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VERITEXT REPORTING COMPANY www.veritext.com
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK Case No. 10-13800-scc - - - - - - - - - - - - - - - - - - - - -x In the Matter of:
INNKEEPERS USA TRUST, ET AL.,
Debtors.
- - - - - - - - - - - - - - - - - - - - -x
U.S. Bankruptcy Court One Bowling Green New York, New York
March 29, 2011 10:05 AM
B E F O R E: HON. SHELLEY C. CHAPMAN U.S. BANKRUPTCY JUDGE
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Page 2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 First Interim Application of the Members of the Official Committee of Unsecured Creditors for the Reimbursement of First Interim Fee Application of Fried, Frank, Harris, Shriver & Jacobson LLP for Compensation for Services and Reimbursement of Expenses as Attorneys for the Independent Committee for the Period from July 19, 2010 Through November 30, 2010 First Interim Application of Moelis & Company LLC for Compensation for Professional Services Rendered and Reimbursement of Actual and Necessary Expenses Incurred as Financial Advisor and Investment Banker to the Debtors and the Debtors-In-Possession for the Period from July 19, 2010 Through November 30, 2010 Debtors' Motion for Entry of an Order Approving Certain Omnibus Claims Objection Procedures Debtors' Motion for Entry of an Order Further Extending Time to File Notices of Removal of Actions Debtors' Second Motion for Entry of an Order Extending the Exclusive Periods During Which only the Debtors May File a Chapter 11 Plan and Solicit Acceptances Thereof
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Page 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Transcribed by: Dena Page First Interim Application of Kirkland & Ellis LLP for (A) Compensation for Professional Services Rendered and (B) Reimbursement of Actual and Necessary Expenses Incurred During the Period July 19, 2010 Through November 30, 2010 First Interim Application of Morrison & Foerster LLP as Counsel for the Official Committee of Unsecured Creditors for Compensation and Reimbursement of Expenses Incurred for the Period July 28, 2010 Through November 30, 2010 First Interim Fee Application of Jefferies & Company, Inc., Financial Advisor to the Official Committee of Unsecured Creditors of Innkeepers USA Trust, et al., for Interim Allowance of Compensation and for the Reimbursement of Expenses for Services Rendered During the Period from July 30, 2010 Through November 30, 2010 Expenses for the Period from July 28, 2010 Through November 30, 2010
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A P P E A R A N C E S : KIRKLAND & ELLIS LLP Attorneys for Debtors 601 Lexington Avenue New York, NY 10022
BY:
JOHN ZINMAN, ESQ. ANUP SATHY, ESQ. BRIAN S. LENNON, ESQ.
MORRISON & FOERSTER, LLP Attorneys for Creditors' Committee 1290 Avenue of the Americas New York, NY 10104
BY:
LORENZO MARINUZZI, ESQ.
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Page 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BY: DANIEL FLIMAN, ESQ. KASOWITZ, BENSON, TORRES & FRIEDMAN LLP Attorneys for Five Mile Capital 1633 Broadway New York, NY 10019 BY: TIMOTHY Q. KARCHER, ESQ. DEWEY & LEBOEUF LLP Attorneys for Ad Hoc Committee of Preferred Shareholders 1301 Avenue of the Americas New York, NY 10019 BY: JOHN D. PENN, ESQ. HAYNES AND BOONE, LLP Attorneys for Midland Loan Services 201 Main Street Suite 2200 Fort Worth, TX 76102
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Page 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BY: BONNIE STEINGART, ESQ. VERITEXT REPORTING COMPANY www.veritext.com FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LLP Attorneys for Independent Committee One New York Plaza New York, NY 10004 BY: LAWRENCE P. GOTTESMAN, ESQ. BRYAN CAVE LLP Attorneys for xx 1290 Avenue of the Americas New York, NY 10104 BY: DAVID M. NEFF, ESQ. PERKINS COIE LLP Attorneys for CWCapital Asset Management, LLC and C-III Asset Management, LLC 131 South Dearborn Street Suite 1700 Chicago, IL 60603
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LATHAM & WATKINS LLP Attorneys for Moelis & Company 53rd at Third 885 Third Avenue New York, NY 10022
BY:
MICHAEL RIELA, ESQ.
U.S. DEPARTMENT OF JUSTICE Attorneys for OUST 33 Whitehall Street 21st Floor New York, NY 10004
BY:
BRIAN S. MASUMOTO, ESQ. RICHARD C. MORRISSEY, ESQ.
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DECHERT LLP Attorneys for Lehman ALI, Inc. 1095 Avenue of the Americas New York, NY 10036
BY:
MICHAEL J. SAGE, ESQ. NICOLE B. HERTHER-SPIRO, ESQ.
KILPATRICK TOWNSEND & STOCKTON LLP Attorneys for Trimount Real Estate 1100 Peachtree Street Suite 2800 Atlanta, GA 30309
BY:
TODD C. MEYERS, ESQ. (TELEPHONICALLY)
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INNKEEPERS USA TRUST, ET AL.

