Free Appendix - District Court of Delaware - Delaware

Case 1:07-cv-00263-SLR

Document 14

Filed 11/16/2007

Page 1 of 2

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)

APPENDIX TO ANSWERING BRIEF OF APPELLEE RICHARD M KIPPERMAN

Christopher P. Simon (No. 3697) CROSS & SIMON LLC 913 North Market Street, 11th Floor P.O. Box 1380 Wilmington, DE 19899-1380 Tel.: (302) 777-4200

Catherine L. Steege Joel T. Pelz Andrew S. Nicoll JENNER & BLOCK LLP 330 N. Wabash Avenue Chicago, IL 60611 Tel.: (312) 222-9350

Peter W. Ito BAKER & HOSTETLER LLP 303 East 17th Avenue, Suite 1100 Denver, CO 80203 Tel.: (303) 861-0600

Counsel for Richard M Kipperman, Trustee of the Magnatrax Litigation Trust

1598980.1

Case 1:07-cv-00263-SLR

Document 14

Filed 11/16/2007

Page 2 of 2

APPENDIX TO ANSWERING BRIEF OF APPELLEE RICHARD M KIPPERMAN Tab 1 Description Transcript of Hearing on Motion to Re-Open Bankruptcy and Motion to Enforce Bankruptcy Plan, before the Bankruptcy Court on April 13, 2007 Order of the Bankruptcy Court re Motion of Onex American Holdings, LLC, For Order Reopening Chapter 11 Case for Limited Purpose and Motion for Order Enforcing Chapter 11 Plan, dated April 16, 2007 Magnatrax Litigation Trust's Objection to Onex American Holdings, LLC's Motion for Order Enforcing Chapter 11 Plan Magnatrax Litigation Trust's Objection to Onex American Holdings, LLC's Motion for Order Reopening Chapter 11 Case for Limited Purpose Transcript of Confirmation Hearings, before the Bankruptcy Court on November 13, 2003

2

3

4

5

2
1598980.1

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 1 of 37

TAB 1

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 2 of 37

UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE . . MAGNATRAX CORPORATION, . . . Debtor. . . . . . . . . . . . . . . . . . . .. IN RE: Case No. (03-11402KG) 824 North Market Street Wilmington, DE 19801

April 13, 2007 2:00 p.m.

TRANSCRIPT OF ORAL ARGUMENT BEFORE HONORABLE KEVIN GROSS UNITED STATES BANKRUPTCY JUDGE APPEARANCES: For the Debtor: Cozen O'Connor By: JEFFREY R. WAXMAN, ESQ. 1201 N. Market Street, Suite 1400 Wilmington, DE 19801 Paul Weiss & Rifkind Wharton & Garrison By: ALAN W. KORNBERG, ESQ. MARIA T. VULLO, ESQ. STACEY SHORTALL, ESQ. JEREMY S. GLADSTONE, ESQ. 1285 Avenue of the Americas New York, NY 10019

Audio Operator:

Matt Yovino

Proceedings recorded by electronic sound recording, transcript Produced by transcription service. ______________________________________________________________ J&J COURT TRANSCRIBERS, INC. 268 Evergreen Avenue Hamilton, New Jersey 08619 E-mail: [email protected] (609)586-2311 Fax No. (609) 587-3599

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 3 of 37 2

APPEARANCES:

(Cont.) Jenner Block, LLP By: CATHERINE L. STEEGE, ESQ. JOEL T. PELZ, ESQ. 333 N. Wabash Avenue Chicago, IL, 60611-7603 Baker & Hostetler By: PETER W. ITO, ESQ. 303 East 17th Avenue Suite 1100 Denver, CO 80203-1264 (Telephonic) Cross & Simon By: CHRISTOPHER P. SIMON, ESQ. 913 North Market Street 11th Floor Wilmington, DE, 19801

For the Trustee:

For Richard M. Kipperman:

By:

RICHARD M. KIPPERMAN, ESQ.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 4 of 37 3

1 2 seated.

THE COURT:

Counsel, good afternoon.

Please be

Welcome, everyone, and we also have Mr. Ito on the

3 telephone, I believe. 4 MR. ITO: Good afternoon, Your Honor, Peter Ito on

5 behalf of Richard M. Kipperman, Litigation Trustee. 6 THE COURT: Yes. Welcome, Mr. Ito. Good afternoon,

7 Mr. Waxman. 8 MR. WAXMAN: Good afternoon, Your Honor. Your Honor,

9 there are three things on the agenda for today. 10 motion to reopen the case. 11 12 13 the plan. THE COURT: MR. WAXMAN: Yes.

There is the

And then, there is the motion to enforce

And then, Your Honor, yesterday we filed a motion

14 for relief to file a supplemental reply. 15 16 17 THE COURT: MR. WAXMAN: THE COURT: And that, of course, I'm granting. Thank you, Your Honor. My philosophy is I'd rather parties file

18 replies and put me at least at the advantage of knowing what 19 their arguments are going to be. So, I'll be very liberal on

20 something like that, and I am granting that. 21 MR. WAXMAN: Thank you, Your Honor. Your Honor, to

22 my left is my co-counsel, starting with Alan Kornberg. 23 24 25 THE COURT: MR. WAXMAN: THE COURT: Welcome. Maria Vullo. Hello.

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 5 of 37 4

1 2 3

MR. WAXMAN: THE COURT: MR. WAXMAN:

Jeremy Gladstone and Stacey Shortall. Yes. Mr. Kornberg will be handling the two

4 motions which are going to be addressed today. 5 6 7 8 welcome. 9 10 you. 11 THE COURT: I have read these papers several times, And, let me just talk up front MR. KORNBERG: Good afternoon, Your Honor. Thank THE COURT: MR. WAXMAN: THE COURT: Thank you. So, with that, I'll turn it over. Thank you, Mr. Waxman. Mr. Kornberg,

12 even most of the appendices.

13 about what my concern is and probably people won't be 14 surprised. Why isn't this an advisory opinion at this point, The thought being, if

15 that you're seeking from the Court?

16 there's no recovery then these issues don't even -- won't even 17 come before -- wouldn't even come before me for a decision. 18 And, that kind of is my thinking so I thought I would at least 19 alert the parties for where I am on the matters. 20 21 and -22 THE COURT: And, I'm not trying to foreclose your MR. KORNBERG: Well, I appreciate that, Your Honor,

23 arguments at all, or shortcut them, but at least you'll know 24 what's in the back of my mind. 25 MR. KORNBERG: I understand, Your Honor. I

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 6 of 37 5

1 appreciate that.

