Free Response to Motion - District Court of Delaware - Delaware

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

ONEX AMERICAN HOLDINGS, LLC, Appellant, v. RICHARD M. KIPPERMAN, as Trustee of the MAGNATRAX LITIGATION TRUST Appellee. In re: MAGNATRAX CORPORATION, Reorganized Debtor.

Civil Action No. 07-CV-263 (SLR)

Chapter 11 Case No. 03-11402 (KG)

APPELLEE'S RESPONSE IN OPPOSITION TO THE MOTION OF ONEX CORPORATION TO INTERVENE Appellee Richard M Kipperman, not individually but solely in his capacity as Trustee for the Magnatrax Litigation Trust (the "Trustee"), respectfully submits his Response in Opposition to the Motion of Onex Corporation to Intervene (the "Motion"). INTRODUCTION It is undisputed that Onex American Holdings LLC ("Onex American" or "Appellant"), the Appellant in this Court, no longer exists and in fact, has not been in existence for almost five years. Because it does not exist, Onex American had no standing when it moved the Bankruptcy Court earlier this year to re-open the Magnatrax Corporation (the "Debtor") chapter 11 case. When the Bankruptcy Court properly exercised its discretion and declined to re-open the Debtor's chapter 11 case, Onex American also had no standing to appeal. Olympic Coast Inv. v. Seipel, No. 05-36170, 2006 WL 3431874 at *10 (9th Cir. Nov. 29, 2006) ("[i]t is fundamental

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that a suit brought in the name of that which is not a legal entity is a mere nullity."); In re Midpoint Dev., L.L.C., 466 F.3d 1201, 1207 (10th Cir. 2006) (bankruptcy filing by entity that had ceased to exist was a nullity). Onex American has ignored its lack of capacity or standing in both of its briefs on appeal. Instead of explaining how an entity which has not been in existence for approximately five years can have the capacity or standing to appear before this Court, its counsel has filed a motion to intervene on behalf of one of its other clients, Onex Corporation ("Onex"). This motion is obviously nothing more than a transparent attempt to cure the Appellant's jurisdictional deficiency. More importantly, neither the law nor the facts support Onex's request to intervene at this late stage for two reasons: First, Onex's appeal could only be timely if Onex is able to intervene pursuant to Rule 2018 of the Federal Rules of Bankruptcy Procedure. But if Onex "was a shareholder of the Debtors whose equity was wiped out in the chapter 11 case," as it claims, then Onex also was a "party in interest" under 11 U.S.C § 1109(b) and Bankruptcy Rule 2018 cannot apply to it. Rather, as an alleged "party in interest", Onex had standing to participate in the Bankruptcy Court proceedings below and, significantly, to appeal the Bankruptcy Court's adverse decision itself. Having failed to timely appeal that decision, Onex has waived all of its challenges to the Bankruptcy Court's order and it cannot be allowed to intervene. Second, even if Onex has a legal basis to intervene in this Court, this Court should still exercise its discretion and deny the Motion due to Onex's willful inaction. Onex has had full knowledge of the proceedings before both the Bankruptcy Court and this Court. Onex was well aware that Onex American was a dissolved limited liability company and that the Trustee challenged Onex American's standing. Despite such knowledge, Onex chose to sit on the

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sidelines while the Trustee has devoted considerable time to challenging Onex American's standing to appeal. Thus, even if Onex had a legal basis to intervene, given Onex's deliberate inaction, this Court should exercise its discretion and deny Onex's request to do so. ARGUMENT I. BANKRUPTCY RULE 2018 DOES NOT APPLY TO ONEX, RATHER AS A PARTY IN INTEREST ONEX DID NOT NEED TO INTERVENE TO CHALLENGE THE BANKRUPTCY COURT ORDER, BUT HAVING FAILED TO APPEAL THE ORDER, UNDER BANKRUPTCY RULES 8001 AND 8002 ONEX HAS WAIVED ANY CHALLENGE IT MAY HAVE HAD. Onex bases its request to intervene, as it must, upon Bankruptcy Rule 2018. But if, as Onex contends, Onex was a shareholder of the Debtors, then Bankruptcy Rule 2018 is inapplicable. The Bankruptcy Code and Rules provide two principle means for participation of interested parties in a chapter 11 case: Bankruptcy Code Section 1109 and Bankruptcy Rule 2018. Section 1109(b) provides that "[a] party in interest, including the debtor, the trustee, a creditors' committee, an equity security holders' committee, a creditor, an equity security holder, or any indenture trustee, may raise and may appear and be heard on any issue in a case under this chapter." 11 U.S.C. § 1109(b). For those entities that do not qualify as a "party in interest" under Section 1109(b), Bankruptcy Rule 2018(a) provides that "[i]n a case under the Code, after hearing on such notice as the court directs and for cause shown, the court may permit any interested entity to intervene generally or with respect to any specified matter." It is well established that these two provisions are mutually exclusive and that Rule 2018(a) does not apply to those entities that are "parties in interest" under Section 1109(b). Term Loan Holder Comm. v. Ozer Group, L.L.C. (In re The Caldor Corp.), 303 F.3d 161, 172 (2d Cir. 2002); Int'l Trade Admin. v. Rensselaer Polytechnic Inst., 936 F.2d 744, 747 (2d Cir. 1991); S. Blvd., Inc. v. Martin Paint Stores (In re Martin Paint Stores), 207 B.R. 57, 62 (S.D.N.Y. 1997); In re Allegheny Int'l, Inc., 107 B.R. 518, 524 (D. Pa. 1989) ("Rule 2018(a) 3

