Free Motion to Vacate - District Court of Arizona - Arizona

000174STATE-BK Preemption

1 2 3 In re: 4

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

GTI CAPITAL HOLDINGS LLC 5 1) 6 7 HEARING RE SETTLEMENT 8 2) 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 132-6
E-Reporting and E-Transcription Phoenix, AZ (602) 263-0885 Tucson, AZ (520) 403-8024

CH: 7

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

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

GTI CAPITAL HOLDINGS, LLC vs MCNEILUS TRUCK & MANUFACTURING, INC. MOTION TO SET HEARING REQUEST FOR STATUS HEARING FILED BY MICHAEL W. CARMEL OF MICHAEL W. CARMEL, LTD. ON BEHALF OF GTI CAPITAL HOLDINGS

ADV. 2-05-00974

3)

GTI CAPITAL HOLDINGS, LLC vs OSHKOSH/MCNEILUS FINANCIAL SERVICES MOTION TO SET HEARING REQUEST FOR STATUS HEARING FILED BY MICHAEL W. CARMEL OF MICHAEL W. CARMEL, LTD. ON BEHALF OF GTI CAPITAL HOLDINGS

ADV. 2-05-00975

U.S. Bankruptcy Court 230 N. First Avenue Phoenix, AZ 85003 March 11, 2008 10:10 a.m. BEFORE THE HONORABLE SARAH S. CURLEY, Judge

Filed 06/13/2008

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APPEARANCES: For David M. Reaves, Chapter 7 Trustee: Michael W. Carmel MICHAEL W. CARMEL, LTD. 80 E. Columbus Ave. Phoenix, AZ 85012-4965 John R. Clemency GREENBERG TRAURIG LLP 2375 East Camelback Road Suite 700 Phoenix, AZ 85016 Grant Goodman GRANT H. GOODMAN, PLLC 4156 N. 49th Street Phoenix, AZ 85018 David M. Reaves, Chapter 7 Trustee

For Comerica Bank: 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Also Present: For Pre-Emptive Sued Claimants, et al.:

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

Case 2:03-cv-01587-JAT

Document 132-6

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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 WITNESSES: David (By (By (By (By M. Reaves Mr. Carmel) Mr. Goodman) Mr. Clemency) Mr. Carmel)

INDEX Direct Cross Redirect Recross

23 40 71 77

A/V TRONICS, INC. Case 2:03-cv-01587-JAT Document 132-6 Tucson, AZ (520) 403-8024 Filed 06/13/2008
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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 THE COURT: THE CLERK: 073105974 and 05975. THE COURT: MR. CARMEL: Okay. May I have the appearances. Be seated, please. 037923, GTI Capital Holdings, Adversary

Good morning, Your Honor, Michael Carmel

for the Trustee, Mr. Reaves who's present at counsel table. THE COURT: Okay. Good morning, Your Honor, John I'm here on behalf of Comerica

MR. CLEMENCY:

Clemency of Greenberg Traurig.

Bank in relation to adversary 0731. MR. GOODMAN: Good morning, Your Honor, Grant Goodman

on behalf of the Pre-Emptive Sued Claimants, and Claimants in the State Courts, Federal District Courts, U.S. Supreme Courts, 9th Circuit BAP. I'm trying to think of what other entities But the interested parties as

they were trying to expunge. well. Thank you. THE COURT: MR. CARMEL: Okay.

Mr. Carmel.

Your Honor, on the adversaries that are

974 and 975, we've settled with Mr. Albue, and I'll be submitting papers on that. So if you want to continue that for

30 days, subject -- or take it off the calendar subject to call, as long as the settlement papers come in, we're just going to be filing motions as we have been in all the other adversary proceedings to approve that settlement. THE COURT: Okay. Why don't we just go ahead and out

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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 morning. of an overabundance of caution, just set a back up 7016 date. And you tell me, 60 days out, wherever you'd like it, and you can obviously vacate it. MR. CARMEL: Let's do 60 days, Judge. And then in

the order approving the settlement agreement, assuming that there's no objections, and there haven't been at any of the avoidance actions, we'll include a provision that vacates that hearing date and time. THE COURT: Okay. We'll give you those dates right

now -- or the date right now. THE CLERK: THE COURT: May the 8th at 10 a.m. Okay. May the 8
th

at 10 a.m.

And it's

for the two adversaries. and three on the calendar. as necessary. MR. CARMEL: THE COURT: MR. CARMEL:

I think those are items numbers three And you can vacate those hearings

Thank you. Okay. Your Honor, on the other matter, did the

Court get a chance to see the objection that was filed -THE COURT: MR. CARMEL: THE COURT: this morning. MR. CARMEL: Yeah, it was filed at 4:02 this A I did. -- at 4:02? I just got it though. It just came in

I took a look at it myself a little while ago.

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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 couple of things. First, the notice was very clear that objections had to be filed by last Thursday March 6th, so it's untimely. I

think on those grounds alone you can overrule the objection. And in fact, I would urge you to overrule the objection on those grounds. Because what happens all the time is that people file these things at the last second in contravention of the directives that are sanctions by the court, and on those grounds alone it should be denied. Let's get to the substance, if you will. objection is filed on behalf of two entities and two individuals. The entities are Triad Commercial Captive and The

Stirling Bridge LLC -- strike that, three entities -- as well as New York-Newport. Goodman. The way that I read the objection is the complaint that they have is that the Trustee's settlement with Comerica is releasing claims that these parties have against Comerica. That simply is incorrect. We went through three quarters of a day of mediation in front of Judge Haines on February 20th. Didn't know until Then the individuals are Grant and Teri

the very end, as you typically do in these mediations, whether there was going to be settlement or whether we were going to be starting a trial this morning. Well we resolved it.