Page 9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: P R O C E E D I N G S Good morning. Please be seated.
There's a group out in the hall. I wasn't expecting to see so many of you this morning. Not that I'm not happy to see you. MR. ZINMAN: THE COURT: MR. ZINMAN: Good morning, Your Honor. Good morning. For the record, John Zinman of Kirkland &
Ellis, LLP, counsel for the debtors. THE COURT: MR. ZINMAN: Okay. Your Honor, last Friday, the debtors
filed a proposed agenda for this morning's omnibus hearing. THE COURT: MR. ZINMAN: I have it. Unless Your Honor prefers otherwise, I
propose we follow that agenda this morning. THE COURT: That's fine. Let's see if -- let's find
out who's on the phone. Mr. Fink? MR. MEYERS: Actually, Your Honor, this is Todd Meyers
with Kilpatrick Townsend. THE COURT: Okay, good morning.
And Mr. Halder? MR. HALDER: THE COURT: MR. ZINMAN: Yes, Your Honor. All right, thank you. First on the agenda, this morning, Your
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Page 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Honor, is the debtors' exclusivity extension motion. The
debtors are, today, seeking an extension of both exclusive periods until June 30th, 2011. Your Honor, I think it would be helpful to briefly state for the record the procedural background that led to today's request. THE COURT: MR. ZINMAN: Okay. On January 13th, 2011, the debtors filed
their second exclusivity motion in which the debtors requested a 120-day extension of the exclusive periods, docket number 801. At that time, the exclusive periods were set to expire on
January 30th, 2011 and March 31st, 2011 respectively. On January 26th, 2011, following a status conference on January 16th, 2011, the Court entered a bridge order, docket number 861, extending the exclusive periods to March 29th, 2011 and May 31st, 2011 respectively. In connection with the negotiation of the amended commitment letter with Five Mile/Lehman and Midland which this Court authorized the debtors to enter into on March 11th, 2011, docket number 1009, the debtors agreed to modify their 120-day request and seek an extension of both the exclusive periods until only June 30th, 2011. Consistent with those negotiations
and the revised form of proposed order we filed last night, the debtors seek an extension of both exclusive periods until June 30th, 2011 and, of course, expressly reserve their rights to
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Page 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 seek further extensions of the exclusive periods in the future. Your Honor, the debtors received two limited objections to the exclusivity motion. C-III Asset Management,
LLC as servicer for the Hilton Ontario mortgage loan, objected to the motion only as it applied to the debtors' Ontario, California Hilton Hotel, and CWCapital Asset Management, LLC, as special servicer for the Anaheim Hilton mortgage loan, objected to the motion only as it applied to the debtors' Anaheim, California Hilton Suites Hotel. The debtors also
received reservation of rights from Lehman and Midland reserving their rights to object to an extension of the exclusive periods beyond June 30th, 2011. It is the debtors' understanding that both limited objections have been consensually resolved. I'll state for the
record, if that's okay with you, my understanding of the resolutions. THE COURT: MR. ZINMAN: Okay. And Mr. Neff is here today and can
supplement as necessary. THE COURT: MR. ZINMAN: Okay. For the Anaheim Hilton, the debtors As the debtors stated in their
intend to proceed as follows.
papers in support of their stalking horse motion arrangement with Five Mile/Lehman for the fixed floating properties, the debtors have received several indications of interest in the
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Page 12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Anaheim Hilton. The debtors have already reached out to those
potential investors who submitted indications of interest in the Anaheim Hilton informing them of the debtors' intended process to select a stalking horse for a purchase of the property through a plan of reorganization. The debtors
believe, based upon the indications of interest to date, that the debtors will be able to choose a stalking horse for the Anaheim Hilton that will provide sufficient cash to satisfy CWCapital's allowed claims in full in cash. The debtors will
file and seek approval of a motion for approval of that stalking horse as soon as practical. The debtors intend to
include in the plan for the Anaheim Hilton debtors which the debtors intend to file on April 8th, 2011, that proceeds of the sale of the Anaheim Hilton will be distributed in accordance with the absolute priority rule with CWCapital's claim to be satisfied in full in cash on the later of the effective date of such plan and the allowance of CWCapital's claim. The plan for
the Anaheim Hilton debtors will provide the creditors of the Anaheim Hilton debtors and other parties-in-interest will be part of a global release consistent with the global release provided in the fixed floating plan and that all intercompany claims will be waived and will not receive a distribution. With that agreement, it is the debtors' understanding that CWCapital has no objection to the extension of the exclusive periods to June 30th, 2011.
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Page 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: Can I ask you one question? Is what I'll
call the larger plan, the plan for the fixed and the floating, these are going to be separate plans? Or they're going to be Separate plans?
one plan with different classes in them? MR. ZINMAN: THE COURT: MR. ZINMAN: THE COURT: MR. ZINMAN:
Separate plans in a global document. Separate plans. Yeah. Okay. As to the Ontario Hilton, in addition to
their objection to exclusivity, C-III, last week, filed a motion to terminate the automatic stay with respect to the Ontario Hilton, docket number 1051. The debtors' understanding
is that C-III has agreed to withdraw their objection to exclusivity and will proceed with their agenda in the context of their lift stay motion. C-III's lift stay motion's set to
be heard at the omnibus hearing scheduled for April 28th, 2011, and for the purposes of clarity, the debtors' understanding is that despite Section 321(e) of the Bankruptcy Code, C-III agrees that the automatic stay will not automatically be lifted after thirty days after filing such motion. The debtors intend to work with C-III on the terms of a plan for the Ontario Hilton debtors, which may include a sale of the asset or a return to C-III of its collateral. The
debtors are hopeful they will have resolved C-III's issues in advance of April 28th. With that agreement, it is the debtors'
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Page 14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 understanding that C-III has no objection to the extension of exclusivity to June 30, 2011. THE COURT: MR. NEFF: THE COURT: MR. NEFF: Mr. Neff? Good morning, Judge. Good morning. David Neff on behalf of CW and C-III. With
regard to CW, Judge, very briefly, counsel has accurately stated what our agreement is. approximately 13.8 million. CW's current claim is I think under any stretch, we
expect the stalking horse bid to be in excess of that if not well in excess of that, plus the outstanding unsecured claims against those two debtors. Then it becomes an issue for Mr. The
Meyers' client, Trimount, which has the mezzanine debt.
total debt on the property, including the mezz debt, is about thirty-five million. I don't think anyone expects the asset to
be sold for that amount. We have given some names of prospective purchasers to Moelis and are continuing with the process. We hope to have
some input with regard to the retention of a real estate broker in connection with that property as well as with regard to the stalking horse. And obviously, we reserve any rights to, in
the future, file a motion for stay of relief. THE COURT: MR. NEFF: Okay. But otherwise, counsel has correctly stated
that we are withdrawing our objection.
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Page 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: you'd like to add? MR. MEYERS: Yes, Your Honor, just that Trimount, as All right, Mr. Meyers, is there anything
Mr. Neff stated, is the holder of the mezzanine debt, and as debtors' counsel stated, the clear expectation is that the steady sale of this property would fully satisfy all the creditors of the property-level debtor meaning the excess is going to be going to Trimount. exclusivity. Trimount did not object to
Therefore, there's nothing for the debtors and We simply reserve all our rights.
Trimount to work out today.
We may or may not be in agreement with the procedure the debtors have outlined. them. We're certainly in discussions with
But as of right now, we don't have any agreement to go
down this path, and we reserve all rights to take what action we see fit. THE COURT: All right, I just largely wanted to
confirm that you are in the loop, and it sounds like you are being kept in the loop. MR. MEYERS: MR. NEFF: Somewhat. Judge, with regard to C-III, it's a very -C-III's debt's
unfortunately very different situation there. about forty-five million. THE COURT: MR. NEFF: Right.
The stalking horse attributed eight million So C-III has filed a motion for
dollars to this property.
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Page 16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 there. relief from stay. The preliminary hearing, as counsel I know the debtor would like to do a
mentioned, is April 28th. plan.
C-III is analyzing whether it's willing to make any
money available for unsecureds. THE COURT: MR. NEFF: Okay. And it's pretty much an economic decision
We don't believe the debtor could confirm a plan over
our objection because of the disparity in the claims and our ability to make an 11(b) election and to prevent the sale of the asset without our consent. So I did want to mention that although we're having discussions with the debtor, by no means have we agreed to the terms of a plan. Hopefully, we'll know actually by April 8th
or so, which way we want to head, and we will advise Your Honor. THE COURT: Very well. Okay, thank you.
All right, any -- does Lehman ALI or Midland want to add anything? MR. PENN: Nothing to add -THE COURT: MR. PENN: THE COURT: MR. KARCHER: Okay. -- on exclusivity. All right. Good morning. Timothy Your Honor, John Penn on behalf of Midland.
Good morning, Your Honor.
Karcher of Dewey & LeBoeuf.
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Page 17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: MR. KARCHER: THE COURT: MR. KARCHER: I was waiting for you, Mr. Karcher. May I approach? Please. Thank you, Your Honor. And again,
Timothy Karcher of Dewey & LeBoeuf on behalf of the ad hoc committee of preferred shareholders. Your Honor, we did not file an objection to the extension of the debtors' exclusive periods. We're happy to
hear that they've reduced the time of the extension to June 30th. But I do want to bring some things to the Court's As Your Honor will recall, there was a status
attention.
conference a few weeks ago. THE COURT: Right, all right, we're going to be
mindful of that fact that we're going to keep this in general terms so as not to prejudice any bidding on the property. MR. KARCHER: THE COURT: MR. KARCHER: Absolutely. Okay. There was a status conference. There
was some discussions about an offer for some of the independent hotels. And I was not present at that status conference, but