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appears to apply to parties not governed by § 1109(b)"); In re ANC Rental Corp., Inc., 278 B.R. 714, 719 (Bankr. D. Del. 2002) ("Federal Rule of Bankruptcy Procedure 2018(a) ... allows the Court in its discretion to permit a party to be heard on a matter where it does not otherwise have standing."); In re Addison Cmty. Hosp. Auth., 175 B.R. 646, 650 (Bankr. E.D. Mich. 1994) ("Rule 2018(a) provides for intervention by entities not otherwise having a right to participate in the bankruptcy case under § 1109 or other provisions."). Indeed, in Onex's principal case, International Trade Administration, the Second Circuit held that Rule 2018 does not apply to a "person aggrieved," "[r]ather, [Rule 2018] provides a formal mechanism that expands the right to be heard to a wider class." 936 F.2d at 747. Thus, because Onex claims to have been a "shareholder of the Debtors whose equity was wiped out in the chapter 11 case," and shareholders are specifically included in the class of entities entitled to "appear and be heard on any issue" in a chapter 11 case under Section 1109(b), Rule 2018 does not apply and cannot be a basis for Onex's request to intervene.1 Furthermore, because Onex may have been entitled to be heard in the Bankruptcy Court when Onex American presented its motion, but it did not appear or appeal the Bankruptcy Court order that Onex American now challenges on appeal, Onex has waived any challenge it may have had to that order. In re Perez, 30 F.3d 1209, 1216 (9th Cir. 1994). Bankruptcy Rule 8001(a) provides that "[a]n appeal from a judgment, order, or decree of a bankruptcy judge to a district court ... shall be taken by filing a notice of appeal with the clerk within the time allowed by Rule 8002" and that such a notice of appeal must be filed by "each appellant." Rule 8002 provides that "[t]he notice of appeal shall be filed with the clerk within 10 days of the date of the entry of the judgment, order, or decree appealed from," and that "[i]f a timely notice of appeal is
Onex fully understood its right to be heard as a party in interest in the Debtors' bankruptcy without the need for intervention under Rule 2018, as evidenced by its previous filings in the case, in which Onex identifies itself as a "party in interest." (E.g. Onex's Obj. to 3d Disclosure Statement at 1, (Bankr. Doc. 427), attached hereto as Ex. A.)
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filed by a party, any other party may file a notice of appeal within 10 days of the date on which the first notice of appeal was filed, or within the time otherwise prescribed by this rule, whichever period last expires." The Third Circuit has clearly stated that Rule 8002's time requirements are "strictly construed, requiring strict compliance with its terms," and that such requirements are jurisdictional in nature. In re Universal Minerals, Inc., 755 F.2d 309, 311-12 (3d Cir. 1985) "Failure to file a timely notice of appeal thus deprives the district court of jurisdiction to review the bankruptcy court's order or judgment." Id. at 311-12. Indeed, a party in interest only invokes the appellate jurisdiction of the district court by properly and timely filing a notice of appeal, Smith v. Dairymen, Inc., 790 F.2d 1107, 1111 (4th Cir. 1986), and any party that fails to timely appeal an order waives his challenges to the order. In re Perez, 30 F.3d 1209, 1216 (9th Cir. 1994) ("Under Bankruptcy Rules 8001 and 8002, a party waives appeals of a final order of the bankruptcy court by failing to file a notice of appeal within ten days."). Accordingly, a party in interest, having failed to timely file a notice of appeal, will not be permitted to join an appeal commenced by another party. See, e.g., In re Frontier Airlines, Inc., 108 B.R. 277, 279 (D. Colo. 1989). Thus, in Frontier Airlines, a district court denied a motion brought by four individuals to join a bankruptcy appeal because the proposed intervenors had failed to timely appeal the bankruptcy court's order. Id. In Frontier Airlines, an interested party had properly appealed a bankruptcy court's order confirming a plan of reorganization. Id. at 278-79. After

commencement of the appeal, four individuals, acting pro se, attempted to join in the appeal. The debtor moved to strike the individuals' attempted joinder. Id. The court noted that none of the individuals had filed a "separate notice of appeal, nor did [they] move for an extension of

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time in which to appeal." Id. at 279. The court further noted that "[t]he [bankruptcy] rules for filing a notice of appeal are mandatory and jurisdictional," and that "fundamental fairness requires that opposing parties and the court receive timely notice when a party desires to initiate an appeal. ... To hold otherwise would eliminate the finality of bankruptcy orders and frustrate the central policy of the bankruptcy laws to promote the expedient administration of the bankrupt estate." Id. at 278-79. The district court, lacking jurisdiction over the individuals as a result of their failure to file notices of appeal, refused to permit the individuals' joinder. Id. at 279. Similarly, in In re Abdallah, 778 F.2d 75 (1st Cir. 1985), the First Circuit held that both it and the district court lacked jurisdiction to hear a chapter 7 trustee and a creditor in an appeal of a bankruptcy court order denying a motion to sell property where they both failed to file timely notices of appeal, even though another party had appealed the same order. Id. at 76-77. The First Circuit explained that [c]ompliance with [Bankruptcy Rule 8002] is both mandatory and jurisdictional. Untimely notice of appeal deprives the district court of jurisdiction to review the bankruptcy court's order. ... [T]his court's jurisdiction can only be based on a proper exercise of jurisdiction by the court below. We, therefore, are without jurisdiction over those appellants' appeals on these issues. Id. at 77 (citations omitted). In this case, Onex had full notice of the Bankruptcy Court's decision as it shares legal counsel with Onex American. Indeed, Onex's prior knowledge of these proceedings has been evidenced through representations made by its counsel to both this Court and the Bankruptcy Court. (Onex American's Reply Br. Re Motion to Enforce Plan at 11 n.7 (Bankr. Doc. 1753), attached hereto as Ex. B; App. Opening Br. at 13 n.10 (Doc. 11)). As it alleges it was a holder of equity in the Debtor, Onex was a party in interest under 11 U.S.C. § 1109(b) with the right to be heard in the Bankruptcy Court on the Bankruptcy Court's Order. Like the individuals seeking to participate in the appeals in both Frontier Airlines and Abdallah, Onex never filed a notice of 6

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appeal. Having failed to file a notice of appeal, Onex has waived any objection it may have had to the Bankruptcy Court Order, Perez, at 1216, and this Court lacks jurisdiction to allow Onex to intervene in this appeal or to hear its arguments. Universal Minerals, 755 F.2d at 311-12. Accordingly, like the courts in both Frontier Airlines and Abdallah, this Court should refuse to permit Onex to participate in this appeal and should deny its Motion to intervene. The only decision Onex relies upon to justify its failure to timely file a notice of appeal -Derivium Capital LLC v. U.S. Trustee, No. 05-10845, 2006 WL 1317021 (S.D.N.Y. May 12, 2006) -- is easily distinguishable. In Derivium, the district court permitted the joinder of several individuals in an appeal of a bankruptcy court order converting the bankruptcy case from chapter 11 to chapter 7 where the conversion indirectly resulted in an increase in the individuals' tax liability. The individuals did not have notice of the effect of conversion on their tax liability until well after the appeal had begun. While the court did not discuss the jurisdictional

requirements of Bankruptcy Rule 8001 and 8002, the court did explain that "[t]he [individuals] seeking leave to join the appeal did not appeal timely the Conversion Order independently because they did not receive IRS notifications until [well after the commencement of the appeal]." Derivium, 2006 WL 1317021 at *6. The present case is easily distinguishable. Unlike the individuals in Derivium, Onex had actual notice of the Bankruptcy Court proceedings, and the alleged implications of the Bankruptcy Court's Order upon Onex are plain. 2 Thus, Onex's failure to join the proceedings below and to file a timely notice of appeal are fatal to its request to intervene in this appeal.

The Trustee disputes Onex American's and Onex's description of the harm that they claim arises from the failure of the Bankruptcy Court to reopen the Debtor's case and hear Onex American's substantive motion to "enforce the plan." Onex American has misstated both the law and the facts in both of its briefs on appeal, employing hyperbole and inflammatory verbiage to explain how it contends it has been harmed. This overblown rhetoric is a transparent attempt to convince this Court to gloss over the jurisdictional deficiencies with Onex American's appeal and address the merits of its underlying motion to enforce. But the only issue before the Court is the narrow issue of whether the Bankruptcy Court abused its discretion when it

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II.

