITED STATES BANKRUPTCY COURT
2 DISTRICT OF DELAWARE
3 - - - - - - - - - - - - - - - - - X
4 In re:
5 Chapter 11
6 ALLIED SYSTEMS HOLDINGS, INC., Case No. 12-11564(CSS)
7
8 Alleged Debtor.
9 - - - - - - - - - - - - - - - - - - - - - - - - - - - - X
10 In re:
11 Chapter 11
12 ALLIED SYSTEMS LTD. (L.P.), Case No. 12-11565(CSS)
13
14 Alleged Debtor.
15 - - - - - - - - - - - - - - - - - - - - - - - - - - - - X
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212-267-6868
United States Bankruptcy Court
824 North Market Street
May 22, 2012
4:13 P.M.
VERITEXT REPORTING COMPANY
www.veritext.com 516-608-2400
1 BEFORE:
2 BON CHRISTOPHER S. SONTCHI
3 U.S. BANKRUPTCY JUDGE
4
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25 ECR OPERATOR: LESLIE MURIN
212-267-6868
www.veritext.com
Page 2
516-608-2400
Page 3
1 HEARING re Expedited Motion of Petitioning Creditors for the
2 Appointment of a Trustee Pursuant to 11 U.S.C. 105(a),
3 1104(a) (1) and 1104(a) (1) (Filed May 17, 2012, Docket No. 13)
4
5 HEARING re Petitioning Creditors' Motion Pursuant to Del.
6 Bankr. L.R. 9006-1(e) for an Order Shortening Time for
7 Notice of the Hearing to Consider the Expedited Motion of
8 Petitioning Creditors for the Appointment of a Trustee
9 Pursuant to 11 U.S.C. 105(a), 1104(a) (1) and
10 1104(a) (2) (Filed May 17, 2012, Docket No. 12)
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25 Transcribed by: William J. Garling
212-267-6868
Page 4
1 APPEARANCES
2 TROUTMAN SANDERS , LLP
3 Attorney for Allied Systems Holdings, Inc., Debtor
4 600 Peachtree Street, NE, Suite 5200
5 Atlanta, GA 30308
6
7 BY: EZRA H. COHEN, ESQ. (TELEPHONIC)
8 JEFFREY W. KELLEY, ESQ. (TELEPHONIC)
9 MICHAEL JOHNSON, ESQ. (TELELPHONIC)
10
11 RICHARDS, LAYTON & FINGER, P.A.
12 Attorney for Allied Systems Holdings, Inc., Debtors
13 One Rodney Square
14 920 North King Street
15 Wilmington, DE 19081
16
17 BY: CHRISTOPHER M. SAMIS, ESQ. (TELEPHONIC)
18
19 OFFICE OF THE UNITED STATES TRUSTEE
20 Attorney for the United States Trustee
21 844 King Street, Suite 2207
22 Lockbox 35
24
25 BY: DAVID L. BUCHBINDER, ESQ. (TELEPHONIC)
212-267-6868
Page 5
1 SCHULTE, ROTH & ZABEL, LLP
2 Attorney for BDCM Opportunity Fund II, LP, Creditor
3 919 Third Avenue
4 New York, NY 10022
5
6 BY: ADAM C. HARRIS, ESQ. (TELEPHONIC)
7 ROBERT J. WARD, ESQ. (TELEPHONIC)
8
9 YOUNG CONAWAY STARGATT & TAYLOR, LLP
10 Attorney for Yucaipa, Interested Party
11 Rodney Square
12 1000 North King Street
14
15 BY: MICHAEL R. NESTOR, ESQ. (TELEPHONIC)
16
17 LATHAM & WATKINS, LLP
19 355 South Grand Avenue
20 Los Angeles, CA 90071
21
22 BY: ROBERT A. KLYMAN, ESQ. (TELEPHONIC)
23
24
25
212-267-6868
Page 6
1 KASOWITZ, BENSON, TORRES & FRIEDMAN LLP
3 Two Midtown Plaza, Suite 1500
4 1349 West Peachtree Street, N.W.
5 Atlanta, GA 30309
6
7 BY: DAVID E. SPALTEN, ESQ. (TELEPHONIC)
8
9 KASOWITZ, BENSON, TORRES & FRIEDMAN LLP
11 1633 Broadway
12 New York, NY 10019
13
14 BY: DAVID E. ROSS, ESQ. (TELEPHONIC)
15
16 APPEARED TELEPHONICALLY:
17 ROBERT WARD, ESQ.
18 MICHAEL JOHNSON, ESQ.
19
20
21
22
23
24
25
212-267-6868
Page 7
1 P R 0 C E E D I N G S
2 THE CLERK: All rise.
3 THE COURT: Please be seated.
4 Good afternoon, counsel, this is Judge Sontchi and
5 we're here on a status conference in Allied System Holdings
6 and Allied Systems Limited.
7 There are quite a few people on the telephone and
8 I would urge you to please -- to mute your phones if you're
9 not actively speaking, to do your best not to talk over each
10 other, and to remember to identify yourself prior to every
11 time you speak.
12 And I would like to start by hearing from the
13 petitioning creditors.
14 MR. HARRIS: Good afternoon, Your Honor.
15 Adam Harris and Robert Ward from Schulte, Roth &
16 Zabel.
17 Your Honor, would you like to take appearances
18 from everybody before we get started or
19 THE COURT: That would take -- that would take
20 longer than the hearing.
21 MR. HARRIS: Thank you, Your Honor.
22 Your Honor, we filed the involuntary petitions
23 last week as Your Honor knows, and the summons have been
24 served upon the alleged debtors in the case -- in the cases,
25 I should say.
212-267-6868
Page 8
1 In conjunction with the filing of the
2 involuntaries we've also filed a motion for the appointment
3 of a trustee, as well as a motion of entering an order
4 shortening time -- to set a hearing with respect to that
5 motion.
6 Last night, Your Honor, I believe, received a
7 response to the motion shortening time by the alleged
8 debtors as well as a motion to transfer venue of the cases
9 to the Northern District of Georgia.
10 Your Honor, since the responses were filed last
11 night, since the involuntaries were filed last week, we've
12 had an opportunity to speak with counsel for the alleged
13 debtors, Mr. Collins from Richards Layton, as well as
14 Messrs. Kelley and Cohen from Troutman Sanders.
15 Your Honor, the purpose of our suggestion of a
16 status conference, which we brought up late last week or
17 Monday, I can't remember which it was, was that we thought
18 it would be helpful to Your Honor in making decisions about
19 entering orders shortening time or otherwise setting
20 calendars to hear from the various parties as to the issues
21 that were likely to be brought before the Court and on which
22 the Court would be asked to rule.
23 Given certain of the statements that were made in
24 the alleged debtor's filings last night in some instances in
25 the redacted portion -- so I'm not going to talk about them
212-267-6868
Page 9
1 specifically -- I think that the -- many of the issues
2 related to whether orders could be -- relief could be
3 entered based upon the involuntary petitions and the issues
4 under 303 have in some sense been muted by intentions of the
5 company as expressed in their filings. And, obviously, I
6 would like to let Mr. Collins or his co-counsel from
7 Troutman Sanders address those issues.
8 To the extent those intentions are carried out in
9 the manner that they were described in both the filings and
10 as we discussed them with the alleged debtor's counsel
11 today, we think that the cases can move forward on --
12 hopefully on a more cooperative and consensual track. And
13 that there might not need to be any particular order or
14 scheduling order entered by Your Honor relative to our
15 trustee motion at this time.
16 I would like Your Honor to hear from Mr. Collins
17 or his co-counsel from Troutman Sanders on those issues and
18 would then like to have an opportunity to speak thereafter
19 based upon what they say.
20 THE COURT: All right. Let me hear from the
21 purported debtor.
22 MR. SAMIS: Good afternoon, Your Honor.
23 This is Chris Samis from Richards, Layton & Finger
24 on behalf of the alleged debtors.
25 Your Honor, with me on the phone are my co-counsel
212-267-6868
Page 10
1 in this matter, Jeffrey Kelley, Ezra Cohen, and Michael
2 Johnson, all with the Troutman Sanders firm.
3 Your Honor, pro hac vice motions are in process
4 for these gentlemen and we expect to submit them shortly.
5 In advance of these motions being reviewed by the Court and
6 pro hac orders being entered, for the limited purpose of
7 today's status conference, I would request that the Court
8 permit them to speak.
9 THE COURT: I'd be happy to do so; and I'd like to
10 express my personal thanks to you, Mr. Samis, for your
11 yeoman's work in getting the Court the documents I needed to
12 be prepared for today, but I'll hear from them.
13 MR. SAMIS: Your Honor, no problem. I was happy
14 to do so, and I also -- wanted to thank Your Honor for
15 accommodating us this afternoon in reviewing a pretty
16 voluminous docket on very short notice for this status
17 conference.
18 Your Honor, just very briefly, with respect to why
19 we're here today, the alleged debtors believe it's
20 appropriate to use this status conference to address not
21 only the motion to shorten on the trustee motion, but more
22 importantly in our view, the scheduling of our own venue
23 transfer motion, which we think deals with a real gating
24 issue in these cases.
25 So, Your Honor, with that as background, I turn
212-267-6868
Page 11
1 the balance of our presentation over to Mr. Kelley.
2 THE COURT: Very good.
3 Thank you.
4 MR. KELLEY: Good afternoon, Your Honor.
5 This is Jeff Kelley with Troutman Sanders in
6 Atlanta. Ezra Cohen is also, I think, on the line with us
7 now, but I'll do all the speaking, I believe.
8 By way of background, both Ezra and I were counsel
9 to Allied in the first Chapter 11 case of Allied in front of
10 Judge Mullins, here in Atlanta.
11 Your Honor, the filing of these petitions has
12 caused what Allied believes to be, as we set forth in our
13 papers, some unnecessary disruptions and potentially
14 significant damage to Allied's business and its value.
15 Our perspective on how this possibly could have
16 happened and the motives may be driving the petitioning
17 creditors is set forth in particular in the redacted
18 portions of our response to the motion to shorten time for
19 the hearing on the appointment of a trustee where we, among
20 other things, argue that we don't think that any emergency
21 has been shown and that the issues raised have been the
22 subject of the State Court litigations among the various of
23 the parties going back several years.
24 However, Your Honor, due to the filing that's
25 taken place, their -- the actions in this involuntary
212-267-6868
Page 12
1 petition -- involuntary petitions being filed, it does
2 appear very likely the subject to bankruptcy -- subject the
3 board approval, I should say, Allied's board approval, that
4 Allied will likely, in the future, convert these cases to
5 voluntary Chapter 11 cases, but the timing is not ripe today
6 for that. Allied needs a little time to make sure it has
7 adequate financing and cash collateral before it files its
8 other subsidiaries, its many other subsidiaries, along with
9 these two. Those subsidiaries are identified in our
10 response.
11 But, Your Honor, Allied's preferred forum is
12 Atlanta. That's where, as I mentioned, Allied's first case
13 was administered by Judge Mullins. That case is still open.
14 Although it's ready to be closed, it is still open. The
15 reasons that we think a transfer is appropriate are set
16 forth in the venue motion. I'm not going to argue that at
17 this point, but it's primarily the convenience of Allied's
18 very, very stretched-thin executive team, which is located
19 in Atlanta, not to mention Judge Mullins' familiarity with
20 most of the players in this case.
21 The first case was a very large case by Atlanta
22 standards, very intense, a lot of activity in that case, and
23 Judge Mullins had ample opportunity to learn a lot about
24 Allied, and for that matter, Yucaipa.
25 So, Your Honor, we ask that you rule on the venue
212-267-6868
Page 13
1 transfer motion as a gating matter before anything else gets
2 ruled on in this case, because we take the position and
3 believe and submit, that everything else that happens in
4 this case, including the trustee motion, should heard by the
5 Court that ultimately has the case, whether is that Your
6 Honor or a bankruptcy judge in Atlanta, probably Judge
7 Mullins.
8 Your Honor, due to the petitioning creditors'
9 actions we need to get these cases moving along in the right
10 direction, so we respectfully ask that the Court give
11 Allied's transfer motion consideration as soon as the
12 Court's schedule permits, and that's our position as to the
13 status of matters and proposed scheduling.
14 THE COURT: Well, the decision is Judge Mullins';
15 is it not?
16 MR. KELLEY: Would that be -- are you referring,
17 Your Honor this is Jeff Kelley, again -- to Bankruptcy
18 Rule 10014 (sic)?
19 THE COURT: (Indiscernible - 4:22:23).
20 MR. KELLEY: Yes, we did raise that, Your Honor,
21 in our papers, and technically that is correct because the
22 first case is still pending.
23 THE COURT: Okay.
24 Anyone else?
25 MR. HARRIS: Adam Harris -- sorry to interrupt.
212-267-6868
Page 14
1 I guess that would depend on whether the company
2 that was the subject of the case there is, in fact, the same
3 legal entity, which is the subject to the involuntary.
4 My understanding is that Allied Systems Holdings,
5 Inc. is a successor by merger to what was the reorganized
6 debtor, I guess, but it is not the same legal entity that
7 was the debtor in the case down there.
8 Now, that all being said, Your Honor, we've had a
9 conversation with Mr. Kelley and Mr. Cohen and Mr. Samis
10 earlier today where we told them that we would be happy to
11 sit with them and try to better understand their views on
12 Atlanta as an appropriate venue versus -- versus Delaware
13 and take into account and discussing with them the interests
14 of all of the parties involved here, only one of which
15 really is located in Atlanta, the rest of whom are located
16 mostly in the Northeast corridor, but also in California and
17 Detroit and elsewhere.
18 And to the extent the Court is inclined to set a
19 hearing in connection with the venue transfer request, we
20 would only ask that we be given an opportunity to get with
21 the purported debtors and others to discuss this, and that
22 if a hearing need be held, that it would be held sometime
23 late next week rather than between now and the Memorial Day
24 weekend. I don't think that would prejudice the debtors at
25 all given the timetable they seem to be operating on
212-267-6868
Page 15
1 relative to their thoughts on when they would ultimately,
2 potentially convert these cases to voluntary Chapter 11s.
3 THE COURT: Do I take it
4 MR. HARRIS: I
5 THE COURT: I'm sorry.
6 Do I take it that you would were that to be the
7 case, you would hold your trustee motion in abeyance pending
8 the decision on the venue motion?
9 MR. HARRIS: We would, Your Honor.
10 THE COURT: Okay.
11 MR. NESTOR: Yes, Your Honor. Michael Nestor ,
12 Young Conaway on behalf of Yucaipa, and I'm on with Robert
13 Klyman from Latham & Watkins.
14 May we be heard briefly?
15 THE COURT: I'm sorry. I missed your client,
16 Mr. Nestor.
17 MR. NESTOR: It's Yucaipa.
18 THE COURT: Oh, very good.
19 Yes, Mr. Klyman.
20 MR. KLYMAN: Thank you, Your Honor.
21 For the record, Robert Klyman of Latham & Watkins,
22 LLP, on behalf of Yucaipa.
23 Your Honor, by way of background, Yucaipa is the
24 largest lender and shareholder and member of the board of
25 the alleged debtors and we have a direct economic material
212-267-6868
Page 16
1 economic interest in the outcome.
2 We would echo what Mr. Kelley said, that it's,
3 from our vantage point, very important to have the venue
4 determined first and foremost. If Your Honor determines
5 that it's appropriate for Judge Mullins to make the initial
6 decision we would be happy to go down there and get that
7 teed up on an expedited basis.
8 I believe that the debtor chose to file the motion
9 to transfer venue before your Court only because what's left
10 to be resolved in Atlanta is a motion to close the case, but
11 under the plain reading of the statute that may be the
12 more appropriate place for determination as to venue. We
13 just thought that since there was a trustee motion on an
14 expedited basis filed this was the natural venue to first
15 raise the issue. But as I said, at least from Yucaipa's
16 perspective, having the issue determined by Judge Mullins
17 would be a perfectly fine result on an expedited basis.
18 I would just add two other points. The first is
19 while my colleague, Mr. Harris, says that he needs more time
20 to sit down with the debtors, and maybe Yucaipa to
21 understand all there is about the venue in Atlanta, the fact
22 of the matter is that they did have sufficient time to do
23 that before they filed an involuntary. The filing of the
24 involuntary was their timing, not the debtor's, and the
25 reasons why venue's appropriate in Atlanta, I believe, are
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Page 17
1 spelled out in great detail in the motion to transfer venue.
2 So, although on behalf of Yucaipa, and I believe
3 Mr. Kelley would echo the sentiment, we are always happy to
4 sit down with Black Diamond and Mr. Harris. We do not
5 believe that that is a reason to delay a resolution of the
6 venue motion.
7 The alleged debtors are suffering, you know,
8 potential business issues while they are in limbo. They
9 want to tee up a process for obtaining financing and getting
10 on with the case in a manner that preserves value, both for
11 the enterprise as a whole and the secured lenders, including
12 Black Diamond in particular.
13 We would also ask Your Honor that while the venue
14 issue is being decided that Black Diamond actually withdraw
15 the trustee motion without prejudice with the ability to
16 refile it on an expedited basis if they'd like, with all
17 parties reserving their rights with respect to whether or
18 not the request for expedited hearing is appropriate before
19 whatever judge ultimately hears the case.
20 The -- it's, you know, tough enough for the
21 business and management to be dealing with an involuntary
22 and scrambling to catch up to make sure that the business
23 doesn't suffer the unnecessary stigma of a trustee motion,
24 which is not going to be heard for some period of time, is
25 something that, at least on Yucaipa's behalf, we would like
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Page 18
1 to avoid hanging over when we meet with customers and
2 vendors and the like, recognizing that this would not
3 prejudice Black Diamond's ability to refile at any time in
4 the future.
5 THE COURT: Well, I think that from what I had
6 read in the papers Black Diamond might take issue with your
7 comment that you're willing to sit down and talk to them,
8 but that wasn't my impression from what I read.
