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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
June 7, 2011 2:01 PM
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 Second Application for Interim Professional Compensation for Morrison & Foerster LLP, Creditor Comm. Aty, period: 12/1/2010 to 3/31/2011, fee: $744,584, expenses: $38,624.22, filed by Morrison & Foerster LLP [Doc.#1375] Midland Loan Services' Motion For An Order Determining Its Guaranty Claim Against Grand Prix Holdings LLC to be Allowed in Full filed by John D. Penn on behalf of Midland Loan Service, a division of PNC Bank, N.A. [Doc.# 1482] Motion for Relief from Stay filed by David M. Neff on behalf of C-III Asset Management, LLC [Doc.# 1051] Motion to Allow for an Order Temporarily Allowing Its Claim Against Grand Prix Holdings and Grand Prix Ontario Lessee for Purposes of Voting Pursuant to Bankruptcy Rule 3018(a) filed by David M. Neff on behalf of C-III Asset Management, LLC. [Doc.# 1516] Motion for Payment of Administrative Expenses filed by Best Western International, Inc. [Doc.# 1198]
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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 Second Application for Interim Professional Compensation for Jeffries & Company, Inc. Other Professional, period: 12/1/2010 to 3/31/2011, fee: $500,000, expenses: $4,075.66 filed by Jeffries & Company, Inc. [Doc.# 1401] Second Application for Interim Professional Compensation/ Second 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 December 1, 2010 Through March 31, 2011 for Moelis & Company LLC, Other Professional, period: 12/1/2010 to 3/31/2011, fee: $600,000, expenses $33,343.65 filed by Moelis & Company LLC [Doc.# 1391] Second Application for Interim Professional Compensation Second 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 December 1, 2010 through March 31, 2011 for Fried, Frank, Harris, Shriver, Jacobson, Other Professional period: 12/1/2010 to 3/31/2011, fee: $1,062,934.50, expenses: $35,192.37 filed by Fried, Frank, Harris, Shriver & Jacobson [Doc.# 1377]
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Page 4 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: Linda Ferrara Second Application for Interim Professional Compensation Second Fee Application of Kirkland & Ellis LLP for (A) Compensation for Professional Services Rendered and (B) Reimbursement of Actual and Necessary Expenses Incurred During the Period December 1, 2010 Through March 31, 2011 for Kirkland & Ellis LLP, Debtors' Attorney, period 12/1/2010 to 3/31/2011, fee: $4,912,899, expenses $241,751.27, filed by Kirkland & Ellis LLP [Doc.# 1403]
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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: JOHN D. PENN, ESQ. LENARD PARKINS, ESQ. MARK ELMORE, ESQ. HAYNES AND BOONE LLP Attorneys for Midland Loan Services 201 Main Street Suite 2200 Fort Worth, TX 76102 BY: MARTIN J. BIENENSTOCK, ESQ. DEWEY & LEBOEUF LLP Attorneys for Ad Hoc Committee of Preferred Shareholders 1301 Avenue of the Americas New York, NY 10019 BY: BRIAN S. LENNON, ESQ. A P P E A R A N C E S : KIRKLAND & ELLIS LLP Attorneys for Debtors 601 Lexington Avenue New York, NY 10022
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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. FRIED, FRANK, HARRIS, SHRIVER & JACOBSON Attorneys for the Independent Committee One New York Plaza New York, New York 10004 BY: LAUREN SHUMEJDA, ESQ. PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP Attorneys for Apollo Investment Corporation 1285 Avenue of the Americas New York, NY 10019 BY: LORENZO MARINUZZI, ESQ. MORRISON & FOERSTER LLP Attorneys for Official Committee of Unsecured Creditors 1290 Avenue of the Americas New York, NY 10104
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DECHERT LLP Attorneys for Lehman ALI 1095 Avenue of the Americas New York, NY 10036
BY:
NICOLE B. HERTHER-SPIRO, ESQ.
PERKINS COIE LLP Attorneys for C-III and CW Capital 131 South Dearborn Street Suite 1700 Chicago, IL 60603
BY:
DAVID M. NEFF, ESQ.
HELMS LAW FIRM, P.L.C. Attorneys for Best Western 2600 N. Central Avenue Suite 940 Phoenix, Arizona 85004
BY:
MICHAEL G. HELMS, ESQ.
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DANIEL S. ALTER Attorneys for Hilton Worldwide 360 Westchester Avenue #316 Port Chester, New York 10573
BY:
DANIEL S. ALTER, ESQ.
KILPATRICK, TOWNSEND & STOCKTON LLP Attorneys for Trimont Suite 2800 1100 Peachtree Street Atlanta, GA 30309
BY:
MARK A. FINK, 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 afternoon, please be seated.
Mr. Lennon, how are you? MR. LENNON: Good afternoon, Your Honor. Your Honor,
we filed an amended agenda last night that reflects that the motion of Best Western for administrative expense would be the first item on the calendar. THE COURT: All right. Let me ask you folks if we
actually want to do it that way since we have so many people here who may not be interested in hearing that. How much time
do you think you need with respect to all the other matters? MR. LENNON: THE COURT: MR. LENNON: THE COURT: I'm hoping they can be relatively short. Why don't we do it that way? Okay. And that way folks can leave, instead of In the meantime, let Mr. Fink? Mark Fink for
listening to the Best Western argument.
me take appearances of those on the phone. MR. FINK:
Good afternoon, Your Honor.
Trimont Real Estate Advisors Inc. THE COURT: All right. And I think I have someone Is there anyone else
from the Kasowitz firm on listen only. appearing on the telephone? (No response.) THE COURT: MR. LENNON: Okay.
I'm ready when you are. Your Honor, it
Thank you, Your Honor.
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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 probably makes sense to take Lenard's B and D and deal with those together. C-III Asset Management and Midland Loan
Services had both filed motions late in May asking for the ability to vote on the Grand Prix Holdings plan of reorganization on account of guaranteed claims that those parties will be -- that they have against that entity. We have worked with the parties over the course of the last week or so and have entered into a stipulation that would allow those parties to vote on account of those claims and reserve every party-in-interest right to object to those claims at a later date if necessary. So the stipulation in effect will allow us to move forward with confirmation next week and punt the issues surrounding these claims to a later date sometime in the future, whether it's before or after the effective date. THE COURT: yet, have I? MR. LENNON: THE COURT: MR. LENNON: through it. THE COURT: MR. LENNON: THE COURT: Let me take a quick look at it. Okay. Does anyone else want to say anything with You have not, Your Honor. Okay. I have a copy here if you'd like to go Okay. I haven't seen that stipulation
respect to this matter or how you think you'll be wanting 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 resolved. proceed after confirmation? I guess to put a fine point on