EVEN IF ONEX HAD A LEGAL BASIS TO INTERVENE, THE COURT SHOULD DENY THE MOTION BASED UPON ONEX'S DELIBERATE INACTION UP TO THIS POINT. Even if Bankruptcy Rule 2018 were applicable to Onex, this Court should exercise its

discretion and refuse to permit Onex to intervene at this late stage in the appeal. Bankruptcy Rule 2018 does not require the Court to permit intervention of an "interested entity," rather, it allows the Court to permit intervention at its discretion. Fed. R. Bankr. P. 2018(a) ("[A]s the court directs and for cause shown, the court may permit any interested entity to intervene." (emphasis added)); see also In re ANC Rental Corp., Inc., 278 B.R. 714, 719 (Bankr. D. Del. 2002) ("Federal Rule of Bankruptcy Procedure 2018(a) ... allows the Court in its discretion to permit a party to be heard on a matter where it does not otherwise have standing.") This Court should refuse to allow Onex to intervene for two reasons. First, Onex knowingly and willingly chose not to initially participate in this appeal with full knowledge that Onex American was a dissolved limited liability company (Ex. B at 10-11) and that the Trustee had challenged Onex American's standing before the Bankruptcy Court. (Trustee's Obj. to Motion to Enforce Plan at 6-7 (Bankr. Doc. 1749) attached hereto as Ex. C.) Given the arguments made below, Onex reasonably should have expected that the Trustee would challenge Onex American's standing on appeal. Despite such knowledge, Onex chose to not participate in this appeal, causing the Trustee to devote considerable time and resources presenting his standing argument on appeal. Because of Onex's willful inaction and the resulting time and resources expended by the Trustee in addressing Onex American's lack of standing, the Court should not permit Onex now to intervene. Cf. Gruca v. U.S. Steel Corp. 495 F.2d 1252,

declined to re-open the Debtors' chapter 11 case. The question of how the motion to enforce should be decided is not before the Court because the Bankruptcy Court never reached that motion, having determined not to re-open the chapter 11 case.

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1258 (3d Cir. 1974) ("By its very nature the doctrine [of laches] addresses itself to the sound discretion of the trial judge.") Second, Onex has failed to present any evidence that it was a shareholder of the Debtor, and its interest as a defendant in an action brought by the Trustee is not the type of economic interest which the Plan or the Bankruptcy Code seeks to protect. Onex made similar claims that it was a shareholder of the Debtor before the Bankruptcy Court and counsel for the Trustee similarly questioned those unsubstantiated allegations. (Tr. Re Motion to Enforce Plan at 15-16, (Bankr. Doc. 1767) attached hereto as Ex. D.) Yet again Onex claims it was a shareholder of the Debtor, and yet again Onex presents no evidence to support its claim.3 (Motion at 4.) In fact, the only substantiated economic interest that Onex claims has been implicated here is its interest as a defendant in defeating the claims brought against it by the Trustee. But neither the Bankruptcy Code nor the Debtors' Plan were intended to protect the interests of Onex to defeat claims made against it by the representative of Debtors' bankruptcy estate. Because an individual may only have standing if the statute under which it seeks protection was intended to protect its interests, In re Stone & Webster, Inc., 373 B.R. 353, 361 (Bankr. D. Del.2007) ("[t]o assert prudential standing, a party must belong to the class of the persons that the statute is intended to protect"), Onex cannot base its alleged standing on the fact that the Trustee has sued Onex. Furthermore, the import of Onex's standing argument is that it was entitled to a release of the claims that might be asserted against it. The Debtors' Plan, however, explicitly provided that Onex was not entitled to a release and that all of the Debtors' claims against Onex were preserved and transferred to the Magnatrax Litigation Trust. Because neither the Bankruptcy
Even if Onex had provided sufficient evidence that it was a shareholder of the Debtor, as explained more fully in the Trustee's Opening Brief, such an interest would not provide sufficient standing because Onex does not seek any remedy for the supposed injury to the Debtors' former shareholders. (See Trustee's Br. at 11-13 (Doc. 13).)
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Code nor the Debtors' Plan contemplated adjusting Onex's liability on the Assigned Causes of Action, regardless of who could bring such actions, Onex simply does not have an interest which warrants protection or intervention. See, e.g., In re ANC Rental Corp., Inc., 278 B.R. 714, 719 (Bankr. D. Del. 2002) ("[W]e decline to permit such intervention in this case. While [the movants] have an economic interest in [issues before the court], it is not the type of economic interest which the Bankruptcy Code seeks to protect. It is their interests as competitors of the Debtors which they are seeking to protect by opposing action by the Debtors which will improve the Debtors' chances of successfully reorganizing. Those interests are not in harmony with the Debtors or the creditors of these estates and there is no reason to let [the Movants] use this forum to advance their individual interests.") Onex's Motion to intervene should be denied. CONCLUSION For all of the foregoing reasons, the Trustee respectfully requests that this Court deny Onex Corporation's motion to intervene in this appeal and that this Court grant such other relief as may be just. DATED: December 10, 2007 CROSS & SIMON LLC

By: /s/ Christopher P. Simon Christopher P. Simon (No. 3697) 913 North Market Street, 11th Floor P.O. Box 1380 Wilmington, DE 19899-1380 Telephone: (302) 777-4200 Facsimile: (302) 777-4224 -and-

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Catherine L. Steege, Esquire Joel T. Pelz, Esquire Andrew Nicoll, Esquire JENNER & BLOCK LLP 330 N. Wabash Avenue Chicago, IL 60611 Telephone: (312) 222-9350 -andPeter W. Ito, Esquire BAKER & HOSTETLER LLP 303 East 17th Avenue, Suite 1100 Denver, Colorado 80203 Telephone: (303) 861-0600 Counsel for Richard M Kipperman, Trustee for the Magnatrax Litigation Trust

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EXHIBIT A

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THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re MAGNATRAX CORPORATION, et al., Debtors. ) ) ) ) ) ) ) Chapter 11 Case No. 03-11402 (PJW) (Jointly Administered) Hearing: September 5, 2003 at 3:30 p.m. Related Docket No.: 398

OBJECTION OF ONEX CORPORATION TO DEBTORS' THIRD AMENDED AND RESTATED DISCLOSURE STATEMENT FOR DEBTORS' THIRD AMENDED AND RESTATED JOINT PLAN OF REORGANIZATION Onex Corporation ("Onex"), a party in interest in the chapter 11 cases of the abovecaptioned debtors and debtors-in-possession (collectively, the "Debtors"), by and through its undersigned attorneys, hereby objects (the "Objection") to the Debtors' Third Amended and Restated Disclosure Statement (the "Disclosure Statement") with respect to the Debtors' Third Amended and Restated Joint Plan of Reorganization (the "Plan") and respectfully states as follows:1 PRELIMINARY STATEMENT 1. Onex objects to the Disclosure Statement on the ground that it fails to provide

"adequate information" within the meaning of, and as required by, section 1125 of the Bankruptcy Code, 11 U.S.C. §§ 101 et seq (the "Bankruptcy Code").

Capitalized terms used herein but not defined have the meanings ascribed to them in the Disclosure Statement.
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2.