one of my understandings was that Your Honor was concerned about the timing of the particular offer and the expiration. THE COURT: MR. KARCHER: No, Mr. Bienenstock was concerned. Okay. That offer, the time period for
that offer was extended until Friday.
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Page 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: MR. KARCHER: THE COURT: MR. KARCHER: This past Friday? This past Friday. Okay. I learned from a conversation with the
prospective purchaser's counsel last night that the debtors allowed that offer to expire, which we found to be troubling. We have asked the debtors for their analysis of that particular offer and no analysis has been forthcoming, although I will say the debtors have offered to meet with us about it after -sometime next week. But just -- while we don't object to the
extension of exclusivity, we believe that it may be appropriate. And we're not asking Your Honor to prejudge the
issue, but at some point, somebody may need to step up and say let's get on with this and file a plan for these hotels. In addition, because the debtors did talk this morning about having separate plans, we'd like to know when we can see those plans and disclosure statements as well. THE COURT: Okay. All right, Mr. Sathy, or any -- do
you want to -- you look as if you want to make some sort of a comment. MR. SATHY: THE COURT: Sure. I assume the door is open to discussions
and that there was analysis that went behind -MR. SATHY: THE COURT: Of course, Your Honor. -- the action that Mr. Karcher described.
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Page 19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 and -THE COURT: And presumably you'll share the analysis MR. SATHY: Of course. The debtors met with
independent directors, with the full board, took advice from Moelis, from Kirkland, from Fried Frank. discussions with this prospective bidder. the bidder to continue. on a daily basis -THE COURT: MR. SATHY: Okay. -- with this particular bidder. In fact, We had numerous We are encouraging
There have been additional discussions
Your Honor, there's been a -- frankly, an additional indication of interest that was received since Friday, and it's someone, obviously, that we know very well and someone we continue to have discussions with. THE COURT: MR. SATHY: Okay. The door's wide open for them. As Mr.
Karcher indicated, we have offered to host a meeting with him and his committee. next -THE COURT: MR. SATHY: All right. -- Wednesday in New York, Palm Beach, I think that was scheduled this morning for
with them at that time. MR. SATHY: THE COURT: are still on track. Of course, Your Honor. Okay. All right. Absolutely.
It sounds like things
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Page 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. SATHY: THE COURT: Absolutely. So, all right, with all of that, then, I'm
going to grant the debtors' second motion to extend exclusivity. I received a copy, I think it was filed last
evening, of a revised form of proposed order which is acceptable, and we'll enter that later today. MR. ZINMAN: Thank you, Your Honor. All right?
Next on the docket, Your Honor, is the debtors' request for an extension of the deadline to remove actions. Your Honor, the debtors are party to over one hundred actions in state and federal courts. As I just discussed in context of
the debtors' exclusivity request, the plan and marketing of the debtors' assets will demand the continued focus of the debtors' management and their advisors. As a result, the debtors are
not yet in a position to undertake a thorough analysis of the actions or finalize a strategy with respect to which actions, if any, they should seek to removed. On October 14th, 2010, the Court granted a 180-day extension of the removal deadline from October 15th, 2010 to April 13th, 2011, docket number 573. The debtors request a
further extension of the removal deadline by 180 days to the later of, A, October 10th, 2011, B, thirty days after an order terminating the automatic stay with respect to an action subject to removal, and C, the thirty-day deadlines of Bankruptcy Rule 9027(a)(3) with respect to post-petition
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Page 21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 motion. actions. Your Honor, no objections have been filed to this We respectfully submit that we have provided the Court
the requisite legal and factual support for the removal of deadline extension request. With that, unless the Court has
any questions, the debtors respectfully request that the proposed order be entered. THE COURT: All right, does anyone wish to be heard There being no response, motion's
with respect to this motion? granted. MR. ZINMAN:
Thank you, Your Honor.
Your Honor, next on the agenda is the debtors' motion to establish omnibus claims objection procedures and to approve the proposed form of notice for such omnibus claim objections. The Court entered a bar date order, docket number 440, establishing an October 29th, 2010 deadline for filing proofs of claims and a January 18th, 2011 deadline for filing claims by governmental units. As of the filing of the motion to
establish omnibus claims objection procedures, entities have filed nearly 2000 proofs of claim against the debtors on an aggregate basis pursuant to which such entities assert more than 6.75 billion dollars in aggregate liabilities. The objection procedures provide a cost-effective and efficient framework for the careful review and prosecution of the nearly 2000 proofs of claim against the debtors. The
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Page 22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 debtors submit that it is appropriate for the Court to authorize the proposed objection procedures because these procedures will provide greater certainty in administering the claims objection process, promote the consensual resolution of claims objections, establish an efficient and fair mechanism to settle claims objections, and reduce the cost, time and delay of prosecuting the claims objections. Also, the debtors will
serve the omnibus objections in accordance with the claimants' due process rights. Your Honor, no party has formally objected to the relief requested in the motion. However, LNR has requested
that none of their claims be included in an omnibus claims objection on one of the "additional grounds" set forth in the order. The debtors are amenable to that request. THE COURT: MR. ZINMAN: Okay. With that, we respectfully submit that we
have provided to the Court the requisite legal and factual support for approval of the omnibus claims objection procedures. Unless the Court has any questions, the debtors
respectfully request that the proposed order be entered. THE COURT: No, that's fine. I'll approve the motion.
What I'll add, though, is when you actually get into the claims resolution process, I think folks from your office in particular, Mr. Lennon, know how we like to deal with stipulations and resolve claims to minimize the necessity for
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Page 23 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 court appearances. So just I will expect you to reach out to
Ms. Eisen and follow our usual procedures. MR. ZINMAN: THE COURT: MR. ZINMAN: Understood, Your Honor. All right, thank you. Your Honor, the last item on today's
agenda is the interim fee applications filed by retained professionals in these cases. THE COURT: MR. ZINMAN: Okay. I will now cede the podium to my
colleague, Anup Sathy, to address them. THE COURT: MR. SATHY: Okay. Good morning, Your Honor. The various
professionals have filed interim fee applications pursuant to the court-approved order on professional compensation. There
have been a number of discussions, a few objections, U.S. Trustee, Midland, others. We're still in the process of trying
to resolve what we thought were resolved issues, but apparently there's still some client confirmation that needs to happen, particularly with respect to my firm's fee applications. THE COURT: MR. SATHY: Okay. I understand there's still some dispute
with respect to the creditors' committee's fees and Midland, and I think that's still outstanding as well. THE COURT: MR. SATHY: Okay. So Your Honor, I think a little bit of
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Page 24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 go. MR. SATHY: -- they don't have to come back. And if time might be helpful if we can wait to get some responses back from clients. THE COURT: MR. SATHY: This morning? That's fine.
Certainly no one's committed to when they
can reach clients and when they're available, but we think that a little bit of time might be helpful -THE COURT: MR. SATHY: THE COURT: That would be fine. -- if that's okay with Your Honor. That would be fine. Do you want to take
the -- do the uncontested ones or do you want to just -- us to come back and do it all at once. MR. SATHY: I think if there are people here whose
fees are resolved, perhaps we should resolve those and then -THE COURT: Why don't we do that and we can let them
Your Honor has questions for them, we can have them -THE COURT: MR. SATHY: THE COURT: MR. SATHY: That's fine. -- answer questions, I believe. All right, so is Moelis uncontested? Moelis is -- there's an agreement for a That become -- as a
voluntary fee reduction of 20,000 dollars. result, will be uncontested. THE COURT: to Moelis?
With respect to Fried Frank --
Mr. Masumoto, that's correct with respect
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Page 25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. MASUMOTO: THE COURT: MR. SATHY: That's correct, Your Honor.
All right. With respect to Fried Frank, Your Honor,
there is a voluntary reduction of 15,000, and we believe that that resolves Fried Frank, as well. MR. MASUMOTO: THE COURT: MR. SATHY: That's correct, Your Honor.
Okay. Okay, great.
With respect to Jefferies, there is a voluntary reduction in expenses of 9,311 dollars, and we believe that that resolves that objection, as well. MR. MASUMOTO: THE COURT: MR. SATHY: That's correct, Your Honor.
Okay. Okay, great. I believe that takes care of I don't believe there was Is that correct?
Moelis, Fried Frank, and Jefferies.
any objection to expenses of the committee.
Okay, so that request will continue to go forward and then what's left is my firm and -THE COURT: MR. SATHY: THE COURT: MR. SATHY: And --- various committees. And Morrison & Foerster. And Morrison & Foerster, which is the two
that we'd like to have a little more time to resolve -THE COURT: MR. SATHY: All right. -- if possible.
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Page 26 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: All right, does anyone else wish to be
heard with respect to the Jefferies application, the Fried, Frank application or the Moelis application? All right, I've reviewed the fee applications and considered the fee reductions that were just put on the record. And I'll approve the applications. MR. SATHY: THE COURT: Thank you, Your Honor. All right. Why don't we do this? Why
don't we adjourn and just come around to chambers and let us know when you're ready. anywhere. We have plenty to do; we're not going
Whatever it takes. MR. SATHY: THE COURT: We appreciate the flexibility, thank you. All right. Thank you.
(Recess from 10:26 a.m. until 11:13 a.m.) THE COURT: MR. SATHY: All right? Your Honor, I must confess, before we get
