Case 13-42959 Doc 558 Filed 02/25/15 Entered...

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1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF TEXAS

2 SHERMAN DIVISION

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4 IN RE: ) BK. NO: 13-42959-BTR

5 )

6 COLOR STAR GROWERS OF )

7 COLORADO, INC. )

8 D E B T O R. )

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12 TRANSCRIPT OF PROCEEDINGS

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20 BE IT REMEMBERED, that on the 22nd day of September,

21 2014, before the HONORABLE BRENDA T. RHOADES, United States

22 Bankruptcy Judge at Plano, Texas, the above styled and

23 numbered cause came on for hearing, and the following

24 constitutes the transcript of such proceedings as hereinafter

25 set forth:

NATIONAL COURT REPORTERS (214) 651-8393

Case 13-42959 Doc 558 Filed 02/25/15 Entered 02/25/15 07:48:09 Desc Main Document Page 1 of 41

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

2 COURTROOM DEPUTY: Color Star Growers of

3 Colorado and Vast, Inc. Case 13-42959. Hearing to consider

4 final approval of debtors' disclosure statement and

5 confirmation of the debtors' proposed Chapter 11 plan; final

6 application for compensation filed by Gavin Solmonese, LLC;

7 final application for compensation and reimbursement of

8 expenses filed by Ray Urbanik; a final application for

9 compensation and reimbursement of expenses filed by Gardere,

10 Wynne, Sewell, LLP; application for compensation and

11 reimbursement of expenses for Simon, Ray, Winnikka, LLP,

12 special counsel.

13 THE COURT: Okay. Appearances.

14 MR. HELT: Good afternoon, Your Honor. Marcus

15 Helt on behalf of the debtors.

16 THE COURT: Okay.

17 MR. URBANIK: Good afternoon, Your Honor. Ray

18 Urbanik and Jay Ung for the Official Committee of Unsecured

19 Creditors.

20 THE COURT: Okay.

21 MR. KANE: Your Honor, John Kane and George

22 Barber on behalf of Regions Bank.

23 THE COURT: All right. Do we have some

24 telephonic appearances?

25 MR. DIEHL: Yes, Your Honor. Robert Diehl



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1 from Bodman on behalf of Comerica Bank.

2 THE COURT: Okay.

3 MR. FRIEDMAN: Good afternoon, Your Honor.

4 Daniel Friedman on behalf of MCG Capital Corporation.

5 THE COURT: Okay.

6 MR. WEITZ: Good afternoon, Your Honor. Wayne

7 Weitz with Gavin Solmonese.

8 THE COURT: Okay.

9 MR. SKILLMAN: Good afternoon, Your Honor.

10 Tim Skillman also with Gavin Solmonese.

11 MS. ARDEMAGNI: Good afternoon, Your Honor.

12 Leslie Ardemagni also with Comerica Bank.

13 THE COURT: Okay. Any other telephone

14 appearance?

15 All right. Let's take the rest of the appearances in

16 the courtroom.

17 MR. SIMON: Thank you, Your Honor. Craig

18 Simon on behalf of Simon, Ray & Winnikka.

19 THE COURT: Okay.

20 MS. ALEXANDER: Sherry Alexander with

21 Polsinelli on behalf of Bell, Nunnally, Martin & Gibson.

22 THE COURT: Okay. All right. Mr. Helt.

23 MR. HELT: Thank you, Your Honor. Today we're

24 here to approve four fee applications and the Chapter 11 plan

25 proposed by the debtors. The fee applications were filed by



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1 the Committee's professionals and the debtors' legal counsel.

2 One of the debtors' financial advisors, Schuler & Company,

3 had to pull its fee application and refile it for an October

4 14th hearing, because its fee application was not served on

5 creditors. The other financial advisor, Brad Walker, LLC,

6 will file its fee application tonight and also set it for a

7 hearing on October 14th. We've used both Schuler's final

8 numbers and Brad's final numbers for our presentation here

9 today. They're just not set for hearing.

10 THE COURT: Okay.

11 MR. HELT: There were no objections filed to

12 the fee applications. And there were two reservations of

13 rights filed in the plan. As I will explain later, one was

14 withdrawn. And the other, I believe, will be resolved or

15 mooted by what I think is pretty straightforward language in

16 the confirmation order.

17 As an intro for the Court. In the last nine months

18 this Court has seen and experienced a lot of how the sausage

19 was made in this case. And for that, many times I've

20 apologized to the Court. My goal always was to keep the case

21 clean for Your Honor, so you would not see the bickering and

22 the fighting between and among the five or six parties. But

23 you did. However, for today's hearings, I guess it may have

24 been a blessing in disguise. Because you've seen that,

25 you've now become familiar with the various parties and their



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1 agendas.

2 The familiarity allowed this Court to see how difficult

3 and contentious the case was, for the most part, throughout

4 the whole case. And as the Court knows, there were five to

5 six primary players in this case. One, the debtors; two,

6 Regions Bank; three, Comerica; four, MCG; five, the

7 Committee; and six is sort of a catchall of -- primarily made

8 up of all other state court parties, which mostly consist of

9 prior professionals and officers with the debtors. As best I

10 can tell, those six constituents, or six groups of

11 constituents represent every major constituency in this case.

12 Five of those six approve the plan. And the sixth represents

13 non-creditors of the estate. So they never even had the

14 opportunity to vote.

15 Before we talk specifics about the confirmation, I

16 wanted to give the Court, or remind the Court just a general

17 summary of the case. As the Court knows, the debtor entered

18 bankruptcy with ten nurseries and farms, approximately 600

19 employees, and approximately $57 million in secured debt and

20 $5 million of trade debt. From there, we -- the way we look

21 at the case, we kind of divide the case into three phases.

22 Phase one was getting into bankruptcy and selling the

23 tangible real and tangible personalty, which really consists

24 of the heavy equipment used in the operations. Phase two was

25 the wind down of the estates and businesses, addressing



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1 post-sale issues and collecting accounts receivable, and

2 trying to liquidate property and casualty insurance claims.