One of the important purposes of the Debtors' amended Disclosure Statement is

to inform creditors of the establishment of a "Litigation Trust." Apparently, the Litigation Trust is to be established to pursue any potential claims the Debtors may have against Onex and the Onex Affiliates, which claims are to be assigned to the Litigation Trust pursuant to the Plan. Onex adamantly denies any and all purported claims and states that, if any claims are brought by the Litigation Trust, Onex will vigorously defend against such meritless claims. Indeed, the Committee has failed to articulate a legitimate factual and legal basis for the existence or amount of any claims against Onex or the Onex Affiliates. Onex, a Canadian public company, expressly reserves all of its rights and defenses, should the Litigation Trust seek to pursue any claims against Onex or the Onex Affiliates in these chapter 11 cases. 3. The Disclosure Statement fails to provide adequate information because it fails to

describe adequately the nature of any purported claims which may be pursued by the Litigation Trust and the position of Onex and the Onex Affiliates as to such purported claims. 4. In particular, under the Plan, Class 9 general unsecured creditors are permitted to

"opt-in" to the Litigation Trust by investing up to twenty-five percent (25%) of their distributions under the Plan in the Litigation Trust; thereby providing the Trust with funds (up to a maximum of $1.325 million) with which to pursue purported claims against Onex and the Onex Affiliates. The Disclosure Statement, however, does not provide Class 9 creditors with adequate information with which to make the "opt-in" decision. It fails to inform Class 9 creditors that Onex has formally rejected all of the Creditors' Committee's alleged claims and has refused a demand for payment by the Creditors' Committee on the grounds that, among other things, there is absolutely no valid basis for such claims and, despite having already expended over $1.5
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million on its investigation, the Creditors' Committee has failed even to allege any factual basis whatsoever for any purported claims against Onex or the Onex Affiliates. The Committee, rather, has only asserted generalized allegations of alleged fraudulent transfers without any specificity as to any such claims. 5. Accordingly, the Disclosure Statement is inadequate and should be amended to

provide additional, relevant information to enable Class 9 creditors "to make an informed judgment about the plan," as required by section 1125 of the Bankruptcy Code. The Disclosure Statement Does Not Provide "Adequate Information" 6. With respect to the Litigation Trust, the Disclosure Statement states: "The Litigation Trust is being formed to pursue the Assigned Causes of Action, which represents the rights of the Magnatrax Debtors to pursue and litigate any claims against Onex and Onex Affiliates. The Creditors' Committee has asserted that the Magnatrax Debtors may have potential claims against Onex and/or the Onex Affiliates. The Creditors' Committee has not provided any factual basis to support such claims, and Onex has advised the Magnatrax Debtors that Onex and the Onex Affiliates would vigorously contest any such claims. Accordingly, the Magnatrax Debtors believe that any action brought in respect of any such claim would involve expensive and protracted litigation."2 7. This disclosure is inadequate in that it fails to inform Class 9 creditors of the

following key facts: (i) On August 1, 2003, counsel to the Creditors' Committee wrote to Onex and demanded that Onex make a payment under the Plan in settlement of purported claims against Onex and the Onex Affiliates; The Creditors' Committee's written demand failed to articulate any specific factual basis for any of its alleged claims; and

(ii)

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Disclosure Statement at Article V.D.17. 3

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(ii)

On August 26, 2003, counsel to Onex replied to such demand by advising that, among other things, (a) Onex vigorously denies any and all allegations that it is liable in any way whatsoever to the Debtors' estates or to creditors or interest holders in the Debtors' chapter 11 cases, (b) Onex declines to provide any form of payment under the Plan or otherwise, in respect of any such purported claims, and (c) Onex expressly reserves all of its rights, claims and defenses in connection with any such purported claims.

8.

These events constitute material developments in connection with the purported

claims being advanced by the Creditors' Committee, which will form the basis of the Litigation Trust into which Class 9 creditors have been asked to invest up to twenty-five percent (25%) of their distributions under the Plan. To the extent that Class 9 creditors must decide whether or not to "opt-in" to the Litigation Trust, such creditors must be advised, and section 1125 of the Bankruptcy Code mandates that such creditors be advised, of these key, material developments. Without notification of these developments, the Disclosure Statement does not enable Class 9 creditors, and in fact deprives Class 9 creditors of the right "to make an informed judgment about the plan," as required by section 1125 of the Bankruptcy Code. 9. In addition, and as referenced in a footnote on page 15 of the Disclosure

Statement, the Disclosure Statement should be amended to further clarify that given, among other things, (a) the Creditors' Committee failure to state any factual basis whatsoever for any of its purported claims against Onex or the Onex Affiliates and (b) Onex's outright refusal to make any payment in respect of any such purported claims, no value can be ascribed to the Litigation Trust or its contemplated recoveries at this time. 10. Onex submits that the following revised paragraph (marked to show changes from

the language currently contained in the Disclosure Statement) would provide creditors with

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sufficient, relevant and non-biased information with respect to the Litigation Trust and the matters referenced herein: "The Litigation Trust is being formed to pursue the Assigned Causes of Action, which represents the rights of the Magnatrax Debtors to pursue and litigate any claims that might exist against Onex and Onex Affiliates. The Creditors' Committee has asserted that the Magnatrax Debtors may have potential claims against Onex and/or the Onex Affiliates. The Creditors' Committee has not provided any factual basis to support any such claims to the Magnatrax Debtors, Onex or the Onex Affiliates. The Creditors' Committee has demanded in writing that Onex make a payment under the Plan in settlement of purported claims against Onex and the Onex Affiliates. The Creditors' Committee's written demand failed to articulate any specific factual basis for any of its alleged claims. In response, Onex has advised the Creditors' Committee that (a) Onex vigorously denies any and all allegations that it is liable in any way whatsoever to the Debtors' estates or to creditors or interest holders in the Debtors' chapter 11 cases, (b) Onex declines to make any payment in respect of any such purported claims, and (c) Onex expressly reserves all of its rights, claims and defenses in connection with any such purported claims. In addition, Onex has advised the Magnatrax Debtors that Onex and the Onex Affiliates would vigorously contest and defend against any such claims. Accordingly, the Magnatrax Debtors believe that any action brought in respect of any such claim would involve expensive and protracted litigation. For these reasons, no value can be ascribed to the claims asserted by the Creditors' Committee, or to the Litigation Trust or its contemplated recoveries, at this time." CONCLUSION 11. As stated above, the Disclosure Statement fails to provide "adequate information"

in that, among other things, it fails to inform creditors of certain key, material developments in connection with the claims asserted by the Creditors' Committee, which are to form the basis of the Litigation Trust. Accordingly, the Disclosure Statement should be amended, in the manner

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suggested herein, so as to provide creditors with "adequate information" within the meaning of, and as required by, section 1125 of the Bankruptcy Code. WHEREFORE, Onex respectfully requests that the Disclosure Statement not be approved until the Debtors have amended the Disclosure Statement to address the matters set forth in this Objection. Dated: August 29, 2003 Respectfully submitted, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP Alan W. Kornberg, Esq. Maria T. Vullo, Esq. 1285 Avenue of Americas New York, NY 10019-6064 Tel No. (212) 373-3000 Fax No. (212) 757-3990 - and ­ COZEN & O'CONNOR By: /s/ Jeffrey R. Waxman____ Mark Felger, Esq. (Bar ID No. 3919) Jeffrey Waxman, Esq. (Bar ID No. 4159) Chase Manhattan Centre 1201 North Market Street Suite 1400 Wilmington, Delaware 19801 Tel No. (302) 295-2000 Co-counsel for Onex Corporation

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EXHIBIT B

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IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE
) Chapter 11 ) MAGNATRAX CORPORATION, ) Case No. 03- 11402 (KG) ) Reorganized Debtor. ) Hearing Date: March 27,2007 at 3:00 p.m.