on the record, the telephone was -THE COURT: (Break in audio) MR. SATHY: THE COURT: MR. SATHY: THE COURT: MR. SATHY: application. Good morning, Your Honor. Okay, Mr. Sathy. Made a little progress -Okay, good. -- with respect to the Kirkland fee Was --
I think that is now resolved with respect to the
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Page 27 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 U.S. Trustee's objection and Midland's objection with the following resolution: The Kirkland fee application will
include 175,000 dollar voluntary reduction on fees and a 75,000 dollar voluntary reduction on expenses for a total voluntary reduction of 250,000. With respect to certain objections on the Troy (ph.) settlement, you might -- Your Honor may recall at the very beginning oft his case we had the dispute -THE COURT: MR. SATHY: Yes. -- with Marriott. Those fees have been
caught in the objection since the beginning of the case and the way that's being resolved is consistent with the stipulation that we entered at the time we approved that settlement. The
Kirkland allocated fees with respect to the Troy dispute will be paid from the floating rate collateral -THE COURT: MR. SATHY: Okay. -- pool. Lehman reserves its rights, as
it does, for any other expense under the cash collateral -THE COURT: MR. SATHY: THE COURT: MR. SATHY: Right. -- order for allocation. Right. And so it will be paid, we think, assuming
that Your Honor approves that order in April, there'll be an allocation report and the application report that'll be submitted to the parties. April fees, I think that's submitted
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Page 28 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Masumoto? MR. MASUMOTO: Your Honor. THE COURT: Okay. We have no objection to the settlement, in June, 15th. And there's a ten day period for -Okay. -- parties to object. And if there's
THE COURT: MR. SATHY:
issues of allocation, that those might come back -THE COURT: MR. SATHY: Okay. -- before Your Honor. But, as you may
recall in respect to Troy, there's an ongoing potential benefit that crosses -- and that was a confidential settlement so I won't get into the details on -THE COURT: MR. SATHY: THE COURT: MR. SATHY: Right --- the record --- I recall. -- but if you -- there was arguments (sic)
about it and whether some of those benefits will materialize. THE COURT: MR. SATHY: Okay. So we will be pushing out that issue until
later with parties reserving their rights. THE COURT: MR. SATHY: All right. With respect to allowance, the issue of
allowance will be resolved today. THE COURT: Okay. All right, very well. Mr.
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Page 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. MASUMOTO: THE COURT: MR. PENN: It's satisfactory. Mr. Penn? I believe you were
All right.
Excuse me, Your Honor.
going to address the allocation of the 250 out of cash collateral. MR. SATHY: Yeah, I mean, it's -- yes. The 250, as
the order sets forth, is allocated to the Midland portion of the fees that would -- that they would be obligated to pay -THE COURT: MR. SATHY: the objection. THE COURT: MR. SATHY: MR. PENN: THE COURT: MR. PENN: THE COURT: MR. PENN: Understood. Okay. With that, Your Honor -All right. -- we're okay on the objection. All right. Reserving all of our other objections for Very well. -- given that they're the ones that made
final, but as far as the items that have been put to bed with Kirkland, those are put to bed -THE COURT: Understood. -- in an interim period, going --
MR. MASUMOTO: THE COURT: MR. PENN: THE COURT:
Understood. Okay. Everything's interim until it's final.
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Page 30 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. SATHY: THE COURT: MR. SATHY: Kirkland -THE COURT: MR. SATHY: Okay. -- unless Your Honor had questions. With Yes. So -Your Honor, I believe that resolves
respect to Morrison -THE COURT: MR. SATHY: THE COURT: All right --- I'll cede the podium. -- I'll -- Mr. Marinuzzi, do you have
anything on the Kirkland application? MR. MARINUZZI: THE COURT: I do not, Your Honor. All right, so with that and with
Okay.
all the additional clarifications, I'll approve the application as modified. MR. SATHY: THE COURT: Thank you, Your Honor. Okay. All right, so the Morrison &
Foerster application is not resolved? MR. MARINUZZI: It's not resolved, Your Honor.
Unfortunately, it's not resolved. For the record, Your Honor, Lorenzo Marinuzzi, Morrison & Foerster, counsel to the committee. I am happy to
report that we did resolve the U.S. Trustee's objection -THE COURT: Okay. -- to the interim fee request and
MR. MARINUZZI:
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Page 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 moment. MR. MARINUZZI: Your Honor, we've agreed to defer to a we've done so by agreeing to the UST's requested reduction of 19,188 dollars which was attributable to time spent in preparation of the monthly fee statements. So with that, I
believe that resolves the U.S. Trustee's objection. MR. MASUMOTO: THE COURT: That's correct, Your Honor. Thank you, Mr. Masumoto.
All right.
MR. MARINUZZI:
So, Your Honor, that leaves us with And I guess You've got
Midland's objection to the first interim request. I'd divide the Midland objection into two parts. the one side that's on the reasonableness.
You've got the
second part of it that deals with the project codes and the applicability of the 150,000 dollars lien-reviewed cap imposed under the cash collateral order. THE COURT: Right. And let me deal with the There are really four types of
MR. MARINUZZI:
reasonableness issues first.
services or four arguments that Midland raises in its monthly fee objection which is -- sorry. MR. PENN: Your Honor, if I could interrupt just for a
later date arguments on the reasonableness and we're not talking about a lot of money. It was twenty percent holdback
on four different types of services -THE COURT: Okay.
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Page 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 out. MR. MARINUZZI: THE COURT: -- total maybe 50,000 dollars --
Okay. -- 60,000, some. We'll leave that
MR. MARINUZZI:
So let's cut to the chase -MR. PENN: That's correct, Your Honor. The issue that
we were -THE COURT: MR. PENN: THE COURT: MR. PENN: THE COURT: I thought --- presenting --- we were --- today dealt with the --- at issue on the 284,000 dollars and the
aggregate in excess of the cap? MR. PENN: That's correct, Your Honor. And reserving
the reasonableness objections for a later date, so we're really, today, only addressing the cap issues. THE COURT: All right. All right, Your Honor, I apologize.
MR. MARINUZZI:
In our application, we address the reasonableness arguments -THE COURT: Okay. -- and I was going to address them
MR. MARINUZZI:
with the Court, but we'll move on. THE COURT: All right. Okay. So, what we're left with then And as Your Honor
MR. MARINUZZI:
are what I'll call the task code objections.
knows, we bill time to project codes but we try to group --
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Page 33 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 12. THE COURT: Right. -- related time entries together.
MR. MARINUZZI:
Midland's taken the position that all of the time billed to three separate project codes are covered by the cash collateral cap, the 15,000 -THE COURT: right. -- dollar cap proposed in paragraph
MR. MARINUZZI:
So the three tasks that are at issue here are task codes
17, which cover at least some real estate related matters, project code 22 which is dedicated to the 2007 transaction analysis and investigation and project code 23, which by its title, applies to the pre-petition lien review. THE COURT: All right. All right? We did the best that we Is it
MR. MARINUZZI:
could to properly categorize these time entries. perfect?
No, but it's reasonable and we believe it fairly -THE COURT: But let me -- there's just something I'm
not understanding. MR. MARINUZZI: THE COURT: Sure.
And let's leave lease and real estate
analysis to one side, but assuming for the moment that you've bucketed correctly the 2007 transaction time entries, is it your position that that work is proper -- is not included in the cap? MR. MARINUZZI: Well, that's correct, Your Honor.
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Page 34 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 I'll explain why. When we reviewed the 2007 transaction So it's not simply
analysis, we did so looking at all claims.
claims against the adequate protection parties; it's claims against the board, it's claims against the advisors, it's claims against the prior owners, it's claims against parties that rcvd the money, it's claims against Apollo the sponsor. It's not limited to the adequate protection parties. So what we tried to do when we were reviewing these 500,000 pages of documents and trying to put together analysis, is my instructions were, if you're looking at documents that are produced by one of the banks for the purpose of trying to figure out if there are claims against the bank, I want you to bill them to project code 23. Because it's really a perfection
analysis and a challenge analysis at that point. But if you're looking at board minutes to see whether the board properly discharged its duties, what materials was the board reviewing when it approved the transaction, if you're looking at internal e-mails produced by Apollo about how the fee was going to be divided, if you're looking at some analysis of the proceeds that went to Mr. Jeff Fisher, who owned the former Innkeepers and the management company that he sold his interest to -THE COURT: But what if --- as part of the transaction --
MR. MARINUZZI: THE COURT:
-- you're looking at those same documents
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Page 35 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 time? and trying to make a determination as to what the fee lenders knew or did or thought in the context of that transaction? MR. MARINUZZI: imperfect. Your Honor, I'll acknowledge, it's
So what we tried to do is with the intent of
looking at the documents and the focus of the documents was to see what the lenders did and whether there are claims against the lenders. I wanted those time entries put in project code And unfortunately -What does the cash
23 because it's a broad range. THE COURT:
Well, let's go back.
collateral order say precisely? MR. MARINUZZI: MR. PENN: THE COURT: Cash collateral order --
Your Honor, I brought spares. Mr. Penn, if you have a spare, that'd be
great because I actually neglected to bring mine with me. Thank you. MR. PENN: THE COURT: And I believe you're looking at page 42. All right, thank you. It is page 42, Your Honor. It's the
MR. MARINUZZI:
end of paragraph 12, the carry-over paragraph. THE COURT: Am I in the right spot here? Is the
essence of what we're talking about? covered by this language and what -MR. MARINUZZI: THE COURT:
Whether or not it's
That's correct, Your Honor --
-- everyone thought they were doing at the
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Page 36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. PENN: That is correct and how much of -- in our
view -- John Penn on behalf of Midland -- how much of the 2007 transaction time and fees are subject to the cap because the 150,000 dollars has already been incurred and so the cap has been activated. So the question is which of it falls under the
cap and is no longer payable from cash collateral and which would have to be funded from some other source. THE COURT: Well, hold on. If -- we've already
utilized the whole cap, right? MR. PENN:
The whole 150,000 dollars --
I don't believe it was through the day of