3 And then phase three was the investigation of the lenders and

4 others, the negotiation and consummation of the 9019

5 settlement, and the negotiation, solicitation, and

6 confirmation of the plan. All three phases were complex.

7 All three phases were contentious. And all three phases were

8 time consuming and expensive. Fortunately, we were able to

9 work through those challenges and provide a solution to exit

10 bankruptcy that has been overwhelmingly approved by all

11 constituents.

12 Let's talk generally about the plan. As the Court

13 knows, the plan is step two of a two-step process to exit

14 bankruptcy. Step one was the 9019 settlement approved by the

15 Court in July, and step two is the plan. Step one provides

16 the funding necessary to confirm the plan and fund the two

17 trusts that will investigate and prosecute the estate's other

18 causes of action for the benefit of all creditors. Under the

19 plan, all administrative expenses are either paid in full, or

20 reserved for -- paid at confirmation in full, or reserved for

21 alternative treatment, namely, the Committee's legal

22 professionals. They've agreed to defer approximately

23 $386,000. In addition, all causes of action of the debtors

24 are transferred to either a liquidation trust, or a

25 litigation trust. And the Liquidation Trustee will be



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1 Mr. Corky Sherman. And the Litigation Trustee will be

2 Mr. Jeff Mims.

3 As I said earlier, there were no objections filed to

4 the plan. There were two reservations of rights. One

5 reservation was filed by Barrier. And that reservation was

6 mooted by this Court's entry at docket number 499. And,

7 therefore, Barrier withdrew it with docket number 500. The

8 second reservation of rights was filed by Bell Nunnally to

9 address its concerns with the Litigation Trustee's counsel,

10 or proposed counsel, Lynn Tillotson. Litigation Trustee, as

11 the Court will know, will hold significant and potentially

12 valuable causes of action. And Lynn Tillotson doesn't want

13 to, or wants to preserve its rights to object to Lynn

14 Tillotson's investigation and/or prosecution of any causes of

15 action against Bell Nunnally.

16 So my proposed fix, Your Honor, is to put simple

17 language into a confirmation order that says, As counsel for

18 the Litigation Trustee, Lynn Tillotson will not investigate

19 or prosecute any cause of action of the Litigation Trust

20 against Bell Nunnally. I was shown other language, as I

21 stepped to the podium, that's similar in concept. And as I

22 read it, I didn't have a problem with it. The concept was

23 that Bell Nunnally wanted to preserve all of its rights to

24 object to seek disqualification of any counsel hired by the

25 Litigation Trustee to pursue causes of action against Bell



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1 Nunnally. So I think it makes sense to have Ms. Alexander

2 come up to the podium and read the language that she wants

3 and then we'll incorporate that into the confirmation order.

4 The purpose, Your Honor, is to make sure everybody in

5 the courtroom is okay with the language.

6 MS. ALEXANDER: Your Honor, just so you're

7 aware, Lynn Tillotson has specifically agreed, because of its

8 prior representation of Bell Nunnally, that it would not

9 evaluate, investigate, or pursue, or compromise claims

10 against Bell Nunnally, which would include its lawyers, and

11 specifically Nicki Gibson. So the language that we had

12 suggested, we provided two different versions. But one of

13 them is, Bell, Nunnally & Martin, LLP and Nicki Gibson,

14 collectively Bell, Nunnally & Martin, reserve the right --

15 reserve their rights as set out in Bell Nunnally & Martin,

16 LLP and Nicki Gibson's reservation of rights concerning first

17 amended joint Chapter 11 plan of liquidation and litigation

18 trust agreement, docket number 495.

19 And that's what we had proposed.

20 My understanding is Regions' counsel just wants to add

21 after, reserve their rights, and then add, if any. But there

22 doesn't seem to be any dispute. Because Lynn Tillotson has

23 already agreed they will not evaluate, or investigate, or

24 pursue, or compromise any claims against Bell Nunnally.

25 THE COURT: Okay. So we're clear, the -- to



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1 the extent any claims exist against Bell Nunnally, those

2 claims are going into the Litigation Trust. The Litigation

3 Trust can hire anybody other than Lynn Tillotson. And if

4 they hired somebody that you have an objection to and you

5 have a right to object, you can object wherever that

6 litigation happens to be pending. Correct?

7 MS. ALEXANDER: That's correct. And it

8 wouldn't be just Bell Nunnally. It's Nicki Gibson, as well.

9 But she's just one of the lawyers for Bell Nunnally.

10 THE COURT: Okay. All right.

11 MR. BARBER: Your Honor, if I may, it's George

12 Barber on behalf of Regions Bank.

13 We did not specifically agree to what Mr. Helt just

14 annunciated in the court, kind of wrapped into the Court's

15 understanding. We just simply agree to the reservation of

16 rights. If this issue ever becomes an issue to Bell Nunnally

17 or Ms. Gibson, they reserve the right to -- any rights they

18 have to challenge whatever counsel has employed, whether it's

19 Lynn Tillotson or anybody else. So we've not agreed we are

20 or are not going to hire whoever -- I say, we, the Litigation

21 Trust. So I would just ask that the Court permit the parties

22 to insert the language into the confirmation order that just

23 simply preserves their rights to later raise an issue, if it

24 becomes an issue.

25 THE COURT: Okay.



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1 MR. HELT: Your Honor, I thought that's what

2 we were agreeing to. That's why we read it into the record.

3 THE COURT: Thank you.

4 MR. HELT: All right. With that add, Your

5 Honor, I don't believe there are any remaining objections to

6 the plan.

7 Let's talk about the service of the plan. In an

8 attempt to expedite confirmation, this Court conditionally

9 approved the disclosure statement filed by the debtors and

10 the solicitation order. That order is on docket 434. In

11 that same order, the Court also approved what we call a

12 solicitation package, which contained the disclosure

13 statement with exhibits, including the plan, the

14 solicitations order, an approved ballot, a confirmation

15 hearing notice, and a pre-address return envelop for use in

16 completing the ballots.