it, I'm hoping you'll work this out. MR. PARKINS: Good afternoon, Your Honor. Lenard
Parkins from Haynes and Boone for Midland.
We have finally
reached, I think the stipulation just before court, about an hour -- as usual, an hour or two before court and I think it deals with the issue of voting. I think Mr. Sathy and I have
talked earlier about, we still have and I think others still have an overriding issue of when are we going to get down to if there are going to be objections filed to the claims and responses, et cetera. With respect to the Grand Prix Holding case which is where our issue is focused, I think we've talked about something along the lines that Mr. Sathy and the debtors below have issues to resolve with respect to claims -THE COURT: MR. PARKINS: Right. -- as to how much available money will
ultimately go upstream to the ultimate parent, Grand Prix Holdings. THE COURT: MR. PARKINS: Right. Those obviously need to be worked on and
But I think what we've talked about is something
along the lines of and I don't know how we would memorialize it other than an understanding which is fine with us here on the record that when the debtors believe they're within sixty days
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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 of being prepared to make a distribution in the Grand Prix Holdings case, that they'll let us know. conference. We'll have a status
We'll set objection deadlines, response deadlines
and hearing deadlines, so that those claims will be determined before distributions go out on the holdings case. fine with us. And that's We know
We just don't want to get sandbagged.
they've got work to do on the lower level cases to determine allowance of claims and available cash going upstream. No one
wants to fight if there's not going to be money going upstream. THE COURT: Right. So in other words, we're hoping to
have a high class problem -MR. PARKINS: THE COURT: up there to go out. MR. PARKINS: THE COURT: MR. PARKINS: Right. And you'll -But we would have said within sixty days Right. -- meaning that there's going to be money
we can have a status conference considering, subject to the Court's willingness to have a quick conference, establish objection deadlines if anybody's going to object, response deadlines, discovery deadlines and a hearing deadline before distributions will be made. THE COURT: All right. I guess the only other
questions I have, not that I am suggesting that anybody would do this intentionally, but I'm not going to hear anything at
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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 confirmation about this then. In other words, with respect to
the issue of releases or anybody in any way linking or tying their views on the confirmability of the plan, the plans, because of this open issue. that regard. MR. PARKINS: Well I thin the stipulation provides I don't want to be surprised in
that all rights with respect to objections of all the parties are preserved, including objections to confirmation but -THE COURT: MR. PARKINS: THE COURT: MR. PARKINS: But do you understand what --- we're going to -Do you understand what I'm getting at? Yes, I understand. This issue about the
validity's claim isn't going to be an issue for the purpose of confirmation -THE COURT: MR. PARKINS: Right. -- to Grand Prix. But everybody --
everyone's reserved their rights with respect to objecting to confirmation if they have -- and that wasn't on our radar screen. Somebody raised that to a -- the releases, for Our issue is money and to
example, wasn't on our radar screen. having access to money.
The releases wasn't one of the issues
but the stipulation when you take a look at it, preserves everybody's rights to do so. I can't speak for what other
people might file but we weren't looking at that being on our radar screen as an issue, the issue of releases in any event.
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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 THE COURT: MR. NEFF: Okay. All right. David Neff on
Good afternoon, Judge.
behalf of C-III Asset Management, LLC.
With regard to the
question that you just posed, as you know one of the four plans relates just to the Hilton Ontario -THE COURT: MR. NEFF: Right. -- which is the property for which C-III And the plan does C-III has not
serves as special servicer for the mortgage. provide that C-III waives any guaranty claims.
agreed to that, so you will be hearing at confirmation from CIII with regard to that particular issue. And obviously we
reserve the right to vote against the plan and object to confirmation. THE COURT: All right. Yes, Mr. Bienenstock, let me
hear from you on this point. MR. BIENENSTOCK: Your Honor, Martin Bienenstock,
Dewey & LeBoeuf for the ad hoc preferred shareholders committee. I only rose actually because Your Honor teed up My client has agreed to support the plan and
that question.
that agreement says that we support it, as long as the settlement that we entered into is approved as part of the plan. If the settlement is not approved, then the agreement we made with the debtors and their plan goes on to say that we will have time in respect of the remaining debtor plan to file
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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 Cs. MR. BIENENSTOCK: Yes, but if there's a distribution objections to it, et cetera. So in answer to Your Honor's
question, we're not objecting to anything in confirmation as long as we're under our agreement to support the plan. THE COURT: But does that -- that does not entail the In other
Midland -- the waiver of the Midland guaranty claim.
words, is part of your "settlement" that you're going to get that distribution at Grand Prix. MR. BIENENSTOCK: Oh, okay. I think the key facts
there, Your Honor, are that the preferred shares that my clients hold are not issued by Grand Prix. Grand Prix is that it owns Series A shares. THE COURT: Yes, which are pari with yours -- with the The relevance of
on ours that there may be a distribution on theirs --THE COURT: Right. -- assuming -- parity is something
MR. BIENENSTOCK:
that if we have to oppose confirmation, we'll argue they're not equal because of equitable subordination and Grand Prix was totally dominated, controlled, owned by Apollo. And -- but we
hope never to get there but I just want to follow-up on what Your Honor was saying. If the plan we're supporting, that they've proposed is confirmed, then there will be a distribution on the Series C shares --
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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 THE COURT: Yes. -- that my clients own and on the It is not our business,
MR. BIENENSTOCK:
Series A shares that Grand Prix owns.
at that point, whether the Series A shares of Grand Prix -THE COURT: I got it; okay. -- give rise to something that's
MR. BIENENSTOCK:
collected by Midland and Lehman or -THE COURT: Or by --- it goes up to Apollo. Okay.