If we can start with the motion to reopen the

2 Chapter 11 case, Your Honor, I think that logically is the 3 first matter to be heard. Obviously, we're here today to

4 reopen this Chapter 11 case for a very limited and specific 5 purpose and that is for the Court to hear and determine Onex's 6 motion for an order enforcing the Chapter 11 plan against the 7 litigation trust and the litigation trustee. 8 9 THE COURT: Yes. Your Honor may recall that the Court

MR. KORNBERG:

10 closed the cases of all of the affiliated debtors other than 11 Magnatrax Corporation by order dated June 23, 2006. 12 order is Exhibit 10 in our voluminous appendix. 13 14 THE COURT: Yes. The Court thereafter closed the And, that

MR. KORNBERG:

15 Magnatrax Corporation case by order dated November 8, 2006 and 16 that appears as Exhibit 11. Notably, in the November 8th order

17 the Court specifically provided that it would retain 18 jurisdiction, and this is a quote, "over any and all orders 19 entered in the reorganized debtors Chapter 11 case including 20 but not limited to the confirmation order." 21 fourth decretal paragraph. That's in the

And, in the fifth decretal

22 paragraph the Court expressly retained jurisdiction over the 23 litigation trust, the litigation trust agreement, and the plan. 24 So, the Court has the power and the discretion to reopen these 25 Chapter 11 cases, not only because of this Court's prior

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 7 of 37 6

1 orders, but because Section 350(b) of the Bankruptcy Code says 2 it may do so for cause, and under Bankruptcy Rule 5010 a case 3 may be reopened by the debtor or another party in interest, and 4 Onex, of course, was a shareholder in the Chapter 11 case and 5 therefore has standing to seek to reopen the case. 6 The Third Circuit has made it clear that the decision

7 to reopen a Chapter 11 case is permitted to the discretion of 8 the Court, that's In Re: Zinchek (sic). And, that decision,

9 which is from 2005, makes clear also that the Court has broad 10 discretion in deciding whether to reopen the case. And, if

11 there are similar proceedings pending elsewhere that case tells 12 us the Bankruptcy Court should make a determination as to which 13 is the most appropriate forum to adjudicate the issues raised 14 by the motion to reopen. And, this may go to the concern that

15 Your Honor expressed at the outset that the reason that we are 16 here is that we want the confirmation order issued by this 17 Court to be enforced as written and to maintain the integrity 18 of what took place during the Chapter 11 case. 19 There can be no question that the Court retains the And that, of course, is what

20 power to enforce its own orders. 21 we are seeking today.

But, in this case the Bankruptcy Court

22 specifically retained jurisdiction to determine exactly the 23 kind of controversy that we have present today. I'll be That is

24 referring a lot to the Chapter 11 plan in this case. 25 Exhibit 1 in our appendix.

And, in Article 10 which is the

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 8 of 37 7

1 Retention of Jurisdiction, there are a number of provisions 2 starting at Page 54. Specifically, Your Honor, Article 10D, as

3 in David, provides that the Court retains exclusive 4 jurisdiction to "hear and determine any dispute arising under 5 the plan, arising under any of the plan documents" and plan 6 documents is defined to include the litigation trust agreement, 7 or the confirmation order, or the interpretation, 8 implementation, or enforcement of the plan in any of the plan 9 documents and the confirmation order. Yet under Article 10I at

10 Page 55 the Court retains jurisdiction to restrain interference 11 by any person with the implementation or enforcement of the 12 plan, the confirmation order, or any other order of the 13 Bankruptcy Court. In Article 10J, to issue such orders as may

14 be necessary or appropriate to construe, enforce, implement, 15 execute, and consummate the plan, or maintain the integrity of 16 the plan following the consummation. 17 And, Your Honor, the confirmation order itself, which

18 is Exhibit 2, in Decretal Paragraph 5 on Page 21 provides that 19 the Court retain exclusive jurisdiction over all matters 20 relating to, leaving out some text, but includes the plan, 21 including those specified in Article 10 of the plan. And,

22 those are the provisions that we just went through a moment 23 ago. 24 As was the case in Zinchek, the Bankruptcy Court is

25 well suited to provide the best interpretation of its own

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 9 of 37 8

1 order.

And, not surprisingly, many other cases observed that

2 the Bankruptcy Court is the best Court to determine the meaning 3 of its own confirmation order. Even though we have litigation

4 pending in the District Court, and Your Honor is quite right, 5 that is the Court that will determine if there's any liability. 6 On a related question concerning the trustee's standing as a 7 representative of the estate, which was litigated there, the 8 District Court recognized that the amount of damages 9 recoverable by the litigation trustee rested upon, "Bankruptcy 10 principles." And, Your Honor, we submit that this is the best

11 Court to determine and elucidate those principles, particularly 12 because they turn on interpretation and implementation of the 13 Bankruptcy Code's cram down powers, which very much were at 14 stake and at issue in the confirmation. 15 THE COURT: Now, I understood though when he was

16 talking about Bankruptcy principles that he was talking more 17 about the substantive law as opposed to if you -- well, not 18 that is -- I'm not suggesting that this is simply procedural, 19 your issue, but that he wasn't talking about the principles of 20 the confirmation plan, or the plan of confirmation, or this 21 Court's order, that he was talking about, you know, the 22 substance surrounding the lawsuit before him. 23 MR. KORNBERG: No, Your Honor, I think the question

24 was the question whether the trustee can recover more than that 25 which was owed to unsecured creditors was the issue. And, we

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 10 of 37 9

1 read that language and I think it's clearly intended to go to 2 this very issue, which is under Bankruptcy Law principles, and 3 frankly, I mean, the Bankruptcy Law principles as they were 4 applied in this case, can creditors recover in a Chapter 11 5 case 50 times what they were owed when they went into the 6 Bankruptcy case? And, Your Honor, the best Court to determine

7 the cram down principles, the best Court to determine how those 8 principles were played out in this case is this Court. And,

9 that is one of the reasons this Court, as any Court would do, 10 would retain jurisdiction to determine the effect of its own 11 confirmation order. 12 And, Your Honor, I would submit that the trustee

13 himself has recognized that this is the appropriate Court in 14 which to resolve issues relating to the litigation trust. As

15 Your Honor may recall, the trustee filed on November 1, 2006, 16 not all that long ago, a motion which he ultimately chose not 17 to pursue to expand the litigation trust agreement so that all 18 unsecured creditors, not just the opt ins, could benefit from 19 any recoveries he sought in the Georgia litigation. 20 Implicating some of the same issues, frankly, that are before 21 the Court today. So, I think the trustee's recognized that

22 these are the sorts of issues that this Court, which confirmed 23 the plan and is in the best position to interpret its meaning, 24 is the right Court. 25 With respect to the objections that the trustee has

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 11 of 37 10

1 lodged to reopening the case. 2 not have standing.

