Free Motion to Vacate - District Court of Arizona - Arizona

000272STATE-BK Preemption

1 2 3 In re: 4

UNITED STATES BANKRUPTCY COURT DISTRICT OF ARIZONA ) ) ) ) ) ) ) ) )

GTI CAPITAL HOLDINGS LLC 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Also Present: APPEARANCES: For G.H. Goodman Investment Companies, LLC and GTI Capital Holdings LLC: For Comerica Bank-California:

CH: 7

2:03-bk-07923-SSC ADV. 2-07-00031

GTI CAPITAL HOLDINGS LLC vs. COMERICA BANK-CALIFORNIA, AS SUCCESSOR SETTLEMENT CONFERENCE

U.S. Bankruptcy Court st 230 N. 1 Avenue Phoenix, AZ 85003 February 20, 2008 9:11 a.m. BEFORE THE HONORABLE RANDOLPH J. HAINES, Judge

Michael W. Carmel MICHAEL W. CARMEL, LTD. 80 E. Columbus Avenue Phoenix, AZ 85012-4965 John R. Clemency GREENBERG TRAURIG LLP 2375 East Camelback Road Suite 700 Phoenix, AZ 85016 Greg Curry David Reaves Susan Nystrom

Proceedings recorded by electronic sound technician, Sheri Fletcher; transcript produced by A/V Tronics, Inc. A/V TRONICS, INC.

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2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE CLERK: In the case of 037923, GTI Capital

Holdings, Adversary 0731. THE COURT: MR. CARMEL: Appearances? Good morning, Judge Haines. Michael

Carmel for the Plaintiff/Trustee, David Reaves. will be here. He's just outside for a second.

Mr. Reaves And we also

have Greg Curry who is the expert that's going to be testifying, that will be assisting us in the mediation. MR. CLEMENCY: Good morning, Your Honor. John

Clemency of Greenberg Traurig, appearing on behalf of Comerica Bank. I have Susan Nystrom who is senior vice president and

assistant general counsel with me today as well. THE COURT: And that was Susan Nystrom? Yeah, N-Y-S-T-R-O-M.

MR. CLEMENCY: THE COURT:

All right, thank you. Thank you. I start out on the record just

MR. CLEMENCY: THE COURT:

Welcome.

so that we are all clear and share the understanding of what we are about today. And once we've accomplished that, everything

thereafter will be off the record, and moreover, will be confidential. But that's one of the main ground rules I want

to make sure we all understand before we go off the record, is the confidentiality issue. First of all, what we're about here today, and you're all sophisticated parties, so you probably don't need to hear A/V TRONICS, INC.

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3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 this, but I'll say it nonetheless. reach a settlement. We're here hopefully to

I'm not here as a judge, notwithstanding I'm here to help you reach a

how it looks at the moment.

settlement that in the end both sides want, or at least prefer over the alternative, and usually that's the way it comes out. You some times hear people talk about mediation as a process that can achieve a win/win solution. view of it. That's not my

I must say I at one time perhaps experienced that,

but usually it is not a win/win solution, or at least that's not the way the parties feel when they leave the mediation at the end of the day, even if they have reached a settlement. So

usually the best you can hope for out of this process is a can live with, can live with. Our real goal here is to find something that each side can live with. You probably won't be happy with about it,

but you can live with it, and you conclude it's better than the alternative. the litigate. The risks and expense and so forth of continuing So that's what we're about. And my role is

solely to help you reach that point. One thing that that means is I'm not here to decide anything, and therefore, it doesn't necessarily benefit the process for you to try to convince me of anything. Because

whether I agree with you or disagree with you, doesn't in the end make a whole lot of difference. Except to the extent that

it helps me help both sides come to a position they both can A/V TRONICS, INC.

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4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 live with. If you can tell me something about your position,

either its strengths or its weaknesses, or about the other sides position as you perceive it that helps me find a place that you can both live with, that's useful. Not however to That

convince me that you're right and always have been right. really doesn't advance the ball at all as far as what we're here to try to do today. On the confidentiality issue. confidences.

I will maintain your

I want both sides to be completely frank with me.