17 The disclosure statement and plan were served on the

18 creditors on August 6th, 2014. And the solicitation package

19 was also served on the creditors on August 9th, 2014. That

20 services is represented by certificates of service 434 and

21 436. A solicitation letter with a ballot and certain plan

22 excerpts from the Committee was also served on creditors on

23 August 19th and 20th, 2014. And that service is represented

24 by certificates of service 446 and 457. That letter was

25 approved by this Court in docket number 505. The



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1 solicitation package, the Committee letter, and notice of the

2 confirmation hearing was served as requested on other

3 creditors who wanted more service. And that was done, you

4 can see that on certificates of service 458, 465, 468, and

5 484.

6 The debtors' first plan supplement was served on

7 September 8th. And that's certificate of service 487. And

8 the second plan supplement was served on September 19th,

9 which was Friday. The second plan supplement identified the

10 identity of the Litigation Trustee and the final Litigation

11 Trust agreement and the final Liquidation Trust agreement.

12 Let's talk about votes for the plan. The votes cast on

13 the plan were sent to Upshot, as approved by this Court.

14 Upshot tabulated the votes and filed a certificate of

15 tabulation with this Court. That's docket number 506.

16 Your Honor, would it be helpful if I told you the

17 exhibits in the binders, if you want to follow?

18 THE COURT: You may.

19 MR. HELT: That's Debtors' Exhibit 4.

20 THE COURT: Okay.

21 MR. HELT: And as a summary, there were eight

22 voting classes, eight potential --

23 THE COURT: Hold on. Debtors' Exhibit 4?

24 MR. HELT: COrrect, Your Honor.

25 THE COURT: Okay. Hold on. Exhibit 4 has a



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1 fee application cover sheet.

2 MR. HELT: Maybe that's the hearing binder.

3 I'm talking about the exhibit binder.

4 May I approach, Your Honor?

5 THE COURT: Sure. There's a hearing binder

6 and there's an exhibit binder?

7 Okay. This looks like the hearing binder.

8 MR. HELT: Yeah. That's probably the exhibit

9 binder right here.

10 THE COURT: Yeah. It's this one right here,

11 right?

12 MR. HELT: No, probably this one.

13 THE COURT: Well, that one starts with 13.

14 This one is 1 through 4.

15 Thank you. Okay. All right.

16 MR. HELT: Okay. As shown from the plan and

17 the tabulation summary, there were eight classes that can

18 vote. Six classes voted. Two classes did not. And that's

19 because we think -- we're not sure -- we didn't think there

20 were any creditors in those two classes. All six voting

21 classes voted to accept the plan. There were 111 votes cast

22 on the plan. Of those 111 votes, 106 were cast to accept the

23 plan, representing $104,332,439.06 in alleged voting claims.

24 There were five votes to reject the plan, representing

25 $89,131.89 of alleged voting claims. The voting results can



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1 be seen on the Court's docket at number 506 in the Debtors'

2 Exhibit 4.

3 In addition, Your Honor, as further evidence to support

4 confirmation, we filed the declaration this morning of Brad

5 Walker. And if the Court needs a copy, I have one.

6 THE COURT: I think I can -- is it filed of

7 record, you say?

8 MR. HELT: Yes. I can hand you one, Your

9 Honor.

10 THE COURT: That's okay. I have it here.

11 Hold on.

12 Affidavit filed by Color Star, document 414 -- 514 on

13 the docket?

14 MR. HELT: Yes, Your Honor, 514.

15 THE COURT: Okay. Is that one of your

16 exhibits here?

17 MR. HELT: It is not an exhibit. Mr. Walker

18 is in the courtroom and we brought ten copies.

19 THE COURT: Okay. Are you offering the

20 declaration?

21 MR. HELT: Yes, we will offer the declaration.

22 THE COURT: Okay. Any objection?

23 The declaration of Mr. Bradford C. Walker, which is

24 docket number 514 on the Court's docket, is admitted.

25 Okay.



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1 MR. HELT: As additional evidence to support

2 confirmation, I ask the Court to take judicial notice of the

3 case relying on her experience of how the sausage was made

4 and all other challenges --

5 THE COURT: You want me to take judicial

6 notice of how the sausage was made, or do you want me to take

7 as evidence all the other hearings --

8 MR. HELT: Maybe take as evidence all of the

9 other hearings, Your Honor.

10 THE COURT: Any objection?

11 So ordered.

12 MR. HELT: I would also order the Debtors'

13 Exhibits 1 through 23.

14 THE COURT: Okay. Any objections?

15 Okay. Exhibits 1 through 23, then, are admitted.

16 MR. HELT: So now let's talk about fee

17 applications set today. There were four applications; two

18 filed by the debtors' legal professionals and two filed by

19 the Committee professionals. Schuler and Brad Walker did not

20 file their applications in time to be set on today's docket.

21 They will have their hearings on October 14th. Debtors'

22 professionals who filed applications were the lawyers Gardere

23 Wynne and Simon, Ray & Winnikka as special counsel to the

24 debtor. Both of the Committee's professionals filed

25 applications. There were no objections filed to the fee



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1 applications. So for each fee application, I would suggest

2 that each professional present its application.

3 THE COURT: Okay.

4 MR. HELT: For the Gardere application, Your

5 Honor, I've prepared a chart of the fees and a proffer of my

6 testimony. I would propose to read my proffer and then

7 discuss the chart for Your Honor.

8 THE COURT: Okay. Where is the chart?

9 MR. HELT: May I approach?

10 THE COURT: You may.

11 Okay. This is just demonstrative; is that correct?

12 MR. HELT: Yes, Your Honor.

13 THE COURT: Okay. Let's mark this as Gardere

14 1, just so it's marked for identification.

15 Okay. You may proceed with your proffer.

16 MR. HELT: Thank you, Your Honor.

17 My name is Marcus Helt. I'm an attorney at the law

18 firm of Gardere, Wynne & Sewell. I am more than 21 years old

19 and have personal knowledge of the facts. I'm a partner at

20 Gardere, Wynne & Sewell. I joined Gardere, Wynne & Sewell in

21 2005. I've been a lawyer since 2000. I have experience in

22 bankruptcy cases of all shapes and sizes, as well as complex

23 litigation involving non-bankruptcy and bankruptcy issues.