In re:

REPLY OF ONEX AMERICAN HOLDINGS, LLC TO OBJECTION OF MAGNATRAX LITIGATION TRUST AND IN FURTHER SUPPORT OF MOTION FOR ORDER ENFORCING CHAPTER 11 PLAN
Onex American Holdings, LLC ("Onex Holdings"), by and through its undersigned counsel, Cozen 0'Connor and Paul, Weiss, Rifkind, Wharton & Garrison LLP, respectfully replies to the Objection (the "Objection") of Richard M. Kipperman, trustee (the "Trustee") of the Magnatrax Litigation Trust (the "Trust"), to the Motion (the "Motion") of Onex American Holdings, LLC for Order Enforcing Chapter 11 Plan, and in hrther support of the Motion, states as follows:

PRELIMINARY STATEMENT
Unable to refute that the absolute priority rule imposes an absolute cap on creditor recoveries, the Trustee attempts to distract the Court from the central issue here: whether the Plan should be enforced consistent with the statutory provision that authorized its confirmation section 1129(b) of the Bankruptcy Code. The Trustee's assertion that Onex Holdings "asks this Court to re-write the plain language of the plan1 and create a limitation on the amount the Trust can recover" is false. (See Obj. 1.) Onex Holdings does not ask this Court to "create" a damages limitation; such a limitation already exists as a matter of law. Indeed, to suggest otherwise

'

Capitalized terms not defined herein have the meanings ascribed to them in the Motion.

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would result in the troubling notion that the Court confirmed and would sanction enforcement of a patently illegal distribution scheme that would enrich a very few creditors at the expense of the Debtors, other creditors and shareholders. The Trustee concedes - as he must - that the Court found at confirmation that the transfer of the Assigned Causes of Action to the Litigation Trust would not result in the Trust Beneficiaries "receiving more than 100% of the value of their claims." (Obj. 16, 18.) And such a finding was correct given the repeated representations by the Creditors' Committee that the gross amount (as opposed to value) of the claims to be pursued against the Onex entities was between $8 and $24 million. Indeed, under the Trustee's own valuation approach to contingent assets (Obj. 14-16), this Court and parties in interest would have concluded that, given litigation uncertainties, such claims would be worth substantially less and, therefore, the absolute priority rule handily satisfied. Even though the alleged claims against Onex are all based on matters that occurred prepetition (let alone pre-confirmation), the Trustee now maintains that it was intended all along that creditors holding $12 million of claims can recover fifty (50) times that amount when other unsecured creditors received pennies and shareholder interests were wiped out. Section 1129(b), however, prohibits such an inequitable result; the Trustee's effort to transform the Plan into an illegal reorganization scheme should not be permitted.
ARGUMENT
A.

Onex Holdings Seeks to Enforce, Not Modify, the Plan.

1.

The Trustee asserts that, because the Plan granted him "the ability to

pursue the Assigned Causes of Action," there "is no basis for this Court to limit the damage recovery." (See Obj. 2.) But whether the Plan resulted in assignment of all causes of action or permits pursuit of them is beside the point. The question here is whether the Trustee can seek a windfall recovery for a small group of unsecured creditors in a cramdown situation. The Trustee

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is tellingly silent on this critical point. Nowhere - because he cannot - does the Trustee cite a single case in support of his contention that the Trust Beneficiaries can recover 50 times the amount of their allowed claims.
2.

Instead, he misrepresents the relief sought by characterizing the Motion as

a challenge to the Plan. In reality, the opposite is true: Onex Holdings seeks enforcement of the Plan as confirmed; the Trustee seeks to transform the Plan into something that it is not. 1.

The Plain Language of the Plan Supports Onex Holdings.
3.

The Trustee's attempt to side-step the absolute priority rule is contrived.

The question is not what was assigned, but what the Trust Beneficiaries may recover. The plain language of the Plan, the Confirmation Order, and the Bankruptcy Code make clear that their recovery is capped at 100% of their Allowed Class 9 Claims. (See App. 2 at 7 S ("Magnatrax Debtors presented uncontroverted evidence at the Confirmation Hearing, and the Bankruptcy Court hereby finds, that the Plan .

. . is

fair and equitable . . . with respect to each of the

Rejecting Classes [including Class 151") (emphasis added).)
4.

Attempting to avoid this holding, the Trustee posits that the assignment to

the Litigation Trust of "all the Debtors' causes of action against Onex Corporation and its affiliates" was "uncapped" and thus his pursuit of over $600 million in the Georgia Action comports with the Plan. (See Obj. 5.) Not so. The Trustee's interpretation produces two absurd results. First, it directly undermines the Court's ruling that the Plan was fair and equitable as to dissenting classes. Second, it alleges that the Plan transferred to the Trustee more rights than the Debtor possessed: if the Debtors had retained (rather than assigned) their causes of action the absolute priority rule would have prohibited the Debtors from recovering $600 million while paying unsecured creditors cents on the dollar and eliminating shareholder interests.

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5.

As noted above, the Confirmation Order contained a specific finding that

the Plan was fair and equitable. Rather than being read in conflict, the Plan and Confirmation Order must be read in harmony, if possible. (See App. 2 at T[ 45 ("[tlhe provisions of the Plan and of this Confirmation Order shall be construed in a manner consistent with each other so as to effect the purpose of each . . . .").) 6. However, even if the Trustee's alleged conflict between the Plan and

Confirmation Order did exist, the Trustee is incorrect that the Plan would govern. (See Obj. 10.) To the contrary, the Confirmation Order controls: "[Iln the event there is any inconsistency, discrepancy or conflict between any Plan provision and any provision of this Confirmation Order that cannot be so reconciled, then, solely to the extent of such inconsistency, the provision of this Confirmation Order shall govern and control." (App. 2 at 7 45.) Thus, the Confirmation Order's absolute cap on the Trust Beneficiaries' recoveries pursuant to section 1129(b) controls in any event, and warrants the relief requested by Onex Holdings. 2.
Res Judicata Does Not Bar the Motion.

7.

The Trustee's res judicata arguments are equally flawed. Res judicata

does not bar the Motion because Onex Holdings does not seek to change or challenge the Plan, but rather it seeks to enforce the Plan as proposed and confirmed. See In re Optical

Technologies, Inc., 425 F.3d 1294, 1301-02 (1 1th Cir. 2005) (distinguishing dispute about plan interpretation from res judicata claims); Miller v. United States, 363 F.3d 999, 1006 (9th Cir. 2004) (res judicata does not bar interpretation of a plan). While the Trustee ignores this key distinction, this Court should not.
8.

Further, Onex Holdings' lack of objection to the Plan at confirmation

underscores the need for relief here. The Creditors' Committee affirmatively represented to the Court and parties in interest, including Onex Holdings, that the "gross amount" of claims it

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expected to pursue was between $8 million to $24 million. Factoring in the risks associated with litigation recoveries, all parties and the Court could reasonably conclude that the Plan complied with the absolute priority rule. (See Mot.

77 11, 13.)