First, he argues that Onex does

And, we believe mistakenly relies on the It's a

3 case of In Re: Alpex Computer Corp., that's A-l-p-e-x. 4 Tenth Circuit decision from 1995. In that case a patent

5 infringer who's a defendant in litigation, but that was not a 6 party to the Chapter 11 case, was not a party in interest, 7 wanted the case reopened to promote a particular construction 8 of the Chapter 11 plan. Very different circumstances. Here,

9 Onex has standing because it was a shareholder.

Indeed, as

10 described in Footnote 3 of Onex's substantive motion it 11 invested more than 117 million dollars in cash in these 12 debtors. The plan completely wiped out that investment relying

13 upon cram down powers, and it's not credible to argue that Onex 14 doesn't have standing to make sure that those cram down 15 protections that the law provides to it are enforced. The

16 trustee also mistakenly relies on In Re: Commercial Loan 17 Corporation. Thereto, the defendant, the unlucky law firm, was It was not a creditor, it

18 a stranger to the Bankruptcy case.

19 did not represent the debtor, it was simply not a party in 20 interest. And so, the Court was reluctant to permit a stranger

21 to the Bankruptcy case to come back after the fact and reopen 22 it for their own purposes. And, in that case also the Court

23 acknowledged that unlike the Third Circuit the Seventh Circuit 24 did not have post-confirmation jurisdiction to consider the 25 claims at issue because of the constricted interpretation

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 12 of 37 11

1 related to jurisdiction employed by the Seventh Circuit. 2 And, finally, the trustee makes an argument that Onex

3 American Holdings, the name of the movant here, filed a 4 certificate of dissolution and therefore it has no standing. 5 Well, that certainly did not stop the trustee from suing Onex 6 American Holdings for 600 million dollars in Georgia. And,

7 anyway, it's irrelevant because under Delaware liability law, 8 of course, the assets of that entity are distributed to its 9 members, in this case Onex Corporation, I think the trustee 10 refers to that himself in his papers. And, in any event, if

11 there is any doubt about standing we have four unlucky 12 employees, Messrs. Schwartz, Hilson, Wright, and Gauvin, who 13 are individual shareholders, therefore parties in interest in 14 the Chapter 11 case. And, not only did they lose their stock

15 as well, but they are named defendants in the trustee's action. 16 In sum, Your Honor, we would urge the Court to

17 exercise its discretion to reopen the case to hear these 18 important issues. Your Honor is the best suited to interpret The plan and the

19 the confirmation order and the plan.

20 confirmation order specifically reserved jurisdiction for those 21 purposes. Onex was a party in interest in the Chapter 11 case, And, as we

22 with standing to invoke Your Honor's jurisdiction.

23 will describe in the main motion to be heard before the Court 24 today, we need your assistance to maintain the integrity of the 25 Chapter 11 plan and the confirmation order. There are

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 13 of 37 12

1 important issues at stake concerning the disclosures made to 2 the Court during confirmation, upon which Onex, other parties, 3 and the Court relied, and we'd like Your Honor to compare that 4 to the trustee's inconsistent positions now taken in the action 5 he brought against Onex and others in Georgia. So, for those

6 reasons we would respectfully request that Your Honor reopen 7 the case for the limited purpose we seek. 8 9 10 11 THE COURT: Thank you, Mr. Kornberg. Simon. Mr. Ward.

UNIDENTIFIED ATTORNEY: THE COURT: MR. SIMON:

Mr. Simon, forgive me. That's okay, I used to work with Mr.

12 Ward, Your Honor, he's much better looking than I am. 13 14 15 16 older. 17 MR. SIMON: Your Honor, it's good to see you. At THE COURT: MR. SIMON: THE COURT: That's right. Your Honor, -He's (indiscernible) and he's a lot No, not true.

18 this time I want to see the podium to Ms. Steege. 19 20 21 22 23 24 25 THE COURT: MR. SIMON: THE COURT: MS. STEEGE: THE COURT: MS. STEEGE: THE COURT: Thank you. Thank you. And, is that pronounced Steege? Steege, Your Honor. Steege. Welcome, Ms. Steege.

Thank you, Your Honor. Now, just as I kind of announced where my

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 14 of 37 13

1 thinking was on the -- I suppose the advisory opinion aspect, I 2 have to tell you that depending upon where we get on the second 3 motion, I think that there's an awfully valid reason for this 4 Court to be deciding the ultimate issues, should they come 5 before me when it's appropriate, and I'm not saying that's not 6 right now, but at such time as it's appropriate, this Court 7 ought to be enforcing its confirmation order, and interpreting 8 it it seems to me as opposed to a District Court in Georgia. 9 MS. STEEGE: Your Honor, we don't disagree that the

10 Court would be the Court to enforce the confirmation order, if 11 that's what this motion's are about. 12 they're about. That's not really what

What we think the main event about, their main

13 motion about, is seeking to ask you to revoke the confirmation 14 order that the Bankruptcy Court entered three plus years ago. 15 With respect to the motion to reopen the case, the first 16 question any Federal Court has to ask itself, obviously, is if 17 it has jurisdiction to hear on that. And, notwithstanding the

18 laundry list of retention of jurisdiction provisions found in 19 the plan and in the Court's confirmation order, the case law is 20 clear that those provisions don't create jurisdiction if it 21 doesn't otherwise exist in connection with the underlying 22 dispute. The Court can't write its own jurisdictional ticket

23 is how I think the Appellate Courts referred to that. 24 And, here, I think there's two independent reasons

25 why this Court should not be reopening this case, because there

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 15 of 37 14

1 isn't cause, because there isn't jurisdiction at this 2 particular point in time for Your Honor to get into these 3 issues. And, as Your Honor correctly pointed out, you may We certainly hope you do, we certainly hope

4 never get there.

5 that there is 600 million dollars to fight over, but we're not 6 there yet. And, the first reason is the reason that Your Honor

7 stated, as a Federal Court you can't issue advisory opinions. 8 Now, you have to ask yourself, if this Court was the Court to 9 decide that issue in the first place, the Onex defendants 10 raised the issue of the cap on damages and how it intersected 11 with fraudulent conveyance law of this Court's confirmation 12 order, and the like. 13 the Georgia Court. They raised that in the first instance in

And, the Georgia District Court said, "I'm

14 going to deal with that when and if it's appropriate to deal 15 with a damage award." And, I would agree with Your Honor that

16 his statement about Bankruptcy principles was dealing with 17 things like principles under Section 548 and 547, and Section 18 550 of the Recovery Provisions, and how he might deal with 19 those things. But, he correctly I think recognized that that

20 wasn't really an issue that was to be decided on a motion to 21 dismiss and to be decided at that point before liability was 22 determined. So, I think coming here after the fact I think

23 creates -- if connote's (sic) the correct word when you're 24 dealing with two Federal Courts, it creates a real question 25 about why they had moved the dispute to another forum, and I

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 16 of 37 15

1 think that's inappropriate, out of a matter of respect between 2 the two sister Courts. But, in addition, I think it also

3 raises the point that Your Honor made which is that they're 4 seeking an advisory opinion at this juncture in the litigation. 5 I also think that there is a serious question about

6 the standing of Onex American Holding to file this motion. 7 Onex American Holding is a party that has filed this motion. 8 It's not just generally Onex, all four individual directors 9 that we sued. 10 Holding. They're not here today. It's Onex American

And, the starting point to figure out who can bring a

11 motion to reopen a case is Rule 5010 of the Federal Rules of 12 Bankruptcy Procedure. And, that rule states that a debtor has The debtor is not here

13 a right to seek to reopen a case.