MR. BIENENSTOCK: THE COURT:
To Apollo; I understand.
MR. BIENENSTOCK: THE COURT:
So that's not going to be our issue. Okay.
That's helpful.
MR. BIENENSTOCK:
Similarly, it's not their issue what
happens at the entities below against which they have no claims. THE COURT: MR. HELMS: Okay. Thank you.
Michael Helms, Your Honor, on behalf of
Best Western International. THE COURT: MR. HELMS: Yes, Mr. Helms? Best Western has filed an objection to And since -- because you raised
confirmation on the releases.
it, I just wanted you to know that is happening. THE COURT: Okay. I mean we'll get to your motion
when we get to your motion but you've got an 85,000 dollar claim right now.
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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 MR. HELMS: THE COURT: MR. LENNON: THE COURT: Yes, we heard -- we're owed payments. Your words, not mine. It is not a guaranteed claim, Your Honor. Okay. All right. So I will review the
stipulation and unless I have any questions, I'll enter it this afternoon. Thank you. Thank you, Your Honor. Your Honor, item
MR. LENNON:
C on the agenda is C-III Asset Management's motion to terminate the automatic stay. THE COURT: MR. LENNON: agenda for today -THE COURT: MR. LENNON: THE COURT: Okay. -- for purposes of a status conference. All right. But this gets mooted out if we This has been pending for a while. Right. Mr. Neff had asked that we keep it on the
confirm the plan that involves the Hilton Ontario; yes? MR. LENNON: THE COURT: MR. NEFF: I believe so, Your Honor. Okay. Good afternoon, again. Judge, we have only
one issue on the plan. THE COURT: MR. NEFF: You want your hotel back. The only -- the debtors agreed to that.
The only issue we have happens to be with the guaranty claim. So if we can resolve that particular issue and we are engaging in discussion on it --
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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. NEFF: Okay. -- then we're going to support the plan and But right now, we don't
the lift stay motion will go away. have such an agreement.
The motion has been pending for quite
some time and if we don't come to an agreement, we'd like to move forward with the left stay motion. So what I have discussed with counsel is that we would agree to continue this over to status to the July omnibus and we would like Your Honor to set a date before then for the debtor to file a response to our motion because there's been no response filed. THE COURT: Well, I am not -- maybe I don't fully
understand this but if we get to confirmation and I confirm the plan over your objection -MR. NEFF: THE COURT: MR. NEFF: It can't be confirmed over my objection. Really? I will tell you why. You can't do it
because I'm actually giving money to provide for the distribution of the unsecured creditors. under secured situation. This is a grossly
If I don't agree to give the money,
there's no money to confirm the plan. THE COURT: MR. NEFF: THE COURT: Okay. That's the problem. All right. It's kind of a good argument. We could find the money
UNIDENTIFIED MALE VOICE:
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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 somewhere else, Your Honor, just to be clear, if needed. THE COURT: MR. NEFF: Well -So what I'd like to do, Your Honor, if we
could continue this over to the July date, but if we don't come to an agreement, we vote down the plan, the plan is not confirmed, where are we come June 23rd. I'd like them to file
a response, so we can move forward on the lift stay. THE COURT: All right. So why don't we do this? Why
don't we see where we are on June 23, rather than set deadlines now. MR. NEFF: All right. Then why don't we set it over
then for status on the 23rd, as well. THE COURT: MR. NEFF: THE COURT: Very well. Okay. Okay. Fine. So I think that's it for the plan-
related matters, Mr. Lennon. MR. LENNON: Yes, Your Honor. I think that brings us Your Honor,
to the interim fee applications that were filed.
the only objection to the interim fee applications was brought by the U.S. trustee and it had to do with the release of the holdbacks under the interim compensation procedures. We've
reached out to the U.S. trustee and we've agreed on a deal pursuant to which the order that will be entered today will release the holdback from the first interim fee period. THE COURT: Okay.
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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. LENNON: The holdback for the second interim fee
period, ten percent of that number will be released on the date of confirmation of the plan. THE COURT: Ten percent of the fees, of the total
fees, not ten percent of the holdback. MR. LENNON: THE COURT: MR. LENNON: Ten percent of the total fees; yes. Okay. And ten percent will be released on the
effective date of the plan. THE COURT: Okay. But on the effective date of the
plan, so that's going to be not in connection with the entry of any other fee order? I'm just trying to think through
procedurally how we deal with that. MR. LENNON: We'll probably include a provision in the
confirmation order and they'll be a provision in the order that we submit today, as well. THE COURT: All right. You're going to have to work
with Ms. Eisen, just so that you accomplish this in a way that works for the clerk's office. MR. LENNON: THE COURT: Okay. With respect to -- I'm jumping ahead a With respect
little bit but it relates to what you're saying.
to the resolution of the Morrison & Foerster fees, and how much of them can be paid out of the -- out of cash collateral, you're going to have to drop the number that you're paying, the
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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 25 132 subject to the holdback into your fee order, Mr. Marinuzzi. Ms. Eisen can walk you through how that works. I'm not -- I
can't recall if you folks have used this new form that we've devised yet but it's a little simplified from what you're used to seeing. MR. LENNON: THE COURT: MR. LENNON: THE COURT: Ms. Eisen had provided us the forms. All right. That's what we've been provided. So I think the way it's going to work is I'm
that for the Morrison -- you'll present the stipulation. going to review the stipulation, assuming I approve that, you're going to take that number and drop it into this
schedule, along with I think whatever other holdback release numbers might pertain. MR. LENNON: THE COURT: MR. LENNON: with the U.S. trustee. THE COURT: Does that make sense? That makes sense. Okay. All right.
So, Your Honor, that is the resolution I'm not aware of any other objections. So let's just walk through
All right.
each of the fee applications, Mr. Lennon. MR. LENNON: THE COURT: MR. LENNON: THE COURT: Sure. First we have Morrison & Foerster. Yes, Your Honor. All right. Does anyone else wish to be
heard with respect to the second interim application of