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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 And it was very clear in what we announced on the record and the agreement of the parties, that the only claims that are being released are claims that the estates have; that the Trustee can assert on behalf of the estates. We made it very clear that the Trustee was not releasing claims that anybody else may or may not be asserting against Comerica. Comerica's representative who flew from Detroit knew that, Mr. Clemency knew that, Mr. Reaves knew that, I did, and so did Judge Haines. The parties that were to the 9th Circuit mandamus writ that is attached to the objection, are Northern Highlands I and II, Stirling Bridge, GHG, Inc., West Highland Water and Power, LLC, Triad Captive, and Mr. and Mrs. Goodman. It's unclear who all of the entities are that are the petitioners in the Supreme Court brief. Because in the

petition caption -- petition for writ of certiorari it says, "Stirling Bridge LLC, Grant H. and Teri Goodman, et al." it's a 78-page petition. And

I've gone through it as quickly as I

possibly could, but you never really get a delineation as to who the -- all of the petitioners are. Having said that, Judge -- and I want to make it very clear, and I believe that Mr. Clemency will so confirm -- the contemplated release, as well as the settlement agreement, is not releasing any claims that any of those individuals or

A/V TRONICS, INC. Case 2:03-cv-01587-JAT Document 132-6 Tucson, AZ (520) 403-8024 Filed 06/13/2008
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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 threefold. entities that I just itemized, may have against Comerica. The claims that are being settled are basically They are twofold within adversary 0731, which was And in a broad sense, Judge,

scheduled to go to trial today.

it was breach of contract and breach of -- I'm sorry -- and an equitable subordination claim. Those are claims that the

estate had, not Mr. and Mrs. Goodman, not any of these entities. The other aspect of what was being dismissed is the appeal that we filed of Your Honor's order on what's call the Deprizio litigation. 548(d)(2)(1) issue. Which was the -- what I'll call the And we settled that claim.

The mediation occurred on February 20th, and we had an appeal oral argument on the 21st. So when we went the next

th morning -- we had notified the BAP on the afternoon of the 20 ,

and they said still show up.

And they said, "You've got to And we

either argue now, or if you've settled that's fine."

said, "No, we've settled, it's subject to settle herein today, but you know we settled." The BAP then issued an order saying that we have to
th get the papers on file with them by March 28 .

So that's where

we're at with the BAP. I cannot emphasize it enough that we believe the settlement agreement that was mediated by Judge Haines is in the benefit -- the best benefit of the bankruptcy estates.

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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 I've talked to a number of the parties who have administrative claims who are going to benefit from this settlement agreement and the monies that are coming in; $950,000 gross. that we obtained. And they are uniformly gleeful with the result And I think that gleeful is probably frankly

understating their response. Judge, Mr. Reaves is here, I can put him on the stand if necessary, to satisfy the Woodson's factors. As an offer of

proof I'll tell you that all of the elements of Woodson apply. I had uploaded an order yesterday, because we had not received any objections. Obviously, in light of this, the But -- and I don't

order needs to be changed a little bit.

know if Your Honor had an opportunity to review the order, but so that it is abundantly clear, if it were not already, I am prepared and Mr. Clemency has so agreed, to include the following language which says: "It is further ordered that nothing in this order, or the approved settlement agreement and release of claims attached thereto, shall be deem or construed to be a release of any claims asserted by any non-debtor entities or individuals." And Your Honor, instead of you like rushing through real quick, if you want I can just hand you up my copy of what I --

A/V TRONICS, INC. Case 2:03-cv-01587-JAT Document 132-6 Tucson, AZ (520) 403-8024 Filed 06/13/2008
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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 it. THE COURT: MR. CARMEL: THE COURT: MR. CARMEL: Oh, okay. Super.

May I approach? Yes, thank you. Yeah. I was writing quickly.

And before I do that, Judge, I

also made some notations on the front page about reflecting that there was an untimely objection on there. THE COURT: Okay. So this is your proposal. Now,

does everyone else have this language as well? MR. CARMEL: I gave it to Mr. Clemency. He agreed to

I offered it to Mr. Goodman and he said that he was not

interested in looking at it. THE COURT: in a minute. change. MR. CARMEL: THE COURT: MR. CARMEL: uploaded yesterday. Yes, Your Honor. Okay. That's the actual order that was Okay. Well, I'll hear from Mr. Goodman

But any way, this is your proposed language

I can't tell you if it was the afternoon

or late morning, but with the proposed language change. THE COURT: MR. CARMEL: -- or any questions? THE COURT: Not at this time. I may at some point go Okay. Does the Court have any other questions

to Mr. Reaves and have him briefly testify, but I think for now I've got your position.

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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 MR. CARMEL: that that's necessary. THE COURT: Okay. Mr. Clemency, anything you want to We're prepared to do that if you feel

add before I hear from Mr. Goodman? MR. CLEMENCY: Just a couple of things. Your Honor,

John Clemency for Comerica. The settlement agreement and the release are very clear on who the parties are and what the claims are. But it should be pointed out, and I'm sure you have as fond a memory of this as I do, that there were State Court claims brought by the GTI debtors in this case. claims are resolved. Okay? Those

They're resolved once and for all, and

we'll be filing things over in the State Court to make sure that those claims are resolved. My strong suspicion is that the objection that you're going to hear from Mr. Goodman is that somehow other parties' claims are compromised as a result of that effect. And I guess all I can say from Comerica's perspective is, Mr. Goodman's appearance today on behalf of unnamed claimants or vague interested parties, I suppose is an attempt to try to suggest to you that he represents in the State Court GTI and GH Goodman. And you may remember you actually approved the Kent and Wittekind firm to prosecute those claims in State Court. They withdraw. Probably unbeknownst to you, and Mr. Goodman