14 asking that this case be reopened, has not joined in this 15 motion. And, it indicates that a party in interest may seek to Typically, and that Tenth Circuit case that we

16 reopen a case.

17 cite in our responsive papers talks about the fact that 18 generally a party in interest is a creditor who has some 19 dispute that comes up after confirmation that needs to be 20 addressed with respect to the debtor's Bankruptcy. They say, Well,

21 well, they have standing because they were shareholders. 22 Onex American Holding dissolved in December of 2002. 23 don't dispute that.

They

Under Delaware Limited Liability Law,

24 Section 18203, because they did not condition the effectiveness 25 of this dissolution on a later date or a later event it was

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 17 of 37 16

1 gone.

So, it was not a shareholder as of the petition date.

2 It was never a party in interest in these Bankruptcy 3 proceedings. 4 Now, maybe members of that entity somehow succeeded

5 to the equity interests but those members are not here and we 6 don't really have any evidentiary base. They say it's Onex

7 Corporation, I don't know that for a fact, I speculate it is 8 somebody within the Onex family. 9 haven't seen the papers. But, I don't know and I

We discovered this dissolution quite

10 after the fact after we had named them out as party, and after 11 they had appeared on their behalf without raising the issue, we 12 then found out about it through some documents that were as I 13 understand it produced in discovery. So, that entity never

14 existed, wasn't a party in interest at the start of the 15 Bankruptcy case. 16 So then, they say, well, okay, let's just ignore all We don't

17 that and pretend somebody else filed this motion.

18 think Your Honor should do that, we think that's inappropriate, 19 particularly given the other jurisdictional issues. But, if

20 Your Honor was to do that and say, "Okay, we'll pretend that 21 this was Onex Corporation that filed this motion or one of the 22 individuals who had some money or equity interest they say at 23 the time of the filing of the Bankruptcy," although I will 24 note, Your Honor, with respect to those four individuals they 25 were not disclosed as shareholders of Magnatrax Corporation on

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 18 of 37 17

1 the initial filing listing who were the shareholders.

The

2 shareholders were listed as Onex American Holdings, a CIBC 3 entity, and then a teacher's pension fund out of Ontario. But,

4 in any event, if we pretend they're here, they're no longer 5 here as shareholders, Your Honor. The Court confirmed a plan

6 that became effective on January 20th of 2004 that extinguished 7 the interests of all shareholders of Magnatrax Corporation. 8 So, they are no longer today an equity holder in this case. 9 So, they can't rest their standing on the status that they no 10 longer had. And, just parenthetically, in the Bankruptcy --

11 pardon me, in the District Court, when we have pointed out that 12 they were actually the parties managing Onex, they were the 13 sponsors of Onex, they had, you know, claimed that they had 14 nothing to do with it, they weren't really involved. So, I

15 mean it's interesting that they're taking a different position 16 here. 17 So, if they don't have standing as an equity holder,

18 which I don't think they do, then they must be resting their 19 standing on the fact that they're a defendant in this lawsuit 20 that's pending in Georgia. And, that's where I think the Tenth

21 Circuit case that we cite, the Alpex Computer case, comes into 22 play. Because there the effects of that case were that the

23 defendant in a lawsuit was coming into Bankruptcy Court and 24 saying, "Since the disclosure statement described these patent 25 infringement actions and the value of claims in the case" in a

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 19 of 37 18

1 particular amount, I think it was two million dollars there, 2 "we, Nintendo, we're going to be nice, we're going to toss in 3 3.9 million dollars," and Bankruptcy Judge made them take that. 4 The Bankruptcy Court opened the case but then denied the 5 motion. When they were on their way up to the Court of Appeals

6 the debtor's estate, the trust struck it rich, they got a 200 7 million dollar judgment out of the New York Court. They're up

8 in the Tenth Circuit and Nintendo is still arguing, "Well, the 9 Court should have granted our motion," and the Court I think 10 said that they have quite a bit of chutzpah in asking for that, 11 and found that they really did not have standing to come in and 12 reopen the case, and went through I think a fairly careful 13 analysis of why a defendant in litigation with a trust formed 14 out of a bankruptcy doesn't really have standing. Whatever

15 their rights are to defend themselves, whatever Onex American 16 Holdings, if it has any rights since it doesn't exist, or Onex 17 Corporation, or these other individuals, those rights are being 18 recognized by the District Court in Georgia and they're, you 19 know, very vigorously defending themselves there. And so, this

20 Court shouldn't be interjecting itself at this point in this 21 (indiscernible). 22 And so, we would submit that there's a jurisdictional

23 problem with reopening the case, and given that we think the 24 motion ought to be denied and we ought not to get to the 25 question of whether what they're asking for today is some form

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 20 of 37 19

1 of interpretation of Your Honor's order or as we would submit 2 really a request that you vacate that order and start all over 3 again. 4 Thank you, Your Honor. THE COURT: Thank you. Mr. Kornberg, I assume that

5 your individuals are shareholders because of the dissolution, 6 because that was -7 8 9 10 11 MR. KORNBERG: THE COURT: No, they were actually shareholders.

They were at the time? Directly. Yes, Your Honor.