Because the Trustee now disavows this

record and the Court's section 1129(b) ruling, this Court should now reaffirm that the Plan was intended to, and does in fact, comply with the absolute priority rule. 9. On the other hand, res judicata bars the Trustee's attempt to argue now

that the Plan permits unlimited recoveries by the Trust Beneficiaries. See Corestates Bank, N.A. v. Huls America, Inc., 176 F.3d 187, 194 (3d Cir. 1999). The Confirmation Order constitutes a final judgment, Eastern Minerals & Chems. Co. v. Mahan, 225 F.3d 330, 336 & n.11 (3d Cir. 2000), with respect to all parties to the chapter 11 case. First Union Commercial Corp. v. Nelson, Mullins, Riley and Scarborough (In re Varat Enter., Inc.), 8 1 F.3d 1310, 1315 (4th Cir. 1996). Any objection to the cap on senior creditor recoveries imposed by cramming down the Plan under section 1129(b) of the Bankruptcy Code Plan on junior interests must have been raised at confirmation or be lost - as it was here. See In re Szostek, 886 F.2d 1405, 1408 (3d Cir. 1989). The Trustee is barred fiom seeking any recovery above the outstanding Allowed Class 9 Claims held by the Trust Beneficiaries pursuant to the confirmed cramdown Plan.

B.

The Amount of the Trust's Recoverv Is Capped As a Matter of Law.

10.

The Trustee posits that the absolute priority rule applies only at the

moment of confirmation and then falls away when the Plan is subsequently enforced. This cannot be correct. Cramdown is extraordinary relief and its legitimacy and contours are defined by the absolute priority rule. Nor does Section 1129(b) or the Court's confirmation order permit a bait and switch: a cramdown plan was presented to and confirmed by the Court and is binding on all parties. Cramdown imposes a cap on senior class recoveries which the Trustee may not avoid after-the-fact.

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11.

Seeking to side-step this obvious point, the Trustee now contends that the

value of the Assigned Causes of Action - involving transactions and events that occurred years
before the petition date - somehow skyrocketed between the Effective Date and commencement of the Georgia Action in May 2005. This suggestion is ludicrous. 12. 13. What changed during those 18 months? Nothing. In an affidavit filed in the Georgia Action, the Trustee's counsel

represented that the Creditors' "Committee undertook an investigation of the Debtors and the claims that might be brought against the Defendants in [the Georgia Action]." (Ito Aff. 7 3.12 As stated in that same affidavit, "[wlhen the Trust was formed, I provided the documents that the Committee had obtained through Rule 2004 discovery to the Trustee." (Id. 7 6 . 1 ~ Moreover, filings in this case by the Creditors' Committee make plain that its investigation focused on the

A copy of the Ito Affidavit is attached as Exhibit A. Indeed, a substantial portion of the fees paid to counsel for the Creditors' Committee accounted for: an extensive investigation, analysis, and evaluation of the Debtors' business operations, as well as various acts and transactions engaged in pre-petition by the Debtors, including, but not limited to, (i) reviewing and analyzing documents related to Onex's acquisition of American Buildings Company in May 1999, (ii) reviewing and analyzing documents related to the Debtors' acquisition of Republic Builders in September 1999, (iii) reviewing and analyzing documents related to the Debtors' acquisition of Jannock Ltd. and the related transactions thereto that occurred or were deemed to occur on March 10, 2000, (iv) conducted legal research and analyses regarding the foregoing transactions . . . . (Second Monthly Fee Application (the "Fee Application") of Foley & Lardner for Compensation for Services Rendered and Reimbursement of Expenses as Counsel to the Official Committee of Unsecured Creditors for the Period from June 1, 2003 through June 30, 3003 (Docket No. 324) at 7-8. A copy of relevant excerpts from the Fee Application is attached as Exhibit B.)

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very same matters about which the Trustee brings claims in the Georgia Action. (See, e.g., Docket Nos. 186,347.) 14. In his initial disclosures (the "Initial Disclosures") filed in the Georgia

Action, the Trustee stated that "the documents in the Trustee's possession, custody or control that the Trustee may use to support his claims" comprised documents produced to the Creditors' Committee by the Debtors and the Canadian Imperial Bank of Commerce. (Initial Disclosures 56.1~ In sworn responses to interrogatories served by Onex Holdings, among others, in the Georgia Action, the Trustee also has identified the documents on which he relied in formulating the allegations in his complaint in the Georgia Action as those documents produced to the Creditors' Committee in this case. (See Plaintiffs Amended Objections and Amended

Responses to the First Set of Interrogatories and Requests for the Production of Documents by the Onex Defendants No. 9, dated February 16, 2007 (the "Trustee's Response to Interrogatory at No. 9"), 20.)~ 15. In other words, the Trustee knew exactly as much as the Creditors'

Committee did when he filed his complaint; thus, the morphing of $8 to $24 million of claims into $600 million of claims is never explained. Nor can it be. 16. Nor is the Trustee's analogy to the value of a stock distribution helpful.

Unlike the Assigned Causes of Action, stock can increase in value due to the reorganized debtors' post-confirmation activities - a new business strategy, a merger or acquisition, a change in product line or market conditions. The Assigned Causes of Action are what they were, and no post-confirmation activity transforms them.

A copy of the relevant excerpts from the Trustee's Initial Disclosures is attached as Exhibit C. A copy of the Trustee's Response to Interrogatory No. 9 is attached as Exhibit D.

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17.

Further, the Creditors' Committee's own representations to the Court

refute the arguments the Trustee now makes. Specifically, the Creditors' Committee disclosed that "the gross amount of claims against Onex and the Onex Affiliates could range from approximately $8 million to approximately $24 million." (App. 3 at 98 (emphasis added).) Significantly, the Creditors' Committee estimated the amount of claims; it did not provide a valuation. An actual valuation would have been lower, not higher, because it would have taken into account litigation uncertainties. (See Obj. 15.) C. The Trustee Is Bound bv the Creditors' Committee's Representations. 18. The Creditors' Committee affirmatively represented to the Court and all

parties in interest that the amount of the Assigned Causes of Action ranged from $8 million to $24 million. Such representations must be assumed to be accurate; otherwise the Creditors' Committee was party to a deception that was revealed when the Georgia Action was commenced 18 months after confirmation. 19. The Creditors' Committee is a fiduciary and has a duty to make truthful

representations to this Court and to its constituents. Westmoreland Human Opp., Inc. v. Walsh, 327 B.R. 561, 573 (W.D. Pa. 2005) ("Good faith, trust and candor are essential to ensure that the work of the committee does not come to a standstill and is completed for the benefit of all unsecured creditors."); see In re PWS Holding Corp., 228 F.3d 224, 245 (3d Cir. 2000) (noting creditors' committee's fiduciary duty to its constituents). Representing to the Court a claims estimate of $8 million to $24 million when the Creditors' Committee intended to seek a $600 million recovery for the benefit of a handful of self-selected creditors would be scandalous. 20. In any event, by electing to make statements in the Disclosure Statement,

which the Court and parties in interest relied upon in considering the Plan, the Creditors' Committee subjected itself to claims of judicial estoppel. That the disclosures were voluntary,

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and that the Disclosure Statement was the Debtors', are irrelevant. (See Obj. 19.) The Trustee must live with the representations made to the Court and parties in interest concerning a critical aspect of the crarndown Plan.
D.