And to facilitate that, to make you feel comfortable that you can be frank with me, I want you to know that I will maintain your confidence. But there's a huge caveat to that, and that

is the presumption is going to be if you tell me something, I am free to use it, as my judgment dictates, to try to reach a point that both of you can live with. And therefore, if you

want me to keep something in confidence you need to alert me to that, you need to make it clear. it, it won't leave this room. side or your presiding judge. If you do, I will maintain

It won't be told to the other I will use it only in, you know,

helping me figure out a process that can get us to a point you both can live with. But again, you need to make clear to me

that this is a fact or a view or whatever, that you do not want me to reveal to the other side. Very often when you do that I'll -- I may ask you, "You sure?" Because a lot of times you think, "Well, I can't A/V TRONICS, INC.

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5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 let the other side knows this. settlement is because what? The reason I can't move in

I've got this internal political And your view may be, you

problem, or something like that."

know, "That's our confidence, I don't want the other side to know that." On the other hand, it may be that if the other

side understood the reason why you can't move anywhere in settlement, it might actually help us get to a point that you both can live with if I can use that fact. So we may discuss

whether you want to actually keep something in confidence or not. But again, the important thing is that you need to tell And

me this is something that we need to keep confidential. again, I encourage you to do that.

It will at least help me

come up with hopefully a process by which we can get to a point you both can live with, and that's what you're all here for today. So with that, explain a little bit about how we go about this today. Usually what I do is spend virtually all the

time -- and the parties, you've used the term yourselves -- in this "shuttle diplomacy." That is, I talk with one side and Usually I don't -- you know, Let's all talk about

then I talk with the other side.

some mediators try to do it all publicly. it together.

I usually don't find that that's very helpful. You've

In a sense you've probably already been doing that.

probably already had those kinds of settlement talks and they haven't worked so far, and what you need here is a little A/V TRONICS, INC.

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6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 different process. So usually I don't, for example, even In a sense you've given them to me

invite opening statements.

already in confidence, and I've reviewed them, so I think I know where each of you is coming from. Usually in litigation like this both sides also clearly understand where the other side is coming from. Sometimes that's not true. Sometimes there's a real Usually you

misunderstanding, but usually that's not the case.

know exactly what the other side's view is, and therefore, there's no real benefit to kind of making public position statements in front of each other, and therefore, I propose not to start out with that today. With one exception, and that is,

I would like to get clear and make sure both of you understand clearly also exactly where settlement offers stood before we start today. So first let me ask if anybody has any questions on how we're going to proceed. And then secondly, I'm going to

ask each of you to tell me what was your last settlement offer that was made and any additional terms to it that I need to know. So any questions on how we proceed? I guess one more before you go, as far as my meeting with one side and then the other, it means that you may have a lot of down time. You may be sitting around here while I'm

meeting with the other side for a period of time, so I hope you brought some work with you. Feel free to use your laptops,

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7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 dollars. MS. NYSTROM: THE COURT: I'm sorry? One million five hundred thousand. What is it? And your cell phones. We're not really in court, at least once we

start the mediation process, so make use of your time. Sometimes I will in effect give you an assignment or ask you to work on something while I'm meeting with the other side, but I hope you have other work you can do, if you don't have anything to be working on at the moment. So first of all, any questions from anybody on how we're proceeding? We're all in agreement on what the process

is and what we hope to achieve today? MR. CARMEL: For the record, Your Honor, Michael

Carmel for Mr. Reaves, we understand the process and agree to the ground rules you've set forth. THE COURT: Good. Yeah, absolutely fine, Your Honor.

MR. CLEMENCY: Understood. THE COURT: I'll just pick a side. settlement offer? MR. CARMEL:

And why don't I hear first -- I guess Mr. Carmel, what was your last

One million five hundred thousand

explain to me how that would be accomplished? MR. CARMEL: THE COURT:

There are monies in the court registry. And that's about 616 or something like

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8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that? MR. CARMEL: Yeah, roughly speaking 616, and the bank So the bank would in

asserts a lien against those monies.

effect release its lien or walk away from that money -from those monies, and then pay the difference, which is 884,000. THE COURT: To the estate, and then where that

money goes, has that been resolved, or are there still issues on that? available? MR. CARMEL: There are -- there's attorneys' fees, That is, who gets the money once it becomes

and I'm working under a special arrangement approved by Judge Curley. There's a contingent fee that I'm working under. And

the net monies would then be available for distribution in the normal course in a Chapter 7 case. The Chapter 7 fees would be There

paid first, and then Chapter 11 administrative expenses.

are other monies in the court registry that are unencumbered that would be part of the pot that would be available. administrative expenses were fully paid, then -THE COURT: MR. CARMEL: THE COURT: Chapter 11? MR. CARMEL: THE COURT: Yes, sir. Yes, sir. Of the 11? I'm sorry? You mean administrative expenses of the And if

That's not likely though, is it?