MR. KORNBERG: THE COURT:

Okay. And, indeed, again, I think to make a

MR. KORNBERG:

12 big point of the dissolution that took place, it's okay for 13 them -- for Onex American Holdings to be sued for 600 million 14 dollars, it's just not okay for Onex American Holdings to come 15 to this Court and say, "You know, my rights were taken away 16 under Bankruptcy plan because of a record and representations 17 made and now I can't enforce the plan according to the record 18 that was made." I mean, Your Honor, it really sticks in our

19 craw to suggest that there's no standing because we were at the 20 receiving end of a cram down plan which eradicated those 21 interests based on a very specific record made by not only the 22 debtor but by the creditor's committee, and the same counsel 23 that represents the litigation trust made affirmative 24 representations which enabled the Court to find that a Section 25 1129(b) was complied with. That was the mechanism that

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 21 of 37 20

1 resulted in the equity interests, 117 million dollars of them 2 being wiped out. To suggest that we don't have standing

3 because that was effectuated and now the parties are changing 4 their positions about whether the plan confirmed with cram down 5 is really I think outrageous. There are many, many situations

6 where after the fact parties in interest are before the Court 7 to make sure that the integrity of the Chapter 11 process is 8 respected and a confirmation order enforced. 9 asking be done here. 10 But, let me also point out that the party in interest That's all we're

11 cases that were cited most often do involve creditors coming 12 back into court, but we all know that Section 1109 of the 13 Bankruptcy Code does not define party in interest selectively. 14 It includes specifically equity security holders, and that's 15 what we have here. 16 Your Honor, I heard two conflicting things. On the

17 one hand the trustee apparently believes that the Judge in the 18 District Court in Georgia was concerned about the applicability 19 of Section 548. Well, if that's the case, and I think Your

20 Honor expressed his view that perhaps that he was going to -21 22 THE COURT: Yes, that was a concern. Then the specific question we have It hasn't been

MR. KORNBERG:

23 here today is not before the Georgia Court. 24 addressed by the Georgia Court.

We have never gone into the

25 Georgia Court and said, "Please interpret the Chapter 11 plan

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 22 of 37 21

1 for us."

What we did, so there's no mystery about it, is we That motion was

2 filed a motion to dismiss the entire case. 3 granted in part and denied in part. 4 5 THE COURT: Right.

MR. KORNBERG:

We were hoping the whole litigation We are now

6 would go away.

Obviously, that didn't happen.

7 coming into this Court to say, "Well, there's an aspect of 8 their litigation that is violating, in direct violation of the 9 plan that was confirmed and of the record that was made and we 10 think this Court should be vitally interested in maintaining 11 the integrity of the process," frankly, just the way Judge 12 Walsh did in the forklift case that we submitted to the Court 13 and parties on Wednesday night. So, we think there can be no

14 question that there is discretion here to open this case and 15 that it should be exercised. These are vitally important

16 issues in terms of what took place in this Court with respect 17 to a cram down plan. 18 And, we just also add that our interest, and this is

19 not theoretical and it's not premature, for the Onex entities 20 to be facing a 600 million dollar lawsuit, and the 21 extraordinary expense and scope of that litigation, versus what 22 should be properly a 12 million dollar lawsuit, is like night 23 and day. This would have an enormous practical effect on Onex.

24 But, in any event, Your Honor, we believe that the plan should 25 be enforced. It's not an advisory opinion to say there's a

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 23 of 37 22

1 controversy about what the plan means.

And, this is I think

2 under all of the authorities and particularly in the Third 3 Circuit which does have a different view of its retained 4 jurisdiction, there can be no dispute that Your Honor has the 5 jurisdiction to interpret the Court's own orders. 6 Black Letter Law and that's all we're seeking. 7 THE COURT: And, I don't think the litigation trust That is

8 is disagreeing with you on that, that this Court has 9 jurisdiction. I think their issue is the timing and whether or

10 not Onex has the standing to assert. 11 MR. KORNBERG: Well, as to the standing issue, Your

12 Honor, we were a party directly agreed by the confirmation 13 order. 14 this. And, that's the point of time that you should look at There was a record made and specific findings made that

15 said, "Onex, sorry, but because this debtor is hopelessly 16 insolvent and because no creditors are going to be paid in 17 full, you have to give up your stock." I can't imagine a more Now,

18 aggrieved party by the entry of that confirmation order.

19 we didn't object to the confirmation because a record was made. 20 We can talk about that a little later in some detail. But, we

21 certainly were a party aggrieved by the confirmation order, our 22 interests were wiped out. 23 That's number one.

Number two, frankly, Your Honor, we filed a motion to

24 dismiss in the Georgia action, we've already recited what the 25 history was. If we sit back and do nothing and wait for the

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 24 of 37 23

1 years that it may take to resolve that litigation and come back 2 into this court, I assure you that the litigation trustee will 3 say what he has already said in his papers, which is it's too 4 late to come back to this Court. So, Your Honor, we brought It will very much It is not a

5 this at we think the appropriate time.

6 affect the conduct of the litigation in Georgia. 7 hypothetical, it's not an advisory opinion.

I can't really

8 fathom the argument that says there may be a plan violation 9 but, you know, we don't have to deal with it now. 10 do, Your Honor. 11 THE COURT: Well, I'm going to do something a little I think we

12 bit unusual.

And that is, I'd like you to proceed with your

13 argument as to why this is timely to be brought at this point, 14 your motion. And, I'm talking about Item Number 2 on the

15 Agenda, which is your motion to enforce the confirmation plan. 16 Because, for example, part of your argument was, you know, if 17 this was a 12 million dollar lawsuit it would be one thing, 18 but, in fact, it may turn out to be a zero dollar lawsuit, 19 depending on what happens in Georgia, in which case all of the 20 consequences of what I might decide on a motion would be 21 meaningless. At the same time if it's a 600 million dollar

22 recovery it creates a whole different set of issues including 23 perhaps the revocation of the confirmation order and bringing 24 into play other interested parties who might be entitled to 25 share in the recovery.

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 25 of 37 24

1

MR. KORNBERG:

Your Honor, I don't believe, and I

2 think the trustee has argued this, that the Court has the power 3 to revoke the confirmation order. 4 late in the day to do that. I think it is, frankly, too I

We didn't seek that relief.

5 don't know under what theory one could possibly at this point 6 seek revocation. 7 is enforcement. And, we don't need revocation, what we need Your Honor, again, how a litigation is

8 conducted, whether it's 12 million dollars at stake versus 600 9 million, it is just day and night. 10 THE COURT: There is a huge difference.

Well, is there any question in your mind

11 that the litigation trust has the authority to bring 12 litigation? In other words, from the Court's standpoint what

13 I'm hearing is, "Your Honor, they have the power to bring 14 litigation, they're just not allowed to collect." 15 16 17 MR. KORNBERG: THE COURT: Your Honor, let me put it in my words.

Yes. The Court in Georgia has ruled that

MR. KORNBERG:

18 they can bring the litigation and the debtor's claims were 19 assigned to them. That's one issue. The issue then is what And, there is

20 are they entitled to recover in that litigation? 21 obviously a vast difference.