9 All right. Does anyone else care to make
10 comments?
11 MR. BUCHBINDER: Your Honor, this is Dave
12 Buchbinder from the U.S. Trustee's Office.
13 We are concerned about Rule 1014(b) and how it
14 applies here. If we do have the same debtor the rule would
15 seem to imply that anything pending here is stayed until the
16 Court in Atlanta rules otherwise or orders otherwise.
17 To the extent that an issue has been raised as to
18 whether or not this is the same debtor, Rule 1014(b),
19 Subdivision 4, says that if petitions commencing cases are
20 filed in different districts by regarding or against and Sub
21 4 is a debtor and an affiliate, if the new debtor is a
22 successor they may or may not be an affiliate.
23 And so what I'm getting at is I agree with the
24 parties that the threshold matter here is a ruling on either
25 Rule 1014(b) 's applicability or a ruling on the venue
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1 motion, and it may be that the venue motion, if it were to
2 proceed here, requires the consent of the judge in Atlanta
3 because that's the case first filed, and the last thing I
4 think any of the parties on line would want would be a
5 ruling from this Court and then someone going back to
6 Atlanta saying the ruling here was void because of Rule
7 1014 (b) .
8 THE COURT: Thank you. I understand your
9 position.
10 I think it's less than clear whether this Court
11 has, without authority, to enter any order pending that
12 decision as opposed to simply making a decision on venue,
13 but I certainly appreciate your (Indiscernible - 4:30:31) I
14 think that's the most sophisticated response to some of the
15 complications that the Court is looking at in this case.
16 Anyone else?
17 MR. KELLEY: Yeah, this is Jeff Kelley, again, for
18 the alleged debtors.
19 I -- I would will also like to reiterate and state
20 for the alleged debtors that we're certainly willing -- I
21 don't know about -- you know, we are not Yucaipa, and
22 whatever was alleged and whether it's true or not about
23 Yucaipa's willingness to cooperate -- of course the alleged
24 debtors are willing to sit down and cooperate and talk with
25 their lenders at any time. We don't have to be subject to
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Page 20
1 an involuntary bankruptcy petition to do that; we're always
2 willing to do that, and we need -- and we know we need to
3 cooperate.
4 So, I just wanted to address the cooperation
5 issue, and to reiterate that however we do it, we would like
6 to try to get a decision as soon as the Court's calendar
7 permits on the venue transfer motion.
8 If I needed to go file something in front of Judge
9 Mullins I would. I don't want to unduly complicate this by
10 doing that. We did think that under the circumstances of
11 this case, this was the appropriate place to bring up the
12 venue transfer motion.
13 THE COURT: All right. What's the debtor's
14 position -- presuming I will schedule the venue transfer
15 motion to be heard expeditiously what's the debtor's
16 position on when that should occur?
17 MR. KELLEY: As soon as Your Honor's calendar
18 permits.
19 THE COURT: Okay. Can I --
20 MR. KELLEY: (Indiscernible - 4:32:09.)
21 THE COURT: -- can I transfer the case before
22 entry of an order for relief?
23 MR. KELLEY: We believe you can, Your Honor. This
24 is a --under the strict ruling reading of 303(b) a case was
25 commenced
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1 THE COURT: Uh-huh.
2 MR. KELLEY: -- when the petitions were filed, and
3 we are seeking -- we filed a motion seeking the transfer of
4 a case.
5 THE COURT: Mr. Harris, anything?
6 MR. HARRIS: Your Honor, I mean I understand the
7 strict reading -- the way they're looking at it; on the
8 other hand, what would be the purpose of transferring venue
9 if the only thing the Court who is receiving it would do
10 would be then to be ruling on whether or orders for relief
11 should be entered or not unless there's going to be a ruling
12 that Your Honor can make if there's going to be a contested
13 involuntary. If there's not going to be a contested
14 involuntary and the debtors were to affirm that, then, you
15 know, there wouldn't be any issue with dealing with the
16 venue transfer in my mind.
17 But there seems to be a timing issue in some
18 respects as to the desire to go to a forum and then deal
19 with the involuntary and conversion at a later date, and not
20 even, frankly, confirmed, but they said subject to board
21 approval -- and I think the word used was "likely" convert,
22 where that would basically put us in a position of
23 litigating the involuntaries in a jurisdiction in which we
24 didn't file them.
25 THE COURT: All right. So, what I'm -- I'm going
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1 to see if I can make sure I understand what I'm hearing.
2 And what I'm hearing from Mr. Harris is, at least
3 for the immediate future, he's not pressing the trustee
4 motion, and again, would like to open and we'll continue in
5 a dialogue concerning how this case will go forward, whether
6 it go forward here in Delaware or whether it get filed or
7 transferred to some other jurisdiction.
8 What I'm hearing from the debtor is that and
9 its supporters -- that the only thing they want me to decide
10 what venue the case should (indiscernible - 4:34:18) once
11 that decision has been made they'll be in a position,
12 perhaps, to make a decision on whether agree to agree to an
13 entry of order for relief or not.
14 Is that right -- I want to make sure -- is that a
15 gating issue or do you (indiscernible- 4:34:39)?
16 MR. KELLEY: This is Jeff Kelley.
17 It's my opinion that the two are unrelated in my
18 view. Allied Systems needs to make a decision, and the
19 (indiscernible - 4:34:50), Your Honor, is I just don't have
20 the board sitting here with me, that -- which because of the
21 filing of the involuntary petitions we will be consenting,
22 we just do not wish to have a crash landing into a voluntary
23 Chapter 11. We want to make sure that our financing is all
24 lined up and we want to do it as neatly as possible with the
25 right message to all of our constituencies, many of whom are
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Page 23
1 on the phone.
2 So, I don't think the two are related, Your Honor.
3 The fiduciary decision of deciding to go ahead and enter
4 into a voluntary 11 is independent of the venue motion.
5 THE COURT: Right.
6 MR. KELLEY: We just -- we wanted to make -- to
7 bring the venue motion before your Court in a very early
8 time to let you know that it was an issue. We were faced
9 with an emergency filing for appointment of a trustee. We
10 didn't think that if Your Honor was not going to keep the
11 case, not presupposing at all what Your Honor's decision
12 will be, that Your Honor would want to be the one deciding
13 whether to appoint a trustee
14 THE COURT: Okay.
15 MR. KELLEY: -- so we brought this motion to your
16 attention promptly.
17 THE COURT: Very good. And I understand you would
18 like Mr. Nestor to withdraw, but, of course, I can't make
19 him withdraw it.
20 I will offer a comment. I think as presented in
21 its -- or in the papers that the trustee motion is not
22 particularly persuasive, of course, all those motions
23 require a development of facts and it's somewhat difficult
24 to figure it out from the actual papers.
25 What I'd like to do in this case and what I will
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Page 24
1 do is let's have a hearing on the venue transfer motion on
2 Thursday, May 31st. (Indiscernible - 4:36:44 reschedule
3 that, I'm available throughout the day with -- I do have to
4 take a break in the late morning, so I won't be available
5 until say 10:30, if we started in the morning, or I'm
6 available 12:30 going forward whether we take a break or we
7 start in the afternoon.
8 I know there are a lot of people who are going to
9 be interested and when the timing on that is going to be, so
10 if people want me to simply state a time I will and we'll
11 basically try to figure it out.
12 But, I think regardless of whether this is going
13 to be withdrawn or filed an 11 or what have you, I have a
14 responsibility to decide very quickly where -- what the
15 venue should be. And it very well may be at the end of that
16 Mullin hearing my answer is going to be, I can't make that
17 decision because Judge Mullins is going to make that
18 decision.
19 But if it is appropriate for this Court to have a
20 hearing on transfer venue, then one of the possibilities may
21 be that this Court doesn't have the power, or the
22 possibility is this Court decides it has that power and
23 makes a decision. Either way, I need to hear from the
24 parties and the facts and law to make that call.
25 Is there any comment on that?
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Page 25
1 MR. HARRIS: Your Honor, it's Adam Harris.
2 That's all fine with us, just two
3 questions/comments.
4 One is, can we set a time for filing responses of
5 maybe a day before the hearing? And that ties into my
6 suggestion that we hold the hearing, if Your Honor's
7 available, at 2 o'clock in the afternoon. That way parties
8 can get in and out the same day, including potentially
9 flying up from Atlanta to the extent they need to do that,
10 rather than doing something early in the morning where
11 people may feel compelled to come in the night before
12 just the cost issue. I think if we do the 2 o'clock, then
13 we can try to get the responses by noon the day before. If
14 that's too tight, we can probably do it a little sooner than
15 that.
16 THE COURT: All right.
17 MR. KELLEY: Your Honor
18 THE COURT: Go ahead. Sorry, go ahead.
19 MR. KELLEY: this is Jeff Kelley.
20 The date of the hearing is fine, and we would ask
21 that, if possible, the response date be set a little sooner
22 than that to give us a little bit more time to read it, and
23 we appreciate and agree with Mr. Harris' suggestion that the
24 hearing start at 2 o'clock.
25
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THE COURT: All right.
Page 26
1 MR. HARRIS: Your Honor, we can do the response
2 5:00p.m., Tuesday, the 29th, I guess that would be.
3 THE COURT: Well, that's what I was about to say.
4 All right. We'll have a hearing May 31st at
5 2:00 p.m. on the venue motion.
6 Responses are due to -- by no later than 5:00 p.m.
7 on the 29th, which is Tuesday. (Indiscernible - 4:39:46)
8 transfer motion and no other motions.
9 Anything else?
10 And -- I'm sorry, in the pending, at least the
11 (indiscernible - 4:40:00) I'm going to hold the trustee
12 motion in abeyance.
13 MR. HARRIS: That's fine, Your Honor.
14 Thank you.
15 THE COURT: Okay.
16 MR. SAMIS: Your Honor, this is Chris Samis.
17 For the record, just to be absolutely clear, we do
18 actually have a pending motion to seal in connection with
19 our venue motion, so I would ask that that be heard at the
20 hearing, as well.
21 THE COURT: Well, I was about to say that.
22 UNIDENTIFIED SPEAKER: (Indiscernible - 4:40:19)
23 Your Honor, with respect to certain matters that were
24 contained in our statement in support of trustee motion.
25 MR. HARRIS: Your Honor, I don't think there's any
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Page 27
1 opposition from either side to those -- Chris, unless you
2 guys have some issues with ours -- so we might be able to
3 submit orders and not -- and avoid a hearing on those.
4 THE COURT: All right. Well, here's where we'll
5 go with that. I was about to say this actually, but I
6 appreciate being reminded.
7 To the extent there are (indiscernible 4:40:46)
8 confidentiality or seal of motions, obviously, we'll hear
9 those motions in relation to the venue motions, and if there
10 aren't any objections and you want to send out a stipulated
11 order, that's fine with the Court; however you want to play
12 it.
13 But let's limit it to the venue motion and the
14 related file under seal motions, et cetera.
15 MR. SAMIS: Thank you, Your Honor.
16 I'll --we'll discuss that with Mr. Harris and
17 we'll get it worked out.
18 MR. HARRIS: All right. Great. Thank you.
19 THE COURT: Very good.
20 Anything else?
21 MR. BUCHBINDER: Your Honor, this is Dave
22 Buchbinder, again.
23 It might be -- I'm sort of concerned about 1014(b)
24 here, as I know everyone else is, and I wouldn't want
25 everyone to end up in another forum and fighting about what
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Page 28
1 applied here or didn't apply here.
2 It seems to me that that threshold issue in the
3 venue motion is whether or not Rule 1014(b) applies based
4 upon the comment that we maybe are not dealing with the same
5 debtor.
6 If the Court were to find that we weren't, then we
7 we'd be looking at what I'll call a traditional change of
8 venue motion, the motion that was filed. But if the Court
9 were to find that one of the four types of entities
10 described in Rule 1014(b) is the --and type of entity we're
11 dealing with, I think the rule doesn't give the Court any
12 discretion except to move the case back to Atlanta.
13 So we might want to deal with 1014(b) first, and
14 as further backup, the parties might all want to agree, and
15 at least for purposes of the venue motion, they're not going
16 to invoke this rule or the Court may want to independently
17 consult with Judge Mullins, who may want to issue an order
18 allowing this Court to rule on the venue motion so that the
19 record is clear and that a lot of unnecessary time is
20 perhaps not wasted downstream litigating these matters.
21 It's just a suggestion.
22 THE COURT: Well, I'm not at all sure that I agree
23 that if there's a pre-existing case there is no choice but
24 to transfer venue. I'm not sure I agree with your
25 interpretation of the statute.
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Page 29
1 And the point I was trying to make in connection
2 with the hearing is that I intend to consider the 1014
3 issues in connection with the venue transfer motion, but I
4 think I have to do so based on the facts, and it sounds to
5 me like there may be a factual issue at play here about
6 1014.
7 If I find that I have a situation where there's a
8 pre-existing case and that Judge Mullins, or whoever has
9 that case has the decision, I mean, I think it would be
10 nonetheless helpful to combine the motions, because if I
11 decide no then I can decide it on the merits; if I decide
12 yes I can kick it to Judge Mullins, but I can also make,
13 perhaps, observations that he would find helpful.
14 So I'm going to have the whole hearing the same
15 day, okay?
16 MR. BUCHBINDER: Well, I wasn't -- this is Dave
17 Buchbinder.
18 I wasn't suggesting to not have the hearing the
19 same day.
20 THE COURT: Oh, okay.
21 Thank you, I'm sorry. I --
22 MR. BUCHBINDER: I was just simply suggesting that
23 in terms of order, the 1014(b) issue might be first.
24 THE COURT: Well, that's something for the parties
25 to work out in how they're going to run their hearing, but I
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Page 30
1 certainly would hope that the parties -- and I know they
2 will, because I know you all will figure out a
3 professional and logical way to do it.
4 Okay. So the hearing will be May 31st at
5 2:00p.m.
6 Responses due by 5:00 on the 29th, which is
7 Tuesday.
8 All right. Anything else?
9 All right. We're adjourned.
10 MR. HARRIS: That's it from the petitioning
11 creditors, Your Honor.
12 Thank you.
13 THE COURT: Okay. We're adjourned then.
14 Thank you.
15 MR. KELLEY: The debtors thank you, Your Honor.
16 MR. BUCHBINDER: On behalf of the U.S. Trustee,
17 thank you, Your Honor.
18 (Whereupon these proceedings were concluded at
19 4:44 P.M.)
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1 C E R T I F I C A T I 0 N
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3 I, William J. Garling, certify that the foregoing transcript
4 is a true and accurate record of the proceedings.
5
6
7
8
9
William J.
Garling
10 Veritext
Digitally signed by William J. Garling
,,, DN: cn=William J. Garling, o=Veritext,
/ )!J, email=digital@veritext.com, c=US
. / Date: 2012.05.25 15:15:20 -o4'oo
/,l
11 200 Old Country Road
12 Suite 580
13 Mineola, NY 11501
14
15 Date: 5/24/2012
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1
IN THE UNITED STATES BANKRUPTCY COURT
In Re:
PIC 'N PAY STORES, INC., Case No . 9 6 - 1 8 2 ( P JW)
BEFORE:
Debtor.
United States Bankruptcy Court
824 Market Street - Sixth Floor
Friday, March 8, 1996
1:30 p.m.
HONORABLE PETER J. WALSH,
United.States Bankruptcy Judge
WILCOX & FETZER
1330 King Street - Wilmington Delaware 19801
24 (302) 655-0477
Wilcox & Fetzer
Registered Professional Reporters
ORIG\NAL
Wilcox & Fetzer
2
1 THE COURT: Please be seated. This is
2 the matter of Pic 'N Pay Stores. I apologize for
3 the continuance from yesterday, but I had
4 administrative problems that made it impossible for
5 me to try to put something on paper that I could
6 hopefully present in a more organized fashion, and I
7 have been able to do that.
8 And in making the ruling, from time to
9 time I may ad lib in addition to what I have been
10 able to put on paper. Unfortunately given the
11 additional day, I did what lawyers do and made it
12 longer than it should be.
13 The matter before me is the motion
14 filed by NationsBank, N.A. pursuant to 28 USC,
15 Section 1412 to transfer venue of this case to the
16 Western District of North Carolina located in
17 Charlotte, North Carolina. The motion was, of
18 course, heard on March 6, 1996.
19 Having considered the evidence
20 presented by the affidavits and live testimony and
21 other m a t t e ~ s of record in this case, and having
22 heard extensive argument by parties in favor and
23 those opposed, I find that while this is a close
24 question, as I view Section 1412 and the relevant
Wilcox & Fetzer
3
1 cases, the relevant factors favor the Debtor and I
2 will therefore dery the motion.
3 I will briefly discuss a number of,
4 but not all of, the factors I have considered in
5 coming to this conclusion.
6 Pic 'N Pay Stores, Inc. is a Delaware
7 corporation and there is no disputing the fact that
8 pursuant to 28 USC, Section 14081, it is entitled to
9 file a Chapter 11 case in this district.
10 The question is whether a transfer of
11 venue to the Western District of North Carolina_
12 would, pursuant to Section 1412, be in the intere-st of
13 justice or for the convenience of the parties. The
14 focus of the debate here is the convenience of the
15 parties.
16 A transfer of venue motion pursuant to
17 Section 1412 lies within the sound discretion of the
18 Court and the party moving for change of venue bears
19 the burden of proof which must be carried by a
20 preponderance of the evidence.
21 The case law has established a number
22 of factors which the Court should consider. And the
23 parties are agreed that those factors are as
24 follows: One, the proximity of creditors of every
Wilcox & Fetzer
4
1 kind to the Court.
2 Two, the proximity of the Debtor to
3 the Court.
4 Three, the proximity of witnesses
5 necessary to the administration of the estate.
6 Four, the location of the Debtor's
7 principal assets.
8 And five, the economic administration
9 of the estate.