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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 Morrison & Foerster. MR. PENN: behalf of Midland. Your Honor, John Penn, Haynes & Boone on Just to let the Court know that not only on
the first application dealing with the 150,000 dollar cash collateral cap but also rolling forward into the second, we did as we promised last time, sat down. THE COURT: MR. PENN: Right. We've come up with numbers that we are We've waded through it.
satisfied with as to how much can be paid from cash collateral. THE COURT: MR. PENN: THE COURT: MR. PENN: THE COURT: MR. PENN: THE COURT: Okay. And how much must be reserved. All right. So, that has been put to bed. Great. And Mr. Marinuzzi has the order with that. Okay. Thank you very much. Okay. So
with that, I'm going to approve the application of Morrison & Foerster for the second interim period. Next is -MR. LENNON: THE COURT: Fried, Frank, Your Honor. Fried, Frank. All right. Does anyone
wish to be heard with respect to the application of Fried, Frank? (No response.) THE COURT: All right. I'll approve that application,
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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 as well. MR. LENNON: THE COURT: MR. LENNON: uncontested matters. THE COURT: Okay. Thank you, Your Honor. Okay. Thank you. as well. I think the next one is Moelis? MR. LENNON: THE COURT: Correct, Your Honor. All right. Anyone wish to be heard with
respect to the second application of Moelis & Company? (No response.) THE COURT: All right. That application is approved.
The next one that I have is Jeffries. MR. LENNON: THE COURT: Correct, Your Honor. All right. Anyone wish to be heard with
respect to the second application of Jeffries? (No response.) THE COURT: All right. That application is approved.
And finally, I have Kirkland & Ellis. MR. LENNON: THE COURT: Yes, Your Honor. Anyone wish to be heard with respect to
Kirkland's application? (No response.) THE COURT: All right. That application is approved,
I believe that resolves all of the
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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 MR. LENNON: I'll turn the podium over to Mr. Helms
for the Best Western motion. THE COURT: All right. Very well.
MR. MARINUZZI: THE COURT: Yes.
Your Honor, before we get there --
MR. MARINUZZI:
-- we'd like to review the stipulation
that we've prepared with Midland. THE COURT: Okay. Your Honor, you might recall, Your
MR. MARINUZZI:
Honor, in connection with the hearing on the first interim fee application, there was some dispute over whether certain fees were subject to the cap or not. And the resolution at that
hearing was it's best that we worked it out so we don't burden the Court with having to go through all that time detail. And so, we've done that and we've drafted the stipulation to which Midland, Morrison & Foerster and the debtors are party which breaks down the $300,756.50 in fees and that's on page 4 of the stipulation. THE COURT: Right. And those relate to two project codes
MR. MARINUZZI:
from our fee application; real estate related work in 2007 transactional analysis work. And we've decided since we really
can't figure out a precise way to do this, is to pick a percentage and work with that percentage and it works for everybody.
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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 And so what we've done is we've aggregated between those two project codes the amount of fees that could be paid from cash collateral and the amount that would have to be paid from sources other than cash collateral. also set forth on page 4, paragraph 2. So the result of this that $168,724.40 is not going to be paid at this point in time. THE COURT: Right. If the debtors have free cash that At this And the allocation is
MR. MARINUZZI:
they could spend, then it would be a different story.
point, we recognize that the 7.4 million is tied up and it's going to sit there for a while. So as it currently stands, the way the order on the second interim application will be modified is right now there's a holdback of approximately 275,000 dollars or Morrison & Foerster, we can be paid that amount less the 168,000 dollars. So the number's going to be somewhere around 104,000
dollars but we'll plug the number into the box after the hearing. Your Honor, if you have any -THE COURT: So it's not -- you arrived at that number
a different way than I was thinking about it but -- so it's not 132 less a holdback. You're backing into a different way. I'm backing into it. That's right.
MR. MARINUZZI:
Because if the debtors had the cash, then we could get paid
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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 25 132,000 dollars. THE COURT: Got it. They don't have it. All right. Just keep track of this
MR. MARINUZZI: THE COURT:
Okay.
so that at the end of the end of the day, we make sure all the numbers tie for the purposes of what the clerk's office does. MR. MARINUZZI: THE COURT: Will do.
Okay. Thank you. Thank you for
MR. MARINUZZI: THE COURT: working that out. as well.
All right, thank you.
I'll take a look at this and I'll enter it,
On the fee orders, I just wanted to caution you, it's
not the end of the month, so we're not in that zone but I do have to leave town early tomorrow morning. and I have to leave here in two hours. done in the next day or two. MR. LENNON: THE COURT: So to the extent --
So it's unlikely to get
Can you live with that?
Yes, Your Honor. Okay. Your Honor, if it's our stipulation
MR. MARINUZZI:
that's holding it up, then I don't want our stipulation to hold it up. THE COURT: Uhm. If Your Honor can address it without
MR. MARINUZZI:
having take to time to review this, I don't want to hold up the other professionals.
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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 THE COURT: I think it's not. Okay.
MR. MARINUZZI: THE COURT:
As soon as I get the orders and the charts
in the right format, I'll look at that. MR. MARINUZZI: THE COURT: MR. LENNON: Thank you.
But thank you for that. Your Honor, I just wanted to clarify one It's actually
point that I made before about the holdback.
fifty percent of the amounts held back will be released on the date of confirmation. THE COURT: MR. LENNON: THE COURT: Right. And fifty percent -When you said ten percent, you were
thinking of fifty percent of twenty percent. MR. LENNON: THE COURT: MR. LENNON: THE COURT: MR. LENNON: THE COURT: Exactly. Okay. Exactly. Thank you, Your Honor. All right. Thank you.
So I think that brings us to the Best
Western motion, Mr. Helms. MR. PARKINS: THE COURT: confirmation. MR. FINK: Your Honor, this is Mark Fink. If I may be May we be excused, Your Honor? Yes, thank you folks. I'll see you at
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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 mind. MR. HELMS: I think it's $11,161.76. I'm not sure excused, as well. THE COURT: MR. FINK: THE COURT: Yes, thank you. Thank you, Your Honor. So, Mr. Helms, I've gone through this in
