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Case:12-24882-ABC Doc#:269 Filed:07/27/12

Entered:07/27/12 11:20:31 Page1 of 6


Case No. 12-24882 (ABC) Chapter 11

REPLY OF CHERYL M. FOLEY, THOMAS WILNER, JANE WILNER, CHARLES JACKSON, MARY JACKSON and KEVIN B. ALLEN, INDIVIDUALLY AND AS REPRESENTATIVES OF A CERTIFIED CLASS OF MEMBERS, TO THE DEBTORS SUPPLEMENT TO MOTION FOR AN ORDER, PURSUANT TO SECTIONS 106 [SIC] AND 363 OF THE BANKRUPTCY CODE AND BANKRUPTCY RULE 6003, AUTHORIZING AND APPROVING (I) THE DEBTORS DESIGANTION OF ALFRED H. SIEGEL, AS CHIEF RESTRUCTRUING OFFICER, AND (II) RETENTION AND EMPLOYMENT OF CROWE HORWATH, LLC, NUNC PRO TUNC, TO THE PETITINO DATE; AND RESPONSE TO THE OBJECTIONS FILED BY (I) CHERYL M. FOLEY, ET AL,; (2) THE CORDILLERA METROPOLITAN DISTRICT AND CORDILLERA PROPERTYOWNERS ASSOCIATION, INC.; AND (3) THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS Cheryl M. Foley, Thomas and Jane Wilner, Charles and Mary Jackson and Kevin B. Allen, as representatives of a certified class in Case Number 11CV552, pending in the District Court of Eagle County, Colorado (collectively, Member Representatives), by their attorneys Appel & Lucas, P.C, hereby Reply to the Debtors Supplement (the Supplement) to Motion for an Order, Debtors Motion for an Order, Pursuant to Sections 105 and 363 of the Bankruptcy Code and Bankruptcy Rule 6003, Authorizing and Approving (I) the Debtors Designation of Alfred H. Seigel, as Chief Restructuring Officer (CRO), and (II) Retention and Employment of Crow Horwath, LLC nunc pro tunc to the Petition Date (the Motion); and Response to the Objection filed by (I) Cheryl M. Foley, et al,; (2) The Cordillera Metropolitan District and Cordillera Property Owners Association, Inc.; and (3) The Official Committee of Unsecured Creditors (the Reply). For their Reply, the Member Representatives state as follows: REPLY AND CONTINUED OBJECTION 1. The Member Representatives incorporate the Objection they filed to the Motion on July 13, 2012, prior to the transfer of this case from the District of Delaware. The Supplement does not cure the objections. 2. At the status conference held on July 20, 2012, the Court indicated very clearly that it believed that the Motion and the requested retention of Mr. Siegel and Crow Horwath, LLC should be made pursuant to section 327 of the Bankruptcy Code, rather than sections 105 or 363. The Supplement does not address the Courts concerns and does not propose that the

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engagement be approved pursuant to section 327. The Court should reject the Motion and the Supplement for that reason alone. 3. Most of the Supplement is devoted to a disingenuous attempt at casting the Cordillera community, including the defrauded members of the Club, as the villains in this little play. However, it was the Debtor who cajoled the members into paying their 2011 dues of nearly $8,000,000 by promising to open all of the Club facilities and then, after the dues were paid in reliance on that representation, told the members that most of the facilities would not be opened. It was the Debtor who, after promising that dues would only be used to pay for maintenance and operating costs, diverted substantial sums into the pockets of the equity owner. And it was the Debtor who commenced a lawsuit against concerned Cordillera members and community volunteers whose only offense was concern for their community. Casting the Debtor as the victim clearly belies the truth. 4. Cutting through the hyperbole contained in the Supplement, the Debtor effectively concedes that an independent party is required to manage the Debtor and the reorganization process. Where the Debtor and the opponents of the CRO Motion part company is over the question of whether the Debtor is entitled to choose and ultimately control its own trustee. Either the CRO is controlled by current ownership or it is not. There is nothing in the Code that allows a semi-independent trustee to be appointed to cure the Debtors manifest inability to properly discharge its fiduciary obligations as a Debtor-in-possession. If grounds for appointment of a trustee exist under section 1104, a trustee must be appointed. The half measure of Court appointment of a CRO with special powers is simply not an option. 5. The Debtor proposes to palliate the obvious need for a trustee by appointing a CRO with a veto over the management decisions of the Debtor. The Debtors argument is flawed for several reasons. 6. First, there is no authority in the Bankruptcy Code for appointment of a semiindependent trustee to whom the Debtor conditionally delegates its fiduciary duties as Debtor-inpossession, while the Debtor retains the right to reclaim its DIP status whenever it wants. Section 327 of the Code contemplates the engagement of professionals to represent or assist the trustee [DIP] in carrying out the trustees [DIPs] duties under this title, not take them over for a debtor that should not be a DIP in the first place. See 11 U.S.C. 327(a). Fiduciary duties are not to be delegated. Seymour v. Grant Thornton (In re Seymour), 1994 U.S.Dist.LEXIS 10793 *13. (A fiduciary is normally under a duty not to delegate to a third person the performance of his duties as fiduciary. quoting the Restatement (Second) of Trusts 2 comment b.) 7. If the Debtor is unable or unwilling to carry out its fiduciary duties, the appropriate remedy is found in section 1104 of the Code, which requires appointment of a trustee when cause is shown. Neither section 1104, nor any other provision of the Code, gives the Court the authority to appoint a CRO as a half-measure in lieu of a trustee. 8. Moreover, the Debtors position would essentially read section 1104, a fundamental and essential creditor remedy, out of the Code because in any case where grounds existed to appoint a trustee, the debtor cold simply hand pick a CRO and temporarily delegate some or all of its Debtor-in-possession fiduciary duties to the CRO and then defend the trustee motion by pointing to the CRO as an independent party. If that option were available, Congress