Onex Holdings Has Standing to Bring the ~ o t i o n . ~
21. Bankruptcy courts "are rarely receptive to defenses based on lack of

standing . . . . If a party believes itself affected by some event enough to take the trouble to raise it as an issue, it can usually be assumed that that party has a sufficient interest in the issue to be held to have standing to assert it. '[Bankruptcy courts] are very reluctant to allow standing to become a means to avoid deciding difficult substantive issues put before [them] . . . .'" In re Esmizadeh, 272 B.R. 377, 383 (Bankr. E.D.N.Y. 2002) (quoting In re Verdi, 241 B.R. 85 1, 859 (Bankr. E.D. Pa. 1999)) (citations omitted). The Trustee's cursory assertion that this Court lacks subject matter jurisdiction over the Motion is baseless. (See Obj. 9 n.8.) Nowhere does the Trustee address the authorities set forth in the Motion. (See Mot. 71 1-2, 29-32.) And the one case cited by him is readily distinguishable. In In re Commercial Loan Corp., No. 06 A 1530, 2007 WL 756382 (Bankr. N.D. Ill. Mar. 14, 2007), the court held it lacked jurisdiction over one state law claim because it did not arise under the Bankruptcy Code, but it did have jurisdiction over the remaining bankruptcy causes of action. Id. at *5-6 (also noting that applicable Seventh Circuit law applied a far more "constricted interpretation" of bankruptcy jurisdiction than that of the Third Circuit). Here, the Motion seeks enforcement of the Plan, which arises squarely under the Bankruptcy Code and therefore clearly falls within this Court's jurisdiction. (See Mot. 77 1-2,29-32.) Further, and contrary to the Trustee's contention, Onex Holdings does not seek an "end run around the District Court." (See Obj. p. 1.) By filing a $600 million action in Georgia, it in fact is the Trustee that seeks an end-run around the Plan confirmed by the Court. As set forth in the Motion, the Confirmation Order plainly grants this Court "exclusive jurisdiction over all matters arising out of, and related to, the Magnatrax Reorganized Cases and the Plan to the fullest extent permitted by law, including, but not limited to, jurisdiction over those items and matters set forth in Article X of the Plan . . . ." (App. 2 at 5.) Moreover, Onex Holdings filed a notice with the District Court making it aware of the Motion noting that "Onex Holdings does not intend that the filing of the Motion in the Bankruptcy Court will affect discovery or pending motion practice before this Court or otherwise delay the progression of the case in accordance with the Court's Scheduling Order set at the December 13, 2006 conference. Onex Holdings files this Notice simply to inform the Court of the status of the bankruptcy case. Onex Holdings seeks no relief at the present time with respect to this matter." (Notice of Filing of Motion 7 7.)

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22.

In an attempt to elevate form over the Motion's substance and to avoid

this Court's consideration of the irreconcilable positions taken by the Creditors' Committee and the Trustee, the Trustee asks that the Motion be dismissed on lack of standing. This argument should be rejected for two reasons. 23. First, contrary to the Trustee's suggestion, that Onex Holdings has been

dissolved does not preclude it from bringing this Motion just as it did not prevent the Trustee from suing Onex Holdings in the Georgia Action. (See Obj. 7.) Neither of the cases cited by the Trustee suggests otherwise. 24. Although the Trustee relies on Olympic Coast Inv., Inc. v. Seipel, No. 05-

36170, 2006 WL 3431874 (9th Cir. Nov. 29, 2006), to argue that a pleading filed on behalf of Onex Holdings is a mere nullity (see Obj. 7), he ignores the Ninth Circuit's holding - fully applicable here - that claims brought by a non-existent entity may nonetheless be maintained by another party that had the right to bring such claims. Olympic Coast Inv., Inc., 2006 WL 3431874 at

* 2 (remanding to district court to determine whether non-dissolved entity had the

ability to sue in its individual capacity or as assignee of claims held by dissolved entity"). 25. Holliman v. Midpoint Dev., L.L.C. (In re Midpoint Development, L.L.C.),

466 F.3d 1201 (10th Cir. 2006), is completely inapposite. (See Obj. 7.) There, the Tenth Circuit held only that a company could not be a debtor under the Bankruptcy Code if it had ceased to exist prior to the petition date. Holliman, 466 F.3d at 1207. Here, Onex Holdings seeks merely to enforce a confirmed Plan. 26. Second, even if Holdings' dissolution were relevant, Delaware law

provides for the distribution of all assets of a dissolved limited liability company to its members. See 6 Del. C. § 18-804. In this case, Onex Corporation was distributed all assets of Onex

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Holdings. Indeed, the Trustee's Objection concedes that Onex Corporation is a party in interest.
(See Obj. 8 n.7 ("the Trustee assumes that Onex Corporation, which is a defendant in the Trust's

pending District Court action, is the real movant here").17

27.

Onex Holdings would suffer serious injury if the Court allowed the

Trustee to continue to pursue recoveries that violate the Plan. That Onex Holdings' equity interests were extinguished under the cramdown Plan serves as the basis for, rather than destroying, standing. By law, such extinguishment only could occur in accordance with the absolute priority rule which caps automatically the Trustee's potential recovery. Knocking the props out from under the cramdown Plan would directly and impermissibly harm Onex Holdings and such harm is more than sufficient to grant standing here.

28.

Finally, the Trustee argues that Holdings lacks standing because

adjudication of this Motion now will not affect Holdings' rights under the Plan. (See Obj. 7-9.) The Trustee has it backwards. Absent the relief sought by this Motion, the Trustee will continue to disregard the Bankruptcy Code, the Confirmation Order and the Plan, by pursuing an illegal recovery for the benefit of a few creditors at the expense of, among others, Onex Holdings.

Should this Court prefer, Onex Corporation could be substituted as the movant on the basis of 6 Del. C. 5 18-804. In any event, four Onex employees who also are named as defendants in the Georgia Action were equity holders in the Debtors (see Mot. 7 6 n.3) and they indisputably have standing to bring the Motion.

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WHEREFORE,

Onex

Holdings respectfully

requests that

the

Court

(i) grant the Motion; (ii) overrule the Objection; and (iii) grant Onex Holdings such other relief as the Court deems just and proper. Dated: March 22,2007 COZEN O'CONNOR

~ P f s R.~ e waxman (No. 4159) 1201 N. Market Street, Suite 1400 Wilmington, DE 19801 Telephone: (302) 295-2000

- and PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP Alan W. Kornberg Maria T. Vullo 1285 Avenue of the Americas New York, NY 10019-6064 Telephone: (212) 373-3000
Counselfor Onex American Holdings, LLC

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EXHIBIT C

3

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IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: MAGNATRAX CORPORATION, et al., Debtors. ) ) ) ) ) ) ) ) ) Chapter 11 Case No. 03-11402 (KG) (Jointly Administered)
Re: Docket No. 1737

MAGNATRAX LITIGATION TRUST'S OBJECTION TO ONEX AMERICAN HOLDINGS, LLC'S MOTION FOR ORDER ENFORCING CHAPTER 11 PLAN (DOCKET NO. 1737) Richard M. Kipperman, not individually but solely in his capacity as Trustee (the "Trustee") for the Magnatrax Litigation Trust (the "Trust"), respectfully submits his Objection to Onex American Holdings, LLC'S ("Holdings") Motion for Order Enforcing Chapter 11 Plan (the "Motion"). INTRODUCTION The Order confirming the Debtors' Fifth Amended and Restated Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (the "Plan")1 is more than three years old. In fact, the Debtors' Plan has been completely consummated and the Debtors' cases are all closed. Despite the obvious untimeliness of its Motion, Holdings asks this Court to re-write the plain language of the Plan and create a limitation on the amount the Trust can recover in the causes of action assigned to it under the Plan (as defined in the Plan, the "Assigned Causes of Action"). Holdings' not so thinly-veiled attempt to do an end run around the District Court overseeing the litigation between the Trust and the Onex Corporation defendants ought to be summarily denied for several reasons.
1

The Plan was attached as tab 1 to the appendix to the Motion.