some detail and I'm hoping that we can narrow the field of play, so-to-speak. MR. HELMS: THE COURT: Okay. Because maybe you can shed some light on
this but there are aspects of this that I just don't understand. MR. HELMS: THE COURT: Certainly, I will do that. So let me go through it in topics. One is
as the debtors point out and I think I see in the documentation that you submitted, there does appear to be approximately 12,248 dollars that's purely prepetition. MR. HELMS: THE COURT: Well -I say purely without any argument in my
that the 12,248 jumps from that.
Those items in that But we have gone back
calculation hasn't been presented to me.
through the billings and I believe it is $11,161.76, that in fact is prepetition and so we agree with that part of the debtor's objection. THE COURT: Okay. Where I was looking at was in the
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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 documentation that you submitted -MR. HELMS: THE COURT: Yes, ma'am. -- on a page that's called page 3,
although there are a number of page 3s, it's the one -MR. HELMS: There's a date right below that page
number that might help. THE COURT: Yes, it's 8-1 -- August 1, 2010 and
there's just a line on here that says 729, prepetition 2(b)(A)(204) and it's says 12 248. MR. HELMS: That is a prepetition -- I'm not sure why
it's in the two separate columns but there were certain amounts that were moved to a prepetition accounting internally for Best Western. Some of those, in fact, were for services rendered
post-petition. THE COURT: All right. Well, we're close enough on
this one that I think you and the debtors can reconcile the prepetition. So that gets us into the other buckets and where
I am primarily looking on this one is you issued an invoice on the 1st of March which is post-rejection. MR. HELMS: THE COURT: Yes. And I think the majority of the remaining
seventy-odd thousand dollars is attributable to three line items, all dated February 28, April to November 2011 monthly fee, bulk filling, April to November advertising assessment and April to November something cooperative something.
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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 renewed. MR. HELMS: Uh-huh. MR. HELMS: THE COURT: MR. HELMS: THE COURT: That's correct. Right. YEs. And I guess the question is whether you So that's kind of the bulk of it.
think that's entitled to administrative priority and the debtors don't. MR. HELMS: membership -THE COURT: MR. HELMS: Right. -- and they agreed that they did; in fact, I do. I do. When the debtor renewed the
they renewed the membership -- they say they renewed the membership on exactly the same terms as the original agreement. So that's what -- and they did that was as of December 1. The terms of the original agreement also incorporate the Best Western by-laws. The Best Western by-laws
specifically provide that if there is a termination during the fiscal year, all of the monthly fees and dues for the remainder of that fiscal year are immediately due and payable. THE COURT: MR. HELMS: THE COURT: MR. HELMS: THE COURT: Right. But let's --
These are not -But let's stop there. Sure. All right. Supposed it hadn't been
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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 THE COURT: following week. MR. HELMS: THE COURT: We tried to get them to do that. No, I understand that. But my point is They filed and they rejected it the
that because they renewed it on the same terms and conditions on which they had originally entered into it and it was then rejected, why is this any different from any contract provision that says if you terminate you have to pay but it's a rejection and therefore, these amounts are prepetition claim. that you don't have a claim. It's not
It's just that it's a prepetition
claim by virtue of the rejection. MR. HELMS: It doesn't matter whether they reject or Those are due and payable at the
terminate or whatever.
beginning of the year and as a convenience to the members, they're payable throughout the year but it is not a penalty. There is no termination penalty. And, in fact, the membership
agreement specifically says at paragraph 14 that the member can't terminate, can't quit his membership at any time without penalty. What it also says is that the fees and dues that were due at the beginning of the year and payable throughout the year are then immediately due and payable. rejection fees and dues. rejection. They are not
They don't come about because of
They come about because they were -- of what they It was fees and dues at the
agreed to pay in order to renew.
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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 point. outset of the agreement, of that term of the agreement in December. THE COURT: What's the -- under the test for
administrative priority, what's the benefit to the estate in paying any of this? MR. HELMS: their membership. Okay. The benefit is that they preserved
They claim that in the preservation of that
membership that that was necessary in order to preserve their DIP lending, the two post-petition lending facilities and that if a -- if the Best Western membership terminated, that they'd lose the post-petition financing facilities and a default under those facilities would also cause a default under the cash collateral orders. The debtor specifically said we need this for all of the debtors -THE COURT: Well now you're getting into a different
The all of the debtor's point, I think that that is not I mean you
-- you're not out of the starting gate on that. have a contract with this particular debtor. been substantively consolidated. MR. HELMS: THE COURT: I agree.
The cases haven't
Whatever claims you have are against your Otherwise, you wouldn't be able to make
contract counterparty.
the argument, and I understand your argument but there's no substantive consolidation. There's not going to be a
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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 substantive consolidation. You contracted with a particular
debtor and that's the debtor to whom you need to look for for your repayment. MR. HELMS: Ordinarily, I would agree. Ordinarily, Here we've got
you've got one debtor that we're dealing with.
ninety-two debtors but in this case, the rest of the debtors came in and said we need that hotel to maintain its membership in order for us to keep our cash collateral orders in place, in order for us to keep our DIP lending in place. And so we are
benefitting from that hotel being in place with the membership, as well. And so I argue that the debtors themselves have said that they received a benefit from this and they said it was absolutely necessary to the ongoing proceedings that they keep the cash collateral, that they keep the post petition financing facilities in place and that they received a benefit from that. THE COURT: Well, I suspect though that if it had come