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9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 next. be paid? MR. CARMEL: For all the administrative expenses to It's possible, but

I would say that it's not likely.

it's not likely, in light of what the administrative expense claims are. I'm just telling you where -- and then if there

was any monies after that, of course priority claims and so on and so forth. But pretty much -- I believe with one potentially significant exception, this is the last asset that the estate needs to administer. This -- these claims that we're dealing There are two aspects of it.

with respect to Comerica.

There's the adversary proceeding, and then there's -THE COURT: And that's what I was going to ask you

What is it in effect you're giving for that settlement?

What does that resolve? MR. CARMEL: two matters. From our standpoint that would resolve

One, the adversary proceeding that is scheduled
th

for trial starting on March 10

before Judge Curley, she has The second --

two days -- two full days set aside. THE COURT:

And is that basically the breach of

contract -- breach of this -- the term sheet settlement adversary? MR. CARMEL: THE COURT: MR. CARMEL: And Section 510. And 510, right. And -- yes. And then the other aspect

is tomorrow we have an oral argument scheduled in front of the A/V TRONICS, INC.

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10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BAP. MR. CARMEL: THE COURT: Yes, sir. So those two -- and they are both claims transfer? MR. CARMEL: THE COURT: That is correct. And that's argument tomorrow before the BAP. THE COURT: litigation, it's -MR. CARMEL: THE COURT: Correct. -- now limited to a fraudulent On what was called the Deprizio

by the Trustee, so those two would be resolved, each side to pay their own costs and attorneys' fees. MR. CARMEL: THE COURT: offer made? MR. CARMEL:
nd January 22 , or a few day after that.

Correct. All right. And when was this settlement

The reason that I say January 22nd is those were -- that was the day that there were depositions taken in San Jose. So whether

it was that particular day or there was some follow up discussions, you know, within a few days after that, that gives you at least a time frame. THE COURT: All right, thank you. And Mr. Clemency. John Clemency

MR. CLEMENCY: for Comerica.

Thank you, Your Honor.

What Comerica is prepared to do is to pay or A/V TRONICS, INC.

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11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 not. MR. CLEMENCY: I think there were discussions, Your leave behind -THE COURT: Let me just clarify right now though, I'm

not asking you right now what you're prepared to do. MR. CLEMENCY: THE COURT: that they received? MR. CLEMENCY: THE COURT: Well, I don't -Right.

But I am asking what was your last offer

Maybe they're different, maybe they're

Honor, and I don't know if there was ever a final offer. THE COURT: Okay. And that's why I think the appropriate

MR. CLEMENCY:

thing to say is what Comerica's offer -- if it was all boiled down would be to take -- and I think it's actually 618,000, that's subject to what we've referred to as the UCC lien money, and use that to pay the balance of the claims owing to creditors that were on Exhibit A of the term sheet settlement agreement, which was what Comerica was prepared to pay before all of this unraveled. If you do the math I think it ends up

being a little over 500,000, maybe close to $550,000. THE COURT: approximately? MR. CLEMENCY: THE COURT: Yes, uh-huh. These are the registry funds, the 616,

So in effect, you would release your lien

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12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 on registry funds, and they would be used to pay the balance of the Exhibit A claims. MR. CLEMENCY: Right. And those Exhibit A claims

are, for example, a claim that's still owing to the Arizona Department of Revenue, for example. in round figures. That the balance is $5,500

Bombardier is owed from its Exhibit A claim But if

roughly $88,000, and I believe there's a schedule.

you add them all up it ends up being I think about 550 or 559,000. Comerica also would expect as part of a settlement, that there would be a complete release by the Chapter 7 estate, so there's no potential for any future litigation. And