24 As part of my bankruptcy practice, I have represented

25 Chapter 11 and Chapter 7 debtors, creditors, other parties in



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1 interest and Chapter 11 and Chapter 7 Trustees in all aspects

2 of their job. I'm generally familiar with the rates charged

3 by similarly experienced attorneys and law firms for

4 comparable cases and the tasks involved in the cases.

5 I've been involved in these cases since December 13.

6 And based on my involvement in the case, my personal

7 interaction with the Gardere lawyers, and my review of the

8 invoices, the Gardere invoices submitted with the attached

9 fee app, I'm aware of the things that have happened in these

10 cases and generally the time we've spent representing the

11 debtors in these cases, and who was spending the time.

12 Attached to the fee application is Exhibit A, copies of

13 the Gardere invoices. I've reviewed the invoices. They were

14 prepared under my supervision and control and reviewed by me

15 and other Gardere lawyers who were involved in these cases.

16 The invoices are accurate descriptions of the time Gardere

17 spent on these cases and the costs that Gardere, Wynne &

18 Sewell incurred. The invoices were prepared in the regular

19 course of business of Gardere by knowledgeable attorneys and

20 staff, as part of Gardere's regularly conducted business

21 activity. The invoices were prepared at or near the time of

22 the events or the conditions recorded. It's the regular

23 practice of Gardere to create to keep invoices like this

24 submitted as Exhibit A.

25 The fee application is a standard fee application. It



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1 contains a listing of every billing professional incurred

2 time on these cases during the application period. And in

3 connection with the fee application, I've considered the

4 factors set forth in the Johnson v. Georgia Highway Express.

5 Gardere spent 1,888 hours during the fee application period.

6 We incurred time after the fee application period to address

7 Barrier issues, discovery issues, and plan at confirmation

8 issues that came up. That time incurred after the

9 application period was about 98 hours, representing a total

10 of about $36,000. That $36,000 plus an additional $5,000

11 from pre-September time, represents $41,271 that will be a

12 voluntary reduction by Gardere from payment.

13 As I arrived at the courthouse today, Your Honor, I

14 understand that Mr. Urbanik wants to put on the record a

15 reservation of rights with respect to Gardere's receipt of

16 pre-bankruptcy transfers. And so I think, I guess in

17 conjunction with that, I want to put a reservation of rights

18 that I may come back later to seek allowance of the $41,000

19 as an offset.

20 Novelty and difficulty of issues. This case presented

21 some difficult issues in the light of these expedited sales

22 and the auction process at the beginning of the cases.

23 Negotiations of the forms of the bill of sale with three

24 purchasers; document preservation issues post-sale;

25 investigation of the debtors' pre-petition secured lenders of



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1 potential claims the estates may have; lengthy settlement

2 discussions that lasted over six weeks; state court

3 litigation related to these cases; confirmation of the plan;

4 and issues related to the debtors' former investment bankers.

5 The required skills of bankruptcy professionals -- but also

6 the case required the skills of bankruptcy professionals, but

7 also required financial and analytical skills beyond the

8 basic legal skills to resolve these issues and analyze a way

9 out of bankruptcy.

10 This employment did not preclude other employment, but

11 did require a significant amount of time. The fee charged

12 here was neither fixed nor contingent, other than the

13 contingency of allowance by the Court and the availability of

14 assets for payment. Gardere and the debtors had to move

15 quickly to secure the use of cash collateral for operations

16 and to sell the debtors' assets on an expedited basis.

17 Additionally, Gardere worked to to investigate claims

18 quickly, resolve those claims, and drive a global resolution

19 in these claims with our two-step process.

20 The exhibits attached to the application reflect the

21 services performed by Gardere's attorneys in connection with

22 all facets of the case. And the information contained in

23 these exhibits supports the reasonableness of the requested

24 fees in light of the results obtained?

25 Gardere's attorneys have regularly undertaken



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1 significant representations in all aspects of the bankruptcy

2 cases throughout the United States. These cases were not

3 undesirable, but they were difficult and had issues that

4 Gardere's attorneys are trained to address. Gardere's

5 relationship began in the middle of September, 2013. The

6 fees requested by Gardere are in line with fees awarded in

7 proceedings of similar scope for the services rendered.

8 In the aggregate, request for fees and expenses during

9 the application period can be seen on the chart that I

10 uploaded to -- that I handed to the Court. If Your Honor

11 wants to turn to the chart, we can kind of walk it through.

12 THE COURT: Okay.

13 MR. HELT: The 731,724 was the amount of fees

14 listed in the fee applications and then there was $10,000,

15 10,637.04 of expenses, for a total of 742,361.04. Of the

16 731, Your Honor, 10,000 was an estimate that we expected to

17 spend post-filing of the fee app. So we back that out to get

18 an actual fee number. That actual fee number was 721,724,

19 the expenses remained the same at 10,637.04 for a total of

20 732,361.04. We then added the fees that we've incurred since

21 filing the fee app. And those are 36,271. For a total fees

22 and expenses of 757,995 and expenses of 10,374. We deducted

23 out the payments that we've received pursuant ot the first

24 application, which were 271,542 for fees and 4,014.36 for

25 expenses, for a total received of 275,556.36. We then



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1 further reduced our voluntary reduction of 41,271 for a total

2 amount to be paid, upon approval from the Court, of 445,182

3 and expenses of 6,622.68, for a total of 451,804.68.

4 And as I said, as I came to the courtroom, I was told

5 that the Committee, or the Liquidating Trust wants to

6 preserve all rights to challenge Gardere's preference

7 exposure. As the Court may or may not eventually learn, we

8 don't think we have any preference exposure. But they want

9 to put a reservation of rights in there. We begrudgingly

10 said that they could. However, we wanted to reserve our

11 rights to seek further allowance of the $41,000 voluntary

12 reduction as a complete offset. And I understand from Mr.