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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 has picked up those claims. As a practical matter, those claims have been the subject of summary judgment decisions by the Superior Court. They have also been the subject of affirmances in the Arizona Court of Appeals. They -- one way or another, in a fairly

vague way, found their way down to Tucson in front of the District Court and Judge Bury dismissed them. They in some

form or another may be lingering in the 9th Circuit or in the petition for cert before the Supreme Court, that I understand Mr. Goodman has attached to his papers that I have not had an opportunity to read yet. You might also be interested in knowing, just for the record, that the petition for certiorari right now at least is the subject of a letter from the clerk of the Supreme Court to Mr. Goodman indicating that the papers are not in conformance with the Supreme Court rules, and they either have to be resubmitted or that'll be dismissed. But I go through that more than anything else just to let you know that there may be a lingering claim or two that was asserted by GTI or GHG in State Court against Comerica, and others potentially, and those claims are going to be resolved as a result of this settle. add. And properly resolved because just to pick up on what Mr. Carmel said, you know the standards for settlement under And properly resolved I would

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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 Woodson, we don't need to go through every single one of them, but what I would say to you is, please take into account what I think is fairly described as a pretty tortured history in this case. Please take into account the fact that the one remaining

-- or the two remaining pieces of litigation -- the Deprizio litigation that you ruled in favor of Comerica, and that more importantly the last affirmative claim brought in this case, because there are statue of limitations that would prevent anything else to be brought against Comerica, is a claim brought for the most part under Section 510 of the Bankruptcy Code. And you have already ruled in your denial of summary judgments in this discrete adversary 0731 that the burden is squarely on the Trustee to prevail, and it is a very difficult burden, as we all known under Section 510, and you found that what happened in the past in this case wasn't enough to carry that burden. Given that ruling, I think you have more than enough in the record already to conclude that the Woodson factors are satisfied, particularly in light of what this settlement will produce. And what it produces just to be clear is Comerica is going to leave behind the balance of the proceeds that you ruled it has a lien on from the Deprizio case; a little under $640,000. And then the balance up to $950,000 will be paid by

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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 Comerica in settlement of this matter; in full settlement of any matter that potentially can be brought. Unless you have any other questions, Your Honor, I think that's all I wanted to point out. THE COURT: Okay. Thanks.

MR. CLEMENCY: THE COURT: MR. GOODMAN:

Mr. Goodman? Good morning, Your Honor. Let me start

with the net effect of diametrically polar positions taken by this table and this table. This one it has nothing to do with

any State Court claims, Federal District Court claims, U.S. Supreme Court claims. This gentleman on the other hand it has

everything to do with the dismissal of the State Court, so called preemptive claims, and specifically written in the release agreements. Preemptive meaning first filed suit, and

elimination of the guarantor litigation brought by Comerica Bank, the elimination of any litigation in any form related to, arising under, or having any relationship whatsoever with these bankruptcy proceedings, as tenuous as that stretch may be. And these protections are sought not by a Debtor or the Debtor's estates, they're being granted by a Trustee to a creditor, that as of August 30th, 2007, this Court had ruled that there was in affect a prima facie case for equitable subordination, as rare as that circumstance is in the entire country. And I was here at the hearing in which Mr. Carmel

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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 argued to Your Honor that the conduct was borderline, in fact fraudulent. And when the Court made its findings of fact and conclusions of law, as Mr. Clemency brought up, there is a petition filed in the U.S. Supreme Court. The reason that they

wanted it refilled was not because the case law or the merits or anything else, was because Your Honor's decision was included as a fundamental underpinning of the issues set aside by the State Courts in resolution of their claims trying to favor Comerica Bank, because they excluded all the conduct that you found as a matter of fact and law in your August 30th, 2007 decision. That needs to be included, and certainly it will and I have paralegals working on it right now, and it should be filed within the next two weeks; well within the 60 days. That doesn't mean that the U.S. Supreme Court petition is in any way in firm or the arguments are not sound or meritorious, it simply means that the complaint that was filed in this case, in the adversary proceeding against Comerica Bank was so strong and so thoroughly underwritten by Your Honor with a decision that I have provided the U.S. District Court, the U.S. Supreme Court, and the Appellate Courts, all of which have set your decision aside and refused to consider it for whatever reasons, and that's why these cases are going up on mandamus. There's security fraud issues. They

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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 have nothing to do with the estates. Mr. Clemency knows in fact that if in fact there was any claim pending that the Debtors or the estates were named in any capacity, that after our last run in, I specifically excluded on Your Honor's instruction, which was sound advice, every reference to GTI or GH Goodman. When Mr. Carmel argued to you that GHG, Inc., and all the other entities, unrelated to this bankruptcy proceeding were in fact the Plaintiffs, I don't know what the point was other than to differentiate and distance all the other controlled entities by the Goodman parties from the bankruptcy estates. We have not pursued one cause of action, nor have we tried to impair any rights, liabilities, or cause of actions on behalf of the estates. Because in fact Your Honor was correct, I withdrew the third-party

based on our dialogue long ago. complaint. that's that.

I reformatted the complaints in Federal Court, and

Now what we have is in effect a switch of 650,000 that I think Your Honor would agree would have inward to the benefit of the creditors in any event. All that really

happened was they tagged on 311,000, as John likes to call Judge Haines, Randy. They're friends. And it doesn't matter

what happened in the mediation. that information.

I don't have any access to

And I'd certainly love to see the line up of

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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 creditors that are thrilled to death with actually receiving less after attorneys' fees than they would have had Mr. Carmel and Mr. Reaves never gotten involved. They could have gotten a

result without a 3- or $400,000 assist and the attorneys' fees by Mr. Carmel. So where's the benefit to the estates?

Mr. Carmel took two depositions lasting 30 to 45 minutes in this case. Issued a few interrogatories. Got a few

interrogatories back, unanswered.