10 The parties are in disagreement
11 regarding the application of the facts to these
12 factors. In applying these factors, it's
13 appropriate to first point out what this case does
14 not involve.
15 Unlike the number of reported
16 decisions in this district and elsewhere and
17 unreported decisions in this district which resulted
18 in a transfer of venue, this case does not involve a
19 debtor whose principal asset is commercial real
20 estate located in a district other than this one.
""
21 Furthermore, this case does not
22 i n v o l v ~ disputes between the Debtor and secured
23 creditors, or between competing secured creditors
24 having substantial claims.
Wilcox & Fetzer
5
1 There are no significant creditors
2 with secured claims and consequently it is
3 anticipated that there will not be significant
4 disputes involving state law issues regarding
5 priorities, collateral value, and the like.
6 NationsBank is by far the largest
7 creditor in this case. Indeed its $41 million claim
8 dwarfs the other claims in this case. NationsBank,
9 of course, is headquartered in Charlotte, North
10 Carolina and it is entirely understandable that it
11 would prefer to have this case proceed in the
12 bankruptcy court in Charlotte.
13 There is no doubt that the Debtor's
14 contacts within North Carolina in terms of assets
15 and creditors are much more significant than those
16 types of contacts within the State of Delaware.
17 The Debtor's administrative offices
18 and its distribution center are located in a large
19 facility in Charlotte.
20 Furthermore, out of a total of
21 approximately 800 stores, 109 of them are located in
22 North Carolina.
23
24 Delaware.
The Debtor has only four stores in
However, the Debtor has many more
Wilcox & Fetzer
6
1 contacts outside of North Carolina than in North
2 Carolina.
3 The Debtor has close to 800 stores and
4 most of those stores are not located in North
5 Carolina. For example, it has more stores in
6 Georgia than in North Carolina, and almost as many
7 stores in Florida as in North Carolina.
8 Its stores are located for the most
9 part in the southeast region of the country,
10 including 27 stores in Texas.
11 Furthermore, the Debtor has many
12 contacts with closer proximity to Delaware than to
13 North Carolina.
14 In its opposition to the motion, the
15 Debtor sets forth a number of facts which it asserts.
16 supports its position when applying the five factors
17 recited above. While some of those facts may be
18 subject to limited dispute, for the most part I find
19 them to support the conclusion that this forum is
20 either more convenient or equally convenient versus
21 Charlotte for the administration of this case.
22 In brief, these factors include the
23 following: One, according to the Debtor's
24 twenty largest
Wilcox & Fetzer
7
1 creditors list, some of which listings may be in
2 dispute, fifty percent of the unsecured creditors
3 with claims in excess of $11 million are located in
4 the northeast part of this country, particularly in
5 Maryland, Massachusetts, New Jersey, New York, and
6 Pennsylvania.
7 Two, 880 venders and landlords are
8 scattered throughout thirty-six states in the United
9 States and three foreign countries.
10 Three, sixty percent of the inventory
11 is imported from foreign venders.
12 Four, the heaviest concentration of
13 domestic venders is New York with twenty-nine
14 venders, and New Jersey with seventeen venders.
15 Five, fifty-two percent of domestic
16 venders are located in the northeast while only ten
17 percent of them are located in North Carolina.
18 Six, eighty-six percent of the
19 landlords are located in states other than North
20 Carolina, although it must be pointed out that most
21 of the landlords are, in fact, located instates
22 contiguous to North Carolina.
23 Seven, the Debtor has approximately
24 BOO retail stores located in nineteen states.
Wilcox & Fetzer
8
1 Parenthetically I would add that
2 prepetition, at least according to my information,
3 the Debtor closed a large number of stores in Texas
4 and it is my understanding that it is likely to
5 close more stores in Texas. And in terms of
6 landlord/debtor disputes, at least at this early
7 stage it would appear that much of the action will
8 arise out of Texas leases.
9 I will return and comment later
10 on this point of landlord/debtor disputes because as
11 I observed at the hearing, I didn't view this as a
12 terribly important issue in terms of venue change.
13 Based on this itemization which is
14 obviously a summary, and on some of these points I
15 will discuss them in more detail, it seems clear to
16 me that most of the Debtor's assets and most of its
17 creditor contacts are well outside the state of
18 North Carolina.
19 The Debtor's two senior executives,
20 Messrs. William Taggart and Sanford Nacht both
21 reside in and have their offices in New Jersey.
22 Mr. Nacht is senior vice-president in
23 charge of reorganization. Mr. Nacht recently came
24 on board with the Debtor and he is the principal
Wilcox & Fetzer
9
1 officer in charge of the Debtor's reorganization
2 affairs including, but not limited to, DIP financing,
3 downsizing, lease rejections, and going out of
4 business programs. He has and will have a pivotal
5 r o 1 e in t hi s reo r g ani z at i on p ~ ~ o c e e ding , and i s
6 expected to be the Debtor's primary witness in court
7 proceedings relating to these matters.
8 While Mr. Nacht is presently spending
9 three to four days a week in Charlotte, that is
10 intended to be a temporary arrangement lasting six
11 to seven weeks. And once the process is in place, as
12 he testified, he does not expect to spend much time
13 there.
14 He lives in Princeton, New Jersey and
15 will be operating out of his office in Edison, New
16 Jersey.
17 Of course the day-to-day operating
18 officer of the Debtor does operate out of Charlotte,
19 but according to Mr. Nacht he is relocatable.
20 One hundred percent of the stock of
21 the Debtor is owned by Sussex Holdings, Inc., a
22 Delaware corporation which is owned and controlled
23 by Mr. Taggart. Sussex acquired its sharehold
24 interest in early February, 1996, just prior to the
Wilcox & Fetzer
10
1 filing of the petition. Prior to that time the
2 Debtor was owned by a Canadian corporation and prior
3 to the early February transaction, NationsBank was
4 involved in discussions and negotiations with the
5 Canadian parent with a view to a reorganization,
6 including a Chapter 11 filing in Charlotte.
7 Before these negotiations could be
8 completed and a plan put in place, the Canadian
9 parent sold its interest to Sussex and then Sussex
10 caused the Debtor to file its Chapter 11 petition in
11 this Court.
12 It appears that this turn of events
13 came as a surprise and a disappointment to
14 NationsBank and under the circumstances its fervor
15 in pressing for a transfer of this case to Charlotte
16 is entirely understandable.
17 I find the situation with respect to
18 the Debtor's administrative offices and distribution
19 center in Charlotte to be of considerable
20 significance here. Note I say the "situation" with
21 respect to that.
22 According to Mr. Nacht's testimony,
23 the Debtor's facility in Charlotte is a 50,000
24 square foot administrative office with a 200,000
Wilcox & Fetzer
11
1 square foot distribution center located on forty
2 acres.
3 This facility has much more capacity
4 than is needed by the Debtor, and indeed the
5 facility was put up for sale some time before Sussex
6 acquired the Debtor. The proposed sale will be
7 either a straight sale or a sale lease back
8 arrangement.
9 According to Mr. Nacht, a sale lease
10 back acrangement is problematic because the facility
11 is much too big for the Debtor, and a sale lease
12 back arrangement would need to involve one or more
13 other parties to share the space, and presumably
14 would require some reconfiguration of the facility.
15 This raises the distinct possibility,
16 if not probability, that the Debtor's administrative
17 offices and/or distribution center will be
18 relocated. Mr. Nacht indicated that a possible new
19 location would be Charleston, South Carolina. The
20 reason for that being that with most of its
21 inventory c"oming from foreign countries, it would
22 make more sense to have the distribution center
23 located at the point where the goods are imported.
24 Thus, I find the present fact of the
Wilcox & Fetzer
12
1 existence of the administrative office and the
2 distribution center in Charlotte to be of limited
3 significance in terms of this Chapter 11 case that is
4 likely to be pending for a significant period of
5 time.
6 I suggest a significant period of time
7 because it is quite clear that if this Debtor is to
8 successfully reorganize, it will have to undertake
9 major restructuring which in today's distressed
10 retail environment will likely require considerable
11 time and effort.
12 Furthermore, given the fact that
13 Mr. Taggart is the chairman of the board of the
14 Debtor and has given Mr. Nacht complete
15 reorganization responsibilities, it cannot be
16 concluded with certainty that the North Carolina
17 facility is the "principal" office of the Debtor.
18 In terms of decision making, at least
19 as it relates to dealing with creditors and this
20 reorganization case, the focus is in New Jersey, not
21 North Carolina.
22
As I previously noted, given the size
23 of NationsBank's claim, it is a major player in this
24 case and its convenience has to be considered.
Wilcox & Fetzer
13
1 However, it is a matter of public record and indeed
2 the testimony of NationsBank's witness,
3 Mr. King, shows that NationsBank is not a local
4 bank, not even a regional bank, but a nationwide
5 bank.
6 According to Mr. King who is in the
7 corporate workout department of the bank, the bank
8 has $180 billion of assets. Its lending activities
9 to large and small corporations is nationwide and
10 like any large lending institution, I assume it
11 finds itself in bankruptcy courts throughout the
12 country.
13 In this regard it is important to note
14 that NationsBank is not a secured lender and it does
15 not have an ongoing lending relationship with the
16 Debtor.
17 Consequently, to the extent that the
18 loan is administered in the bank's Charlotte office,
19 there is little left to administer. At this point
20 the loan is in the corporate workout department of
..
21 the bank and I assume that that department is
22 nationwide in its activities.
23
24
This Chapter 11 case was commenced on
February 15, 1996. The transfer of venue motion was
Wilcox & Fetzer
14
1 filed on February 22. The Creditors' Committee was
2 formed on March 1, and shortlv thereafter it held
3 its first meeting, retained counsel, and then took
4 under consideration, among other things, the transfer
5 motion.
6 Shortly prior to the March 6th
7 hearing, I was advised that the committee voted to
8 support the motion. At the outset of the hearing on
9 March 6th, I observed that I found this fact to be
10 of considerable significance in favor of a
11 transfer.
12 However, during the course of the
13 hearing, it was revealed that the Committee's vote
14 in favor of the motion was sharply divided and
15 subject to debate as to its implication.
16 There are seven committee members. At
17 a meeting at which all seven members were in
18 attendance, three voted for, two voted against, and
19 two abstained.
20 According to the bylaws which counsel
~
21 for the committee proposes that the committee adopt,
22 a quorum will consist of five members. And with
23 respect to this particular vote, the two abstentions
24 would be viewed as not in attendance, so that
Wilcox & Fetzer
15
1 according to committee counsel's interpretation, a
2 quorum of five voted and three out of the five voted
3 in favor of supporting the motion and therefore the
4 motion carried.
5 Assuming that bylaw is applicable and
6 the method of counting votes is appropriate, as I
7 view the matter, four of the seven members found
8 that they could not support the motion. This hardly
9 constitutes an enthusiastic support of the motion by
10 the committee.
11 What I find equally perplexing is why
12 the committee members, given their locations, would
13 support the motion. According to the US Trustee's
14 March 4, 1996 notification of appointment, of the
15 seven members, only one is located in Charlotte,
16 North Carolina, namely NationsBank whose
17 representative is the chairman of the committee.
18 According to the US Trustee's report,
19 the other six members are located in San Francisco,
20 California, Newton, Massachusetts, St. Louis,
..
21 Missouri, New York City, Bedford New Hampshire, and
22 Hong Kong.
23 Although I cannot tell these six
24 members what is more convenient to their location,
Wilcox & Fetzer
16
1 Delaware or North Carolina, my understanding of
2 geography and airline travel would not lead me to
3 conclude that, with the possible exception of the St.
4 Louis member, for these six members a venue in
5 Charlotte, North Carolina is more convenient than a
6 venue in Delaware.
7 NationsBank makes much of the fact
8 that the Debtor has 250 employees in Charlotte
9 representing more employees than located in any
10 other state. As I observed at the hearing, I do not
11 attach much significance to this fact simply because
12 my experience suggest that rank and file employees
13 do not participate in a bankruptcy proceeding.
14 Certainly in terms of court
15 appearances and being involved in negotiating
16 reorganization matters including the plan, while
17 their stake in the Debtor's affairs is certainly
18 important, I do not see the rank and file employees
19 as having a role in the administration of this
20 case. Certainly none of those employees or their
-:;,
21 representatives are on the committee.
22
Wachovia Bank, N.A., not a member of
23 the committee, has spoken in support of the motion.
24 It is my understanding that Wachovia is also located
Wilcox & Fetzer
17
1 in Charlotte. Wachovia is a credit card processor
2 which does the credit card processing for the
3 Debtor. It is my understanding that approximately
4 twenty percent of the Debtor's sales are processed
5 through credit cards through Wachovia. Obviously
6 this is an important aspect of the Debtor's
7 business.
8 However, Wachovia is not a significant
9 creditor of the Debtor and the credit card
10 processing work which it does for the Debtor is a
11 very mechanical process, not really involving a
12 conventional lender/debtor banking relationship.
13 Indeed it is my understanding that if
14 Wachovia wished to terminates its relationship with
15 the Debtor, it could elect to do so, and likewise
16 the Debtor could elect to terminate the
17 arrangement.
18
On a non-emergency basis, a substitute
19 credit card processor could easily be obtained by
20 the Debtor.
21
Furthermore, pursuant to a recently
22 concluded stipulation and order, Wachovia's
23 prepetition claim has been paid and I therefore
24 conclude it does not have a significant role in this
Wilcox & Fetzer
18
1 case and I would see no reason for it to participate
2 in these proceedings.
3 In support of the Debtor's position,
4 Congress Financial has filed a written submission
5 and argued in favor of the Debtor's case at the
6 hearing. Congress is the DIP lender having both a
7 security interest and an administrative priority
8 claim.
9 One of the first day orders was to
10 approve an inter1m loan by Congress to the Debtor
11 pursuant to a credit facility which permits the
12 Debtor to borrow up to $25 million.
13 This credit facility is essential to
14 the Debtor's ongoing operations. As a result of two
15 additional interim orders, the Debtor has now drawn
16 down 16-and-a-half million dollars on the credit
17 line from Congress.
18 The interim orders were entered with
19 the consent of NationsBank. Indeed NationsBank is a
20 significant beneficiary of this credit facility
21 because approximately $6 million of the line of
22 credit is being used to collateralize letters of
23 credit issued by NationsBank pursuant to its
24 prepetition agreement with the Debtor.
Wilcox & Fetzer
19
1 While Congress also lends on a
2 national basis, the facts show that this particular
3 loan is being handled through its New York office
4 and in that regard it is represented by New York
5 counsel.
6 That New York counsel has taken an
7 active role in this case in negotiating the terms of
8 the credit facility and the terms of the interim
9 orders, and has appeared at several hearings thus
10 far conducted in this case.
11 As the DIP lender playing a critical
12 role in this case, and presently having an exposure
13 of 16-and-a-half million dollars and a potential
14 exposure of $25 million, I find that Congress is
15 indeed a major player in this case and I find that
16 it is a "party", as that term is used in S ~ c t i o n
17 1412, and it is undisputably clear that its
18 convenience is better served by a Delaware venue.
19 The Debtor has filed an application
20 seeking to retain the firm of DeLoitte & Touche as
21 accountants-and business consultants. The retention
22 application indicates that the DeLoitte & Touche has
23 extensive experience in the retail industry in their
24 business consulting department.
Wilcox & Fetzer
20
1 While it appears that DeLoitte &
2 Touche maintains an office in Charlotte, there is no
3 evidence that any of its retail business consultants
\
4 are located there.
5 In any event, the retention
6 application makes it clear that the consulting work
7 will be headed up by a principal of the firm who
8 operates out of DeLoitte & Touche's New York City
9 office.
10 The committee has not yet retained an
11 investment banker and/or an accountant or business
12 consultant.
13
14 While the balance sheet filed with
15 the Debtor's schedules, suggests that there
16 is substantial equity, NationsBank argues that
17 given the very substantial downsizing being
18 undertaken by the Debtor, it is unlikely that that
19 equity will survive. The
20 suggestion being that the magnitude
21 of the down;izing is and will be such that the
22 equity will be wiped out.
23 Consequently, NationsBank suggest that
24 Sussex will have no continuing economic interest in
Wilcox & Fetzer
21
1 this case and its involvement therefore should have
2 no weight in the venue decision.
3 I believe it is premature to reach
4 that conclusion. The record shows that Mr. Taggart
5 is an active player in turning around distressed
6 companies either in bankruptcy or outside of
7 bankruptcy.
8 At the first day hearing in this case
9 in connection with the retention application of the
10 Crummy Del Deo firm, Mr. DeFillipo stated on the
11 record that his firm represented Mr. Taggart in two
12 other bankruptcy cases, not in this district, in
13 which Mr. Taggart through single purpose
14 corporations acquired the stock of a financially
15 distressed debtor and put the debtor through a
16 Chapter 11 reorganization process and emerged with
17 confirmed plans. In other words, a pattern the same
18 as that being pursued here.
19 While this does not demonstrate that
20 Mr. Taggart will have the same success here, it does
21 Sussex has a real economic interest
22 here as a party. Apparently Mr. Taggart has
23 substantial resources so that if an equity infusion
24 is called for, he will be in a position to make it.
Wilcox & Fetzer
22
1 In any event, it would make absolutely
2 no sense for Mr. Taggart to acquire the equity
3 interest and embark on a major restructuring through
4 a Chapter 11 reorganization if he did not have a
5 continuing economic interest in the Debtor.
6 Whether that economic interest
7 eventually converts into equity value remains to be
8 seen, but it would be inappropriate to speculate at
9 this early stage that Sussex's interest should not
10 be considered in a venue decision.
11 The fact of the matter is that Sussex
12 at this point controls the Debtor and unless someone
13 comes forward with a sound basis for appointing a
14 trustee, Sussex's interest must be considered in the
15 venue equation.