We say that on the record

22 presented and the plan confirmed it's limited to the allowed 23 amount of the trust beneficiaries, which is approximately 12 24 million dollars. They say, "No, we," and let me just say that

25 I think what is very, very troubling and another reason why the

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 26 of 37 25

1 Court needs to intervene now is after the Chapter 11 case was 2 over, years after it was over, almost two years to the day, 3 they filed a complaint saying, "Only kidding about the gross 4 amount of the claims, we really want 600 million dollars," 5 which is in our view a clear violation of the confirmation 6 order, a clear violation of the representations that were made, 7 and clear violation of the record that Judge Walsh relied on. 8 So, that the violation that's occurring under the Chapter 11 9 plan is here and now and should be addressed now. And, we

10 think, frankly, it is the Court's responsibility in the 11 interest of maintaining the integrity of its own proceedings to 12 enforce those orders now under both principles of judicial 13 estoppel and equitable estoppel. 14 So, there is a violation going on now, Your Honor,

15 and I don't think it is fair to Onex to say, "Oh, well, why 16 don't you wait and see how the whole thing turns out in two 17 years." I don't think that we should be put through the

18 expense and aggravation and uncertainty of having to postpone 19 this to another day when we believe that the plan is being 20 violated now. 21 Honor of that. 22 THE COURT: Thank you. Ms. Steege, come back up and Here's And, I hope I will be able to convince Your

23 again give me the trust's position on the timing.

24 what's troubling me and perhaps I'm not articulating it very 25 well, but you have a right to bring the litigation.

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 27 of 37 26

1 2

MS. STEEGE: THE COURT:

Yes, Your Honor. But, we're being told that you only have

3 the right to bring the litigation to recover 12 million 4 dollars. And, I don't know that it's this Court's -- it's

5 proper for this Court to be telling a Georgia Court that the 6 litigation will be brought but you can only award damages up to 7 a certain amount, and that's what I would be doing. 8 MS. STEEGE: Yes, Your Honor. And, what they're

9 really asking you to do is to give them the release that Judge 10 Walsh -- if Your Honor saw, and you mentioned you went through 11 the lengthy appendix, the confirmation transcript was there, I 12 mean, it's a lot of discussion about the releases, and one of 13 the things Judge Walsh really was not that comfortable with was 14 the notion of granting releases in the context of this case 15 where parties really weren't contributing very much for those 16 releases. And, it was very plainly made clear that the Onex

17 parties were being carved out of any releases, and now they're 18 coming in and they're saying, "We actually really do think 19 we're entitled to that release and we're going to argue that we 20 should get that release by virtue of this plan enforcement," 21 which we would contend is really revocation of confirmation, 22 modification of the plan, whatever you want to call it, it's 23 changing what the playing was, and a plan that clearly assigned 24 all of the causes of action over this to this trust for 25 pursuit. Debtor's counsel said it. We've put it in the trust.

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 28 of 37 27

1 They can spend their money to investigate it, pursue it, and 2 collect whatever's available. 3 available." His words were, "whatever is

So, all of this pounding on the table about

4 enforcing their right to only have a 12 million dollar claim 5 brought against them, that is not anything that's remotely 6 close to what is in this plan of reorganization, what was said 7 at the confirmation hearing. There is no basis under which one

8 would construe what occurred here as some creation by the 9 Bankruptcy Court of a cap on liability or a personal release of 10 Onex's liabilities to the trust, whatever they may be 11 determined to be, by the Georgia District Court. 12 And, I think, Your Honor, all of the table pounding

13 aside about enforcing this plan you have to ask yourself, the 14 lawsuit was filed in May of 2005, they filed a motion to 15 dismiss, they filed several motions to dismiss in the Georgia 16 Court. The Georgia Court addressed this issue, issued an If this was such

17 opinion in September of this past year, 2006.

18 a clear violation of the plan and the Court's confirmation 19 order, why have we waited, why have we put the Georgia Court 20 through all of this? And, in point in fact, they asked the They asked the Georgia

21 Georgia Court to interpret the plan.

22 Court to find that the confirmation order which created the 23 litigation trust was inappropriate under Section 1129 and 1123 24 because they contended that not all unsecured creditors opted 25 into it, that that somehow voided it and made it inappropriate

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 29 of 37 28

1 under a variety of cases that they discuss. 2 Court rejected that.

Now, the Georgia

But, they have, in fact, gone to that

3 Court and sought rulings from that Court which would have had 4 the effect of interpreting what this Court has done previously. 5 So, I don't think they're really coming here in a

6 timely manner and saying, "You've got to enforce your order 7 because they've just gone out and done something that we don't 8 like." Which is what I think gets back to the whole question Which is, why are we

9 that Your Honor asked to begin with. 10 doing this now?

You really should not be doing it now.

11 Anything you would be doing would be advisory, it would be in 12 effect interjecting into the Georgia litigation, there is a 13 District Court Judge who is presiding over it and making 14 rulings, some for them, some for us, it's how it goes in these 15 things. And, that's really the Court that ought to get there.

16 And then, at some point we hope hopefully when there is a 17 judgment for the benefit of creditors here, if they really 18 believe that there is an enforcement issue with respect to the 19 plan, they can always bring that back in front of Your Honor. 20 We'll probably have many of the same arguments we have here 21 today, but then at that point it'll be appropriate for Your 22 Honor to decide that from a jurisdictional perspective and Your 23 Honor can have the satisfaction of knowing that what you're 24 doing is actually going to make a difference as opposed to 25 ruling hypothetically about what may or may not come to pass.

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 30 of 37 29

1 2 yes. 3 4 point. 5 6

THE COURT:

Thank you, Ms. Steege.

Mr. Kornberg,

MR. KORNBERG:

Your Honor, I have just one brief

THE COURT:

Please. And, I'm sorry, I normally don't like

MR. KORNBERG:

7 to keep popping up. 8 9 THE COURT: No, no, I'm fine with it. I just want to be clear, we are not

MR. KORNBERG:

10 asking this Court to tell the Georgia Court to do anything. 11 Let me be very clear. 12 13 THE COURT: Okay. And, let me also be very clear that we

MR. KORNBERG:

14 filed, when we filed the motion before Your Honor we filed it 15 with the District Court in Georgia to make sure that the Judge 16 was aware of what we had done. We're not in any way saying

17 that the Bankruptcy Court should tell the District Court what 18 to do, but we are asking Your Honor to tell the litigation 19 trustee what to do. And, if we get to the merits of the motion

20 I'll take Your Honor through the litigation trust agreement 21 which makes it very, very, very clear that the plan determines 22 what goes on here, not the litigation trust agreement. 23 And so, we are asking Your Honor to correct a

24 violation that is ongoing by the trustee and to order the 25 trustee to do or not do something. We're not asking you to

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 31 of 37 30

1 interfere with the Georgia action. 2 And, finally, Your Honor, I'm not sure I understand Are we too early? Or are we too late? We contend there's

3 the trustee's position.

4 I think in a way it doesn't really matter. 5 a plan violation going on now. 6 whole litigation.

We did try to get rid of the

We filed that motion in Georgia, just to

7 give you a sense of the time frame, we filed our motion to 8 dismiss in August 2005. They brought -- well, the plan was The litigation trustee

9 confirmed in 2003, November 17, 2003.