to it, the debtors could have gotten some kind of a waiver on this point. I just don't think that there's any showing that
this default would have brought down the house of cards for the entire case. MR. HELMS: I would have agreed with that at the time
we filed our motion for relief but the debtors came in and said that's not true. This is going to cause a default and the
whole house of cards is going to fall if Best Western is able
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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 to terminate the membership on this one hotel. I argued to Your Honor that we're just the one hotel. They don't need us. They came in and said -- the rest of the
debtors came in and said we need that membership agreement to stay in place. And I think this -How does it work in the -- I'm going to How does it work if you're not
THE COURT:
switch back to another point.
dealing with the debtor, where is it written that the billing is accomplished in pieces? In other words, this is a peculiar
billing because it goes from April through November. MR. HELMS: the fiscal year. THE COURT: MR. HELMS: Okay. The fiscal year of Best Western ends on April through November. It threads with
November 30 of each year. THE COURT: And where is it written that it gets
billed in two installments? MR. HELMS: It is billed in installments. It is
written in the by-laws that those fees are due and payable -THE COURT: MR. HELMS: Upon termination. -- and if you terminate, if you quit, if
we terminate you or if you quit, they're due and payable as of the outset of -THE COURT: says that? Where does it say that? Show me where it
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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 says. MR. HELMS: THE COURT: It's Article -In other words, I want to see where it
says that those -- these fees are accrue. MR. HELMS: The membership agreement at paragraph 11
incorporates the by-laws, the articles and by-laws. THE COURT: MR. HELMS: Do I have that in your submission? The membership agreement is in the record.
It was not attached to this submission. THE COURT: MR. HELMS: THE COURT: Do you have a copy? I do. And could you show me which provision I don't have a copy.
talks about when these accrue? MR. HELMS: Paragraph 11 of the membership agreement,
I believe it is, specifically incorporates the articles and bylaws. The articles and by-laws at Article 2, Section 5 and
I've opened to page 2 -THE COURT: MR. HELMS: hand side. Thank you. -- it's Article 2, Section 5 on the left-
It says that, "If a member resigns or is terminated
at any time during the year, the fees and dues for the remainder of that fiscal year are immediately due and payable." THE COURT: Well, you see it says -- here's what it
It says, "will become -- will become immediately due and You haven't shown me something that says that Those are very different
payable."
they've accrued prior to that point.
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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 has. MR. HELMS: I can provide those to Your Honor, but I I didn't believe that was going to words. It says, "They will become due." So if something
becomes due because the member is terminated or resigns, that's not the same thing. MR. HELMS: Well, I guess I would tell you that a lot
of courts have said it is the same thing. THE COURT: Well, you haven't shown me a court that
have not as of this point. be a specific issue. THE COURT:
Oh, but that's -- I mean let's go over --
I mean that's what a bankruptcy determination is all about -not all about but in large measure is about. If your position
is that prior to termination, these amounts had accrued, okay, apart from the question of benefit to the estate, that's one set of facts; right? the hotel prior to. It's almost as if someone had stayed in But it's very different -- these words
that say it becomes due, that's just like anything else that when you terminate, you've got to pay everything that was owed and then it just becomes a prepetition claim like any other claim in connection with a breach. Here's the problem evidentiary hearing; right? it works. that I have. This is not an
I mean do we -- that's not the way
We don't have this set up as an evidentiary hearing. MR. HELMS: No, it is not.
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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 THE COURT: Right. So -- and the submission that I
have has taken a lot of doing on my part to really parse through and figure out what's what, which is not my responsibility frankly. So I think that I can hear Mr. Lennon argue on this or we can set it over for an evidentiary hearing and further briefing but we're down to 70,000 dollars. MR. HELMS: THE COURT: MR. HELMS: THE COURT: We are at 74,000. Right. That's correct. And I think that this is the crux. These
three items here -- I actually totaled them up -- these three items come to about 60,000 dollars. the dispute. make that up. So Mr. Lennon, why don't I let you have a chance? MR. LENNON: THE COURT: MR. HELMS: THE COURT: MR. HELMS: THE COURT: MR. LENNON: Sure. Thank you, Mr. Helms. You're welcome. Shall I give this back to you? Thank you. Thank you. Brian Lennon of Kirkland & Ellis on Your Honor, the first point that I That's kind of the crux of
There's probably a couple of others that help
behalf of the debtor again.
was going to make in response was that Best Western does have
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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 burden of proving its administrative expense. absolutely no evidence in the record. Now I do think that you could hold this over for an evidentiary hearing but I am not sure that that would do anything other than cause additional delay and waste time frankly. I think that if you do look at the by-laws, Section There's
5(b) is clear that "Any member may resign from the corporation at any time but if the member resigns or is terminated, fees and dues for the remainder of the fiscal year will become immediately due and payable." THE COURT: MR. LENNON: THE COURT: MR. LENNON: Right. To me -That's what I just read. Yes. To me, that means that they became
immediately due and payable on February 13 -THE COURT: MR. LENNON: THE COURT: MR. LENNON: Right. -- when the rejection order was entered. Right. And under the Bankruptcy Code, I think
it's pretty clear that those are prepetition rejection damages claims, general unsecured claims. Your Honor, just to take a look at the facts as they exist today, I think -- Your Honor entered the order on January 26, authorizing the rejection. That order contemplated a
rejection as of February 13, so that the debtors could use that
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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 time in order to close out their affairs at the property and wind down the Best Western Hotel. You know, the company did