16 With respect to the proximity of the
17 Court to potential witnesses, NationsBank argues
18 that (a) the lessor whose leases will be rejected and
19 who will have substantial claims are closer to North
20 Carolina than Delaware; and (b), a valuation of the
21 Debtor's Charlotte facility will necessitate the
22 retention of a real estate appraisal expert in that
23 locale and his or her testimony will be required in
24 this case.
I am not persuaded by these points.
Wilcox & Fetzer
23
1 First with respect to lease
2 rejections, in the last year we have seen this occur
3 on a massive scale in the retail industry. In my
4 experience, given the cap put on lease rejection
5 claims by Section 502(b) of the Code, an evidentiary
6 hearing to determine damages is unusual.
7 Consequently, I don't anticipate
8 seeing many lessors appear in this case for an
9 evidentiary hearing even in light of the rather
10 substantial large number of leases which are in the
11 process of being rejected.
12 With respect to the valuation of the
13 Debtor's administrative office and distribution
14 facility in Charlotte, I do not understand that any
15 such valuation would be called for. It is my
16 understanding that no creditor has a security
17 interest in that property. Thus, there is no need to
18 make a Section 506(a) determination.
19 The property is for sale. It is my
20 understanding that it has been in the hands of a
,.
21 real estate broker for some time and the marketplace
22 will determine the disposition of that property.
23 Furthermore, it seems clear that if
24 any valuation is to be done in this case, it is
Wilcox & Fetzer
24
1 likely to be a going concern value which is not
2 likely to bring into play a "local" appraiser.
3 The Debtors argue that a transfer of
4 this case would cause serious disruption to the
5 reorganization effort and possibly jeopardize a
6 successful reorganization.
7 As a general proposition I do not
8 attach much weight to this factor because every
9 transfer involves disruption. If that factor were
10 to be given the kind of weight the Debtor argues
11 for, it would create a very practical roadblock to a
12 party's entitlement to relief under Section 1412.
13 However, there is no denying the fact
14 that some disruption would occur simply because of
15 the logistics and the bureaucratic paperwork in
L6 effecting a transfer to another court.
17 The Debtor is entering into a critical
18 selling period, the Easter season, and it is
19 certainly important that disruptions be held to a
20 minimum.
21 Furthermore, the Debtor has filed a
22 motion seeking authority to conduct going out of
23 business sales at approximately 140 additional
24 stores which will be closed and leases rejected.
Wilcox & Fetzer
25
1 Given the administrative expense claims
2 resulting from post petition rent obligations, it is
3 important that lease rejection matters be pursued on
4 an expedited basis. Any paperwork delay could be
5 detrimental to the Debtor.
6 In summary, while I do not attach much
7 significance to the disruption argument, I cannot
8 entirely ignore with respect to this Debtor in a
9 sick retail environment the problems that it is
10 going through, and the need for expeditious
11 resolutions.
12 While not presented as a principal
13 issue, NationsBank in its moving papers and in its
14 oral argument briefly alluded to its concern that the
15 Debtor may have filed this case here rather than in
16 Charlotte because it perceived this Court as having
17 a more favorable disposition to debtors.
18 Based on the facts of record, I view
19 this issue as a red herring. At the conclusion of
20 the argument on the motion on March 6th,
21 Mr. DeFillipo of the Crummy Del Deo firm stated, and
22 I quote from the record,
11
I'm the person that
23 recommended this case be filed in Delaware, and the
24 reason that was because it's a proper venue and it's
Wilcox & Fetzer
26
1 the most convenient venue to the people I thought
2 were going to have the most to do with this case."
3 It is appropriate to put this
4 representation in context of what went on the record
5 in the first day of this case. On the first day
6 hearing, counsel for the US Trustee's office
7 objected to the retention application of the Crummy
8 Del Deo firm.
9 In the course of that discussion, the
10 us Trustee stated that because of that firm's prior
11 and apparently extensive relationship with
12 Mr. Taggart, it was objecting to its retention as
13 bankruptcy counsel for the Debtor.
14 In response to the US Trustee's
15 objection, Mr. DeFillipo stated on the record that
16 indeed his f i ~ m did have a relationship with
17 Mr. Taggart extending back some period of time. He
18 specifically pointed out that his firm represented
19 Mr. Taggart on two prior occasions involving Chapter
20 11 cases similar to this one. That is, he advised
21 that his firm represented Mr. Taggart in two prior
22 situations where Mr. Taggart formed a single purpose
23 corporation, acquired the stock of a distressed
24 company, and put that company into a Chapter 11
Wilcox & Fetzer
27
1 reorganization.
2 One of those companies was Herman's
3 Sporting Goods, and the other was NOV Stores. The
4 Herman's Sporting Goods case was a bankruptcy case
5 in New Jersey. I do not know where the NOV Stores
6 case was, but it was not in this district.
7 In both those cases the Crummy Del Deo
8 firm represented the Debtor, and as I understand it
9 both of those cases resulted in a confirmed plan of
10 reorganization.
11 Of course the Crummy Del Deo firm is
12 located in Newark, New Jersey and a Delaware forum
13 is obviously more convenient than a Charlotte, North
14 Carolina forum.
15 Given the facts that we have here, if
16 I were the bankruptcy partner in the Crummy Del Deo
17 firm, I certainly would file here rather than in
18 Charlotte, North Carolina.
19 And let me add that in the oral
20 argument as well as in the moving papers,
21 NationsBankhcontinued to observe that the case law
22 was that the location of Debtor's law firm is
23 irrelevant citing In Re Seton, 8-e-t-o-n, Chase
24 Associates, Inc., 141 BR-2, that's the Bankruptcy
Wilcox & Fetzer
28
1 Court for the Eastern District of New York, 1992. I
2 don't think that case stands for that proposition,
3 what that case said was on the facts before it, it
4 found that the location of the law firm was not a
5 significant factor to consider. It didn't say it
6 was irrelevant, it just said it was not a
7 significant factor.
8 And it cited its own prior decision of
9 some years prior to that where it made a similar
10 finding and the issue was is the New York City's.
11 location relevant to a case in the Eastern District
12 of New York versus a case in Newark, New Jersey.
13 And those locations are so close that I could easily
14 see where that issue would not have significance.
15 In any event, I think the law is not
16 that the location of the firm is irrelevant, but it
17 may or may not have significance. And the
18 significance here is not the fact of its location,
19 but the fact that because of its location, that is
20 what initiated the filing here.
21 So for that reason, i.e., to explain
22 why the Debtor landed here rather than in Charlotte,
23 I do find it significant.
24 Let me adjust one footnote.
Wilcox & Fetzer
29
1 NationsBank is obviously going to be a major player
2 in this case and it will no doubt be inconvenienced
3 by this ruling. Somebody has to be inconvenienced
4 by the ruling. I have previously noied that as a
5 major nationwide lending institution appearing in
6 bankruptcy courts outside of North Carolina should
7 not be an unusual experience for NationsBank.
8 With no offense intended to the fine
9 people who live in Altoona, Pennsylvania, for
10 example, Wilmington, Delaware is not Altoona
11 Pennsylvania. The travel time and arrangements
12 between Charlotte, North Carolina and Wilmington,
13 Delaware are quite accommodating.
14 Although it was not made a matter of
15 record, I am informed by reliable sources that the
16 flight time from Charlotte to Philadelphia direct is
17 one-and-a-half hours and that USAir has six direct
18 flights daily from Charlotte to Phiiadelphia and
19 nine direct flights daily from Philadelphia to
20 Charlotte. The Philadelphia airport is a half hour
,,
21 from this Court.
22 Under the circumstances, I do not view
23 NationsBank's inconvenience as being burdensome.
24 I apologize for my verbosity.
Wilcox & Fetzer
30
1 I have one other observation that I
2 prefer to make off the record and for that reason I
3 would appreciate it if counsel could join me in
4 chambers for just five minutes.
5 (Discussion off the record.)
6 (Court adjourned at 2:45p.m.)
7
8
9
10
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12
13
14
15
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Wilcox & Fetzer
31
1
2 State of Delaware
3 New Castle County
4
5
6
7 CERTIFICATE OF REPORTER
8
9 I, Dale C. Hawkins, Registered
10 Professional Reporter and Notary Public, do hereby
11 certify that the foregoing record is a true and
12 accurate transcript of my stenographic notes taken
13 on March 8, 1996, in the above-captioned matter.
14
15 IN WITNESS WHEREOF, I have hereunto
16 set my hand and seal this 17th day of March, 1996,
17 at Wilmington.
18
19
20
21
22
23
24
.
cp a....ec- C'.
Dale C. Hawkins, RPR
. Wilcox & Fetzer
EXHIBITC
1
IN THE UNITED STATES BANKRUPTCY
In re:
)
)
,.. : - ...
I : c- 'l . ' .
... . .. . . '.
L. i .... I : ' i ' -- :... I
SAFETY-KLEEN CORP., et al., ) Case No. 00-2303
Debtors.
) (PJW)
)
Bankruptcy Courtroom
No. 2, Sixth Floor
Marine Midland Plaza
824 Market Street
Tuesday, July 11, 2000
11:30 a.m.
BEFORE: THE HONORABLE PETER J. WALSH,
United States Bankruptcy Judge
-- Transcript of Proceedings --
WILCOX & FETZER
1330 King Street - Wilmington Delaware 19801
(302) 655-0477

WILCOX Be FETZER L TO.
' - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ~ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - '
WILCOX & FETZER LTD.
2
1
MR. KURTZ: Good morning, Your Honor.
2 David Kurtz appearing on behalf of the debtors and
3 debtors-in-possession.
4
Your Honor, before we begin today's
5 calendar, with the Court's permission, I would like to
6 just take a minute or two to explain to the Court a
7 fairly significant series of events that transpired
8 commencing Friday night and then with a virtually all-day
9 session with Judge Sleet in the District Court here so
10 Your Honor is aware of what's going on in that
11 proceeding.
12 On Friday night we filed an adversary
13 proceeding against the State of South Carolina and
14 certain of its agencies, including DHEC. DHEC is the
15 movant in the venue motion that is scheduled for hearing
16 this morning.
17 We filed along with that complaint a motion
18 to withdraw the reference to the District Court. I will
19 explain in a moment why it was necessary for us to do
20 that.
21 This complaint is the latest step in an
22 on-going litigation battle between the company and
23 various representatives of the State of South Carolina
24 pertaining to our hazardous waste site in South Carolina
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3
1 known as the Pinewood facility.
2 The complaint seeks to enjoin two orders
3 entered by DHEC, almost concurrently with the filing of
4 these Chapter 11 cases. Neither of those orders is
5 addressed to the existence of a hazardous waste condition
6 at the Pinewood facility.
7 The June 9th order, which happens to be the
8 day we filed our Chapter 11 cases, requires Safety-Kleen
9 Pinewood, the owner and operator of that facility, to
10 shut down that facility by August 28th if we are not able
11 to provide replacement surety bonds for bonds that are
12 currently issued by Frontier Insurance Company.
13 Your Honor may recall at the first-day
14 hearings I alluded to the fact that Frontier Insurance
15 Company had lost what is known as its "T" rating, and as
16 a consequence, there were issues concerning the financial
17 integrity of bonds issued by Frontier.
18 The debtor has no ability, unfortunately,
19 to replace the Frontier bonds, not only given our
20 financial circumstances, but given the financial.
21 circumstances in our industry and in related industries
22 that are insured by Frontier. That's one order that was
23 sought to enjoin.
24 The complaint also sought to enjoin an
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4
1 order entered several days later on June 14th by DHEC
2 ordering the shutdown of the Pinewood facility on
3 July 14th. So now we have an order requiring us to shut
4 down on the 28th of August, and then a separate order
5 entered several days later requiring us to shut down on
6 July 14th, which happens to be Friday of this week.
7 That order was entered after the
8 South Carolina Supreme Court denied Safety-Kleen petition
9 with respect to an order entered by the South Carolina
10 Court of Appeals, which, among other things, we believe
11 erroneously calculated the capacity limits of the
12 Pinewood facility, concluding that the Pinewood facility
13 had eclipsed its capacity and was no longer able,
14 consistent with the existing license arrangements, to
15 accept hazardous waste.
16 As a consequence of that order, DHEC
17 entered its own order giving us a 30-day grace period, if
18 you will, and to shut the facility down by June 14th.
19 The complaint that we filed, Your Honor,
20 raises issues concerning whether the actions taken by the
21 State of South Carolina violate and are, therefore,
22 invalid under the supremacy clause of the Constitution
23 and the commerce clause of the U.S. Constitution.
24 There are also bankruptcy issues alleged in
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5
1 the complaint.
In that complaint Safety-Kleen takes the
2 position that the June 9th order entered by DHEC is
3 essentially an action to obtain money from Safety-Kleen,
4 the debtor, and, therefore, is precluded by the
5 provisions of the automatic stay, and finally, to the
6 extent that the Court concludes that the automatic stay
7 doesn't apply, the Court should enter an injunction
8 action under Section 105.
9 Those matters would not on their own have
10 required withdrawal of reference, but because there is a
11 factual overlap between the issues raised with respect to
12 the June 14th order that are the subject of the
13 constitutional challenge and the issues raised by the
14 June 9th order, we joined both in one proceeding. As
15 Your Honor knows, under 28 U.S.C. Section 157(d), because
16 constitutional issues were raised concerning interstate
17 commerce, reference withdrawal was mandatory.
18 Judge Sleet conducted a lengthy hearing
19 yesterday with the following outcome: The judge entered
20 a temporary restraining order with respect to the
21 June order requiring us to shut down this Friday, and
22 that TRO extends to August 15th.
23 The judge set a briefing schedule with
24 regard to the motion for a preliminary injunction that we
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6
1 filed along with the complaint.
2 DHEC, the State of South Carolina, also
3 filed a motion to transfer venue of that adversary
4 proceeding, and weve established a briefing schedule
5 with respect to that. Judge Sleet has set a hearing on
6 all of these matters for August 15th.
7
Unless Your Honor has any questions, we
8 can --
THE COURT: No questions.
10 MR. KURTZ: Thank you.
11 MR. SINGER: Good morning, Your Honor.
12 Adam Singer of Cooch and Taylor for South Carolina DHEC.
13 Your Honor, should I assume that we are now
14 proceeding to item No. 4, the motion for change of venue?
15 THE COURT: Yes.
16 MR. SINGER: I would like to introduce to
17 the Court Katherine Wells, counsel for South Carolina
18 DHEC. You've already signed a motion pro hac vice.
19 THE COURT: Okay.
20 Let me indicate to counsel that I have read
21 all the pleadings regarding this motion, so I would
22 request that you be brief.
23 MS. WELLS: Your Honor, I would be happy to
24 do so. I am here today with the attorney for our
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7
1 co-movant, Santee Cooper, and I will be addressing the
2 convenience-of-party issues in the motion to transfer
3
venue, and he will be addressing interest of justice. We
4 do not anticipate any overlap in our discussion before
5 the Court.
6 There are two things that we want to
7 emphasize here, Your Honor, and the recent events,
8 especially on Friday and yesterday, emphasize, we think,
9 to this Court the importance that the Pinewood facility
10 has in South Carolina, not just to the subsidiary
11 Safety-Kleen Pinewood, but to Safety-Kleen Corporation,
12 the reorganization as a whole.
13 Despite and contrary to the debtors' brief
14 and objecting to our motion to transfer venue, they've
15 now stated to the District Court and in their complaint
16 that this facility is so crucial to the reorganization of
17 the entire bankruptcy, it is so crucial as a source of
18 revenue, it is so crucial as a part of the national
19 regulatory scheme for hazardous waste disposal that it is
20 imperative that it stay open and keep running, and that
21 Safety-Kleen Corporation has a vested interest in
22 South Carolina in this Pinewood facility. It is the
23 bankruptcy corporation, the entire parent corporation
24 that has this business' industrial interest centered in
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8
1 South Carolina.
2 Your Honor, what I would ask.you to do is
3 visualize Safety-Kleen, in their own words, as a
4 comprehensive hazardous waste disposal company as a big
5 wheel with all their service branches, with all their
6 recycling centers, with all their landfills and the
7 spokes of the wheels go down to one hub, and that hub is
8 in South Carolina.
9 The reason the hub is in South Carolina and
10 the nerve center and the financial heart is in
11 South Carolina is because of two things: the Pinewood
12 facility, which is not only crucial to the Safety-Kleen
13 Pinewood subsidiary, but to Safety-Kleen
14 Corporation, as a whole, and the corporate headquarters
15 which form, of course, the financial hub and the
16 financial heart of this entity.
17 The way we know this is from the documents
18 that the debtors have filed with the Securities &
19 Exchange Commission and the documents they filed in their
20 complaint in the memorandum in support of their adversary
21 proceeding.
22 In their April 14th, 2000, 10-Q to the SEC,
23 they stated that that point, the Court of Appeals
1
24 decision, had recently been entered on April 4th and they

9
1 said in this document that it was so crucial the decision
2 on this was going to be crucial and perhaps a material
3 adverse impact on Safety-Kleen Corporation's financial.
4 The closure interest that they have in the
5 Pinewood facility is not, as they tried to state in their
6 brief, just a sub problem. It is central to the
7 reorganization and, as such, it is something that should
8 be and must be heard in South Carolina as part of the
9 entire bankruptcy case, and not just as an adversary
10 proceeding down there.
11 Not only that, but just briefly to
12 reiterate what we have submitted in our reply brief, that
13 contrary to what they were saying about the small amount
14 of work it does and the small amount of work it has,
15 there are over 26 states and two protectorates that are
16 generators in the last three years to this facility and
17 there are a lot of Laidlaw Safety-Kleen facilities around
18 that use this facility.
19 As they have stated in their complaint in
20 their adversary, it is crucial because it is one of only
21 two hazardous waste disposal areas in the southeast. So
22 it. is crucial to the reorganization of the bankruptcy
23 case as a whole, and that alone would be justification to
24 transfer these bankruptcy cases to South Carolina.