13 Urbanik that that's fine.

14 MR. URBANIK: Your Honor, Mr. Helt stepped the

15 Court through kind of the situation here. The plan, as you

16 know, creates two trusts; the Liquidation Trust and the

17 Litigation Trust. The Liquidation Trust has a duty of claims

18 objections and avoidance actions. And both trusts have

19 boards of advisors. And the advisory boards are essentially

20 made up of the constituencies; Regions, Comerica, MCG, and

21 the Unsecured Creditors. But these parties having voting

22 power based on their pro rata share of the total claim pool,

23 which means that Regions and Comerica have essentially a

24 majority position on both boards.

25 About ten days ago, we were advised that Gardere may



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1 have received payments which could be subject to avoidance.

2 There was a concern that a final fee application could have a

3 preclusive effect of a possible -- you know, such claim in

4 the future. So about a week ago we began discussions with

5 Gardere about looking at payments pre-bankruptcy don't have

6 the review completed yet. And that's why we're here on this

7 reservation of rights. Nothing against Gardere. Fantastic

8 law firm. We've enjoyed working with Gardere very much in

9 the case. And Marcus and Evan have been a huge help in

10 driving a settlement. So we support the fee application. We

11 do request the reservation. And we're fine with letting them

12 use as a defense of any claim sort of a voluntary reduction

13 of fees. So I concur with what Mr. Helt is suggesting. And

14 that's a situation, Your Honor, regarding this matter.

15 It is sort of an awkward situation. We are not yet --

16 we don't have a plan confirmed yet. But our firm will be

17 counsel to the Liquidation Trust and the Trustee will be

18 Mr. Sherman. So we are making the statement today, sort of

19 during the interim period, I guess you would say, prior to

20 plan confirmation and the actual formation of the trusts.

21 If Mr. Barber wants to add anything, he can do so.

22 THE COURT: Does anyone else wish to be heard?

23 MR. BARBER: Your Honor, I would just say I

24 think that's a fine fix. I think there was just some

25 information that the parties needed to exchange so they could



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1 analyze things. And however it turns out, it turns out. But

2 I think this fix is a good idea.


4 Does anyone else wish to be heard with respect to the

5 fee application of Gardere?

6 All right. Let's move to the next one.

7 MR. HELT: Okay, Your Honor. Just for the

8 record, we -- the information that was requested was actually

9 contained in the statement of financial affairs that was

10 filed on January 28th. So I just wanted to throw that in.

11 We -- so in summary, Your Honor, it's my opinion that

12 Gardere's work related to the fees and expenses was

13 reasonable and necessary, under the circumstances. It's also

14 my opinion that Gardere's requested fees and expenses are

15 within the range of reasonableness for comparable attorneys

16 in comparable cases in the Eastern District of Texas and the

17 Northern District of Texas. It's also my opinion that the

18 services provided and the expenses incurred by Gardere's --

19 Gardere provided a direct, material, and tangible benefit to

20 the bankruptcy estates here.

21 So with that, that concludes my proffer.

22 THE COURT: Thank you. All right. Let's turn

23 to the next application.

24 MR. SIMON: Good afternoon, Your Honor. Craig

25 Simon with the law firm of Simon, Ray & Winnikka, special



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1 conflicts counsel for the debtors.

2 With the Court's permission, rather than going through

3 a lengthy proffer, I would ask the Court to accept the

4 statements made in our fee application as a proffer.

5 Is that acceptable to the Court?

6 THE COURT: Does anyone object to that?

7 All right. The Court will accept your -- the

8 statements in your application as your proffer.

9 MR. SIMON: Thank you, Your Honor. And I

10 would also note that our invoices in the case are attached as

11 an exhibit to our fee application. I would ask that the

12 Court accept those as evidence in connection with our fee

13 applications. They're Exhibit A to our final fee

14 application.

15 THE COURT: Okay.

16 MR. SIMON: Your Honor, I'll be very brief.

17 Our firm played a very small, but I think an important role

18 in this case. We were conflicts counsel for the debtor

19 engaged to represent the debtors in connection with

20 negotiating recoveries on their insurance policies with

21 Lexington Insurance Company. Through our efforts, we were

22 able to assist the debtors in achieving about a little over

23 $2 million in recoveries on their insurance policies. The

24 Court has approved two stipulations in connection with those

25 recoveries. One that was approved in April, on April 16th



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1 and the second on July 22nd. Each one was approximately $1.1

2 million of recoveries.

3 Our firm spent, in total, 56.35 hours and our fees and

4 expenses, we had $69 in expenses. Our fees and expenses

5 total $21,011.50. And we would respectfully ask for the

6 Court's approval. And I'd be happy to answer any questions

7 the Court might have.

8 THE COURT: I guess from a success perspective

9 or a results perspective, you've got the best percentage

10 going, right?

11 MR. SIMON: We like to think so, Your Honor.

12 THE COURT: Okay. Anyone else wish to be

13 heard with respect to the fee application of the Simon firm?

14 All right. I'm just going to approve that right now.

15 MR. SIMON: Thank you, Your Honor.

16 THE COURT: And if you want to be excused,

17 you're welcome to be excused.

18 MR. SIMON: Thanks very much.

19 THE COURT: Thank you, sir.

20 Will you -- is Mr. Helt going to submit the order, or

21 who is going to submit my order?

22 MR. HELT: I can do that, Your Honor.

23 THE COURT: Thank you, Mr. Helt.

24 All right.

25 MR. URBANIK: Good afternoon, Your Honor. Ray



25

1 Urbanik for the Official Committee of Unsecured Creditors.

2 Your Honor, I apologize. I didn't do the exhibits on a disk.

3 I handed Ms. Rasco two paper -- two binders.

4 And in the binder, I'd like to first present the final

5 application of Gavin Solmonese, financial advisor for the

6 Official Committee of Unsecured Creditors. And in our

7 binder, that is Tab Number 4.

8 THE COURT: Okay.

9 MR. URBANIK: Your Honor, the firm of Gavin

10 Solmonese acted as financial advisor to the Committee and

11 played a key role in assisting the Committee achieve the

12 results that were obtained in this case. The firm of Gavin

13 Solmonese has extensive experience in being -- acting as a

14 financial advisor in bankruptcy cases throughout the United

15 States. This was a difficult -- Your Honor, no objections

16 have been filed to the Gavin Solmonese application.