the application period. MR. MARINUZZI: MR. PENN: Not through --
But since then, yes. Yes. As of today, yes. Through the
MR. MARINUZZI: application, no. THE COURT:
Okay, but we are where we are today. Correct.
Okay. That's correct. So even
So 150,000 dollars, that's gone.
if for the moment we were to agree or concede that this amount is -- would otherwise fall within the cap -MR. MARINUZZI: THE COURT: Correct.
-- where is the payment going to from? From unencumbered assets. It would
MR. MARINUZZI:
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Page 37 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 with me. MR. MARINUZZI: THE COURT: Sure. have to come from unencumbered assets which would include -and Mr. Bienenstock is not here to jump up and down the 7.4 million of unencumbered cash, unencumbered assets that we believe exist because as we note in our application, two of the secured parties failed to properly protect their security interest against operating lessees associated with their hotels. THE COURT: struggling with this. So, doesn't it become -- I'm just Doesn't it become irrelevant whether or
not we make -- we come to a conclusion as to if the cap were hypothetically unlimited if these tasks fall within the cap or not? Because the money's been utilized. So, there is no more
recourse to cash collateral to pay the committee's expenses. It goes to unencumbered. MR. MARINUZZI: That's correct. That's -- the
question is, though, the extent by which we've exceeded the cap because that's the amount that we'd have to paid from the unencumbered asset for. THE COURT: And so what we have is -You'll have to bear
But -- I'm sorry.
But we agree that even though as of the
time of the application, it wasn't exceeded, but today it's been exceeded. So -Correct.
MR. MARINUZZI:
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Page 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: -- there is no more money to pay the
amounts outstanding on this application from the 150,000. MR. MARINUZZI: THE COURT: That's correct.
So -I'm sorry, Your Honor. Left to pay
MR. MARINUZZI: for this application? THE COURT:
We're talking past each other. I know we are. I'm sorry.
If I were to approve this application -Correct.
-- in its entirety today, there is no room
in the capped amount, the lien-reviewed capped amount to pay any more fees. Those are gone. I -No, no. We have not been paid. We've They've been paid. The eighty
percent has gone out. MR. MARINUZZI:
been paid eighty percent of the fees to which midland has not objected. The problem is starting with our second interim fee
application, Midland required us to bundle all of the services rendered under those three project codes into one bucket to apply against the cap. So once they've done that, assuming Once they've dumped real
they're correct -- and we disagree.
estate, 2007 transaction and pre-petition lien review into one bucket, the only recourse we have to be paid is from the debtors agreeing to pay us out of the unencumbered funds. THE COURT: Okay. I'm still not with you. You're
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Page 39 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 going to have to bear with me. MR. MARINUZZI: THE COURT: That's fine.
If you just look at the categories, that
pre-petition lien review category -MR. MARINUZZI: THE COURT: Right.
-- through today, how much has the
committee been paid, on account of that category? MR. MARINUZZI: How much have we been paid? I don't
think that we've been paid an excess of 150,000 dollars on that simply because they've lumped it all together so that once we exceeded the 150, we couldn't be paid. Your Honor, in a while because of this. We haven't been paid, We've been sitting on
invoices pending a resolution from this Court. THE COURT: All right, you're going to have to put
some numbers around this because I still am not sure that I'm following the development of this. MR. MARINUZZI: MR. PENN: THE COURT: G? All right. So Ms. Eisen is showing me Okay. Look at G.
a -- the page at the end of this book that -MR. MARINUZZI: THE COURT: what I needed. MR. MARINUZZI: THE COURT: Correct. Tab G, Your Honor. That's
Yeah, Tab G -- Mr. Penn handed up.
All right.
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Page 40 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. MARINUZZI: So Your Honor, when you look at these
totals here, under project code 17, which is the lease real estate analysis, we billed 100,000 dollars, roughly. THE COURT: look at code 23. MR. MARINUZZI: THE COURT: Correct. All right, but let's -- look at the --
So what I'm saying is the case that
through January 2011, the -- that amount exceeds -MR. MARINUZZI: THE COURT: By ten thou --
-- 150. -- 10,000 dollars. Correct.
Okay. That's right. So if Your Honor says
MR. MARINUZZI:
everything is reasonable, instead of that 10,000 dollars coming from the cash collateral it's going to have to be paid from unencumbered assets. THE COURT: Okay. But then all that we're talking So I'm not completely confused. No, we're not, Your Honor. I'll explain. I think
about is reasonableness. MR. MARINUZZI:
we're talking about more than that.
Remember, Midland's position on this was that you look at this chart -- and thank you, Mr. Penn, for handing it to me. Every dollar on this chart, 622,000 dollars -THE COURT: Right. -- is subject to the lien review cap.
MR. MARINUZZI:
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Page 41 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Which means, since we've exceeded 150 by some 380,000 dollars -THE COURT: Right. -- that can only be paid, assuming the
MR. MARINUZZI:
Court finds it to be reasonable -THE COURT: Right. -- from unencumbered assets.
I understand that. Okay. No, I understand that.
Right.
That's fine.
All we're talkin -- so we're not talking
about whether or not something falls within liens that could go under the cap because the cap is reached. MR. MARINUZZI: THE COURT: That's true, Your Honor --
Okay. -- the question is, how much do we
MR. MARINUZZI:
have to go to unencumbered assets to get paid? THE COURT: And that's a question of reasonableness. Um-hum. I'm not sure it's a question
MR. MARINUZZI:
of reasonableness, Your Honor -THE COURT: I'm sorry. I know I'm appearing to not be
with you but I just do not understand what the issue is. MR. MARINUZZI: MR. PENN: Sure. Your Honor, it's
If I could take a swing.
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Page 42 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 150. MR. PENN: THE COURT: Right and -So if they're going to get more fees, it's here. THE COURT: We all agree that the committee's done helpful for us -THE COURT: MR. PENN: Okay. -- to make sure everyone's on the same page
getting money from cash collateral. MR. PENN: challenge. For lien-revie -- for items subject to the
John Penn on behalf of Midland, for the record. Okay. Subject to the challenge. And we believe
THE COURT: MR. PENN:
that the cash collateral order, both as originally drafter and as has been amended, makes the 2007 challenge against the lenders something that is within the cap. THE COURT: MR. PENN: THE COURT: Okay. But the cap -- I'm sorry.
But you're -But the cap has been -- we've paid out the
going to come from unencumbered assets? MR. PENN: That's correct, Your Honor. But what I was
going to suggest is that the Court consider whether item 17 is the type of services that would relate to lien review because -THE COURT: Right.
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Page 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 on -THE COURT: Wait. But -- let me stop you there. So MR. PENN: documentation -THE COURT: MR. PENN: THE COURT: MR. PENN: Understood. -- reviewed. Okay. So that's that isolated point. And then -- there's a whole lot of loan
if I agree to do that, we still just looking at task 23, we still have exceeded the cap. MR. PENN: THE COURT: So --
And then -In other words, there's not a blanket
prohibition on fees; there's just a cap on what we can take out of cash collateral. Okay? So what is the analysis that I'm
supposed to be doing on the 98,000 dollars? MR. PENN: As to whether that is something that falls But then, also, Your Honor -- because
within the lien review.
I think ultimately the question is how much of this goes over against unencumbered assets, potentially. And so what I would
suggest is that at least in the 2007 transaction, that Mr. Marinuzzi and I sit down, if nothing else, color code parts of those and say okay, that's something that might be chargeable to the cap. Okay, that's something that might not be What's in the middle bucket, to decide
chargeable to the cap. whether it applies --
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Page 44 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 changes. THE COURT: Okay. So then what difference does it THE COURT: MR. PENN: THE COURT: more time. MR. PENN: THE COURT: MR. PENN: But then, you still -But --- the cash issue, the payment issue never Okay, but now --- to the cap or not. -- I'm sorry. I'm going to just do it one
make if -- when you say chargeable to the cap, the cap has been utilized, fully utilized. So what difference does it make if
there's no blanket prohibition on having done the work, the works -- Mr. Marinuzzi was sitting at his desk and a little bell went off. working, right? The cap has been exceeded. And he kept
And then the question after that bell went off And he --
is, can I be paid for this from unencumbered assets? I'm making this up.
But he understood at that point that there was -- he couldn't get that from the allocated 150,000 dollars. aren't we just into an analysis of those fees on a reasonableness standard? MR. PENN: THE COURT: MR. PENN: Ultimately, yes. Okay. For -- as we started off with the hearing So
today, for the purposes of interim allowance, we're not
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Page 45 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 objecting to reasonableness. disbursements. The issue becomes one of
And going forward, which is where I believe the
allocation question comes up as to if there is an unencumbered pot out there that can be reached into, how deeply does the creditors' committee reach in to be paid those funds? THE COURT: Okay. But I -- I'm -- Mr. Sathy, I'm
going to enlist you to help because I'm still -- we've now come around the block about six times -MR. MARINUZZI: THE COURT: Your Honor --
-- and I still don't understand. Let me just add to your analogy. I'm
MR. MARINUZZI:
sitting at my desk and the bell rings. THE COURT: Right. My view is that bell rang in
MR. MARINUZZI:
November -- or January, I'm sorry. THE COURT: Right, the bell rang in January. Mr. Penn's view is that bell rang in
MR. MARINUZZI:
October or September because according to Mr. Penn, the work that we had been doing through that period of time that was subject to the cap was not limited to what was in project code 23. So project code 27, project code 17, all of that was
aggregated for purposes of sounding the bell. So in your analogy, the bell rang, the way I see it, in January. The way Mr. Penn -- I'm sorry. The way Midland And that's the
sees it, the bell rang sometime in October.
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Page 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 distinction; that's where we need the Court's assistance because the question really is, what does the cap apply to? THE COURT: you for that. MR. MARINUZZI: THE COURT: You're welcome. Well, I -- given where the num -- thank
Given where the numbers fall out, I agree