How they're going to meet

the Woodson standards -- and I can't wait to cross-examine Mr. Reaves on this issue -- is beyond me. Because they have no

way to assess the litigation impact or the damages to the estates in the settlement. And the net result mathematically

is a negative to what they would have obtained had these estate professionals not been hired again; and that's the issue. More importantly, with respect to the Goodman parties, when you read the release language, and it talks about all the other forums, anything related to the bankruptcy. I know Mr. Clemency and I know his tactics. The

first thing that's going to arise is going to be some issue of res judicata, issue preclusion, claim preclusion, collateral estoppel, judicial estoppel, or some other theory to try to prevent or obstruct the litigation that these third parties have, unrelated to the bankruptcy, that do not taint or impair the estates funds or resources after Your Honor enters an order.

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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 And when you read the release language carefully, it says exactly what Mr. Clemency was stating to you. It applies

to all the Goodman entities in any litigation whatsoever related to, and bars forever and for all time anything related to the pre-emptive suit they call it. 9th Circuit. Which by the way, what interest would the Trustee have or Mr. Clemency have in the 9th Circuit but for the issue up on mandamus? And it has to be with impairment of the Anything related to the

third-party creditor rights to pursue another creditor, Comerica Bank, for its securities fraud and antitrust. are issues that weren't entertained before Your Honor. never were and they couldn't be. Most of the issues, as Your Honor recognized as of
th August 30 , 2007, couldn't have been recognized, because the

These They

intentional concealment by Comerica Bank through its counsel, Mr. Clemency. And Your Honor stated that in the 32-page

th memorandum decision of August 30 , 2007.

The fact of the matter is, what they can't do objectively and legally, they seek to do through Your Honor, by having Your Honor jump through several decisions which absolutely prohibit this kind of conduct. Or the stripping to They cannot

the legal prejudice of the third-party claimants. do that. It's never been allowed.

And if Your Honor, after the hearing would take a few

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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 minutes to address the exact wording of the release and the settlement agreement, Your Honor will find that it is more in line with Mr. Clemency's position than with the thought process of Mr. Carmel. Irrespective or their best intentions, what

they wrote is what is going to be binding upon the parties of this proceeding. Secondly in terms of the timeliness. Mr. Carmel and

Mr. Clemency as late at the 28th or 29th are refilling addendums because they never filed the original settlement document as an errata. Like that document is, oh, by the way. It effectively And the

-- if there was in fact a bar date, I didn't see it.

fact of the matter is, because of the way these parties have operated, they were presumed to have notice of the case law. They can't set it aside. Your Honor's been made aware of it. What difference does it

The objection was timely.

matter where they read it on the 6th of the 10th or this morning? What difference does that make for the Court's That by the way, we have

considerations of these issues?

standing, assuming the Court entertains an order for some reason that comports in any fashion with the language used by these -- by the Trustee and by Comerica Bank. And I think by now Your Honor is fully aware that when you read the document, it was in fact drafted by John Clemency. There's just no doubt in my mind. Whenever I see

the italicized, blah, blah, blah, and cap letters you can tell

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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 it's right off their word processor, they use in it every document they got. They're trying to do the same thing they did a couple of years ago when they tried to get Your Honor, which Your Honor refused at that time, to set aside all the claims in the State Court action as part of the settlement for Comerica's benefit. I think the Court realized then, as it does now, it's

improper, it's not ethical, it's not proper as a matter of law, and these parties have standing to assert these issues. Not

only on behalf of the estates, but on behalf of themselves directly. Does Your Honor have any questions? THE COURT: I'm not sure about. Just what you said right at the end, that You said that these parties, and I assume

that would be Stirling Bridge and some of these other parties. MR. GOODMAN: THE COURT: That's correct. You said that they've got the ability to

go forward with the claims, not only on behalf of themselves -MR. GOODMAN: THE COURT: MR. GOODMAN: THE COURT: MR. GOODMAN: THE COURT: MR. GOODMAN: Right. -- but I heard on behalf of the estates. Absolutely not. Did you mean that? No. Okay. Of course I didn't say that. I have

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21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 factors. He's brought up for instance, does the settlement make sense in that as a part of what Comerica is going to pay beef? viable. MR. GOODMAN: THE COURT: MR. GOODMAN: Absolutely. Okay. And they're not precluded or impaired said just the opposite. THE COURT: what you just said. Maybe Your Honor misunderstood me.

Well, right at the end I thought that's So you don't mean to say that, you're just

concerned about the claims of Stirling Bridge, the other parties that we've talked about -MR. GOODMAN: THE COURT: Yes. -- making sure that those claims remain

in any way, shape, or form. THE COURT: MR. GOODMAN: THE COURT: MR. CARMEL: We've -THE COURT: We've boiled it down to he has some All right. Any other questions? No. Mr. Carmel?

Your Honor, I don't understand the

concerns about Mr. Reaves and going forward and essentially this settlement being in the best interest of creditors. MR. CARMEL: THE COURT: I'm happy to put Mr. Reaves on. So that's where we go through the Woodson

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22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 in, there's roughly $600,000 that comes from what we'll call the lien litigation. There's an additional 300,000 plus that's I think The

going to be paid in separately by Comerica.

Mr. Goodman's concerns would go along the following lines.

estate had previously won what we'll call the lien litigation. That that had gone up to the Bankruptcy Appellate Panel, I believe by summary judgment, and the court was affirmed. so the analysis is, where is the benefit to the estate? Because the argument goes -- and I think this came up in one of my decisions from a long time ago, called Sanner Contracting. Where what was brought up was, what do you do if One where the And

the trustee essentially gets a winner claim? trustee can win by summary judgment.