17 The total fees incurred by the firm were $147,051.25.

18 The firm incurred expenses of $4,538.08 for a total of

19 151,589.33. There was a previous amount paid of

20 approximately 16,000. Your Honor, the firm has agreed

21 actually to take less than the 136 shown on the front page of

22 Exhibit 4. By way of an agreement that we reached at the

23 time of the settlement, Gavin Solmonese has accepted to take

24 a remaining payment of 114, 685, instead of the 136,019.33.

25 THE COURT: Okay.



26

1 MR. URBANIK: So that's 114,685. Gavin

2 Solmonese will not defer any fees. They'll be paid out of

3 the funds from the settlement agreement.

4 Your Honor, for the financial advisors, this was a very

5 difficult engagement, as it was for us, as well. The

6 Committee got a very modest carve out for the nature of the

7 work that was needed for this case. The case had very time

8 intensive matters the Committee had to conduct. And

9 everything was either on an expedited and sometimes emergency

10 basis.

11 THE COURT: Welcome to our court. Apparently

12 everything is an emergency around here, lately.

13 MR. URBANIK: Sometimes that's good. And I

14 think here we had some good results, Your Honor.

15 The firm was a huge help, especially in connection with

16 our -- looking into claims and causes of action of the

17 estate. The firm agreed to take it this long without any

18 retainer. There was just, as with us, a large risk of

19 non-payment. Our firms essentially self-funded the work,

20 which is tough to do when you have, you know, a lot of

21 parties in the case and a lot of things to look at.

22 Your Honor, the Committee believes that the fees were

23 reasonable. And we would ask that they be approved.

24 THE COURT: Okay.

25 MR. URBANIK: And on the front of this,



27

1 Mr. Weitz and Mr. Skillman, in case I missed anything, or

2 they would like to add anything, or if the Court has any

3 questions.

4 THE COURT: Does anyone wish to make any

5 statements or provide any evidence with respect to the Gavin

6 Solmonese application?

7 MR. SKILLMAN: Your Honor, Tim Skillman for

8 Gavin Solmonese. I don't have any comments. Thank you.


10 All right. I've reviewed the application of Gavin

11 Solmonese. And given that they're taking approximately a 14

12 percent cut, the Court finds that the fees and expenses are

13 reasonable and the Court will approve the fees as reduced on

14 the record today.

15 MR. URBANIK: Thank you, Judge.

16 MR. SKILLMAN: Thank you, Your Honor.

17 THE COURT: All right. Mr. Urbanik, you'll

18 submit the order?

19 MR. URBANIK: Yes.


21 MR. URBANIK: Your Honor, next I'd like to

22 present the fee application of my firm, Munsch Hardt.

23 THE COURT: Okay.

24 MR. URBANIK: It actually is part -- is in two

25 filings. In our exhibit book, Tab 2 is the second and final



28

1 application. And then we did a supplement to the actual --

2 the second and final was docket 466 filed on August 29th and

3 the supplement was filed September 17th.

4 THE COURT: Okay.

5 MR. URBANIK: We did that because we wanted to

6 have our fees approved today and get paid as soon as

7 possible. And this was probably the only way, I guess, to

8 capture some time that's lost due to the notice periods.

9 The two filings collectively seek approval for Munsch

10 Hardt's fees in this engagement. And, Your Honor, it does

11 include the ad hoc period that began January 6th. The total

12 fees that we're requesting are $754,156.50 and expenses of

13 $11,901.37 for a total of 766,057.87. Of that amount we've

14 been paid $59,430. The balance remaining is $706,627.87. We

15 reduced our bills prior to putting them in -- attaching them

16 into the application by approximately $33,000. The total

17 hours were 1,847. The blended rate, based on my calculation,

18 is about $408 per hour.

19 The case was difficult, Your Honor, as I noted earlier.

20 And there was substantial risk of non-payment and a very,

21 very modest retainer. We worked hard. We worked with the

22 parties. It was a tough haul. But we think we achieved a

23 desirable result for creditors, and particularly the

24 unsecured creditors.

25 Because of the structure of the settlement, we're not



29

1 being paid all these fees at this time. We're getting a

2 portion now, we're deferring a portion. The numbers are a

3 little bit in flux, because of some unexpected priority tax

4 claims and priority wage claims. So, essentially, Your

5 Honor, at this time Munsch Hardt will be paid 335,000 less --

6 335,317 less 13,770 which will be escrowed until the

7 resolution of two wage claims; the wage claims of David

8 Thomas and Tina Hartman. If those claims are allowed, that

9 amount will be added to the deferred portion. If those

10 claims are disallowed, Munsch Hardt can receive the payment

11 of the $13,770.

12 Under an agreement we reached with the Bank, some small

13 priority tax claims of roughly $1,300 will be paid

14 intermediately out of the Bank's refunded monies being held

15 by the debtor. Under the plan, all priority claims are

16 supposed to be either paid or reserved at confirmation. So

17 this resolves that issue. So the exact number of the tax

18 claims is 1,357.62. And, again, the two wage claims are a

19 total of $13,770.

20 Your Honor, we don't have any objection to the fees.

21 In my papers I, I think, you know, bluntly laid out the

22 challenges we had in this case. We have agreed to defer,

23 which is not always a desirable thing. And I have a lot of

24 pressure from people at my office on this deferral. But it

25 was the only way to get the plan settlement done. Our firm



30

1 will be counsel to the Liquidation Trustee. And, hopefully

2 through work that's performed post-confirmation, we'll have

3 some recovery on the balance that's not paid at this time.

4 THE COURT: Okay. So tell me about how it

5 will get paid and when it will get paid.

6 MR. URBANIK: Well, it will be paid from

7 recoveries on avoidance actions. A portion of the funds will

8 come from the Litigation Trust. There's an ability to seek

9 more from the Litigation Trust if the Liquidation Trust is

10 not successful. And there's also another lawsuit, possibly,

11 against a third party involving the real estate transaction.

12 So the Liquidation Trust, Liquidation, Mr. Sherman's Trust,

13 has a, you know, an initial obligation of these funds to pay

14 to my firm.