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10
1
But additionally, even if the facility were
2 to close as DHEC has.asked it to be closed, I would
3 remind the Court that this will stay a nerve center of
4 the reorganization.
5 Due to the decision of the South Carolina
6 Court of Appeals, they owe $133 million in financial
7 assurance that must be in cash and not in insurance
8 policies by the year 2004, and there is a need to have
9 replacement of the performance funds foreclosure
10 postclosure, and 30-party liability set in place as
11 quickly as possible. And not the least of why this
12 facility will remain crucial to any reorganization that
13 the bankruptcy case as a whole has, is that they have
14 taken on the responsibility for 100 years for this
15 facility. That was the agreement when they were allowed
16 to do hazardous waste disposal in South Carolina.
17 But secondly, Your Honor, this is a
18 financial hub. This is the financial heart, Columbia,
19 South Carolina. It
1
s not just merely where the corporate
20 headquarters are. By Grover Wrenn's own affidavit in
21 support of the Chapter 11 filings, he mentions
22 centralized cash management system in which all
23 70 percent of the customer accounts come back and forth.
24 You've got revenue streams going back and forth, again,
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11
1 just like the spokes of the wheel from the hub, the
2 corporate headquarters, to every one of these
3 subsidiaries, trade creditors.
4
There may be 400,000 trade creditors
5 throughout the nation. But where does all the money come
6 back to and then go out from? The hub,, South Carol ina.
7 Additionally, you got day-to-day management
8 there. David Thomas, in the SEC documents that were
9 submitted May 15th by Safety-Kleen Corporation, David
10 Thomas has been brought in for financial investigations
11 for the questions that have arisen about the
12 discrepancies with the books and records of Safety-Kleen
13 for the past several years. Where did he go to? He went
14 to South Carolina.
15 Grover Wrenn was hired. He came on to take
16 and manage the day-to-day decisions. Where did he go?
17 He went to South Carolina.
18 Jay Alix & Associates, Mr. Dangremond, he
19 was hired before the bankruptcy was filed to come in and
20 help them do financial reorganization. Where did he come
21 to? South Carolina. That's where his business address
22 is.
23 The corporate headquarters are not just
24 mere figure heads or administrative areas. They are the
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WILCOX & FETZER L TO.
12
1 financial heart.
2 Just as it was in one of the cases that the
3 secured creditor cited in their objections, the
4 Commonwealth Oil case out of the Fifth Circuit, in that
5 case the judge denied transfer of venue from Texas to
6 Puerto Rico because he said San Antonio was the financial
7 heart. It was where the day-to-day decisions were made.
8 It was where all the financial decisions were made.
9 Not only do you have financial decisions
10 from the centralized cash management, not only do you
11 have the day-to-day decisions, you have the management
12 decisions coming out of Columbia because that's where
13 their intracompany accounts' transfers and disbursements
14 are made. That's where the decisions on employees, the
15 benefits, the workers' comp., all of that.
16 As a side issue, a small, minor issue, one
17 of the things they make a big deal out of, the debtors
18 do, in their brief in opposition to our motion is that
19 there are only 692 employees of Safety-Kleen in
20 South Carolina. They say that makes us rank only four
21 out of the numbers of employees in all the states.
22 But look at the states ahead of us: Texas,
23 California, Illinois. We are talking about states triple
24 the size of South Carolina, and yet South Carolina is so
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13
1 crucial to the management and the day-to-day operation
2 and the business aspect of Safety-Kleen that its all
3 coming out of South Carolina and that's where they are.
4
I would just say, in closing, secured
5 creditors have made a very strong argument that they are
6 in the northeast. Their convenience should be
7 cons ide red.
8 They also argued that the debtors choice
9 of forum should be given great consideration. Your Honor
10 has held in several cases that secured creditors are well
11 aware when they take on interest that they must
12 understand that they will have to travel to protect,
13 perfect, and to litigate their interests.
14 But I would also ask the Court to remember
15 that the debtors have already chosen a forum. They chose
16 South Carolina. They came to the DHEC board and they
17 said, We want to be corporate citizens of South Carolina.
18 We want to have this very important, crucial hazardous
19 waste disposal site because we want to be corporate
20 citizens of South Carolina.
21 What DHEC would ask is that you do not let
22 them avoid the forum of their first choice and that you
23 do transfer these bankruptcy cases to South Carolina.
24 I will be happy to answer any questions
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WILCOX & FETZER lTD.
14
1 Your Honor might have.
2 THE COURT: No questions at this point.
3 MS. WELLS: Thank you. I would like to
4 turn it over to Mr. Summerall now.
5 MR. SUMMERALL: May it please the Court,
6 Your Honor, I'm Charles Summerall representing the
7 co-movant, South Carolina Public Service Authority, also
8 known as Santee Cooper.
As Your Honor is well aware, Section 1412
10 reads in the disjunctive meaning that there are two
11 independent grounds for your authorizing transfer of
12 venue of these bankruptcy cases to South Carolina: if
13 the transfer is, No. 1, in the interest of justice, or,
14 and I think this is very frequently overlooked, No. 2, in
15 the alternative, if transfer is for the convenience of
16 the parties.
17 We believe that an objective read of the
18 underlying facts supports a transfer based on convenience
19 of the parties. But if you disagree, we ask that you
20 grant transfer of venue on the alternative basis of in
21 the interest of justice.
22 Your Honor, I would like to read briefly
23 from a 1949 District of Delaware case. I have copies
24 available. It is called Cinema Amusements. Inc., vs.
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15
1
Loew's reported at 85 F. Supp. 319. In that case the
2 Delaware judge, and I'm reading from page 326, and I
3 quote, said:
"Manifestly, the most important criterion
4 in determining the advisability of transfer is the
5 interest of justice. ' In most cases, if the convenience
6 of the parties and witnesses will be served by transfer
7 it usually follows that justice will also be served by
8 transfer. This does not necessarily follow, however, and
9 irrespective of the convenience to parties and witnesses,
10 I am of the opinion that whether or not transfer will be
11 ordered should be governed in large measure by the effect
12 of transfer upon the 'interest of justice.
1
"
13 Cinema Amusements was an antitrust section
14 under Section 1404, but it is the secured lenders' point,
15 in and out of their brief, Section 1404 cases have direct
16 bearing upon the Section 1412 issues before you today.
17 My point is that for over 50 years in the
18 District of Delaware, and, of course
1
the Cinema case is
19 cited in many subsequent Delaware opinions, it's clear
20 that in this judge's words, the most important criterion
21 is, in fact, the interest of justice. That's the point
22 of my argument today.
23 Your Honor, the cases discuss several
~ 4 considerations under this heading of "interest of
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16
1 justice."
I would like to cite three for you with direct
2 bearing on this venue motion: one, the relation of the
3 community to the matter at issuei two, the desirability
4 of resolving controversies in their localei three, the
5 public policies of the fora involved.
6 I would cite in support of those
7 considerations Judge Sleet's decision in the Affymetrix
8 case, 28 F. Supp. 2nd 192, that's a 1998 decision, and a
9 1999 decision out of the North District of Illinois
10 called Brandon Apparel, 42 F. Supp. Section 821.
11 Your Honor, it is the movant's position
12 that clearly the public interest as opposed to private
13 concerns such as whether multimillion corporations can
14 afford to travel to South Carolina for Bankruptcy Court
15 hearings in a multibillion case and that the public
16 interest outweighed the convenience arguments.
17 Specifically, Your Honor, I'm asking you to
18 consider the public interest of all of the citizens of
19 the state of South Carolina, which is the state where
20 Safety-Kleen chose to establish its corporate
21 headquarters and substantial business operations.
22 You may recall that at the first-day
23 hearings on June the 13th, one of our state senators flew
24 up for that hearing. He was not able to be here today,
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Registered P rofess!onal Reporters
17
1 but we do have with us the governor of South Carolina's
2 senior aide on natural resource matters.
3 The point is that the presence of these men
4 emphasizes the compelling public interest of the citizens
5 of South Carolina.
6
Your Honor, I think it's critical to note
7 that Delaware has no such compelling interest in this
8 matter.
9 While certain other parties joined in the
10 motion for transfer of venue, a South Carolina
11 corporation called Ashley Enterprises, the South Carolina
12 Water Fowl Association, and the Oklahoma Department of
13 Environmental Quality, my point is that the movants
14 before you are not private litigants but public agencies.
15 The South Carolina Department of Health and
16 Environmental Control, the South Carolina Department of
17 Natural Resources joined in, and my client, Santee
18 Cooper, which owns a lake system located 1,200 feet from
19 the debtors' Pinewood facility, which is already emerged
20 as a focal point in these reorganization bankruptcy
21 cases.
22 The nature of these primary movants, once
23 again, emphasizes the public policy and public interest
24 involved in your decision today. It is clear, in fact,
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18
1 we think clear by much more than a preponderance of the
2 evidence that this separate interest of justice issue
3 justifies transfer of the cases.
4
Again, Your Honor, those three elements,
5 the relation of the community to the matter at issue, the
6 desirability of resolving controversies in their locale,
7 the public policies of the fora involved clearly favor
8 transfer to South Carolina.
9 Your Honor, the objections to my reading
10 filed by the debtors and the secured lenders really don
1
t
11 even come close to rebutting this interest-of-justice
12 argument to my way of thinking. They do focus on
13 convenience, but it
1
s hard for them to rebut the interest
14 of justice. To me it almost speaks for itself.
15 The secured lenders in their brief do make
16 several what I found to be inappropriate allegations of,
17 quote, hostility and animosity, closed quote, in
18 South Carolina against Safety-Kleen, but of course there
19 is no reasonable basis for believing or asserting that
20 the Federal Bankruptcy Court in South Carolina would not
21 treat all parties fairly.
22 Indeed, in October of 1999 Safety-Kleen
23 Corp. chose the Federal District Court in Columbia to sue
24 DHEC and that case is still pending.
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19
1 Earlier than that an industry group with
2 major backing by Safety-Kleen Corp. filed suit in Federal
3
District Court in Columbia against DHEC. In fact, the
4 safety-Kleen interest prevailed in that action. Again,
5 it's a level playing field down there.
6
In closing, Your Honor, clearly I'm asking
7 you to grant transfer of venue on the separate basis of
8 interest of justice. The debtors assert numerous
9 convenience factors, including their charge that court
10 hearings in South Carolina could cost $9,000 more than
11 court hearings in Delaware.
12 Aside from the fact that we challenge the
13 bases underlying that charge, the fact is that $9,000
14 convenience arguments pale in comparison to the
15 compelling interest of the citizens of South Carolina,
16 including the 90,000 people of South Carolina that rely
17 on this lake itself for clean drinking water that is
18 adjacent to the Pinewood cite.
19 Your Honor, you said in the American Film
20 Technologies case that venue matters are fact-intensive,
21 and when you boil it down, case law provides a rough
22 guide for decision making.
23 Our argument is that these compelling
24 public interests that I have detailed for you today,
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20
1 taken by them themselves as an alternative ground, and
2 even more so when combined with the corporate
3 headquarters and other center of gravity arguments
4 justify transfer of venue of these cases to
5 South Carolina.
6 Any questions at this point?
7 THE COURT: No questions.
8 MR. SUMMERALL: Thank you, Your Honor.
MR. KURTZ: Your Honor, I will attempt to
10 respond to the remarks made by counsel this morning, also
11 to make several observations based upon facts that have
12 been developed since the objection, the response deadline
13 and the filing of our papers.
14 First, Your Honor, I don't think there is
15 any debate as to the proper standard to be applied here.
16 The proper standard is whether it is more convenient for
17 the parties for this case to be transferred to
18 South Carolina, whether it would serve the interest of
19 justice for all 74 of these cases to be transferred to
20 the state of South Carolina.
21 In applying those standards, this Court and
22 the Ernst case, in particular, has looked to where the
23 center of gravity of the case lies. There is a strong
24 presumption in favor of the venue choice made by the
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21
1 debtor. There is no question about that.
2
So the state of South Carolina, the
3 representatives of the state, must meet a fairly
4 significant burden of convincing the Court that based
5 upon the standards that are articulated by the Court, it
6 will be more convenient for the parties if the 74 cases
7 are moved and the interest of justice will be served if
8 the 74 cases are moved to South Carolina.
9 It is our view, Your Honor, that the state
10 of South Carolina, although we are very sensitive to the
11 public interest that they speak of, fall far short of
12 satisfying their burden.
13 First, with regard to the question of
14 convenience of the parties, perhaps the best way to
15 analyze that factor, Your Honor, is to look at how
16 various parties-in-interest in this case have responded
17 to the motion filed by DHEC and other agencies of
18 South Carolina. First let's look at the secured
19 creditors.
20 The secured creditors, owed $1.6 billion by
21 Safety-Kleen, had filed a very strong pleading in support
22 of the debtors' opposition to the venue transfer motion.
23 They believe that the cases should be kept before this
24 Court.
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22
1
I must point out, Your Honor, as we do in
2 our papers, that the secured lenders are also creditors
3 of virtually all of the debtors. While DHEC is a
4 creditor of only one of the debtors, and that debtor is
s the Safety-Kleen Pinewood corporation, they have no
6 claims against any of the other debtors that are before
7 this Court .
8 There are now 120 holders of secured bank
debt. I think the number was 100 when we began this
10 case, and through trading it's now up to 120. Not one of
11 those lenders has chosen to support the transfer of venue
12 to South Carolina. One of the 120 holders of secured
13 bank debt is a financial institution that is actually
14 headquartered in the State of South Carolina, and that
15 secured creditor has not chosen to support the States
16 attempt to move the case to South Carolina.
17 So there is no question that the secured
18 creditors who, in some respects, have the most
19 significant interest in this case are strongly behind
20 maintaining the venue of these cases before this. Court.
21 Now let's turn to the unsecured creditors.
22 One of the comments made by this Court when we were
23 before you on day one was that it was important to give
24 the Creditors' Committee an opportunity to organize and
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23
1 consider this issue and form an opinion. I can tell you
2 from personal experience that the Creditors' Committee
3 has spent a significant amount of time considering this
4 issue and whether they should support the State of
5 South Carolina in transferring venue of these cases to
6 their courts.
7 The Creditors' Committee has decided not to
8 support the State of South Carolina in its effort to
9 transfer venue and is content to leave the cases here.
10 I should point out
1
Your Honor, that of the
11 50 largest unsecured creditors of Safety-Kleen, two
12 reside in South Carolina/ and neither of those two
13 unsecured creditors has chosen to support the State of
14 South Carolina in its attempt to transfer venue of these
15 cases.
16 In factr there is only one creditor, only
17 one creditor who has supported the position of the State
18 of South Carolina that venue should be transferred, and
19 that's an entity by the name of Ashley Enterprises. Now,
20 it took us awhile to figure out who Ashley Enterprises
21 was because Ashley Enterprises doesn't show up as a
22 creditor on any of our books and records.
23 It turns out, Your Honor, that Ashley
24 Enterprises filed a lawsuit against Safety-Kleen in 1990
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24
1 alleging that we owe it $250,000. We deny that we owe
2 any money to Ashley Enterprises.
3 So the record before this Court,
4 Your Honor, is that not one contractual creditor, not one
5 trade creditor, not one unsecured creditor that isn't
6 also a regulator has joined with the State of
7 South Carolina to transfer venue of these cases to the
8 courts in South Carolina.
9 Now let me talk about regulators.
10 This company is the most regulated entity
11 that has probably ever appeared before the Delaware
12 bankruptcy courts, and there is no question that DHEC is
13 a very important regulator, but there are many, many
14 other regulators who have extremely significant influence
15 over the companies' business operations. None of that,
16 except for one, a regulator from the State of Oklahoma,
17 has chosen to join with the State of South Carolina and
18 support transfer of venue.
19 Safety-Kleen's business is regulated by all
20 ten of the EPA's regional divisions. The EPA isn't here
21 supporting transfer of venue. We must answer to 48 state
22 environmental agencies and enumerable county and local
23 regulatory agencies in addition to the EPA. We relate to
24 hundreds of regulators in the management of our business
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25
1 throughout the 48 states in which we conduct business.
2 And while DHEC is an important regulator, I dont know
3
how you gauge importance. If you look at it from a
4 jurisdictional perspective, the EPA is far more
5 significant because they regulate all of our business
6 operations and they are not here supporting the State of
7 South Carolina today.
8
Each one of those state regulators in
9 addition to the EPA could make the same claim of local
10 interest that you have just heard passionately made by
11 representatives of the State of South Carolina and we
12 dont minimize that.
13 The point, however, Your Honor, is that
14 they are not uniquely situated. They are not uniquely
15 situated. Other regulators could make the same argument.
16 They
1
ve chosen not to support the transfer of these cases
17 to South Carolina. They are content leaving these cases
18 in Delaware, and Your Honor must take that into
19 consideration in determining how much weight to accord
20 the positions taken by the regulators from the State of
21 South Carolina.
22 In fact, we have more significant, larger
23 facilities in other states as we have demonstrated in our
24 papers. California and Texas, for example, and rm not
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26
1 going to repeat any of those facts. I think we have laid
2 them out fairly in our papers.
3 But while the Pinewood facility is an
4 important facility, and I will get back to this in a
5 moment, it is, by far, not our largest facility and it is
6 not in any way a contributor to significant amounts of
7 revenue for this company.
8 So while the interest of the citizens of
9 the State of South Carolina are important, they are no
10 more important in our view than the interest of the
11 citizens of the states of California, Texas, Ohio,
12 Illinois I can go on and on -- all of whom have
13 elected to leave these cases before this judge.
14 Each of those regulators could have made
15 the same arguments with regard to the relationship of the
16 facilities in their locales to the citizenry of that
17 state
1
and they have elected not to be here. In so
18 doing, they are supporting the debtors
1
position that the
19 case should remain here.
20 I would like to turn now to the remarks
21 made primarily by Miss Wells.