The argument goes you need to be careful when you're settling those because the trustee already has a 90 percent chance, whatever it is, of winning any way. Now I'm sure Mr. Reaves took at look at that, carefully considered it. There was an additional pay in of

over $300,000 that we've talked about, and I think Mr. Goodman is saying he's concerned about that and he doesn't think it's enough. So I think Mr. Reaves needs to kind of walk through the process and why that particular figure was focused upon. But again Sanner Contracting is the one that says, if you're going to win it -- if you've got a 90 percent chance of

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REAVES - DIRECT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BY MR. CARMEL: Q State your name for the record? stand? THE COURT: MR. CARMEL: THE COURT: Probably a good idea. Mr. Reaves. Let's do that.

23

winning it, you've got to be careful with whatever settlement you eventually propose to the court. he's going with that. The other item that I hear from him is what I'll call the release language, which you've obviously got the information in the order. You've stated we don't need to have But I think he's So that's where I think

any effect on any of this other litigation.

probably concerned with the actual release itself, which is attached as Exhibit A to the settlement agreement. Because as

he was going through his argument, I took a look at the releasing language, and the reference is actually in Exhibit A. So I think he also wants some change or something there as well. And I don't know if you have a concern about that or Obviously you've made

you're willing to make some changes.

some changes to the order, but I took that his other concern was that he also wanted Exhibit A modified. MR. CARMEL: Okay. Should I call Mr. Reaves to the

DAVID M. REAVES, TRUSTEE'S WITNESS, SWORN DIRECT EXAMINATION

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REAVES - DIRECT 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 Q A Q A Q David M. Reaves.

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And you're the Chapter 7 Trustee in these proceedings? That's correct. You also are an attorney? I am. How long have you been practicing -- or are you still

practicing law also as well? A Q A Q A Q I am. And how long have you been practicing law? Since 1987. And how long have you been a trustee? Since 2004. I was appointed August of 2004.

And you were appointed a Chapter 7 Trustee in this case

last spring? A Q That's correct. Okay. When you became the Trustee, there were two matters

that were pending against Comerica, correct? A Q That's correct. One was what's been called the Deprizio litigation, but

was not really a 547 action anymore, it was actually a 548 action? A That's correct. And when you say "pending," you're taking

about pending before the Bankruptcy Court. Q A Right. Yes.

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REAVES - DIRECT 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 Q

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And the other was an equitable subordination claim that

also had other counts in it as well? A Q That's correct. Okay. And that adversary proceeding, which is 0731, is

what was scheduled for a two-day trial starting today? A Q That's correct. While you were the Trustee, Judge Curley heard cross

motions for summary judgment in the 548 action? A Q A Q A Q That's correct, I was in attendance. And she ruled against the estate on that matter, correct? That's correct. And you authorized an appeal? I did. Okay. And that appeal went to the Bankruptcy Appellate

Panel? A Q Yes, it did. And Bankruptcy Appellate Panel was fully briefed? There

were an opening brief and rely brief filed by you and an answer and brief filed by Comerica, correct? A Q That's correct. Okay.
st That was scheduled for argument on February 21 ,

2008? A Q Yes, it was. Okay. With respect to the Section 510 action, which is

0731, Comerica filed a motion to dismiss?

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REAVES - DIRECT 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 Q That's correct, yes.

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And then we filed a motion for a partial summary judgment

as to liability? A Q Yes, we did. The Court had argument on that the same day actually as

the 548 summary judgment? A Q Yes. Okay. And the judge ruled -- denied the motion to dismiss

and also denied the motion for a partial summary judgment, correct? A Q case? A Q I am. Okay. In January of this year you accompanied me to San That's correct. All right. You're familiar with the 9th Circuit Woodson

Jose to attend depositions that were being taken of Comerica representatives, correct? A Q A Q Yes, I did. Okay. Yes. Okay. And during the course of those -- actually a break And we took the depositions of two individuals?

in the depositions, you started having some settlement discussions with Comerica representatives direct; is that correct? A Yes, I did.

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REAVES - DIRECT 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 Q A Q

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And a decision was ultimately made to go to mediation? That's correct. As we were setting up the mediation, Comerica was asking

that the trial that was scheduled today be continued while we go through the mediation process. A Q A That's correct. They did want to put the trial off.

And what was your response to that? I said, "No, we need to keep the trial on schedule. And

if we settle before the trial, great, but if we don't we're going to trial." Q Okay. And so a decision was made -- an agreement between

the parties to go to mediation before the trial? A Q That's correct. And also to try to do the mediation before the BAP or the

oral argument on appeal, correct? A Q That's correct. And so the parties contacted both Judge Case and Judge

Haines to agree to mediation, and ultimately Judge Haines was able to accommodate the parties; is that correct? A Q A Q A Q That's correct.
th And that mediation was heard on February 20 ?

Yes. Or conducted on February 20th? That's right. Okay. Who attended the mediation on behalf of the

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REAVES - DIRECT 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 hearsay. bankruptcy estates? A Q A Q Myself and my counsel, you. And Mr. Curry? And Mr. Curry, that's correct. Our expert.

28

And what was Mr. Curry's position as far as the estates

were concerned? A Mr. Curry was our expert retained to calculate the damages

as a result of Comerica's actions that the estate incurred. Q Okay. And he attended most of the mediation. He had to

break for other hearings, correct? A That's correct. MR. GOODMAN: Excuse me, Your Honor. Objection,

I'd like to document admitted into evidence

immediately, because nobody to these proceedings have seem them, including Your Honor. MR. CARMEL: THE COURT: MR. GOODMAN: What documents? Which documents? We're talking about an expert report

apparently on damages to the estates that has been not published or made available to any creditors, the Judge, or anybody else that I'm aware of other than possibly Judge Haines. THE COURT: Why is that appropriate though to have

that before the Court today? MR. GOODMAN: Well, apparently if Counsel is going to

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ask questions in his direct exam of his client, the Trustee, and his client is using the document to refresh his recollection and testify about the damages to the estates, I assume that the predicate document has to be admissible into evidence for him to testify to it. This isn't a memory test,

nor am I going to have to cross-examine a document without seeing it. So I object based on foundation and failure to bring the document. I assume they've got them with them today. Just bring out the I

don't understand what the big issue is.

damage report, let's take a look at and, and give me something that I can cross-examine this witness with in fairness. THE COURT: MR. CARMEL: Mr. Carmel? I don't have the expert report today.