pay all of the amounts due and owing before February 13, as administrative expenses, post-petition claims. Since February 13, there's been no ongoing relationship with Best Western. They're not using the emblems. Western on the website. All of the signs are down. There's no reference to Best
I think it would -- I don't see how
Best Western can prove that it's providing any benefits to the estate from February 13 through November 30, 2011. THE COURT: Well, I was -- I don't think -- I didn't
get to this with Mr. Helms but I don't think there's anything that actually falls into that bucket; is there? MR. HELMS: THE COURT: MR. HELMS: THE COURT: After February 13? Yes. No. Okay. So what we're talking about what I
zeroed in on before which is whatever became due and payable as of the rejection, there's nothing post-rejection. no -- there's nothing; right? MR. LENNON: Well, my understanding is that we are There's
current on everything that's owing as of February 13. THE COURT: Well, but you're not current on these
amounts that were billed on February 28. MR. LENNON: Which would be the portions of the annual
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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 fee running from February 13 -THE COURT: MR. LENNON: THE COURT: MR. LENNON: THE COURT: Correct. That --
-- through November 30. That's the crux of the dispute. Yes. And you've just read me the language that
I looked at before that said it becomes due and payable on the rejection. And Mr. Helms' position is that it somehow had In other words, was due and payable pre-
accrued before then.
rejection and therefore, qualifies as an administrative expense, right, because it was pre-rejection -- post-petition, pre-rejection and he's positing a benefit to the estate by having had the membership agreement in place during that time. So I think we're -- right? MR. LENNON: THE COURT: MR. LENNON: Yes. Are we -And to be clear, Your Honor, the 74,000
dollars, I think the debtors would not have a problem with that as a general unsecured prepetition claim -- general unsecured claim. THE COURT: admin claim. I think that -- I agree. But he wants an
He wants an admin claim for these amounts that My initial take
"became due and payable at the rejection."
reading that language, and I will give you one more chance to submit something, is that those are garden variety prepetition
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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 right? MR. HELMS: Right. rejection damage claims. You said that other courts have seen it differently. If you have some authorities, Mr. Helms, that you want to send to me, I'll take a look at them. I'm happy to take a look at
them but my reading of this which has been actually bolstered by actually seeing that language which I hadn't seen before now was that these are kind of classic rejection damage claims. You're looking quizzically, so I see that we're not seeing eyeto-eye. MR. HELMS: We're not because that's exactly the same On default, it's
language that you see in a promissory note. immediately due and payable. due and payable. THE COURT: MR. HELMS: THE COURT:
It's already owed but now it's
But this is in the context of -And that's the -This is in the context of a contract
rejection, a rejection of an executory contract. MR. HELMS: THE COURT: MR. HELMS: THE COURT: MR. HELMS: THE COURT: Correct. Right? But it was already a contract amount. No, but -It was already owed under that contract. You're -- well, but that's the question;
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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 this? THE COURT: That's the question. Why don't we do
We have some lead time before we get to plan Why don't you make an additional submission.
confirmation.
Mr. Lennon if the debtors want to file a brief, additional reply and then try to do it in a way that avoids the need for an additional evidentiary hearing because I think the evidence is all here. I think Mr. Helms, it's incumbent on you to kind
of pull the numbers out of your submission and tie them into whatever your arguments are. That would discharge your burden.
I don't think that you've discharged it yet. But why don't we leave it at that? I'll wait for your
submission and then I'll either give you a decision or Ms. Eisen will let you know when we're going to have further hearing. Acceptable? MR. HELMS: MR. LENNON: THE COURT: MR. ELMORE: Yes. Yes, Your Honor. All right. Your Honor? Okay. Yes?
Mark Elmore, Haynes and
Boone on behalf of Midland Loan Services. THE COURT: MR. ELMORE: Yes. Depending on what the court does with
these submissions, Midland's position, of course, is that the claim is against -THE COURT: MR. ELMORE: I understand. Yes, thank you.
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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 hearing. MR. LENNON: THE COURT: for confirmation. MR. LENNON: THE COURT: Thank you, Your Honor. Thank you. Yes. All right. I'll see you folks on the 23rd THE COURT: Yes. And my view and I don't think I need
anything more on this but since I'm going to carry the motion, I'm not going to definitively rule but my thinking currently is that you have a claim against your contract counterparty and not any of the other debtors. If you want to take another run
at it in your further submission, I'll certainly read it, Mr. Helms. MR. ELMORE: THE COURT: And we reserve our rights. Yes, thank you. All right. Mr. Lennon, I
think we're done for today. MR. LENNON: THE COURT: I believe so, Your Honor. It's a delightfully short Innkeepers
(Whereupon these proceedings were concluded at 2:44 PM)
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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 Second Fee Applications approved: Kirkland & Ellis 22 16 Second Fee Applications approved: Jeffries & Company 22 16 Second Fee Applications approved: Moelis & Co. 22 16 Second Fee Applications approved: Fried, Frank 22 16 Second Fee Applications approved: Morrison & Foerster 22 16 C-III Asset Management Motion stipulation subject to review of final version stipulation granted RULINGS Page 17 Line 4 I N D E X
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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 Motion for payment of administrative expenses - carried over 43 1 Motion for relief from stay adjourned to 6/23/11 RULINGS Page 19 Line 18 I N D E X
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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 Date: June 8, 2011 Veritext 200 Old Country Road Suite 580 Mineola, NY 11501 I, Linda Ferrara, 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
Linda Ferrara
LINDA FERRARA
______________________________________
Digitally signed by Linda Ferrara DN: cn=Linda Ferrara, c=US, o=Veritext Reason: I am the author of this document Date: 2011.06.08 11:04:25 -04'00'
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VERITEXT REPORTING COMPANY www.veritext.com