10 waited two years, well not quite two years, waited until may 11 10th, 2005 to bring the Georgia action. 12 dismiss on August 1. 13 September of 2006. We filed a motion to

The Court didn't rule in Georgia until

And, I don't think, Your Honor, we'd have

14 to be challenging their lawsuit in any multiple jurisdictions 15 at one time but we're here now because the trustee is in our 16 view clearly violating this Chapter 11 plan. This would not be

17 an advisory opinion nor would it be an improper encroachment 18 upon the Georgia Court's jurisdiction. 19 THE COURT: So, just to kind of summarize, you're not

20 seeking, clearly, to enjoin the prosecution of the Georgia 21 litigation? 22 MR. KORNBERG: Clearly not, Your Honor. In fact, let

23 me be clear that in the notice that we filed with the Georgia 24 Court we said we will conduct that case, it will not interfere 25 at all, discovery is raging. We will continue with that. We

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 32 of 37 31

1 are not trying to enjoin enforcement, we're saying just enforce 2 the plan against the trustee so that when the trustee gets to 3 distribute whatever he may recover it will be the amount of the 4 allowed claims and no more. 5 THE COURT: But, isn't that the whole point here?

6 The word "when"? 7

And, when is not now. But, Your Honor, they've already said

MR. KORNBERG:

8 we're too late to seek the relief before Your Honor. 9 THE COURT: Well, they may say that but I'm not

10 necessarily saying that, in fact, as I've indicated my concern 11 is that you're too early. 12 MR. KORNBERG: Well, but, Your Honor, I think that

13 the Third Circuit cases are clear that there is an interest 14 that the Court has, aside -- let me just say, the fact that we 15 -16 17 THE COURT: In the integrity of the order. Exactly. And, there is on file an

MR. KORNBERG:

18 amended complaint by the trustee that says, "I want 600 million 19 dollars from these folks." That is a violation of the

20 confirmation order, the plan, and the litigation trust 21 agreement. And, that violation exists today. The fact that

22 the trustee may not make his recovery for awhile I think is 23 really neither here nor there from the stand point of this 24 Court maintaining the integrity of its orders and its rulings. 25 And, I assure you that we'll have all kinds of complaints later

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 33 of 37 32

1 on that we waited too long if we don't seek and obtain this 2 relief today. But, again, it would not interfere with the

3 conduct of the Georgia action in any way. 4 THE COURT: So, what Onex is basically saying is, "Go

5 forward with the litigation with the understanding that the 6 recovery is limited to 12 million dollars"? 7 MR. KORNBERG: Correct. That the recovery is limited

8 by the terms of the plan.

And, to the extent that you think

9 the litigation trustee, that you are not bound by the plan 10 we'll have a Bankruptcy Court order that makes that clear. It

11 will have a practical effect I think on the litigation in the 12 sense that if the parties believe they're litigating over 12 13 million versus 600 million it may be quite a different lawsuit 14 and the expense may be quite different. And, I would be

15 lacking candor if I didn't say that that is obviously one of 16 the things that motivates us. 17 18 19 here. 20 THE COURT: And, I suspected, obviously, that it THE COURT: Yes. We've had horrific, horrific expense

MR. KORNBERG:

21 would -- that part of Onex's concern was the parameters of the 22 litigation and the dynamics and how to settle the case and how 23 to resolve the case short of trial and that sort of thing. 24 MR. KORNBERG: Clearly. But, in terms it would be we

25 are not asking for this Court to in any way to restrain the

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 34 of 37 33

1 conduct of that litigation. 2 THE COURT: Thank you, Mr. Kornberg. Ms. Steege, I'm

3 happy to hear anything further that you would like to state, or 4 nothing. I mean, I think you've covered the points. But, if

5 there's anything else I don't want you to feel foreclosed from 6 speaking. 7 8 MS. STEEGE: THE COURT: No, Your Honor. Thank you. Okay. I think what I'd like

9 to do because I find it helpful to me, let's take a 15-minute 10 recess and then I can kind of gather my thoughts a little bit 11 and come back. And, if I'm able to rule I will, and if not

12 then I'll so indicate that we'll proceed with, you know, an 13 under submission ruling. 14 Fifteen minutes. 15 counsel. 16 17 18 THE CLERK: THE COURT: (Recess) Please rise. Please be seated. Thank you very much. I So, I'll be back in a few minutes. Thank you,

Let's just say 3 o'clock.

19 appreciate your indulgence because the case has been presented 20 well by both sides and one of my problems and something that I 21 have to guard against I think is that I love to decide things 22 and on occasion I have to be careful not to decide something 23 that I shouldn't and I do think that that is the situation 24 here. I do think that a decision as to whether or not this I am troubled

25 case can proceed would be an advisory opinion.

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 35 of 37 34

1 by the effect that a 600 million dollar recovery or a recovery 2 significantly in excess of the dollar amount of the claims of 3 the beneficiaries of the liquidation trust that a large 4 recovery would impact the integrity of the plan. 5 But, at the same time at this point with a case

6 proceeding I think it would be an inappropriate interference by 7 this Court in pending litigation in Georgia. Having said that,

8 and ruling that it is inappropriate for the Court to reach the 9 merits at this time, I do think that under the proper 10 circumstances the Court would reopen the case to consider the 11 merits of the arguments that Onex has made. 12 not foreclosing that. So, I'm certainly

I am a little bit concerned about the

13 status of the movant here as a dissolved limited liability 14 company whose charter in effect has been canceled at this 15 point. But, because I'm not addressing the merits at this time

16 and therefore am not reopening the case at this time for the 17 limited purpose that Onex sought to reopen it, I don't have to 18 reach that issue. But, I wanted to go back and look at the

19 Delaware Code because I think there are some issues that might 20 make it difficult if not impossible for the LLC itself to raise 21 the issues that it has raised in this proceeding at this time. 22 So, I mean the Third Circuit has said on occasion, Combustion Engineering case where

23 there is a case, the In Re:

24 the Court said, "You know, people can sue, in effect, but that 25 doesn't mean that they'll collect." And, in the

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 36 of 37 35

1 Combustion Engineering on case it was addressing indemnities 2 and it wasn't clear at that time in that case that the 3 indemnification provisions would ever be invoked because there 4 had not been a recovery at that time in that case that 5 implicated those indemnities. And, I think that's the

6 situation that we have here and I'm not trying to avoid a 7 decision, but I think it would be inappropriate for this Court, 8 with litigation pending in the District Court in Georgia, to 9 make a ruling that would impact that case which is properly 10 proceeding at this point. What impact and ultimate judgment

11 recovery will have on what has transpired previously in this 12 Court and on the confirmation plan and the confirmation order, 13 I think there are some issues that have been raised that 14 interest the Court very much, but this isn't the time for the 15 Court to be making that decision. 16 So, I'm going to at this point deny the motion for

17 reopening without prejudice and I'm going to rule that the 18 merits of the motion to compel the compliance with the plan is 19 not right for adjudication. And, accordingly, I've leave the

20 parties to proceed with the litigation in the District Court in 21 Georgia, and when and if appropriate to return to this Court 22 for further proceedings. Any questions? Okay. Then I'll

23 issue an order in accordance with the ruling and I thank 24 counsel and we'll stand in recess, perhaps for good, and if not 25 then I'll see you back here. Thank you very much, counsel.