I'm here to present the settlement agreement as something that's appropriate under Woodson. Mr. Reaves questions about it. No, he can rely on his memory. have the document in front of him. He doesn't have to And I'm just asking

I'm not showing -- have him

testify from a document to refresh his recollection. THE COURT: Right. Mr. Goodman, the problem that I'm

having is that the Woodson decision really focuses on what I'm going to call the business judgment of the Trustee and whether it makes sense and whether the settlement is in the best interest of creditors.

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For purposes of this hearing, Mr. Reaves -- and we'll see where we go with it -- Mr. Reaves is entitled to reflect upon what went on and what was presented to him through Mr. Curry or third parties. So he doesn't necessarily have to have all of these documents admitted into evidence. He can in fact rely on

hearsay as a part of his ultimate business judgment. Now, you're certainly entitled to cross-examine him. You're certainly entitled to say, I'm not sure about the damages. If Mr. Curry said it was $2 million worth, why did You're certainly entitled to explore his

you settle for "Y"?

business judgment analysis, but right now I can't say that Woodson and where we are concerning Woodson means that I have the sustain your objection. time. We'll see where he goes with his testimony and how much he remembers and why he settled the way he did. MR. GOODMAN: May I lodge just an offer of proof, I don't need the documents at this

Your Honor, real quickly? THE COURT: MR. GOODMAN: An offer of proof? Yes. My case law that I cited,

Your Honor, it's only about ten cases in total in that brief that was submitted. Under a good faith hearing, which I suppose this purports to be, the court typically looks to reports issued by

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the trustee to validate what you claim is the business judgment exception or some way to quantify whether in fact good business judgment has been exercised. We don't have those documents. There's been no expert report. There's been no And the last I recall

this expert is charging the estates approximately $80,000 that's been requested for payment. So I disagree with Your Honor. I disagree that the

case law indicates that that report is not relevant and not material. And with that we can proceed. THE COURT: your testimony. MR. CARMEL: BY MR. CARMEL: Q Mr. Reaves, the elements of Woodson that a court as to "The probability of success in the Yes, ma'am. Objection is overruled. Proceed with

consider are as follows. litigation."

Second, "The difficulties, if any, to be encountered in the matter of collection." Three, "The complexity of the

litigation involved, and the expense, inconvenience, and delay necessarily attending it." And four, "The paramount interest

of the creditors and a proper difference to their reasonable views on the premise." Let's go to the second one. There were no

difficulties that you believed would be as far as collection if

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REAVES - DIRECT 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 you received a judgment against Comerica were there? A Q No, that really wasn't a factor. Okay.

32

Now, in the mediation what was settled was not only

the adversary that we were scheduled to go to trial on today which we'll call the 510 action, but also the pending appeal, that was settled as well? A Q That's correct. Okay. During the course of the mediation, did you receive

input from the mediator as to what the chances were on the appeal? Did that have any influence at all on the numbers that

you were going to agree to? A Are you asking me what Judge Haines' opinion was as to our

chances on appeal? Q No, I don't want to get into that. I just want to know if

his comments to you during the course of the mediation had an impact on the numbers that you eventually agreed to? A Q Absolutely. Okay. As far as the pursuing the 510 action, did his

comments have an influence on you in terms of coming to a number? A Q A Absolutely. Okay. Why is that?

Well, as a judge, I respect the thoughts and opinions of

Judge Haines as to what the merits of our claims, you know, might bring at a trial.

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With respect to the appeal, I had my own thoughts that I could say were probably confirmed by Judge Haines as to what our chances of success were. And quite frankly, I put a

fairly low value on that in our discussions based on our -what I felt were our low chances of success. On the other hand, with respect to the other claims, the subordination and breach of contract claims, I felt our claims were very strong, and I believe Judge Haines agreed and we went forward on that basis. Q Okay. And in overall recovery, what were you seeking What did you think was a

based on Mr. Curry's analysis? homerun, if you will? A

Judge -- or Greg curry estimated our damages as a result

of the alleged breach of the contract to be the -- you know, the additional cost incurred by the estate had the estate been settled at that point, you know, had the contract gone forward versus what happened afterwards, so he tried to pick apart all the costs to the estate. And in his analysis the estate

incurred damage of approximately $1.4 million. Q Okay. And that assumed that we were successful on a

breach of contract claim, correct? A Q That's correct. All right. Now the -- Judge Curley in what we'll call the

surcharge decision, going back to November of 2005, found that there was a breach of the term sheet. Do you recall

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REAVES - DIRECT 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 receiving -A Q That's correct. Okay.

34

Did you have any concerns whether the -- that

finding in terms of a breach of a term sheet automatically meant that there was a legitimate breach of contract action? A Oh, absolutely. That was one of the things in preparing

for the trial we were going to be prepared to address. Certainly Comerica didn't agree that there was a breach of contract, and that they were -- that that ruling was -- would collaterally stopped them from arguing that point, whereas we certainly would have presented that argument. Q Do you think that the $950,000 settlement is in the best

interest of the estate? A Q A Absolutely. And may I explain the --

Well, yeah, why do you think that? Well, if you take the $1.4 million in damages that

Mr. Curry estimated and the risk at trial that we might not win, I think given our -- my own estimate that our chances of success were fairly good, that's -- you know, a $950,000 settlement on a $1.4 million claim without having to go to trial in my opinion is a very good settlement. I want to explain something though that was said earlier about where this money's coming from. There are --

there's $1.3 million total in deposit at the court's registry. Of that amount about 620ish was allocated by Mr. McDonough, the

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REAVES - DIRECT 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 examiner, to the rolling stock issues. THE COURT: THE WITNESS: Right.