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As an initial matter, this Court lacks jurisdiction to consider the Motion because Holdings lacks standing to bring it. Holdings has no standing here for two reasons: (1) Holdings no longer exists as a legal entity and thus has no right to bring a motion in this Court; and (2) assuming Holdings ever had standing because all former equity interest holders of the Debtors (that Holdings now purports to represent) already have received all they are entitled to under the Plan, they have no stake in these cases or in any dispute over how the Plan's provisions relating to the Trust are interpreted or enforced. But even if the Court glosses over the lack of standing, the Motion should nonetheless be denied for several additional reasons. First, there is no basis for this Court to limit the damage recovery another Court might award to the Trust based upon the Plan because the Plan clearly granted the Trust the ability to pursue the Assigned Causes of Action to their fullest recovery. Second, Holdings has waived any ground for challenging the Plan and the order confirming the Plan (the "Confirmation Order")2 because it failed to object to the confirmation of the Plan or to appeal the Confirmation Order. Accordingly, Holdings is barred by res judicata from raising such challenges. Third, as the Court found in the Confirmation Order, the Plan complied with the absolute priority rule because those unsecured creditors that opted to become beneficiaries of the Trust did not receive more than 100% of the value of their claims on the Plan's effective date by virtue of the Plan's uncapped grant of the Assigned Causes of Action to the Trust. Finally, because neither the Trustee nor the Official Committee of Unsecured Creditors of Magnatrax Corporation (the "Committee") made any representation that limits the Trust's recovery, Holdings' request that the Trust be judicially estopped from pursuing the Assigned Causes of Action in their full, uncapped amount is without merit.

2

The Confirmation Order is attached as tab 2 to the appendix to the Motion. 2

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BACKGROUND The above-captioned debtors (the "Debtors") were manufacturers and sellers of preengineered metal building and other diversified construction products and services. Prior to their bankruptcies, and at the direction of Onex Corporation (the ultimate shareholder of the Debtors), the Debtors pursued a risky strategy of growth through leveraged buyouts (the "LBOs"). The LBOs were structured to give Onex Corporation the benefit of the Debtors' upside potential, as ultimate shareholders of the Debtors, while limiting its downside exposure by forcing the Debtors to repay the costs associated with those acquisitions. As a result of the large debt-load incurred in the LBOs, the Debtors were unable to sustain their operations during the moderate downturn in the construction market in 2002. (Disclosure Statement p. 41).3 On May 12, 2003, the Debtors filed for bankruptcy. Thereafter, the United States Trustee appointed the Committee. Consistent with its duties pursuant to 11 U.S.C. § 1103(c)(2), the Committee investigated potential causes of action relating to the LBOs and ultimately concluded that the Debtors' bankruptcy estates had valid causes of action against Onex Corporation and its affiliates, including Holdings. To facilitate a reorganization, the Committee supported a plan that assigned the causes of action against Onex Corporation and its affiliates to a litigation trust for the benefit of those unsecured creditors that chose to become beneficiaries of the Trust. Those beneficiaries agreed to have a portion of their distribution given to the Litigation Trust to fund its expenses. This agreement served as the basis for the Plan, which, as confirmed by the Court, provides for: (i) the Debtors to enter into a trust agreement (the "Trust Agreement") creating the Trust (Plan § 4.21(c)), (ii) the Debtors to transfer to the Trust any and all causes of action that the Debtors

3

The Disclosure Statement is attached as tab 3 to the appendix to the Motion. 3

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may have against Onex Corporation or its affiliates (Plan § 4.21(b)); and (iii) the Debtors to pay to the Trust a portion of the cash distribution that would otherwise have been due to those general unsecured creditors that opted to become beneficiaries of the Trust. (Plan § 3.10(c).) The Plan also provided for the treatment of the Debtors' equity interest holders. Pursuant to the Plan, "[o]n the Effective Date, all Magnatrax Equity Interests ... shall be deemed cancelled and extinguished, and the holder(s) of Magnatrax Equity Interests will not receive any Distribution, or be entitled to retain any property or interest in property, on account of such Magnatrax Equity Interests." (Plan § 3.16.) On November 17, 2003, the Plan was confirmed. (Docket No. 694). On January 8, 2004, the Debtors established the Trust by executing the Trust Agreement. (Trust Agreement p. 1.) On January 20, 2004, the Plan became effective. (Notice of Effective Date of Plan, Docket No. 847.) Both the Plan and Trust Agreement describe the rights transferred to the Trust. The Plan directed that, "[o]n the Effective Date, the Magnatrax Debtors shall irrevocably transfer the Assigned Causes of Action to the Litigation Trust, for and on behalf of the Trust Beneficiaries." (Plan § 4.21(b).) The Assigned Causes of Action are defined to include "all right, title and interest of the Magnatrax Debtors and the Reorganized Magnatrax Debtors to pursue, litigate, settle or otherwise resolve any Cause of Action against Onex Corporation or any Onex Affiliate ...." (Plan § 1.20) (emphasis added). The Plan defined Cause of Action as: without limitation, any and all actions, causes of actions, liabilities, obligations, suits, debts, indebtedness (for borrowed money or in the nature of a guarantee), dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, trespasses, damages, rights, executions, claims (as that term is defined in section 101(5) of the Bankruptcy Code), objections to claims, judgments and demands whatsoever, whether known or unknown, choate or inchoate, existing or hereafter arising, suspected or unsuspected, in law, equity or otherwise. (Plan § 1.31) (emphasis added).

4

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The Trust Agreement provided that "the Magnatrax Debtors hereby irrevocably transfer to the Litigation Trust ... all the right, title and interests of the Magnatrax Debtors in the Litigation Trust Assets, to have and to hold unto the Litigation Trust and its successors and assigns forever." (Trust Agreement § 2.2.) The Trust Agreement defined the Trust Assets to include the Assigned Causes of Action, as that term was defined by the Plan. (Trust Agreement § 1.1, Plan § 1.86.) Furthermore, the Trust Agreement declared that the primary purpose of the Trust is "maximizing the value of the Litigation Trust Assets for distribution ... to Trust Beneficiaries." (Trust Agreement § 2.3.) This uncapped grant4 to the Trust of all the Debtors' causes of action against Onex Corporation and its affiliates was clearly what the Debtors and Committee intended and communicated to all parties-in-interest, including Holdings. As Debtors' counsel explained at the Plan's confirmation hearing: [I]n a spirit of compromise, to allow this case to m