with you that it doesn't make -- it doesn't look like we need to talk about the 2007 transaction. That difference between
the bell ringing earlier and later, you could just look at the lease and real estate analysis and make up that gap, right? MR. PENN: Definitely, but to the extent that any of
these apply and are subject to the cap -THE COURT: MR. PENN: Right. -- then that's not cash collateral that
we're having to spend to fund those. THE COURT: I thought I had it but now I'm -You know --
-- completely lost again. -- Midland wants us to get paid from So what Midland is arguing is
MR. MARINUZZI:
other sources for these fees. that -THE COURT:
But Midland is saying that when you did
lease and real estate analysis that was something that should go under the cap. MR. MARINUZZI: Correct. And the same for the --
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Page 47 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: Okay. So --
MR. MARINUZZI: should go under the cap. THE COURT:
-- 2007 transaction analysis; that
-- if you -- so therefore, if you look at
the first application period under category 23 it's 138,000 dollars -MR. MARINUZZI: THE COURT: Correct. So then if we take 12,000
-- right?
dollars from category 17, you've still reached the -- then you have reached the cap somewhere back in October, I think Mr. Penn said. So even if we look at it that way, right, then
you're talking about the December and the January that are in 23 that would have exceeded the cap, right? MR. MARINUZZI: THE COURT: Correct.
So then we're really talking about whether
we're going to back out the 21,000 dollars from December and January and allocate them to noncap -- to unencumbered, right? MR. PENN: THE COURT: That's correct. Right? I'm sorry, Your Honor, where does the
MR. MARINUZZI: 21,000 dollars come from? THE COURT:
The 21,000 dollars -- if I -Oh, I see.
-- do the analysis that Mr. Penn said,
which was that some of the category 17 expenses were properly
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Page 48 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Honor. allocable to the cap amount, right? So as of the end of the All
first application, just in category 23 I've got 138,389. right? And then at that moment in time I've got 97, Mr.
Marinuzzi, that you've allocated to real estate.
So Mr. Penn
says, no, wait, those should be also applied to the cap, right? Those -- okay, so then we only have 12,000 dollars head room at that point, right? MR. PENN: THE COURT: Correct. So that by the time you get to December's
19,000 and January's 2,000, that can't go to the cap anymore because we've reached the cap. MR. PENN: Correct. Correct.
Okay, so now we're at a moment in time
prior -- at the end of the first application, prior to December, where we've satisfied the cap. MR. MARINUZZI: THE COURT: Correct. And everything else then is up
All right?
for grabs in terms of reasonableness, right? MR. PENN: And source of payment. And source of payment.
And source of payment, okay. That's really what this is about, Your
MR. MARINUZZI:
It's how much of these fees have to be paid from
unencumbered assets versus cash collateral.
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Page 49 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: But -Because if we --
But if you do this chart the way Mr. Penn
just said we should be doing the chart, right, if you assume for the moment that 12,000 dollars of category 17 relates to the liens, then everything else is reason -- and then it's undisputed whether something is paid out of cash collateral or not, and then everything else is reasonableness, right? MR. MARINUZZI: That's correct, Your Honor, but what I
think Your Honor is missing is that Mr. Penn is not only saying 12,000 from project code 17 should be added -THE COURT: Right. -- to the 138. Mr. Penn is saying the
MR. MARINUZZI:
186,000 under project code 22 should be added. THE COURT: I understand that, but this is where I It doesn't matter. At
keep going -- chasing my tail here.
that point when you were sitting at your desk in October the bell rang and this additional work -- this work was done and there's only 150 out of cash collateral and the rest of it has to come, if at all, from somewhere else. MR. MARINUZZI: MR. PENN: THE COURT: Correct. Correct.
Although -Can't I have something hard to do like a
plan support agreement instead of this? MR. MARINUZZI: Your Honor, to the ex --
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Page 50 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 right. MR. PENN: THE COURT: Okay, thank you. I'm sorry, if it's me I apologize. is. can -MR. MARINUZZI: MR. PENN: I think I understand -this. MR. SATHY: MR. PENN: it on the record. MR. SATHY: MR. PENN: I'd like to help, Your Honor. Just five minutes. I think -- I think we I think we can help. I think we can -- I think maybe not doing THE COURT: Can someone -To the extent --
Does somebody see what I'm missing? I think I understand it, actually.
MR. MARINUZZI: MR. PENN:
Your Honor, is there -- I know this --
maybe if we could take five minutes and just -MR. MARINUZZI: MR. PENN: Yeah, I think --
-- the four of us can just talk through
I think we understand what the disconnect
We could use a few minutes. THE COURT: MR. PENN: Okay, fine. As opposed to just having a discussion on
the record.
I think that would be helpful. All right. Okay, that would be fine. All
THE COURT:
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Page 51 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 issue. (Recess from 11:41 a.m. until 11:53 a.m.) MR. PENN: Take two. We've designated Mr. Sathy to
explain things more clearly than we've been able to. THE COURT: MR. PENN: THE COURT: I think -- let me try it. Please. All right? All right, so here's the
The issue is -- and the issue is -- well, let's just The issue is if we go
focus on category 17 for a moment.
through those items line by line and we code them as work investigating the lender's liens, right, or not -- they're either one or the other; it's binary. And hypothetically, if
we -- and putting aside the first 12,000 -- we look at the rest of that category, the remaining 86,000 and we say that every single one of those was in fact investigating the liens, right, wasn't looking at the quality of the leases otherwise. If in
fact those were investigating the liens then Mr. Penn says you've reached the cap, you only get to spend 150,000 dollars of my money to do that; go look to unencumbered. MR. MARINUZZI: MR. PENN: THE COURT: MR. PENN: THE COURT: Yes. Is that it? That's the purpose, yes. So isn't that what we have to do? Isn't Correct.
that the question with respect to categories 17 and 22? MR. MARINUZZI: That's correct, Your Honor.
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Page 52 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: That's what we have to do. That -- a determination of whether in
MR. MARINUZZI: fact those tasks -THE COURT:
Right. -- are subject to --
Okay. -- paragraph 12 and cash collateral. So then given now that I One, in order to
All right.
understand that, aren't two things true?
resolve this don't we have to literally go through each item line by line to determine which is which? And two, I can't
resolve this without having Mr. Bienenstock involved because to the extent that we bucket things they're going to fall into the two buckets, some of them, I suspect, are going to be challenging -- looking towards challenging the liens, and some of them, particularly in the 2007 transaction category, are going to be wholly looking at other's conduct, nonlender conduct. And those are going to be what I would call regular
committee fees and therefore chargeable against -- subject to the other allocation issues, subject allocable to the collateral. So having gone through all this, I don't think we can resolve this today because I think that you have to literally go through the entries line by line and either agree or disagree on whether or not they are lien challenge activities.
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Page 53 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 And then I think we have to have Mr. Bienenstock's constituency weigh in. I don't know. I mean, maybe they
understood this issue better than I did, but I don't -- I suspect he wouldn't have left if he thought that the result of this could be that I allocate a very large amount of money to what he views as his collateral or his asset, more accurately. MR. MARINUZZI: Your Honor, I think we're all on the
same page as to what the issues are, so we've gotten past that point. The question I have and the concern I have is, is we can go through -- Mr. Penn and I could go through line by line and try to agree on what is and what isn't, but the difficulty in doing that is what's really -- what you really can't answer from the time detail is the intent of the party reviewing a particular document. I'll give you an example. Your Honor's
presiding over a dispute involving LNR where they're asking this Court to direct that Midland be replaced and LNR be put in place. THE COURT: Right. When someone is reviewing those
MR. MARINUZZI:
documents, those loan documents, they're not doing so, clearly, as part of an investigation of the liens and claims of the lender. Okay? So the time entry says "reviewing loan We won't be able to allocate.
documents regarding dispute".
We may actually argue, we may say, you know, it's clear what
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Page 54 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 they were doing. Our view -- Midland's view is that it's
subject to the cap because it's a, quote, unquote, "investigation", or it isn't. I'm happy to try to sit down I suspect we're going to
with Mr. Penn and go through these.
be before this Court again asking the Court for some guidance on how the cap is really intended to apply. THE COURT: Okay, that's fair, but as I'm sitting here I'm
I'm not in a position to know what the intent was either.
just having a hard time figuring out how we get to the finish line here without there being a trial on each of these time entries. Help me. How can I make a determination? I can't --
as I know from my prior life, what you call these categories doesn't count for much. And sometimes people don't pay
incredibly close attention to which category they're putting the time in, notwithstanding directions and admonitions and threats from the people working on the matter. So I think you
have to -- you know, we're going to have to look at these entries kind of with a, you know, microscope. And then we're
going to have to step back and think about the totality of it and what were you really doing and what was logical for you to be doing by that person at that time. MR. MARINUZZI: Your Honor, I'd like to think that
when a party submits a fee statement to the Court and explains the basis in an application of how time was allocated that it counts for something. And I just don't know, frankly, how we
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Page 55 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 can go through -- because right now the default, Your Honor, the way this is being left is that everything under 17 and 22 and 23, unless it's absolutely clear on the face of it that it could have nothing to do whatsoever with the lenders, is subject to the cap. And our position on this is, Your Honor, when this case started, okay, we had PSA motion and this committee had no knowledge of the company and its capital structure, its business, its operations, its cash flow, only what was in the first day pleadings. So this committee had to quickly