35

And that is now funds -- are now funds The second

that we -- the estate holds unencumbered. portion -THE COURT: THE WITNESS: THE COURT: THE WITNESS:

So that's not part of the settlement? And that's not part of the settlement. Okay. The second portion is approximately

625,000 that was left over from Comerica's money -- assets that were liquidated in which Comerica had a lien. The liens were

not voided, but were continually held for the purposes of doling out the surcharge funds. distributed essentially. And I know Comerica had been requesting that we, you know, turn that money back over to them for their -- because they thought there was no reason for the estate to continue to hold that money. the settlement. We obviously wanted to hang on it to pending But the reality is, the money that Comerica is It isn't just 311But those funds have been

paying in the settlement, is the full 950-. as was somewhat eluded to. THE COURT: BY MR. CARMEL: Q A I was going to get into that. Okay. Okay.

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REAVES - DIRECT 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 Q All right.

36

So this is an overall recovery to the estate

of -- Comerica's in fact paying $950,000, correct? A Q That's correct. It's coming from two different sources. It's coming from

money that they were asserting a claim to that they had continually demanded the estate release to them, correct? A Q That's correct. That's money that was held in the court registry. That's

roughly $625,000? A Plus interest. I think the interest brought it up to

about 648-; something like that. Q And then they -- in addition to that were obligated under

the settlement agreement to write a check to make up the difference of 950,000? A Q That's correct. And you in fact have received that check and are holding

it pending today's hearing; is that correct? A I have received the check and am holding the funds,

correct. Q Okay. Did the impact on -- of the settlement on what

administrative creditors were going to receive have any input into what you were -- into your business judgment in deciding to settle this case? A Q Absolutely. Okay. When you came into this case administrative

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creditors were expecting to receive -- do you know roughly what percent? A It's difficult to say, because of the distributions by

Mr. McDonough weren't necessarily even, because of the surcharge -- the allocation of the surcharge. But if they

receive maybe two-thirds of their claim, 65 percent maybe. Q And this recovery will enable them to receive what kind of

a percentage? A Close to 90. Ninety percent of the Chapter 11 And obviously 100 percent payment on

administrative claims. the Chapter 7 claims. Q Okay.

Do you feel that the one-third contingent fee

that's also being sought for -- which approval is also being sought is appropriate in this case? A Q A case. Absolutely. Why is that? Because you did a great job. This was a extremely complex

It required an attorney who's been around for a while. Someone who was not going

Down around the block, so to speak. to back down from the bank.

I'm not sure that there's a lot of

attorneys in town that could have handled it the way you did, and I thought you did a very good job. Q A Was there risk in taking on this case? I certainly thought so, and I imagine you in making your

decision to take it on understood the risks, but obviously if

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we didn't succeed at trial you weren't going to get paid at all. Q Based on your discussions with Mr. McDonough, Mr. Miller

and other creditors who were holding -- or their lawyers who were holding administrative claims -MR. GOODMAN: Object, assumes facts not in evidence.

Repeat the question, please.

BY MR. CARMEL: Q Based on discussions that you've had with other parties,

Mr. Miller, Mr. McDonough, were you able to determine whether there was an expectation on the kind of recovery that could be attained in this case? MR. GOODMAN: THE WITNESS: THE COURT: objection first. THE WITNESS: THE COURT: I'm sorry. Mr. Goodman, the problem that I'm having Same objection. Yes. Again, let me -- I need to handle the

here is the one that I discussed with you earlier. As the Trustee, he is entitled to basically rely on hearsay in coming to a conclusion. So if he's had those

discussions with third parties to come up with an analysis of how he should settle this matter, he's allowed to do it. You

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You can find out and test his theories, Overruled.

his analysis, that's fine. MR. GOODMAN: BY MR. CARMEL: Q A Q

Fair enough, Your Honor.

The answer to the question is yes? Yes. And in fact what was their belief on what they thought

could be recovered? A Well, you know, obviously no one can predict the future,

but they all agreed and thought that it was a very good settlement, and that if we had gotten -- or the 625- -- if we had gotten Comerica to agree to release that 625- in the court, they thought we would have done a very good job. Q And that number was increased by a factor of 50 percent

which is the 950,000? A Q made? A I believe so. I believe it was in the -- I want to say That's right. Do you recall the first settlement offer that Comerica

40, but it might have been up to 80 by the time we went to mediation. Q Okay. And that went from -- that number to the mediated

amount which was 950-? A That's correct. MR. CARMEL: I don't think I have anything further,

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REAVES - CROSS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BY MR. GOODMAN: Q A Q A Q May I call you David -Yes, sir. -- or Mr. Reaves; what would you prefer? It doesn't matter, you can call me David. Your Honor. THE COURT: MR. GOODMAN: Okay. Mr. Goodman?

40

Thank you, Your Honor. CROSS-EXAMINATION

You have discussed that you had involved creditors of the

estate in your analysis to make sure that this settlement was approved by creditors of the estate. counsel? A I don't -- I didn't take a survey of every creditor if Did I misunderstand your

that's what you're asking. Q No, that's not what I'm asking. Did you take a survey of

any creditor? A Q I contacted Mr. McDonough and Mr. Miller. You contacted estate fiduciaries that the Court ruled were

controlled by Mr. Clemency and Comerica Bank in the memorandum
th decision of August 30 , 2007, true?

MR. CARMEL: THE COURT: BY MR. GOODMAN: Q

Objection, I think that misstates the -Sustained.

Did in fact the Court conclude that the estate fiduciaries

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as of August 30th, 2007 were controlled by Comerica Bank or working with it in not disclosing those collaborative efforts to the Court? A Q No. Do you recall in your complaint that you filed in the Do you recall that in the decision at all?

adversary proceeding against Comerica Bank that you had alleged the predicates for an equitable subordination claim, true? A I don't -- I don't -- the complaint wasn't filed by me.