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-2

Filed 11/16/2007

Page 37 of 37 36

1 2 3 4 5 6 7 8 9

ALL:

Thank you, Your Honor. Thank you, Your Honor. Thank you. * * * * *

MR. ITO:

THE COURT:

C E R T I F I C A T I O N

I, Marlene A. Fattore, certify that the foregoing is

10 a correct transcript from the official electronic sound 11 recording of the proceedings in the above-entitled matter, and 12 to the best of my ability. 13 14 /s/ Marlene A. Fattore 15 MARLENE A. FATTORE 16 J&J COURT TRANSCRIBERS, INC. 17 18 19 20 21 22 23 24 25 Date: April 18, 2007

J&J COURT TRANSCRIBERS, INC.

Case 1:07-cv-00263-SLR

Document 14-3

Filed 11/16/2007

Page 1 of 4

TAB 2

2

Case 1:07-cv-00263-SLR

Document 14-3

Filed 11/16/2007

Page 2 of 4

IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: MA GNATRAX CORPORATION, Reorganized Debtor. )
) Chapter 11

) ) )

Case No. 03-11402(KG) Re: D.I. 1762

ORDER RE MOTION OF ONEX AMERICAN HOLDINGS, LLC, FOR ORDER REOPENING CHAPTER 11 CASE FOR LIMITED PURPOSE AND MOTION FOR ORDER ENFORCING CHAPTER 1 I PLAN WHEREAS: 1. On April 13, 2007, the Court heard argument on the Motion of Onex American

Holdings, LLC, for Order Reopening Chapter 11 Case for Limited Purpose (DJ, 1739) ("the
Motion to Reopen"); and to a limited extent as it related to the Motion to Reopen, the Motion of Onex American Holdings, I,LC for Order Enforcing Chapter 11 Plan (D.I. 1737) ("the

Motion to Enforce") (collectively, the Motions"). 2. The Motions brought by Onex American Holdings, LLC ("Onex") arise from

litigation brought against Onex and others by the Trustee for the Magnatrax Litigation Trust ("the Trust"), which was created pursuant to Debtors' Fifth Amended and Restated Joint Plan of Reorganization Under Chapter 1 1 of the Bankruptcy Code (DJ. 478) ("the Plan") and the Order confirming the Plan which this Court entered on November 17, 2003 (D.I.694)("the Confirmation Order"). 3. The Court entered a Final Decree closing the Chapter 11 case on November

8, 2006 (D.I. 1713).

4,

Under the Plan, causes of action were assigned to the Trust whose beneficiaries

include those unsecured creditors who elected to become beneficiaries and who funded the

Case 1:07-cv-00263-SLR

Document 14-3

Filed 11/16/2007

Page 3 of 4

Trust's expenses by contributing a portion of their distributions under the Plan, The claims in the bankruptcy case of the Trust's beneficiaries total approximately $12 million. 5. The Trust brought suit against Onex Corporation and affiliates which is

pending in the United States District Court for the Northern District of Georgia ("the Litigation" and "the District Court") in which the Trust seeks damages of $600 million, 6. Onex now seeks to reopen the Chapter 11 case for the limited purpose of

enabling the Court to consider the Motion to Enforce, in which Onex argues that the Trust's effort to recover $600 million in the Litigation violates the Plan and the Confirmation Order. The stated grounds for the Motion to Enforce are, in short, that by seeking $600 million in the Litigation, the Trust violates the absolute priority rule since such a recovery would result up to 50 times the Trust beneficiaries' claims when the Plan was "crammed down" on Onex and other equity holders in violation of 11 U.S.C. 1129(b). 7. The Litigation is proceeding and the District Court issued a lengthy opinion on

motions to dismiss whereby the District Court dismissed some counts and sustained others. In connection with the motions to dismiss, Onex and the other defendants contested the Trust's ability to recover in excess of $600 million on behalf of creditors holding approximately $12 million in claims. The District Court ruled that (Opinion at 15): Finally, Defendants [Onex] ask this court to rule that [the Trust] is entitled only to recover the amount of injury to the creditors who opted into the [Trust]. This court declines to narrow the case on the issue of recovery at this time. Whether, under bankruptcy principles, a plaintiff representing a class of unsecured creditors has or does not have the right to recover more than the amount of the actual damages of those unsecured creditors is an issue that is better determined after liability issues. 2

Case 1:07-cv-00263-SLR

Document 14-3

Filed 11/16/2007

Page 4 of 4

$,

Onex does not seek a ruling that the Trust violated the Plan by filing the

Litigation but, rather, that the violation consists of its seeking $600 million or an amount in excess of the Trust beneficiaries' claims. However, as the District Court ruled implicitly if not directly, the serious issues Onex has raised may never be ripe for decision because the Trust first must obtain a, judgment in an amount Onex believes would violate the Plan, The "if and when°" of such a result establishes that a decision on the Motion to Enforce would be premature.
9. Onex already raised the ability of the Trust to seek an amount in excess of the

dollar amount ofthe Trust beneficiaries' claims with the District Court. It is inappropriate for the Court to interfere with the District Court's disposition of the Litigation IT IS TI-IEREFORE ORDERED TI-IAT in the exercise of its discretion, the Court

denies the Motion to Reopen without prejudice on the ground that the issues Onex raises are not ripe for adjudication. A decision on the Motions would constitute an ill-advised advisory opinion and would interfere with the jurisdiction of the District Court in violation of the principle of comity and contrary to the best interests of, justice. In re Zinchiak, 406 F.3d 214, 225 (3d. Cir. 2005) (the decision to reopen is within the Court's discretion and an important consideration is the pendency of another litigation).

Dated: April 16, 2007

3

Case 1:07-cv-00263-SLR

Document 14-4

Filed 11/16/2007

Page 1 of 39

TAB 3

3

Case 1:07-cv-00263-SLR

Document 14-4

Filed 11/16/2007

Page 2 of 39

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.

Case 1:07-cv-00263-SLR

Document 14-4

Filed 11/16/2007

Page 3 of 39

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

Case 1:07-cv-00263-SLR

Document 14-4

Filed 11/16/2007

Page 4 of 39

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 t