understand what's this company about, where are the assets, what are the obligations, what are the relationships between the operating entities, the lessors, the property owners. This is all basic due diligence. This is stuff that
the real estate that have worked on Extended Stay, the real estate people that have worked on General Growth, they took the laboring oar in reviewing these documents just to give us the lay of the land because if you're going to evaluate a plan of reorganization that's almost on the table in the form of a PSA you kind of need to know what the capital structure looks like. So when we look at those time entries and we know what was going on at that time the first week into the case, it's easy to day "review loan documents", right? Okay, that's
probably subject to the cap now in March when we're thinking about it. But back then, as I've explained to the Court in the
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Page 56 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 application -- I was going to do an argument -- what was going on there was really due diligence that was billed to project code 17 just to understand what this real estate company -- and that's what it is -- looked like. How to analyze a plan in the
context of the assets of this company that we -THE COURT: All right. Well, in that category I hear As I'm sitting
you, and that category, it's relatively small. here today I can't make a determination on it. MR. MARINUZZI: THE COURT: I understand.
I understand.
I'm going to have to look at it. Okay.
I'm just going to have to look at -That's fine. So I would ask
-- look at every entry.
you that with respect to category 17, if the positions are that those in fact are -Mr. Penn, if your position is that all of those are allocable to the cap -- I'm trying to use the right terminology -- then that's your position and that's fine. And Mr. Marinuzzi, if your position is that it's standard due diligence, getting up to speed -- I mean, it is all in the first application period. I'll just have to look at the time entries and make a determination, if you can't agree. MR. MARINUZZI: Understood.
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Page 57 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: And I'm happy to do that. Understood.
I think the 2007 transaction investigation
is a much more of a challenge -- much more of a challenge because the transaction's part of an integrated whole. And
once again, on that one I think the offer was made that you would look at that and attempt to agree or disagree. But there
was -- it looks like there was kind of an initial spike of activity, which is understandable, and then there was another sp -- well, December was a holiday month so things slowed down a bit. But then there was substantial activity in January. So
perhaps it will help when I look at those as well, to see exactly what was going on. parse that out. But it's going to be harder to
And then there's the question of if we're
going towards unallocated, then I think the ad hoc committee, they're going to want to weigh in too. So I really don't want
to expend more fees on fees than we have to, but I don't see any way around it. MR. PENN: THE COURT: And Your Honor -And I have to say, you know, I don't want You just spent a
to grab defeat out of the jaws of victory.
lot of time getting to some really good results, and my concern is that I not throw a monkey wrench into that, into the ongoing discussions that you're having on plans and distributions for the committee. So I'm very reluctant to disrupt that.
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Page 58 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. PENN: And in large measure that's why we were
isolating this to cap issues, not any of the other issues that had initially been addressed. THE COURT: MR. PENN: But the --
But the cap issue is a big issue. But the offer about going through the 2007
transaction extends to the lease and real estate review analysis. Marinuzzi. We'll wade back through those as well with Mr. And -All right. Well, I --
THE COURT: MR. PENN:
-- we'll just put the ones in the buckets,
what we either agree are capped or not capped and then what remains to be determined. THE COURT: through and do that. Well, why don't we -- why don't you go With category 17 it's going to be a lot
shorter an exercise and I think a lot clearer a determination. And then -- you know, then we're, I think, into the realm also where the United States Trustee has -- may have something to say because then we're -- to the extent that we determine that fees need to be paid out of unencumbered then that opens that up as well. MR. PENN: THE COURT: MR. PENN: Sure. Okay, Your Honor.
Do you think that I understand it now? Yeah, I -I think you've got it, Your Honor.
MR. MARINUZZI: MR. PENN:
I think you've got it, yes.
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Page 59 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: MR. SATHY: Okay. The issue of if it's in the cap -- if it's
in the cap but it's above the 150 then that goes to unencumbered. THE COURT: MR. SATHY: THE COURT: MR. SATHY: THE COURT: MR. SATHY: THE COURT: MR. SATHY: Right. If it turns out that it's -If it's the type of activity -Yes. -- that was subject to the cap. Right. Right. Then it's not -- then it'll never be paid
out of cash collateral. THE COURT: MR. SATHY: Right. If it turns out that it was ordinary
course committee type work -THE COURT: MR. SATHY: THE COURT: MR. SATHY: Exactly. -- that is not subject to the -Yes. -- cap amount, then that could, in theory,
be paid out of cash collateral, subject to reasonableness, so there's a -THE COURT: MR. SATHY: determining. Subject to reasonableness. -- reasonableness requirement as well as
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Page 60 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Court. THE COURT: Okay. it's -THE COURT: MR. SATHY: Right. -- outside the cap amount then it's just buckets. THE COURT: MR. SATHY: Right. So as far as we can tell there's three
There's if it's in the cap, they've already agreed.
If it's supposed to be cap related but it's outside 150 then it's unencumbered -THE COURT: MR. SATHY: THE COURT: MR. SATHY: Unencumbered. -- and it's -All subject to reasonableness. Correct. And if it turns out it's -- if
subject to reasonableness cash collateral. THE COURT: MR. SATHY: different buckets. THE COURT: MR. SATHY: THE COURT: MR. SATHY: understand it. THE COURT: MR. PENN: Right, all right. I'm sorry if my description confused the Okay. So it is important -I got it. So I think that's how -- that's how we Right. So we sort of look at it as three
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Page 61 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. PENN: THE COURT: I apologize. All right. So again, I think I need you
to come back to me with kind of your final offers, so to speak, to how you would bucket them, allocate them, et cetera. And I
think in that context it would be helpful to have your bottom line on reasonableness as well. MR. PENN: No. Mr. Penn's not so sure.
And the only reason I'm quizzical on
that, Your Honor, is that since we had deferred the reasonableness to final -THE COURT: MR. PENN: Okay. -- I was anticipating continuing to defer
that reasonableness to final and only deal on the interim part with cap or no cap, make it more of a binary issue there. THE COURT: Okay. That's fine. And
MR. MARINUZZI:
Your Honor, I'm happy to do that.
I would have asked the Court if the Court was prepared to make any sort of finding on reasonableness so we could possibly present an order if we agree on everything. MR. PENN: THE COURT: In that respect -Okay, now you've lost me again. You're
asking me for an order on it and he's telling me he wants to defer it. MR. PENN: No, no, no, no. I think where we're going
is provide in the order a paragraph that the fees are allowed, because there's no reasonableness objection.
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Page 62 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 loud. order. THE COURT: MR. PENN: Okay, gotcha. However there's allocation of whether the
fees fall within the cash collateral -- or the cap under the cash collateral order is still being deferred pending the further. THE COURT: MR. PENN: THE COURT: MR. PENN: THE COURT: Thank you. MR. MARINUZZI: THE COURT: Thank you. So I'll wait to hear from you. Fine. That's fine.
I think that's what he was -I'm happy --- asking. That's fine. I'm happy to enter that
All right.
You'll give me an order that reflects your understanding of what went on here today and I will look at it and if it coincides with my understanding we'll enter that order and then I'll wait to hear from all of you as to what the next step is, including if we're going to go down that path to give me annotated time sheets for my review. Right? That's the way --
that's how we're going to have to do it, to the extent that you don't agree. MR. PENN: What I would -- this is just thinking out
We had gone through in the past and created
spreadsheets, and so I think we can create the spreadsheet and then create the buckets over to the side to say which column
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Page 63 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 sheets. MR. PENN: No, when we did that, Your Honor, we these fall into in our discussion of either agreed cap, agreed uncap -THE COURT: MR. PENN: THE COURT: All right. But I have --
-- or to be resolved. -- to actually read the actual time
included the time description -THE COURT: MR. PENN: THE COURT: MR. PENN: Okay. -- in each of those spreadsheets. Okay. Not just numbers but description as well. So Mr. Penn could provide to me what
MR. MARINUZZI:
their assessment is of what should be properly characterized as project code 23 or subject to the cap. THE COURT: Right. And I could respond and we can agree, And maybe now -I appreciate your
MR. MARINUZZI:
hopefully, on most of them. THE COURT:
Okay, I got it.
patience with me today. MR. MARINUZZI: MR. PENN: And yours with ours.
And Your Honor, we appreciate it because
this is definitely -- I won't say not normal but it's outside the bounds of usual issues that are presented. THE COURT: Okay. All right, but I think I'm on the
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Page 64 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 same page right now. MR. PENN: THE COURT: MR. PENN: THE COURT: MR. PENN: So -Yes. -- all right, thank you very much. Thank you, Your Honor. Have a great day. You, too. Thank you.
MR. MARINUZZI:
(Whereupon these proceedings were concluded at 12:09 PM)
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Page 65 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Debtors' Second Motion to Extend Exclusivity Granted Debtors' Removal Notices Extension Motion Granted Moelis Application Granted Fried, Frank Application Granted Jefferies Application Approved Kirkland Application Approved as Modified 26 26 26 30 6 6 6 13 21 9 RULINGS Page 20 Line 2 I N D E X
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Page 66 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Date: March 29, 2011 Veritext 200 Old Country Road Suite 580 Mineola, NY 11501 I, Dena Page, certify that the foregoing transcript is a true and accurate record of the proceedings. C E R T I F I C A T I O N
Dena Page
DENA PAGE
______________________________________
Digitally signed by Dena Page DN: cn=Dena Page, o, ou, email=digital1@veritext.com, c=US Date: 2011.03.30 14:04:57 -04'00'
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VERITEXT REPORTING COMPANY www.veritext.com