The complaint was already pending at the time I was appointed. I believe the complaint was filed while you were the Debtor in possession. Q A The responsible party.

Did you review the complaint? Obviously when I became Trustee and looked at the action I

did, yes. Q And did you disagree with any of the assertions that were

contained within the complaint and bring that to this Court's attention? A I'm not sure. As we sit here right now I don't have a

copy of the complaint, so I can't go over it paragraph by paragraph to tell you whether I disagree or agree with every paragraph. Q A Q A Did you disagree with any paragraph? I don't recall. Do you recall even reviewing the complaint? Oh, yes.

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When you received Judge Curley's memorandum decision of

th August 30 , 2007, did you object to any finding of fact or

conclusion of law contained within that memorandum decision? A Q Which memorandum decision are we talking about now? August 30th of 2007, which enabled you to proceed against

Comerica Bank -A Q A This was --- the proceeding that we're here today on. The decision on the denial of our motion for summary Is that the one you're talking about?

judgment? Q

It was a denial in granting you absolute guaranteed But did you have any dispute with the findings of

liability.

fact or the conclusions of law as framed by Judge Curley in the memorandum decision of August 30th, 2007? A Q No, why would I? You in fact believed and agreed with the findings of fact

and conclusions of law, correct? A law. Q Well, they were the findings of fact and conclusions of That's what -- they are what they are. Yes, they are what they are, but that was the reason why

you felt you in your words, "Had an extremely strong case against Comerica Bank," correct? A Q Oh, absolutely. And the fact of the matter is, when we're jumping around

here about the 950,000, is settlement to the estate and all

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this, the fact of the matter is 650,000 of that is almost on deposit in the registry, correct? A Q It's on deposit, but it's their money. Who made that determination? Did you ever get a court

ruling in that regard by the way? A There's never been anything pending saying that it is our When you say "get a court ruling," I guess I'm not sure

money.

what you're talking about. Q You just made the assertion that it's "their money,"

meaning Comerica Bank, correct? A Q Yeah. What do you base your opinion on? What legal opinion from

this Court has issued indicating that that 650,000 was in fact Comerica's money? Do you have any documents to rely on that I

can discuss with you right now? A I'm not sure what you're talking about. I mean, in this

case the examiner sold a bunch of stuff -- a bunch of assets. Comerica had or claimed liens on those assets, right? portion of those liens were set aside, some weren't. That there were no claims as far as I can tell made as to the -- I guess what I'll call the second 625-. -- the first 625- was the UCC lien money. There was A

The proceeds from And the -- I

the sale of what they called the rolling stock.

guess I misspoke when I said UCC -- I think that's the second one. The rolling stock litigation, the estate succeeded in

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avoiding Comerica's lien on those assets, and therefore got the funds free and clear. But I don't believe there was any claim

against the second pool. The only claim that I'm aware of is the fact that the UCC was perhaps a preference or fraudulent transfer. Q And how many millions in administrative priority claims

were there without a purported discount? A Q A Without the discount? Yes. I believe it was about $5 million, somewhere in that

range. Q A And certainly -Before -- at the time of the settlement you mean? The

examiner's settlement of those claims? talking about? Q A Q A That's correct.

Is that what we're

Yeah, believe it was around five million. And after the settlement, what was it reduced to? I think the settlement reduced it to about two million,

2.2 maybe. Q Actually, the liens encumbered the entire what you

perceive as the extra $650,000 by those lien rights as well, correct? A Q What now? The extra 625- you keep alleging that nobody had a lien

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right to were actually encumbered by all the other priority administrative claimants through their liens, correct? A No, who's liens? MR. CARMEL: misstates the -THE WITNESS: I'm not sure what liens you're talking Objection, Your Honor, I think that

I'm going to sustain the objection. He does not understand your question. Okay.

But

MR. GOODMAN: BY MR. GOODMAN: Q

You claim that there's 1.3 million in round numbers left

in the estate, 650,000 of which you claim belongs to Comerica Bank because of their lien, correct? A Q A No, you -- there's 1.3 in the court's registry. Okay. I had some other funds that came in as a result of the

preference lawsuit. Q A Q A Q A Setting that aside. Okay. There's about 1. -Is that statement correct?

Is that correct?

There's 1.3 million in the court's registry. Yes. Of that 1.3 approximately 625ish was the rolling stock

fund; the proceeds from the rolling stock, which is now

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Bankruptcy Appellate Panel's decision upholding this Court. And the second 625- is the -- are the funds that were encumbered by Comerica's lien that wasn't avoided. Q You don't disagree with the fact that the administrative

claims that you just asserted were probably two million bucks, also encumbered the other 625,000 that we keep dancing in circles around here, correct? A Q A Q No. You disagree with that? Why would it? Well, what ruling do you have that indicates that the

administrative claimants don't have lien rights superior to Comerica Bank? A What do you have that says an administrative claimant

comes ahead of a secured creditor? Q Well, that's a good question. Did you believe that Comerica Bank was a secured creditor based upon the proofs of claim you reviewed from Mr. Clemency, signed under penalty perjury -- let's talk about September 10
th

of 2003 first.

Do you recall reviewing the

Comerica proof of claim filed that date? A Q I don't recall. Do you recall that it was signed by John Clemency under

penalty of perjury, that in fact they were secured on all 18

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Objection, Your Honor, relevance.

I'm going to object on relevance.

I

don't know what objection he has. MR. GOODMAN: THE COURT: separate objection? What I'm talking about, Your Honor -Okay. Mr. Clemency, do you have a

I've got relevancy from Mr. Carmel. Yeah, that was a relevancy objection

MR. CLEMENCY: f