22 First
1
there is no doubt, we stipulated to
23 it in our papers, our headquarters is in Columbia,
24 South. Carolina. DHEC goes to great lengths to establish
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27
1
all of the things we do in our headquarters. We do all
2 of the things in our headquarters that every other
3 company does in its headquarters, Your Honor, and we so
4 stipulate. We run our cash out of our headquarters. We
5 pay payroll out of our headquarters. We manage the
6 global business out of our headquarters. Thats what a
7 headquarters is.
8 But as Your Honor is well aware, the
9 location of a debtors headquarters standing alone is not
10 sufficient to determine the venue cite of Chapter 11
11 cases. If that was true, then no company would stay in
12 this district, or, perhaps, to state it differently, any
13 time a venue transfer motion was filed with regard to a
14 debtor whose corporate headquarters was in another
15 location, that would be granted.
16 So its simply not enough to prove, as we
17 stipulated, that our headquarters is in Columbia,
18 South Carolina. That isnt the test, however,
19 Your Honor. No case has articulated that as the test.
20 There is no support in the statute for determining that
21 as the test.
22 With regard to the comments made regarding
23 how crucial the Pinewood facility is to the
24 reorganization, as we pointed out in our papers,
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28
1 Your Honor, the Pinewood facility accounts for 2 percent
2 of our revenues. Two percent. The Pinewood facility
3 manages 10 percent of our hazardous waste. It isn
1
t even
4 the largest facility for managing hazardous waste in the
5 entire system.
6 Miss Wells referred to the complaint that
7 we filed yesterday. It
1
s important Your Honor
8 understands that that complaint was filed only by
Safety-Kleen Pinewood. It
1
S the only plaintiff in the
10 proceeding. It
1
s the only plaintiff in the proceeding
11 because the only business of Safety-Kleen Pinewood is to
12 manage that facility, and it is the only corporate entity
13 within the Safety-Kleen system that manages that
14 facility.
15 There is no doubt that if Pinewood is shut
16 down as the State wishes to do, Safety-Kleen Pinewood
1
s
17 reorganization prospects will be pretty bleak. So if the
18 Pinewood facility is shut down, it will be devastating to
19 the ability of Safety-Kleen Pinewood to reorganize.
20 That
1
s the position we took yesterday before that
21 Judge Sleet. That
1
s the position that we took in the
22 papers that we filed.
23 Oh, it will hurt us if we lose Pinewood,
24 and I don't mean to suggest otherwise. It will cost us
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29
1 money.
But will it be devastating to the reorganization
2 if we lose Pinewood? No, it will not be devastating to
3
the re6rganization if we lose Pinewood. We'll lose some
4 revenue. There is 2 percent of our revenue running
5 through that system now. We'll lose customers. No doubt
6 about it. But it will not be devastating. It will hurt,
7 but it will not be devastating to the reorganization.
8 So to suggest, Your Honor, that the entire
9 fate of these 74 debtors depends upon what happens with
10 regard to the Pinewood facility is simply wrong. It
11 isn't borne out by the facts. We might lose the
12 Safety-Kleen Pinewood entity, but it will not determine
13 the outcome of this reorganization.
14 Miss Wells referred to the financial
15 assurance issue pertaining to Frontier. I would like to
16 address that.
17 We have posted Frontier bonds with DHEC and
18 so we have an issue with regard to those bonds.
19 Your Honor should be aware that we have Frontier bonds
20 with 30 other regulators in other states. The Frontier
21 problem is not a South Carolina-focused problem. It
22 transcends our system, the Frontier problem.
23 So rulings that are made with regard to the
24 Frontier bond as it may impact the Pinewood facility will
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30
1 have a direct impact on the same issues as they affect
2 other regulators in other states, including the EPA, who
3 has a very acute interest in this particular issue.
4 We've been working very closely with the EPA to hopefully
5 develop a solution in that regard.
6 The Frontier situation is not a Pinewood
7 situation. The Frontier situation is not a
8 South Carolina issue. The Frontier problem transcends
9 these cases, and the Frontier problem really could have a
10 material impact on the ability of this company to
11 reorganize. Because that issue impacts virtually all of
12 our debtors, impacts regulators in 30 states, that issue
13 should be decided by this Court. There is no particular
14 unique interest of the South Carolina courts in deciding
15 that issue.
16 I have to point out an irony here,
17 Your Honor. DHEC argues on the one hand that this
18 facility should be shut down, and if they had their way,
19 it would be shut down this week.
20 But on the other hand, they argue that the
21 facility is so important to the outcome of these cases
22 that the cases should be moved to South Carolina.
23 If they are successful in shutting down the
24 Pinewood facility, then the only relationship we will
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31
1 have left to the State of South Carolina essentially is
2 this headquarters.
3 So it seems ironic that on the one hand
4 they want to take away, shut down, eliminate the facility
5 that we do have in South Carolina, and on the other hand
6 they argue that it's critically important that they be
7 there.
8 Yesterday before Judge Sleet
9 representatives of the state made an interesting
10 observation that I would like to point out to the Court.
11 They waive their rights regarding sovereign
12 immunity. They haven't raised sovereign immunity before
13 this Court yet.
14 MS. WELLS: Your Honor, I would have to say
15 they reserved their rights on those issues of sovereign
16 immunity.
17 MR. KURTZ: I'm sorry. That's what I
18 meant. I misspoke.
19 They reserve their rights on the issue of
20 sovereign immunity. They've preserved their rights.
I'm
21 not suggesting that those rights aren't preserved.
22 That's not where I was headed.
23 What I want to point out to the Court,
24 however, is that we may find either before this Court or
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32
1 before the District Court the State of South Carolina
2 asserts a sovereign immunity defense. I have to point
3 out the irony in that.
4 On the one hand, they say it's essential
5 that these cases be adjudicated by a South Carolina
6 bankruptcy case, where on the other hand they have
7 reserved the right to take the position that they are not
8 affected by the bankruptcy because of sovereign immunity.
9 I don't know where they are going with
10 that. They haven't invoked it yet, but they've reserved
11 the right to do so and they raised it in that context
12 before Judge Sleet yesterday.
13 What we are left with, Your Honor, is a
14 record where we have two regulators out of hundreds of
15 regulators supporting the transfer of venue and we have
16 one disputed unsecured creditor supporting the transfer
17 of venue and that's it. I don't think there is any
18 question, Your Honor. There is really no dispute in the
19 facts.
20 This is a truly national enterprise. This
21 is not an enterprise that has a center of gravity in one
22 part of the country versus another. This is a company
23 that does business in virtually all the 50 states -- 48
24 states to be exact. Our operations are broadly spread
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33
1 out across the map as we have demonstrated in the papers
2 that we filed.
3 Like the representatives of South Carolina,
4 we spent a lot of time analyzing the precedents that this
5 court and other courts in this district have created in
6 determining whether venue should be transferred.
7 I think we can say, Your Honor, and say
8 unequivocally that there is no precedent for transferring
9 venue of Chapter 11 cases properly filed in this district
10 as these cases are based upon the factual record thats
11 been established in this case. There is no basis to
12 argue that it's more convenient for the parties to be in
13 South Carolina.
14 I think the papers have established that
15 it's far easier to get here. It's virtually impossible
16 for the State of South Carolina -- in fact, they backed
17 on this to argue that it will be more economical if these
18 cases are in South Carolina.
19 I think we prove that it will actually cost
20 more money if these cases were moved to South Carolina.
21 Maybe not a lot of money, but it will cost more money.
22 The point of that exercise was to
23 demonstrate that, notwithstanding the position taken by
24 the DHEC representatives in their opening papers where
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34
1 they argued it will be more economical if the cases are
2 transferred to South Carolina. It won't. It will cost
3 money. It will cost money. It will be more
4 inconvenient.
5 The creditors have voted with their feet.
6 They want the case here. There is no precedent for
7 transferring venue of Chapter 11 cases based upon this
8 record, especially by one regulator who regulates a site
9 held by only one of our debtors and who is a creditor of
10 only one of our debtors.
11 Thank you, Your Honor.
12 MR. MILLER: Good morning, Your Honor.
13 Harvey Miller of Weil, Gotshal & Manges on behalf of the
14 secured creditors. I will be very brief, Your Honor.
15 The Third Circuit has held time and time
16 again, Your Honor, and stated in Shutte vs. Armco Steel
17 Corporation at 431 F. 2nd 22, that it is black-letter law
18 that a plaintiff's choice of a proper forum is of
19 paramount consideration in any determination of a
20 transfer request, and that choice should not be likely
21 disturbed. That's a 28 U.S.C. Section 1404 case,
22 Your Honor. I think it has greater impact in the case
23 that was cited by the movants.
24 Your Honor, the papers are very complete in
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35
1 connection with the criteria why this case should be
2 retained in Delaware.
3 we have prepared, Your Honor, and if I
4 might approach, Your Honor, and just for illustrative
5 purposes, a chart going to the factors which this court
6 has used in connection with the transfer of venue of
7 cases filed in this district.
8 The blanks in this schedule, Your Honor, in
9 this exhibit, are factors which did not exist in
10 connection with the transfer of cases.
11 If Your Honor will look at that,
12 Your Honor's case, Ernst Home Center, the only factor
13 that existed was the location of professionals who were
14 widely disbursed, and Your Honor said that's not a factor
15 which militates in favor of retention and the state of
16 incorporation.
17 As you go to the right of this schedule,
18 Your Honor, you get to PWS Holding Corporation, which was
19 the Bruno Supermarkets, the Pic-N-Pay case, and then we
20 get to Safety-Kleen.
21 Just for a moment, Your Honor, if you look
22 at PWS Holding Corporation, which was a decision in 1996
23 by Judge Robinson iri the District Court, you had a
24 corporation which was headquartered -- PWS Holding
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36
1 Corporation, I might say, Your Honor, was a Delaware
2
corporation, but basically a holding corporation. The
3 operating company, Bruno's, Inc., was an Alabama
4
corporation located in Birmingham, Alabama. The
5 corporate headquarters and everything that Miss Wells
6 described about Safety-Kleen occurred in that Birmingham
7 headquarters.
8 The business only operated in five
9 southeastern states, and essentially we had the same
10 situation, Your Honor, that is before the Court today.
11 The unsecured creditors in that case opposed the transfer
12 of venue. The DIP creditors opposed transfer of venue.
13 Judge Robinson ruled based on the factors
14 which are set forth in this chart, Your Honor, and noted,
15 Your Honor, that in today's world, corporate headquarters
16 really doesn't mean very much and financial records don't
17 mean very much because electronically records go all over
18 the place.
19 That was also true, Your Honor, in
20 Commonwealth Oil where the Fifth Circuit specifically
21 referred to the proposition that the fact that the
22 records were in Puerto Rico made no difference in
23 connection with a venue transfer motion.
24 When you take PWS Holding Corp.,
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37
1 Your Honor, which is a recent case, and you take
2 Pic-N-Pay and you look at the factors in Safety-Kleen, as
3 Mr. Kurtz pointed out, there is no precedent in this
4 district whatsoever, Your Honor, for a transfer of these
5 cases.
6
As far as the convenience of the parties is
7 concerned, it's overwhelming that Delaware is the more
8 convenient forum.
9 Now, in connection with the interest of
10 justice, Your Honor, I would venture to say that well
11 over 90 percent of the litigation in the District of
12 Delaware relates to corporations who do not have their
13 headquarters in Delaware, do not have any business
14 activities in Delaware, but are incorporated in the State
15 of Delaware. They are citizens of the State of Delaware.
16 What Chief Judge Robinson said in the
17 Bruno's decision
1
Your Honor, is one of the benefits of
18 the state of incorporation is the right to take advantage
19 of the legal system within the State of Delaware and in
20 the Federal Court system in the State of Delaware, and
21 that decision to take advantage of what goes with being a
22 citizen of Delaware should not be disturbed lightly.
23 There is a very strong case, Your Honor, here in the
24 interest of justice to retain these cases.
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38
1 Pinewood is not the totality of the
2 reorganization cases, Your Honor. There are 74 debtor
3 corporations. There are creditors all over the
4 United States, and the interest of justice militates in
5 favor of retaining jurisdiction in this case.
6 And with all due respect, Your Honor, to
7 the State of South Carolina and the public agencies,
8 every effort on the part of the secured creditors to find
9 out what's going on in South Carolina has been met by the
10 kind of comment that Pinewood is a hot potato. It is a
11 big political issue. It's a political crusade on the
12 event --
13 MR. SUMMERALL: I would have to object at
14 this point.
15 MR. MILLER: Well, Your Honor, we are
16 talking about a state that has, as I understand it, 19
17 landfills that resents being called the garbage dump of
18 the United States. It has 19 landfills which are
19 licensed to take in 7.6 million tons of waste each year.
20 3.6 of that is generated within the State of
21 South Carolina. In 1999 it took in 400,000 tons of waste
22 and in the year 2000 it's projected to take in a million
23 tons of waste.
24 The question is the interest of justice. I
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39
1 say, with due respect to the state, where is it that the
2 creditors, the parties-in-interest in this case will get
3 the most objective hearing?
4 As Mr. Kurtz pointed out, Pinewood is one
5 facility. This company operates eleven landfills. There
6 is no basis in this record whatsoever, Your Honor, to say
7 that Pinewood is the totality of these reorganization
8 cases. There are a multiple interests in these cases.
9 There are, as Mr. Kurtz pointed out, at least 120 secured
10 creditors now. There are hundreds of unsecured
11 creditors. They, as Mr. Kurtz has said, voted with their
12 feet. This is the district that is most convenient and
13 in the interest of justice.
14 We submit, Your Honor, that venue should be
15 retained in this district based upon all of the
16 precedents in the District of Delaware.
18 MR. DESPINS: Your Honor, for the record,
19 Luc Despins with Milbank, Tweed, Hadley & McCloy,
20 proposed counsel for the Official Unsecured Cred.itors
1
21 Committee. Your Honor, I will not only say that I will
22 be. brief, but I will be.
23 The committee does not support the change
24 of venue for the reasons outlined by the debtor and by
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40
1 Mr. Miller and on behalf of the secured lenders.
2
MS. WELLS: Your Honor, may I offer some
3 comments in rebuttal?
4 THE COURT: Yes.
5 MS. WELLS: Briefly, one of the things that
6 Mr. Kurtz has referred to is that DHEC is a creditor only
7 of Safety-Kleen Pinewood, one of the subsidiaries, but I
8 think that we have established in our reply brief and in
9 the records of the SEC that accompanied the initial
10 supplemental memo that, indeed, the State of
11 South Carolina and South Carolina Department of Health
12 and Environmental Control is an interested party in
13 Safety-Kleen Corporation because of the liability
14 exposure and the interests they have in the financial
15 assurance mechanism for Safety-Kleen Pinewood, and that
16 the structure of the facilities and the subs and the
17 corporation, as a whole, Safety-Kleen Corporation is not
18 just one of the subs and you cant box it into that as
19 much as they might try.
20 Secondly, he makes the point that each of
21 the regulators that regulates Safety-Kleen could make the
22 same argument we are making, but thats not the case,
23 Your Honor, because there are two separate factors here.
24 Not only do you have the Safety-Kleen
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41
1 Pinewood facility, which although they say, indeed,
2 Safety-Kleen Pinewood is the plaintiff in that action, it
3 is so important and so crucial to the entire
4 reorganization that most secured creditors and the
5 Unsecured Creditors' Committee announced yesterday that
6 they intend to intervene in that adversary proceeding and
7 that, indeed, makes it not just important to the
8 reorganization of Safety-Kleen Pinewood, one of the
9 subsidiaries, but Safety-Kleen Corporation as a whole.
10 We are not making the statements. We are
11 using the statements they have made in their complaint as
12 far as the importance that this facility has nationwide,
13 to the whole nationwide regulatory scheme of hazardous
14 waste disposal, and especially to Safety-Kleen
15 Corporation as a whole.
16 I think it is interesting to note that
17 Mr. Kurtz talks about center of gravity, but he never
18 says where it is. He says they are nationwide, but he
19 never talks about the center of gravity and where it is
20 because the center of gravity financially and business
21 wise is in South Carolina.
22 As far as his irony of DHBC that on the one
23 hand we asked that they close and on the other hand we
24 talk about what a nerve center it is and how important
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42
1 and crucial that is, it is their own words, Your Honor,
2 that have said it is crucial to the reorganization and
3 crucial to Safety-Kleen Corporation, their own words in
4 their complaint and in their memorandum in support of
5 that and in their declaration accompanying that.
6 As I said, the closing is important to
7 DHEC. Even if it is closed, that still remains the nerve
8 center and is very important to Safety-Kleen Corporation
9 as a whole.
11 MR. SUMMERALL: Your Honor, a very brief
12 rebuttal?
13 THE COURT: Yes.
14 MR. SUMMERALL: First of all, I would like
15 to correct a factual misstatement by Mr. Kurtz. He has
16 said only one contract creditor had joined in the request
17 for transfer of venue, and that was the Ashley
18 Enterprises entity. I represent the South Carolina Water
19 Fowl Association, which is also a creditor, and they
20 filed a joinder in the motion, as well.
21 Your Honor, to my way of thinking,
22 Mr. Kurtz tried to emphasize the fact that not more
23 parties had, in fact, filed joinders in the request to
24 transfer these cases to South Carolina.
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WILCOX & FETZER l TO.
43
1 I can just as easily stand up here and say
2 that numerous interested parties did not object to the
3 motion. About all that one can conclude is that the
4 parties that knew about this motion and knew about this
5 hearing remain neutral.
6 The fact of the matter is, we filed this
7 venue transfer motion on the second business day after
8 the filing of these Chapter 11 cases and served it on the
9 limited number of parties that had filed appearances at
10 that time. So my question is many interested parties
11 don't even know about today's proceeding, Your Honor.
12 There is no question that the major
13 parties, the secured lenders, the debtors, and the
14 Unsecured Creditors' Committee have weighed in on the
15 convenience issue and they find Delaware to be a more
16 convenient forum.