15 THE COURT: From the Liquidation Trust?

16 MR. URBANIK: Liquidation, yes.

17 THE COURT: Okay. How much money is in the

18 Liquidation Trust to make payments to anybody?

19 MR. URBANIK: Well, it has an initial funding

20 for costs of the trust. For example, for Trustee's fees, for

21 my firm's fees to begin looking at the avoidance actions and

22 handling claims objections. But that claim, you know, it's

23 not a large amount. It's $75,000. And that will be, I'm

24 sure, eaten up in fees; both the Trustee, us, tax preparers.

25 So the amount we're deferring is probably all going to have



31

1 to come from recoveries on litigation.

2 THE COURT: Okay. This is what I'm trying to

3 understand, because I'm a little bit confused about this.

4 The Liquidation Trust, not the Litigation Trust, the

5 Liquidation Trust is going to have the obligation to pay the

6 deferred fees, correct?

7 MR. URBANIK: Yes, Judge.

8 THE COURT: Okay. But it's going to get paid

9 out of collections from the litigation; if there is one?

10 MR. URBANIK: Avoidance actions, yes, Judge.

11 THE COURT: Okay. So avoidance actions are --

12 proceeds of the avoidance actions are going to go into the

13 Litigation Trust, isn't it? No?

14 MR. URBANIK: Avoidance actions are all

15 liquidation. Litigation Trust will be the Bell Nunnally, the

16 Denver accounting firm and Barrier --

17 THE COURT: Okay.

18 MR. URBANIK: Litigation is Mr. Mims. And

19 likely Lynn Tillotson is going to be counsel for some of the

20 defendants.

21 THE COURT: Okay. But the avoidance actions

22 are going into the Liquidation Trust, not into the Litigation

23 Trust; is that correct?

24 MR. URBANIK: Yes, Judge.

25 THE COURT: Okay. And so based on the funding



32

1 of the Liquidation Trust at this time, there's still a risk

2 of non-payment to you --

3 MR. URBANIK: That's correct.

4 THE COURT: -- but your client -- your firm,

5 is prepared to take that risk; is that correct?

6 MR. URBANIK: That's how it is.


8 Mr. Barber.

9 MR. BARBER: Your Honor, just two points of

10 clarification for the record.

11 Both trusts actually get avoidance actions. The

12 Liquidation Trust gets all of the Chapter 5s, with the

13 exception of certain Chapter 5s as to certain defendants that

14 will be defendants in the Litigation Trust. So the

15 Litigation Trust will get all causes of action against

16 certain defendants.

17 THE COURT: Certain defendants being Bell

18 Nunnally and --

19 MR. BARBER: Exactly, Your Honor, Barrier and

20 the accounting firm.

21 THE COURT: Okay.

22 MR. BARBER: So there is a little bit of a

23 split of Chapters 5s, but most of them are in the Liquidation

24 Trust. Also, there's a limited spill over from the

25 Liquidation Trust to the Litigation Trust to pay



33

1 Mr. Urbanik's fees. It's very limited and it's set forth in

2 the settlement documents. So the settlement documents do

3 actually speak to that issue. So there's not a full -- a

4 full pay over by the Litigation Trust.

5 THE COURT: All right. But there's still a --

6 MR. BARBER: Risk of non-payment.

7 THE COURT: -- significant risk of non-payment

8 at this time, right?

9 MR. BARBER: Yes, Your Honor.

10 THE COURT: All right.

11 MR. URBANIK: Your Honor, we wanted to get the

12 settlement done. And this was the only way to get it done.

13 And it's not the ideal situation. Other firms did not want

14 to defer. So we agreed to get this deal done, to make this

15 sacrifice. And it's not easy. But the work in the case was

16 enormous. It was difficult. It was challenging as they

17 come. And you saw it. You didn't see all of the behind the

18 scenes things, but it was a dozy. So, Your Honor, with that,

19 I'd like to -- numbers, I'll have to work with

20 Mr. Barber on the order. But we do have that sort of one

21 piece of it we have to handle regarding the employee wage

22 claims so they can at least be escrowed today for plan

23 confirmation. But we'll work all that out.

24 THE COURT: Okay. Who's escrowing?

25 MR. BARBER: Your Honor, if I may speak to



34

1 that.

2 So there were some priority claims that were identified

3 very late that were not really dealt with in the settlement.

4 And so what we -- we reached agreement that a portion of

5 those priorities, the amount that Mr. Urbanik specified,

6 about $13,000, or so, will be escrowed out of the money that

7 the debtors have to pay professional fees. And they'll raise

8 whatever objections they have, depending on allowance of

9 those claims, any leftover of that will be paid to

10 Mr. Urbanik's firm as part of their recovery of their fees.

11 The $3,000, I think Mr. Urbanik totaled it up. I've not seen

12 all of the claims, but I'm told there is three small tax

13 claims, each of which is a few hundred bucks that total

14 13,000 -- I'm sorry, $1,357.62. We have agreed that that can

15 be paid out of what the lenders have set aside in the

16 settlement to pay admins on the way out the door, certain

17 admins. We've agreed to pay that amount out of the admin, so

18 that priority claim will be paid.

19 THE COURT: Okay. My question is, if it's

20 getting quote/unquote, escrowed, who is escrowing it? Where

21 is the money?

22 MR. BARBER: I think the debtors have the

23 money, Your Honor, until such time as --

24 THE COURT: So mechanically, is there going to

25 be a separate account set up with this 13,000 and change in



35

1 it, or is it just simply going to be reserves, so on the

2 books it's going to be set aside?

3 MR. HELT: I'm okay if we want to escrow it at

4 Mr. Urbanik's firm, or Mr. Barber's firm, as well, if that

5 makes them feel better.

6 MR. BARBER: We don't need to be in the middle

7 of it, Your Honor. It can be escrowed at Mr. Urbanik's firm

8 in his trust account and he can provide a subsequent

9 accounting to the Court on behalf of the Liquidation Trust

10 whatever comes of that 13,000.