Comerica would also expect that the Chapter 7 estate would effectuate as part of that release a dismissal of any lingering state court claims that are being prosecuted on behalf of the Debtors in this case. And without getting into the details of our confidential memorandum, we shared with you Judge, some of the stuff that's going on in state court. And what's happened is

before Mr. Carmel and Mr. Reaves got involved in the case, the examiner and the Debtors functionally -- for lack of better terms, and I don't want this to be a bankruptcy term of art -but abandoned that litigation. Not formally, but abandoned it

to the principal of GTI, Grant Goodman, who continues to litigate those claims. Most of the claims have been resolved

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13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 through summary judgment, but one or two of them are still floating through the appellate courts. We would expect that

the Chapter 7 Trustee who owns those claims would release them and assist in getting them dismissed too. really where we are at this point. THE COURT: Okay. Thank you. And with that then again, And I think that's

MR. CLEMENCY: THE COURT:

Thank you.

unless there are any other questions, I'm prepared to go off the record and start discussing this with each side. I guess one last question. Mr. Carmel, the offer

you've just described, you believe in one way or another -pardon me, I misspoke -- Mr. Clemency, was communicated. The

other side understood that you were willing to settle on those terms. MR. CLEMENCY: Again, Your Honor, I don't believe

that there's been a formal offer, but it's been the subject of discussions. We actually did make a formal offer early on in

the process where we were going to lead bond (sic) $100,000 of the registry funds. I don't want to mix metaphors here,

because registry funds are related to something else in the case as well, but the UCC money, and that offer was rejected without any counteroffer. MS. NYSTROM: Yeah, I think our last offer, Your

Honor, was 500 in response to -- actually, in response to a A/V TRONICS, INC.

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14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 walk away. THE COURT: All right. And I guess one other

question for both sides.

It seems to me that on the one hand

maybe this should be easier because of this, but on the other hand it may be more difficult, and that is, we're really only talking about one thing here, and that's money, right? MR. CARMEL: THE COURT: Right. There's really nothing else that either

side can gain nor lose in this -- or wants to get out of this or is worried about giving up in this settlement. purely money, isn't it? MR. CLEMENCY: Yes, Your Honor. The Court is very It really is

familiar with the medication that Judge Case was handling with a matter in front of you, and you don't have anywhere near those kinds of issues. cents. THE COURT: All right. Well, any other questions or As I say, I'm not really This is just strictly dollars and

anything else anybody wants to say?

inviting you to, you know, give me your position statements, I think I've read them and so forth. All right. side of this. Let me start out meeting with the Trustee

My guess is -- and I'm always wrong usually by

100 percent -- that this initial meeting may only take a half an hour. But at least you can count on a half hour if you want Usually my

to leave and come back, but it may run to an hour. A/V TRONICS, INC.

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15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 initial meetings do, so. Feel free to use the courtroom and

you know, the witness rooms out there if you want. MR. CLEMENCY: THE COURT: (Recess) THE COURT: We are back on the record in the Okay. Thanks, Judge.

And with that, we are off the record.

mediation of the GTI issues, and I'll note the same parties who made their appearances first thing this morning. I'm pleased

to announce the parties have reached a settlement, and I'll put that settlement on the record now. Ask everybody to listen

carefully, and then ask both sides to confirm that I've correctly stated the terms of the settlement or correct any errors I made or add anything that I might have missed. The terms of the settlement are that Comerica will pay -- and I'll explain that in a moment -- to the Trustee a total of $950,000. That will be paid in two different ways.

First of all, there will be a -- not necessarily first in time -- but number one, there will be a release of Comerica's claim to funds that are held in the court registry that were approximately $616,000 as of February of last year. That

amount will be slightly greater because of accrued interest. But whatever it is, Comerica will release their claims to those registry funds, and that will constitute the first part of the payment of $950,000. And then the balance will be paid by a

check or wire transfer from Comerica to the Trustee. A/V TRONICS, INC.