17 But back to what I've said earlier,
18 Your Honor, this independent grounds of interest of
19 justice is paramount according to that 1949 decision and
20 subsequent cases. I disagree with Mr. Miller. While
21 clearly your case law and other Delaware case law talk
22 about the importance of the debtors' choice of forum, the
23 fact remains that on this alternative grounds, interest
24 of justice is the most important criterion.
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44
1
Your Honor, speaking of the interest of
2 justice, the only argument that I really heard on
3 disjunctive ground was from Mr. Miller, and he correctly
4 identified an interest-of-justice concern, and that is
5 the ability of Delaware corporations to have access to
6 Delaware courts.
7 But, Your Honor, I still submit that that
8 public interest, that interest-of-justice factor does not
9 stack up against the three that I cited earlier, and that
10 is the strong public interest in South Carolina. I cited
11 the 90,000 citizens that use this lake system as a clean
12 water source as one example of what I'm talking about,
13 Your Honor.
14 Finally, they say there is no precedent for
15 transferring this case. Mr. Kurtz, Your Honor, said
16 earlier that this is, quote, the most regulated industry
17 that has probably ever appeared in the Delaware
18 Bankruptcy Court.
19 Your Honor, that may well be the case. I
20 don't regularly appear in this case, but I suspect he may
21 be right about that. That plays into my public interest
22 nature of these movants' interest-of-justice argument.
23 I would conclude by saying that the
24 interest of justice, as an alternative basis, clearly
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45
1 satisfied the preponderance-of-the-evidence standard
2 versus the plaintiffs' choice of forum in this matter.
3
My final comment would be that
1
sure, there
4 are many regulatory agencies involved. Most of them have
5 not appeared either for or against the transfer of venue.
6 The one other that has appeared, the Oklahoma regulatory
7 agency, has also requested that you transfer these cases
8 to South Carolina.
9 Thank you.
10 THE COURT: Anyone else?
11 (No response.)
12 THE COURT: Okay. I'm not going to waste a
13 lot of time on this. I spent quite a bit of time reading
14 the pleadings. I'm going to deny the motion with a
15 condition, and I'll get to the condition later, but let
16 me tell you why I'm going to deny the motion.
17 The parties have cited to the Pic-N-Pay
18 case and the Ernst Home Center cases. I believe I used
19 the center of gravity term in connection with the Ernst
20 Home Center case because I concluded that the vast
21 majority, if not all of the stores in that enterprise
22 were located in the -- I believe in the northwest,
23 possibly part of California
1
also. The point was that
24 that center of gravity of the business
1
the entire
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46
1 business, all the retail locations, as well as the
2 headquarters were simply regional in nature and it was
3 not a national case.
4 On the other hand, in the Pic-N-Pay stores'
5 case, I emphasized that it was, indeed, a national case.
6 In that case, as I recall it, certainly east of the
7 Mississippi, the operations were spread throughout the
8 country. The principal focus of my decision was that
9 that was a national case and the debtors
1
choice of forum
10 was appropriate.
11 I also pointed out that at the time
12 NationsBank, the largest creditor, would not be
13 inconvenienced by litigating in Delaware. That
14 particular point obviously is different from the case at
15 hand.
16 But nevertheless, in finding a significant
17 factor in Pic-N-Pay being the national scope of the
18 enterprise, the case before me qualifies to a much
19 greater degree for that characterization.
20 It is clear from the exhibits that. have
21 been filed by the secured creditors that the creditors
22 are all over the 49 states. Operations are all over the
23 49 states, and facilities similar to that in
24 South Carolina are in, I believe, ten states. So the
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47
1 vast majority of creditors are all over the
2 United States.
3 For all intents and purposes, we have one
4 entity seeking venue in their forum for reasons which are
s entirely understandable, but I think for reasons which do
6 not consider the interest of other parties.
7 At the prior hearing I indicated that one
8 of the reasons why I wanted to have the hearing on this
9 motion heard after the committee was formed was because,
10 as I indicated, I thought that their decision on these
11 issues was important for the Court to consider. 1
1
m now
12 advised that the committee does not support the
13 transfer-of-venue motion. I find that to be of
14 significance.
15 Counsel for the regulatory agency in
16 South Carolina points out that, as she put it, the
17 South Carolina headquarters is the nerve center, the cash
18 management center flows through there, the day-to-day
19 management is in South Carolina, etcetera.
20 But I think that that's not particularly
21 relevant. The issue of convenience of the parties is not
22 where the headquarters may be or what operations come out
23 of those headquarters, but where the parties, or I should
24 say the principals of the debtor have to be in connection
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48
1 with the chapter case. They don't have to move out of
2 South Carolina to continue the cash management system, to
3 continue the day-to-day management and operations, and
4 none of that has anything in particular to do with
5 appearances in this court.
6 Indeed, as I'm sure most parties here are
7 well aware, rarely, rarely do we have extended hearings
8 in this court which would require any significant
9 dislocation from one's operating services in a
10 headquarters.
11 Equally important, and I think parties here
12 will recognize this, the vast majority of activities in
13 this court involve lawyering and only a very, very
14 limited number of principals have to appear on very, very
15 limited occasions for a very limited period of time in
16 this forum in connection with processing a Chapter 11
17 case.
18 With respect to the public interest, I
19 certainly acknowledge that the State of South Carolina
20 has a significant public interest in this matter, but as
21 counsel for the debtors pointed out, there are a lot of
22 other regulatory agencies which have similar interests.
23 It seems to me the only argument to be made by the State
24 of South Carolina for it having paramount importance over
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49
1 the others is this Pinewood facility, which is the
2 subject of considerable contentious litigation, and I'll
3 get back to that in a moment.
4 So there's nothing unique about the State
5 of South Carolina in regard to having a different
6 position or being entitled to special treatment vis-a-vis
7 venue versus other regulatory agencies.
8 I've already observed that the creditors
9 are spread throughout the country. The secured creditors
10 obviously have a significant interest in this case, and
11 they obviously do not support transfer to South Carolina.
12 Let me make two observations that haven't
13 been mentioned in the oral argument but which were
14 mentioned in the papers.
15 Number 1, there was reference to the fact
16 that there is significant securities law litigation
17 pending against the company and others in South Carolina.
18 Fortunately or unfortunately, many of the
19 large Chapter 11 cases that come into this court in the
20 last five years come in under the cloud of signiicant,
21 indeed, extensive securities litigation arising out of
22 typically alleged prepetition accounting irregularities.
23 Never in my entire experience here has any
24 of those litigants in the securities law cases pending
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50
1 elsewhere -- and quite often there may be a dozen cases
2 pending in a dozen different jurisdictions, never has
3 anyone suggested that being in the locale of any of those
4 pieces of litigation is important to the bankruptcy
5 process because the simple matter is that typically I
6 never see the securities lawyers until we get involved in
7 an issue of either lifting the stay as to the debtor
8 defendant or extending the stay as to nondebtor
9 defendants in that type of litigation.
10 When those matters come before the Court,
11 the only people I ever see are lawyers. The cadre of
12 securities lawyers throughout the country can handle
13 those matters in almost any jurisdiction where a
14 bankruptcy case is pending, and there is no real
15 relationship between the bankruptcy proceeding and those
16 particular types of litigation.
17 Let me focus on the Pinewood facility.
18 Counsel for the debtor points out, and I
19 assume this is not challenged, that that facility
20 represents 2 percent of the revenue of all of the debtors
21 on a consolidated basis, and that facility represents the
22 disposal for 10 percent of the waste of all of the waste
23 collected by all the debtors.
24 I think it would be having the tail wag the
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51
1 dog to see that that interest
1
therefore, ought to
2
dictate where the chapter case should be pending. I
3 don't think it's appropriate to reach that result.
4
As counsel for the debtor points out
1
if
5 the closure order becomes effective and that facility is
6 closed down, it would obviously be a disaster for that
7 particular debtor's reorganization effort, but it would
8 not be the end of this Chapter 11 case.
9 I must agree with debtors' counsel that
10 there is some irony in the fact that
1
as I read the
11 movant's papers, and considerable expressions of interest
12 in participating in the bankruptcy process in order to
13 protect its interest -- in fact, I read from page 8 of
14 their supplemental memorandum. It says: "South Carolina
15 has a very strong public policy interest in the
16 reorganization of these debtors."
17 Well, if you have an interest in the
18 reorganization of these debtors, shutting down the
19 Pinewood facility is going to be the end of the debtor
20 with respect to the ownership of that facility .. That
21 seems somewhat inconsistent to me.
22 Now, let me just make one other
23 observation.
24 The debtors' choice of the forum ~ s not to
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52
1 be lightly disturbed. Given the fact that we have
2 essentially one party-in-interest affiliated with several
3 other affiliated entities pushing for a transfer of venue
4 I don't think can outweigh the debtors' choice,
5 particularly given the fact that this is a bankruptcy
6 truly of national scope. It is a bankruptcy in which all
7 the secured creditors oppose the transfer in which the
8 Unsecured Creditors' Committee does not support the
9 transfer.
10 It just seems to me that it would turn the
11 precedence in this court regarding transfer of venue on
12 its head to allow the State of South Carolina to cause
13 this Chapter 11 case to be transferred there.
14 Now, let me get to the condition that I
15 mentioned.
16 It is pretty obvious that the State of
17 South Carolina has had significant disputes with one of
18 these debtors in connection with the Pinewood facility,
19 and I noted that in the initial filing by the State of
20 South Carolina they pointed out that there had been
21 significant administrative proceedings with respect to
22 that facility. At the time there was an appeal by the
23 debtor pending in the South Carolina Supreme Court, and
24 it was also pointed out that the debtor had filed an
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53
1 action in the Federal Court of South Carolina related to
2 that same subject matter.
3 Of course, yesterday I became aware of and
4 now am more fully apprised of the action taken by the
5 debtor in the District Court here to protect its interest
6 in connection with developments which have taken place in
7 connection with the Pinewood facility.
8 It seems to me that this debtor is here
9 for, I think, two reasons.
10 Number 1, the debtor points out that as a
11 result of the disclosure of alleged accounting
12 irregularities, they encountered a liquidity crisis.
13 That's understandable. That's pretty standard. I see it
14 all the time.
15 I think, I'm not sure the debtor has said
16 this or anyone has said it, but I also suspect that the
17 balance sheet is overleveraged and this is going to have
18 to be addressed.
19 These operational and financial problems, I
20 think, are appropriately addressed in this Bankruptcy
21 Court. I don't think it serves anybody's interest to
22 transfer those problems to Bankruptcy Court in
23 South Carolina because so far as I'm concerned, either
24 jurisdiction can address these types of very, very
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54
1 typical, standard bankruptcy issues; i.e., solving
2 operational problems and solving the overly leveraged
3 balance sheet.
4 I don't know what the State of
5 South Carolina can contribute in that regard. They say
6 that they want a reorganization, but yet they are closing
7 down a facility which would probably eliminate a
8 reorganization possibility for the particular debtor
9 operating that facility.
10 So as far as I'm concerned, given what we
11 do here in bankruptcy, I think the debtors' choice of
12 forum has to be given the benefit. And given the
13 committee's position of not supporting the motion, and
14 given the other characteristics, which I point out make
15 this a classic case for national operation similar to
16 Pic-N-Pay, I see no basis for transferring venue.
17 However, it does seem to me that the State
18 of South Carolina has a significant interest in what
19 happens to the Pinewood facility. As I indicated at the
20 outset, I'm going to deny the motion, but with a.
21 condition. Let me back up a moment and tell you that I
22 arrived at this solution at 4:30 this morning.
23 Later this morning I received a call from
24 Judge Sleet who told me what transpired at the hearing
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1 yesterday.
He also told me that the State of
2 south Carolina has filed a motion to transfer the
3 adversary proceeding.
4 A condition to denying the transfer of
5 venue of this chapter case is that the debtor not oppose
6 any venue transfer motion filed in the adversary
7 proceeding pending before Judge Sleet. Specifically, I
8 will direct that the debtor advise Judge Sleet that it
9 does not oppose the State of South Carolina's motion to
10 transfer that adversary proceeding.
11 Secondly, I'm going to direct that the
12 debtor waiver its right under Title 28 U.S.C.
13 Section 1452 to remove any related proceeding to this
14 court; that is, any proceeding pending in South Carolina
15 involving the same subject matter as the two proceedings
16 pending there now, as well as the subject matter of the
17 adversary proceeding pending in the District Court here.
18 So it seems to me that the thrust of the
19 public interest that counsel for South Carolina has put
20 forward here today will be adequately protected and
21 addressed by having those issues decided on the turf of
22 the South Carolina entities involved in this motion.
23 So in denying the motion to transfer venue,
24 I do it with those two conditions.
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1
MR. KURTZ: Your Honor, I certainly respect
2 the Court's ruling. I think it's important for the Court
3 to understand one thing. Perhaps we need to brief this.
4
We have raised two issues in the adversary
5
proceeding that we filed Friday night. The first is the
6 constitutionality of the June 14th order directing the
7 closure of the facility by this week. That is an issue
8 that is unique to the Pinewood situation, and it is based
9 upon the long record that has been developed with respect
10 to the proceedings in that state. So as to that, I
11 completely understand Your Honor's views.
12 The second issue we address in that
13 adversary proceeding, however
1
is whether the automatic
14 stay applies to the order entered by DHEC on June 9th.
15 This is the order that we must pay them money in order to
16 replace Frontier. That is a pure bankruptcy issue.
17 So what we would like to do, Your Honor,
18 and that issue is not, as I indicated in my remarks,
19 unique to Pinewood. That issue applies to every
20 regulator with the Frontier bond.
21 What we would like to do, Your Honor, is
22 separate the issues pertaining to the June 9th order
23 which are purely bankruptcy and which do not require
24 reference withdrawal from the issues that relate to the
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1 June 14th order which are very specific to Pinewood and
2 relate directly to the history of litigation in that
3 state.
4 The issue as to whether the automatic stay
5 applies to their directive that we post the bond has
6 nothing to do with any of the history in South Carolina.
7 Frontier didn't lose its "T" rating until June 1 and so
8 it's --
THE COURT: But the District Court can
10 address that issue.
11 MR. KURTZ: But what we would then have,
12 Your Honor, is a District Court in South Carolina
13 addressing an issue that relates to bonds posted in 30
14 different states. We only joined the two together
15 because we felt it would be more efficient for one court
16 to consider both matters because there was factual
17 overlap. We could just as easily chosen to
18 THE COURT: I'm not sure that the District
19 Court in South Carolina has to address any issue other
20 than the action of the South Carolina agency violated the
21 stay order. If some other agency in some other
22 jurisdiction takes similar action, then you can bring
23 that matter here.
24 MR. KURTZ: Your Honor, I appreciate that.
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1 What I'm just concerned about is, and we've had just a
2 minute to think about the implications of Your Honor's
3 ruling, I'm concerned about res judicata implications.
4
For all the reasons that the Court
5 articulated, it's proper to have the bankruptcy case here
6 to deal with bankruptcy issues that transcend the 74
7 debtors.
8 One of those issues may be the
9 applicability of the automatic stay to these regulators,
10 and it would not be proper, consistent with the Court's
11 own ruling for that issue to be decided by a court in
12 South Carolina because that issue --
13 THE COURT: You asked to .have it decided by
14 our District Court.
15 MR. KURTZ: We asked to have it decided by
16 the District Court pursuant to bankruptcy jurisdiction.
17 That proceeding was filed under 28 U.S.C. 1334,
18 Your Honor, and in this court as related to a bankruptcy
19 proceeding.
20 Again, we only joined it for efficiency
21 purposes. There is no reason why a judge in
22 South Carolina should decide an issue that really relates
23 that directly to a pure bankruptcy issue that has nothing
24 to do with any of the litigation that's transpired with
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1 the State of South Carolina up until now.
2 Then we could find ourselves in the
3 position, Your Honor, where we are litigating the issue
4 with DHEC in one jurisdiction. We are litigating the
5 same issue with another regulator in this jurisdiction,
6 and there is no reason for that.
7 So what I would request permission to do,
8 I'm not even sure we need permission to do this,
9 Your Honor, with all due respect, we have to think
10 through the implications of this, but what I would do is
11 dismiss that part of the adversary proceeding that
12 relates to the bankruptcy issues alone. The other
13 part --
14 THE COURT: That adversary proceeding is
15 not before me. The reference has been withdrawn. I have
16 no jurisdiction.
17 MR. KURTZ: I understand that, but you have
18 in your order linked your decision on venue. Your Honor
19 has imposed a condition on your ruling. I don't want to
20 violate your condition.
21 So I understand your point and you are
22 certainly correct. I guess I could say I'm merely
23 advising you that, as I stand here today, that will be
24 our intention. I would hope that Your Honor would not
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1 conclude that that violated your condition because we
2 certainly would not want to do that. That would mean
3 that the issue --
4 THE COURT: I'm sorry. What would be your
5 intent?
6 MR. KURTZ: It would be my intent,
7 Your Honor, to raise that issue in this court as a
8 bankruptcy issue, which does not require the intervention
9 of an Article 3 judge. That is a pure bankruptcy --
10 THE COURT: You've invoked an Article 3
11 judge. Why can't you pursue that course of conduct that
12 you embarked upon?
13 MR. KURTZ: Your Honor, we could do that.
14 Here's the difference.
15 It's not so much the judge. It's the
16 centrality of the adjudication. Your Honor, it would be
17 inconsistent with all of your rulings for us to find
18 ourselves in a position where we have two courts deciding
19 the same issue where we have all decided here with
20 respect to every other regulate, to only the State of
21 South Carolina down there.
22 It wasn't clear, Your Honor, that all of it
23 would have stayed before the district judge because as we
24 made it clear to the district judge, I think we did, only
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1 the piece that was before him yesterday relating to the
2 constitutionality was subject to the mandatory reference
3 withdrawal. But because there was certain factual
4 overlap in what transpired, we thought it would be more
5 efficient to do it that way.