11 MR. HELT: I think the thought was the

12 Liquidation Trust would have to establish its own account.

13 There's some money that will spill over to it. And then when

14 they --

15 THE COURT: What I'm trying to understand,

16 guys, is the tax ramifications of the settlement funds.

17 There's tax reporting obligations and such, when you put

18 money into a separate account for -- where there's a disputed

19 ownership. And I'm kind of wondering, are you creating that

20 kind of issue, or are you just going to leave the money with

21 the debtor and then the debtor can pay it out, but the debtor

22 is supposed to hold the funds until it gets paid. Do you

23 understand the question I'm asking?

24 MR. BARBER: Your Honor, I think the issues

25 resides with the $13,000 that Mr. Urbanik's firm will get if



36

1 and when that time comes. The $1,300 that we've committed to

2 will come out of money we've set aside, so it will be paid

3 like that. It's done.

4 THE COURT: Right. I understand that. It's

5 just the $13,000. Are we going to have kind of tax reporting

6 obligations? Are we creating some for Mr. Urbanik's firm, or

7 are you simply going to -- what are we doing? That's what I

8 want to understand.

9 MR. URBANIK: Your Honor, we haven't really

10 checked down. If the plan is confirmed, there is some

11 immediate funding of two trusts. Litigation Trust gets quite

12 a bit of funds for its experts. The Liquidation Trust also

13 gets some funding when the plan's confirmed. So the monies

14 will come from the debtor. We --

15 THE COURT: Go into the --

16 MR. URBANIK: The Liquidation Trust, along

17 with the other monies it's getting from the plan settlement.

18 THE COURT: Okay. And the money will just be

19 set aside, at least on the books and records of the

20 Liquidation Trust for the payments, whenever the claims are

21 ultimately allowed?

22 MR. HELT: That's right, Your Honor.

23 MR. BARBER: That's fine, Your Honor. They're

24 getting 75,000 --

25 THE COURT: Good. Good. Okay.



37

1 MR. HELT: That's what I was explaining,

2 there's an initial funding requirement of the Liquidation

3 Trust. And so we would just add the 13,000 to the initial

4 requirements. So the Liquidation Trust will hold all of that

5 money.

6 THE COURT: Okay. That's just fine. I just

7 don't want to set up escrows where there's separate tax

8 reporting requirements, if we don't need to.

9 MR. URBANIK: So, Your Honor, what I'd like to

10 do is ask the Court to take into evidence these exhibits,

11 which are part of the Court's record.

12 THE COURT: This is Exhibits 1 through 4,

13 Committee's Exhibits 1 through 4?

14 MR. URBANIK: Yes.

15 THE COURT: Okay. Any objection?

16 Okay. Committee's Exhibits 1 through 4 are admitted.

17 MR. URBANIK: Your Honor, we'll upload an

18 order, if the fees are approved, to clarify some of the

19 things that the Court has brought up today.

20 THE COURT: All right. That's the last of the

21 fee applications, right?


23 THE COURT: Okay. Here we go.

24 The Court was concerned about the total amount of fees

25 in this case, given what happened in this case. I understand



38

1 there's some investigations that need to be done and such.

2 But this was not, essentially, an operating 11. And so the

3 Court was concerned about the fees. But given that Gardere

4 has voluntarily taken about a 10 percent cut, based on the

5 Court's review, the Court will approve the fees as requested

6 with the reduction. Okay?

7 With respect to the Committee fees. I think the same

8 is true. The Court is concerned about the total amount of

9 fees, given where this debtor was. But given the voluntary

10 cut, about 4 or 5 percent, I guess, plus the total deferral

11 of pretty close to half of the fees, and the risks associated

12 with non-payment, it appears to the Court that the second

13 half of Munsch Hardt's fees is almost a contingency fee, in

14 the sense that they may not get paid all of the fees due,

15 unless they are successful in their recovery. And under

16 those circumstances, the Court will also approve the fees, as

17 requested, with the reductions discussed on the record today.

18 Mr. Urbanik, you'll submit the order on your firm, as

19 well as the Gavin Solmonese firm.

20 MR. URBANIK: Yes, Your Honor.

21 THE COURT: And, Mr. Helt, you'll submit the

22 other two orders.


24 THE COURT: Now, turning to confirmation.

25 Does anyone wish to be heard with respect to confirmation,



39

1 other than where we already are?

2 Okay. Based on the evidence before the Court, and it

3 appearing that the requisite number of creditors that voted

4 in favor of the plan. And the plan appearing to meet the

5 requisites of 1129(a) of the Bankruptcy Code, the Court

6 will -- well, let me back up. With respect to the disclosure

7 statement, because we're here on final approval, there being

8 no objections and based on the Court's review, and appearing

9 that the disclosure statement meets the requisites of 1125

10 and contains adequate disclosures, the Court will approve the

11 disclosure statement on a final basis. And based on the

12 Court's findings with respect to 1129(a), the Court will

13 confirm the plan.

14 Mr. Helt, I understand that it's going to be an agreed

15 order, so you can submit it as a proposed order so I will

16 review the order, understanding that the parties have

17 negotiated language with respect to confirmation. So I'll

18 review that order when you submit it. As long as the order

19 is not inconsistent with the Court's ruling on the record

20 today, I'll allow you to submit an order that is broader or

21 different from the Court's ruling. I'll review the order

22 when you submit it. Okay?

23 Is there anything else we need to discuss for purposes

24 of today's hearing?

25 MR. HELT: Nothing, Your Honor.



40

1 THE COURT: All right. Thank you. Parties

2 are excused and we're adjourned.

3 (End of Proceedings.)

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1 C E R T I F I C A T E

2 I, CINDY SUMNER, do hereby certify that the

3 foregoing constitutes a full, true, and complete

4 transcription of the proceedings as heretofore set forth in

5 the above-captioned and numbered cause in typewriting before

6 me.

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14 /s/Cindy Sumner

15 ______________________________

16 CINDY SUMNER, CSR #5832 Expires 12-31-15

17 National Court Reporters 16 Gettysburg Lane

18 Richardson, Texas 75080 214 651-8393

19 Firm #417

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