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16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 In exchange, the litigation between the Trustee and Comerica will be dismissed with prejudice, and there will be broad releases granted by the Trustee of all claims asserted or that could be asserted against Comerica by the Trustee, by the estate, or by the Debtor or the Debtor's principals asserting estate claims. And the precise terms of that release will be

drafted by Mr. Clemency and provided to the Trustee and Counsel for review. The parties recognize that this release will be the broadest possible release of claims that could be asserted by, for example, Mr. Goodman, but on the other hand, they recognize that it won't necessarily end everything, because Mr. Goodman might argue he has claims on his own that are not estate claims, and there isn't much that the Trustee can do about that. The BAP argument that is scheduled for tomorrow will be continued or cancelled. The depositions that are scheduled There will be a

for next week will be continued or cancelled.

full settlement agreement that will be signed by all parties. The Trustee will promptly move for bankruptcy court approval of this settlement, and ask for -- if a hearing is necessary on the approval, that it be set for March 11, the time currently set for a trial, or of course it might be done by negative notice if the Court approves. The bank will either try to get the settlement check A/V TRONICS, INC.

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17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 into the Trustee's hands before bankruptcy approval or very promptly thereafter. One key term is that this is a binding deal as of now, and we do have confirmation from the bank officer, Susan Nystrom, that she does have authority to bind the bank to this settlement. The only issue is getting the authority for the But as far as an agreement on the amount,

check to be issued.

the bank is bound as of now. And I believe those are all of the terms. start with Mr. Carmel. misstated anything? MR. CARMEL: I don't think you have, Your Honor, but So let me

Is there anything else, or have I

if I may clarify that the authority issue is strictly one that has the potential of dealing with federal regulations on the availability of bank officers that need to sign off on it. But

you stated that Ms. Nystrom has the authority, but in terms of actually authorizing the payment, it's strictly one of -- the only potential problem is the bank's federal regulation issues in terms of the authority and availability of someone that needs to do that. THE COURT: MR. CARMEL: That's my understanding. Okay. All right.

With that, Your Honor, and with

respect to the appeal, you mentioned that the BAP argument is canceled. From the Trustee's standpoint, we will be filing the

papers to effectively dismiss our appeal. A/V TRONICS, INC.

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18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 tomorrow. MR. CARMEL: terms, Your Honor. THE COURT: All right, thank you. John Clemency for Comerica Bank. The Right. The Trustee agrees to all those THE COURT: That's true. Ultimately obviously the

BAP appeal will be dismissed. MR. CARMEL: THE COURT: Yeah. And in the interim, until that gets filed

and the settlement agreement gets signed and approved, you will postpone or continue -MR. CARMEL: THE COURT: Right. -- the argument scheduled for

MR. CLEMENCY:

terms that you've announced are acceptable to Comerica bank as well. I just wanted to make sure that one thing was clear on the record in terms of the thrust of the releases that will be delivered from the estate to Comerica. It would be

Comerica's expectation that those releases would also release its agents and attorneys that have been bound up in litigation brought by Mr. Goodman on behalf of GTI, including the litigation against a woman named Carol Clemency; so that'll get dismissed. And then the parties will just sign whatever

documentation that's needed to implement the terms of a release, including dismissal papers and things of that A/V TRONICS, INC.

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19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 guess. MR. CLEMENCY: THE COURT: Right. nature. With that clarification, Comerica is in support and prepared to be bound by the settlement. THE COURT: And I guess we should clarify as well

that there will be a rather traditional further cooperation clause. Both parties agree to cooperate to effectuate this

settlement, and it should be noted that of the claims being released, most, perhaps all of them, are claims that are -well, a number of them are pending places other than bankruptcy and the bankruptcy appeal process, some are in state court -MR. CLEMENCY: THE COURT: That's right.

-- and some are in federal court, I

But the intent is, to the extent that the

Trustee has authority to release them and dismiss them, that will be done. MR. CLEMENCY: MR. CARMEL: Right. And we agree with respect to the

attorneys and officer and other individuals that Mr. Clemency identified when he made his statement just now. THE COURT: settlement. MR. CLEMENCY: Thanks a lot, Judge. All right. That concludes the

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20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A/V TRONICS, INC. Case 2:03-cv-01587-JAT Document 132-7
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MS. NYSTROM: THE COURT: MR. CARMEL: THE COURT:

Thank you, Judge. Thank you all. Congratulations.

Thank you, Your Honor. Thank you for your cooperation.

(Proceeding Concluded)

I certify that the foregoing is a correct transcript from the record of proceedings in the above-entitled matter.

Dated: April 16, 2008 A/V Tronics, Inc. 365 E. Coronado Road Suite #100 Phoenix, AZ 85004-1525

Filed 06/13/2008

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