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would have written it into the Code over the last thirty-four years.1 However, such an option does not exist in the Code and ought not be created by the Court. 9. Second, the plain fact is that even with the restrictions the Debtor proposes to impose on itself and the consequent delegation of the Debtors powers to the CRO, the CRO still serves at the pleasure of the Debtors owner. Even with the so called veto the Debtor proposes to be given to the CRO, the CRO lacks sufficient control of the Debtor to ensure that the Debtor performs its fiduciary duties under the Bankruptcy Code. The power to veto a bad decision is not the same as the power to make or implement a good decision. 10. Third, the Debtor still retains the power to fire the CRO anytime. Essentially, the Debtor proposes to engage a trustee of its own choosing which it has the power to terminate at any time. Thus, the entire proposal is clearly designed to give the illusion of independence where there is no independence in fact. 11. Subject to other restrictions in the Code, the Debtor can hire whatever officers it wants. The Debtor has not sought the Courts approval for Mr. Fitchett, the CEO, either under sections 363 or 327. Nonetheless, Mr. Fitchett has, according to the Debtor, assumed the role of CEO, is acting in that capacity and is presumably being paid for his services. If the Debtor wants to employ Mr. Seigel or someone else and give them the title of restructuring officer, it can do so and no Court approval would be needed. But what is proposed here is something quite different. Here, the Debtor essentially wants the Court to approve the Debtors delegation of its fiduciary responsibilities as Debtor-in-possession to someone ultimately controlled by the Debtor. Essentially, the Debtor wants the Court to approve the Debtors choosing its own trustee while the Debtor maintains ultimate control of that person. That is improper and the Court should not approve it. WHEREFORE, the Member Representatives request that the CRO Motion be denied. Dated: July 27, 2012 /s/ Shaun A. Christensen Garry R. Appel, Reg. No. 8883 Shaun A. Christensen, Reg. No. 23131 Appel & Lucas, P.C. 1660 17th Street, Ste 200 Denver, CO 80202 Telephone: 303-297-9800 Attorneys for Cheryl M. Foley, Thomas and Jane Wilner, Charles and Mary Jackson and Kevin B. Allen
1 The Member Representatives are mindful that the Court has authorized the engagement of CROs on occasion in the past. However, those were very different situations where the engagement was either unopposed or at the request of creditors. None involved appointment of a CRO by the debtor as an end run around section 1104.