INNKEEPERS USA TRUST, ET AL.,

June 7, 2011 2:01 PM

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

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NICOLE B. HERTHER-SPIRO, ESQ.

DAVID M. NEFF, ESQ.

MICHAEL G. HELMS, ESQ.

DANIEL S. ALTER, ESQ.

MARK A. FINK, ESQ. (TELEPHONICALLY)

INNKEEPERS USA TRUST, ET AL.

listening to the Best Western argument.

me take appearances of those on the phone. MR. FINK:

Good afternoon, Your Honor.

I'm ready when you are. Your Honor, it

Thank you, Your Honor.

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INNKEEPERS USA TRUST, ET AL.

respect to this matter or how you think you'll be wanting to

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Parkins from Haynes and Boone for Midland.

But I think what we've talked about is something

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INNKEEPERS USA TRUST, ET AL.

We'll set objection deadlines, response deadlines

We just don't want to get sandbagged.

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INNKEEPERS USA TRUST, ET AL.

example, wasn't on our radar screen. having access to money.

The releases wasn't one of the issues

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INNKEEPERS USA TRUST, ET AL.

Good afternoon, Judge.

behalf of C-III Asset Management, LLC.

With regard to the

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Midland -- the waiver of the Midland guaranty claim.

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Series A shares that Grand Prix owns.

MR. BIENENSTOCK: THE COURT:

MR. BIENENSTOCK: THE COURT:

So that's not going to be our issue. Okay.

Similarly, it's not their issue what

Michael Helms, Your Honor, on behalf of

confirmation on the releases.

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the lift stay motion will go away. have such an agreement.

The motion has been pending for quite

If I don't agree to give the money,

UNIDENTIFIED MALE VOICE:

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