INNKEEPERS USA TRUST, ET AL.,

March 29, 2011 10:05 AM

B E F O R E: HON. SHELLEY C. CHAPMAN U.S. BANKRUPTCY JUDGE

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JOHN ZINMAN, ESQ. ANUP SATHY, ESQ. BRIAN S. LENNON, ESQ.

LORENZO MARINUZZI, ESQ.

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MICHAEL RIELA, ESQ.

BRIAN S. MASUMOTO, ESQ. RICHARD C. MORRISSEY, ESQ.

MICHAEL J. SAGE, ESQ. NICOLE B. HERTHER-SPIRO, ESQ.

TODD C. MEYERS, ESQ. (TELEPHONICALLY)

INNKEEPERS USA TRUST, ET AL.

with Kilpatrick Townsend. THE COURT: Okay, good morning.

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intend to proceed as follows.

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Meyers' client, Trimount, which has the mezzanine debt.

that we are withdrawing our objection.

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Trimount to work out today.

But as of right now, we don't have any agreement to go

dollars to this property.

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mentioned, is April 28th. plan.

C-III is analyzing whether it's willing to make any

We don't believe the debtor could confirm a plan over

Good morning, Your Honor.

Karcher of Dewey & LeBoeuf.

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that offer was extended until Friday.

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There have been additional discussions

It sounds like things

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with respect to this motion? granted. MR. ZINMAN:

Thank you, Your Honor.

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