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CERTIFICATE OF SERVICE The undersigned certifies that on July 27, 2012, a true and correct copy of the foregoing Reply was served by prepaid first-class U.S. Mail on the following: Paul Moss, Esq. Office of U.S. Trustee 999-18th Street, Ste. 1551 Denver, CO 80202 Arthur J. Abramowitz, Esq. Cozen O'Connor, PC Liberty View, Suite 300 457 Haddonfield Road Cherry Hill, NJ 08002 Joseph M. Barry, Esq. Donald J. Bowman, Esq Young Conaway Stargatt & Taylor LLP Rodney Square 1000 North King Street Wilmington, DE 19801 William P. Bowden, Esq. Ashby & Geddes, P .A. 500 Delaware Avenue, 8th Floor P.O. Box 1150 Wilmington, DE 19899 Brad W. Breslau, Esq. Cozen O'Connor, PC 707 17th Street, Suite 3100 Denver, CO 80202 Mikel Bistrow, Esq. Kathryn M.S. Catherwood, Esq. Christopher Celentino, Esq. Foley Lardner LLP 402 W. Broadway, Suite 2100 San Diego, CA 92101 Dawn Messick, Esq. Matthew J. Riopelle Foley & Lardner LLP 402 W. Broadway, Suite 2100 San Diego, CA 92101 Travis G. Buchanan, Esq. Young Conaway Stargatt & Taylor, LLP 1000 N. King St. Wilmington, DE 19801 Peter A. Cal, Esq. Sherman & Howard L.L.C. 633 17th Street, Suite 3000 Denver, CO 80202 Tobey M. Daluz, Esq. Joshua E. Zugerman, Esq. Ballard Spahr LLP 919 N. Market Street, 11th Floor Wilmington, DE 19801 Carl A. Eklund, Esq. Ballard Spahr, LLP 1225 17th Street, Suite 2300 Denver, CO 80202 Mark L. Fulford, Esq. Sherman & Howard L.L.C. 633 17th Street, Suite 3000 Denver, CO 80202 James J. Holman, Esq. Duane Morris LLP 30 South 17th Street Philadelphia, PA 19103 Ericka F. Johnson, Esq. Matthew P. Ward, Esq. Womble Carlyle Sandridge & Rice, LLP 222 Delaware Avenue, Suite 1501 Wilmington, DE 19801 Kristi A. Katsma, Esq. Dickinson Wright PLLC 500 Woodward Avenue, Suite 4000 Detroit, MI 48226

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Benjamin W. Keenan, Esq. Ashby & Geddes, P.A. 500 Delaware Avenue P.O. Box 1150 Wilmington DE 19899 Michael S. Kogan, Esq. Kogan Law Firm, APC 1901 Avenue of the Stars, Suite 1050 Los Angeles, CA 90067 David L. Lenyo, Esq. Garfield & Hecht, P.C. 601 E. Hyman Ave. Aspen, CO 81611 Vincent J. Marriott, III, Esq. Sara Schindler-Williams, Esq. Ballard Spahr, LLP 1735 Market Street, 51st Floor Philadelphia, PA 19103 Melissa Maxman, Esq. Cozen O'Connor, PC 1627 I Street, NW, Suite 1100 Washington, DC 20006 Mark Minuti, Esq. Saul Ewing LLP 222 Delaware Ave., Ste. 1200 Wilmington, DE 19899 Erika L. Morabito, Esq. Brittany J. Nelson, Esq. Foley Lardner LLP 3000 K Street, N.W., Suite 600 Washington, DC 20007 Russell L. Munsch, Esq. Zachery Z. Annable, Esq. Joseph J. Wielebinski, Esq. Munsch Hardt Kopf & Harr, P.C. 3800 Lincoln Plaza, 500 N. Akard Street Dallas, Texas 75201-6659

Jay H. Ong, Esq. Munsch Hardt Kopf & Harr, P.C. 600 Congress Ave., Ste. 2900 Austin, Texas 78701-3057 Ricardo Palacio, Esq. Ashby & Geddes, P .A. 500 Delaware avenue, 8th Floor P.O. Box 1150 Wilmington, DE 19899 Jon T. Pearson, Esq. Ballard Spahr 100 North City Parkway, Suite 1750 Las Vegas, NV 89106-4617 Richard W. Riley, Esq. Duane Morris LLP 222 Delaware Avenue, Suite 1600 Wilmington, DE 19801-1659 Harlan W. Robins, Esq. Dickinson Wright PLLC 15 N. 4th Street Columbus, OH 43215 Harvey Sender, Esq. David V. Wadsworth, Esq. Sender & Wasserman, P.C. 1660 Lincoln St., Ste. 2200 Denver, CO 80264 Zachary I. Shapiro, Esq. Richards, Layton & Finger, P.A. One Rodney Square 920 N. King Street Wilmington, DE 19801 Darnien Tancredi, Esq. Cozen O'Connor, PC 1201 N. Market Street, Suite 1400 Wilmington, DE 19801

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Ann Marie Uetz, Esq. Foley & Lardner LLP One Detroit Center 500 Woodward Avenue, Suite 2700 Detroit, Michigan 48226-3489 Gregory W. Werkheiser, Esq. Morris, Nichols, Arsht & Tunnell LLP 1201 N. Market St., 18th Floor P.O. Box 1347 Wilmington, DE 19899-1347 Ronald Wick, Esq. Cozen O'Connor, PC 1627 I Street, NW, Suite 1100 Washington, DC 20006 Risa Lynn Wolf-Smith Holland & Hart LLP 555 17th St. Ste. 3200 Denver, CO 80201

/s/ John M. Nunnally