6 MR. DESPINS: Can the Creditors Committee
7 be heard on this matter, Your Honor?
8 Your Honor, we understand the effort youve
9 made to strike a balance between the interest of
10 South Carolina and the estates here.
11 We are extremely concerned about this
12 aspect that was just raised by Mr. Kurtz because issues
13 that go to the core of Bankruptcy Court jurisdiction,
14 automatic stay, claims allowance, especially from our
15 perspective of unsecured creditors, we want to make sure
16 that these will be heard by this Court. Otherwise, there
17 is the risk of inconsistent judgment.
18 But also from our point of view as
19 unsecured creditors, it is true that the debtor filed
20 this adversary proceeding and moved to withdraw the
21 reference, but we should not be penalized, the unsecured
22 creditors, because of that.
23 We also want the benefit of the automatic
24 stay and we want to have our day in court in front of
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1 Your Honor on that issue. We understand the balance you
2 are trying to strike. But the problem is that this
3 issue, the application of the automatic stay will be
4 raised in various contexts, not only in South Carolina.
5 So we risk inconsistent decisions here.
6 The Creditors Committee forcefully -- let
7 me strike that -- really is concerned about the aspect of
8 Your Honor's decision that it would have somebody else
9 other than this Court determine the scope of the
10 automatic stay or the allowance of claims against these
11 debtors.
12 THE COURT: Well, my response is that's a
13 legal issue that you asked Judge Sleet to decide. The
14 only thing I'm doing is saying some other district court
15 judge can decide that just as well.
16 MR. DESPINS: But the Creditors Committee
17 did not do this, and the Creditors Committee should not
18 be penalized by some litigation tactic that was abducted
19 by the debtor.
20 MR. MILLER: I would just add one element.
21 Harvey Miller.
22 As I understood it yesterday, DHEC advised
23 Judge Sleet that it opposed the motion to withdraw the
24 reference. I, frankly, Your Honor, don't know whether an
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1 order was entered withdrawing the reference.
2
MS. WELLS: Your Honor --
3
THE COURT: It seems to me that if
4 Judge Sleet entered a TRO, then he withdrew the
5 reference. Otherwise, what jurisdiction would he have to
6 act?
7 MS. WELLS: If I could speak briefly,
8 Your Honor
1
we reserved our rights on that, as well,
9 because we were not served with that motion when we got
10 the rest of the documents on Friday. In fact, we did not
11 see a copy of that until Monday morning about half an
12 hour before counsel for DHEC appeared.
13 MR. MILLER: I, frankly, Your Honor, don't
14 know whether Judge Sleet did sign the order. He first
15 saw the papers 10:30 yesterday morning and the papers had
16 come over from Judge McKelvie. Maybe he assumed that
17 Judge McKelvie had signed the order. I, personally,
18 haven't seen it.
19 The position taken by DHEC yesterday,
20 Your Honor, was there was no mandatory withdrawal. So we
21 are sort of in a jurisdictional suspension at this
22 moment. Speaking for the secured creditors, Your Honor,
23 we would concur with Mr. Despins concerning the affect
24 that this has on the creditors.
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WILCOX & FETZER l TO.
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1
I would think, whether it is before
2 Judge Sleet or whether it is before Your Honor, that as
3 the plaintiff in that adversary proceeding, the debtor
4 has a right to withdraw those counts that relate to the
5 automatic stay.
6 I think all Mr. Kurtz is asking for is that
7 he doesn't want to incur your rath by doing that.
8 Whether the case is before Your Honor or Judge Sleet,
9 there is a right to withdraw a count in the complaint,
10 and he just wants to make sure that would not upset the
11 condition which Your Honor has imposed in connection with
12 your decision.
13 MR. KURTZ: Your Honor, it would be our
14 intention to do that, which would mean we would reassert
15 those matters before this Court. I assume there will be
16 a venue motion attached to that, and we can deal with the
17 procedurally in that manner.
18 The good thing about that piece of the
19 adversary proceeding is that the deadline isn't until
20 August 28th.
21 The order entered on June 14th requires
22 that we close this Friday. The order entered on June 9th
23 doesn't require that we close until the 28th. So that
24 would give us an opportunity to sort this out.
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65
1
It was only out of respect to the Court
2 that I raised the issues that I did. I'm not asking for
3 Your Honor to bless anything up front now, but I didn't
4 want you to think that we were intentionally somehow
5 acting cute with the order because we would not do so.
6 THE COURT: Well, you went to the District
7 Court because you said you had supremacy and commerce
8 clause issues. I don't know a whole lot about it, but my
9 quick reaction would be that would constitute a mandatory
10 withdrawal of reference.
11 By having Judge Sleet enter a TRO, I have
12 to assume that he granted the motion to withdraw the
13 reference. Otherwise, he wouldn't have any jurisdiction
14 to act. You got him to issue a TRO with respect to the
15 shutdown order, and so he's already acted on an issue
16 which you say this Court ought to act on.
17 MR. KURTZ: No, Your Honor. I would like
18 to correct that, please.
19 He has not. Judge Sleet's order related
20 only to the June 14th DHEC order to shut down this
21 Friday. It did not at all relate to the June 9th order
22 that requires us to shut down on August 28th. He has not
23 entered any order relating to the June 9th order. It's
24 the June 9th order that implicates bankruptcy issues.
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1 Judge Sleet has entered no relief with respect to that
2 order, and it's that order that we would intend to put
3 before this Court as a bankruptcy issue. He has not
4 acted on that.
5
THE COURT: But you asked for relief with
6 respect to that order.
7 MR. KURTZ: We have, and we have the right
8 to file the complaint. We have the right to dismiss
9 certain counts of that complaint under the federal rules.
10 We certainly have that right, and it's a right that we
11 would intend to exercise. There is no relief granted by
12 Judge Sleet with respect to any of the matters that we
13 would seek to dismiss.
14 So the constitutional issues and whether we
15 have to close under the June 14th order would go down to
16 South Carolina, and we would intend to assert the pure
17 bankruptcy issues in this court.
18 MR. SUMMERALL: Very briefly, Your Honor.
19 Clearly the movants believe that your
20 effort to strike a balance makes a lot of sense to us.
21 As you have pointed out
1
and I don't want to state your
22 comments, they invoked an Article 3 court. The secured
23 creditors and the Unsecured Creditors' Committee
24 announced their intention yesterday to intervene in an
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67
1 Article 3 court.
2 The district courts in South Carolina
3 frequently hear bankruptcy matters. They are fully
4 capable of addressing these issues. We've had a lot of
5 talk today about the discrete Pinewood facility rulings
6 and this District Court action will involve that discrete
7 Pinewood facility, so I would ask you to reaffirm your
8 two conditions.
THE COURT: Okay. I'm going to stand by
10 what I said. It seems to me that if the debtor wishes to
11 withdraw that issue from the adversary proceeding, I
12 think it can make an application to the transfer to a
13 District Court asking for permission to do so suggesting
14 that it is a matter more properly addressed to the
15 Bankruptcy Court where the chapter case is pending and
16 see what that court does with it. That court may well
17 defer to this court on that issue because obviously it is
18 a bankruptcy issue.
19 MR. KURTZ: The other possibility would be
20 to just dismiss those counts and refile them, and we
21 certainly have the right under the federal rules to do
22 that.
23 THE COURT: Well, if you want to do that,
24 we'll address it when we get to it. But my order is that
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68
1 with respect to any motion to transfer the adversary
2 proceeding, the debtor not oppose the motion.
3 MR. MILLER: As a point of clarification,
4 Your Honor, if that adversary proceeding has an amended
5 complaint and it gets transferred to the District of
6 South Carolina, as long as it's -- the proceeding,
7 whatever form it's in, right now the debtor has an
8 absolute right to withdraw that count. There is no
9 answer filed and they can do it today if they want to do
10 it.
11 THE COURT: Okay. I'm not making any
12 ruling on that.
13 MR. KURTZ: Thank you
1
Your Honor.
14 MR. SUMMERALL: Thank you, Your Honor.
15 MS. WELLS: Your Honor, thank you very
16 much.
17 MR. ST. CLAIR: Your Honor, Greg St. Clair
18 with Skadden Arps on behalf of the debtors.
19 The remaining items on the agenda are all
20 uncontested and, Your Honor, there have been a few
21 changes to some of the orders based on discussions with
22 the U.S. Trustee to resolve issues that the trustee has
23 raised. I wanted to present black lines of those orders
24 so you can see the changes.
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1
THE COURT: Okay.
2
MR. ST CLAIR: In No. 5, the Lazard
3 application, based on discussions with United States
4 Trustee, changes were made to clarify the indemnification
5 as limited that Lazard is seeking with respect to only
6 enumerated banking services as opposed to a more broad
7 indemnification, which is the typical indemnification in
8 the Planet Hollywood order and the recent order that has
9 been entered.
10 THE COURT: Okay.
11 MR. ST. CLAIR: If I may, I'll hand up an
12 original and a black line --
13 MR. DESPINS: Can I confer with counsel for
14 the debtor for one second, Your Honor?
15 (Discussion off the record.)
16 MR. ST. CLAIR: Your Honor, the other
17 matter, No. 9, the application of Plante & Moran as
18 accountants, again, as a result of discussions with the
19 United States Trustee, the revised order eliminates any
20 right to indemnification and hold-harmless provisions
21 that were in the original engagement letter. Those have
22 been removed.
23 THE COURT: This is for which one?
24 MR. ST. CLAIR: Plante & Moran, which is
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70
1 agenda item No. 9.
2 THE COURT: Okay. You handed to me a whole
3 batch of Lazard black lines. Any reason for that?
4 MR. ST. CLAIR: No, Your Honor. I didn't
5 realize there was more than one copy.
6 THE COURT: Okay.
7 MR. ST. CLAIR: If I may approach, I have a
8 black line of the Plante & Moran order and an original.
THE COURT: Okay.
10 MR. ST. CLAIR: The last order that was
11 changed, Your Honor, is agenda item No. 1, which is the
12 interim compensation procedures order.
13 The change that was made there was just to
14 clarify that any monthly payments that are made are still
15 subject to disgorgement if they ultimately are not
16 approved at a final fee application hearing, which we
17 assume to be the case. We just clarified that.
18 THE COURT: Okay.
19 MR. ST. CLAIR: The time item, Your Honor,
20 was the debtors request for additional time to ile the
21 schedules and statements.
22 That was circulated and weve received no
23 objection from the United States Trustee or from the
24 other parties in this case.
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71
1
THE COURT: Okay.
2 MR. ST. CLAIR: I have a duplicate original
3 order.
4
THE COURT: Okay.
5 MR. ST. CLAIR: I believe that concludes
6 the hearing for this morning, Your Honor.
7 THE COURT: Okay. We stand in recess.
8 (The hearing was then concluded at
9 1:10 p.m.)
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1 State of Delaware
2 County of New Castle
3
4
C E R T I F I C A T E
5
6
I, Kathleen E. White, Registered Professional
7 Reporter and Notary Public, do hereby certify that the
foregoing record, pages 1 to 72, inclusive, is a true and
8 accurate transcript of my stenographic notes taken on
Tuesday, July 11, 2000, in the above-captioned matter
9 before the Federal Bankruptcy Court.
10 IN WITNESS WHEREOF, I have hereunto set my hand
and seal this 12th day of Jul 2000,
11 New Castle County.
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EXHIBITD
1
2 SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK - CIVIL TERM - PART 53
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BDCM OPPORTUNITY FUND II, LP,
4 BLACK DIAMOND CLO 2005-1 LTD, and
SPECTRUM INVESTMENT PARTNERS L.P.,
5
Plaintiff,
6
-against-
7
YUCAIPA AMERICAN ALLIANCE FUND I,
8 LP, AND YUCAIPA AMERICAN ALLIANCE
(PARALLEL) Ft'JND I LP,
9
Defendants.
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Index # 650150/2012
11 PROCEEDINGS
12 60 Centre Street
13 February 28, 2012
14 B E F 0 R E:
HONORABLE CHARLES E. RAMOS
15 Justice.
16
A P P E A R A N C E S:
17
SCHULTE ROTH & ZABEL LLP
18 9 Third Avenue
19 BY: BOB WARD, ESQ.
ADAM C . HARRIS, ESQ.
20 Attorneys for Plaintiff
21 K.ASOWITZ, BENSON, TORRES & FRIEDMAN LLP
1633 Broadway
22 New York, New York 10019-6799
BY: DAVID E. ROSS, ESQ.
23 ADAM K. GRANT I ESQ.
Attorney for Defendant
24
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ALDORINE WALKER, RPR
Official Court Reporter
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THE COURT: My first question is, other than
the fact that I think this is going to be a fun case,
Allied is, where?
MR. WARD: Georgia.
THE COURT: In Georgia?
MR. WARD: Yes.
THE COURT: Have you served any kind of
document request on Allied in the Georgia action?
MR. WARD: We have not, Your Hnor, but
litigation has been going on for two years. We can get
the document production that been made. My client was
deposed in the Georgia action. CIT1 which was the
agent which was handling the defense of this case, in
effect, for us settled on their own stead. We think
they have breached their fiduciary duty. That's
another issue. We are now fighting on that.
We have now had to pick up the cudgel, if that's
the right word, to say your clients, Mr. Ross clients
are not the requisite lenders. There no purported
Fourth Amendment. It's very similar issues that has
been going on in Georgia.
THE COURT: I understand.
MR. WARD: But/ Your Honor, the issue is
not --
THE COURT: Look, I would like to hurry this
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case through to a conclusion, and I can understand why
the defendants probably will make a motion to dismiss,
whatever. That would be fine. It will take them a
while, but at least we can get the discovery going.
Obviously, you can't serve discovery notice upon them
for them to produce Allied stuff because they are not
Allied.
MR. WARD: But, Your Honor, they have these
financial statements. They control the entities. Part
of Your Honorts inherited authority to control your
dockets on your calendar would be to grant an extension
in return for which they give us the financials from
March of 2011 'til now and the audited financials for
2010. Your Honor has an inherent authority to control
your docket.
THE COURT: I understand, but I have to have
some confidence that my instructions to them can be, in
fact, effectuated.
MR. WARD: That can't be, Your Honor, becaus.e
they control the company that control the equity. They
appoint the management. They appoint the directors.
They have these financial statements.
THE COORT: Is that true?
MR. ROSS: Judge, good morning. I'm David
Ross from Kasowitz Benson. I'm here with Adam Grant.
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we represent the defendants. I can't imagine why we
are getting off to talking about nonparty production at
this stage of this case. As Your Honor recognizes,
this is all --
THE COURT: Isn't this is part of an ongoing
dispute? We have got litigation going on down in
Georgia.
MR. ROSS: We don't, actually.
MR. WARD: .That was settled, Your Honor.
THE COURT: It is settled?
MR. WARD: Yes.
THE COURT: That's a good thing to do.
MR. WARD: It is/ Your Honor. We would love
to settle this. But in order for us to settle, we need
the financials so we know where the company is.
THE COURT: I understand, which is why I'm
trying to get it for you.
MR. ROSS: Judge, may I?
THE COURT: Yes.
MR. ROSS: First of all, the Georgia case was
settled. As they point out, the Georgia case is
settled by the administrative agent on this' credit,
CIT. They have not sued CIT here. They have not sued
Allied here. They have only sued us.
THE COURT: When?
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of 2011.
Proceeding$
MR. ROSS: We are fellow lender.
THE COURT: When was it settled?
MR. ROSS: It was settled in early December
5
THE COURT: Well, they are suing you because
you are prohibited from acquiring the debt of the
borrower and now you have, and it prejudice them.
MR. ROSS: Judgei that's what they claim, but
let me go
THE COURT: They only know what they claim.
MR. ROSS: Let me go immediately, because you
are right, there will be very substantial motion to
dismiss, which Your Honor will find interesting, but we
need enough time to put it together.
This is all about getting four weeks to put that
motion in to Your Honor. And two of the weeks the
partner who is handling the litigation for the last two
years will be out of the country on vacation. So what
this is about is a four-week adjournment. It's the
first adjournment in a case involving $350 million and
178 page credit agreement and four amendments to that
credit agreement and a prior Georgia litigation. So --
THE COURT: You give me a nice preface, but
you have not answered my question.
MR. ROSS: Let me see if I can address the
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Proceedings
other issue. I am not expert on the history of the
disclosure of documents with respect to the credit
agreement, but I'm told that our client produced to CIT
relevant financial documents which CIT then uploaded to
the Interlinks System that is used by the credit banks
who are the defendants.
THE COURT: Do they include the documents
that the plaintiff is seeking now?
MI<.. ROSS: I don't know.
THE COURT: That doesn't help me. I asked
you a question, I have not gotten an answer.
MR. ROSS: I don't know the details about the
credit documents, but I'm told ~ -
THE COURT: I asked you a question. I'm
going to ask it again. If I don't get an answer, I
will go on to the next case, okay? Its really simple.
The question was, plaintiff contends that your
client owns or owns the majority of the equity of
Allied and control Allied by appointing, apparently,
its officers and directors?
I believe.
MR. WARD: Officers and directors.
THE COURT: Is that true?
MR. ROSS: Yes, Your Honor, that is accurate 1
THE COURT: Okay. You want March 23rd?
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Proceedings
MR. ROSS: Yes, sir.
THE COURT: Get him the documents by March
1st.
MR. ROSS: By March 1st?
THE COURT: By March 1stt Yes.
MR, ROSS: Your Honor, March 1st is only
three d ~ y s from now.
THE COURT: That's right. That's what we
have e-mail for. If you wanted the documents from your
client, you would get them overnight. You probably
would get them in a half an hour. Get him the
documents, then you get your adjournment.
MR. WARD: Thank you, Your Honor.
MR. ROSS: Thank you, Your Honor.
* * * * *
It is hereby certified that the foregoing is a true
and accurate transcript of the proceedings.
ALDORINE WALKER, RPR
Official Court Reporter
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UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

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