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UNITED STATES BANKRUPTCY COURT DISTRICT OF ARIZONA
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In reo
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GTI CAPITAL HOLDINGS LLC
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GTI CAPITAL HOLDINGS LLC vs. COMERICA BANK-CALIFORNIA, AS SUCCESSOR SETTLEMENT CONFERENCE
U.S. Bankruptcy Court 230 N. 1" Avenue Phoenix, AZ 85003 February 20, 2008 9:11 a.m. BEFORE THE HONORABLE RANDOLPH J. HAINES, Judge APPEARANCES: For G.H. Goodman Investment Companies, LLC and GTI Capital Holdings LLC: For Comerica Bank-California: 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
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Also Present:
23 24 25 proceedings recorded by electronic sound technician, Sheri Fletcher; transcript produced by A/V Tronics, Inc.
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THE CLERK:
In the case of 037923, GTI Capital
Holdings, Adversary 0731. THE COURT: MR. CARMEL: Appearances? Good morning, Judge Haines. Michael
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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
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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:
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All right, thank you. Thank you. I start out on the record just
MR. CLEMENCY: THE COURT:
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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
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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
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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
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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
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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
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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
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let the other side knows this. settlement is because what?
The reason I can't move in
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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 On the other hand, it may be that if the other
know that."
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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
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me this is something that we need to keep confidential. again, I encourage you to do that.
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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 in
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time -- and the parties, you've used the term yourselves this "shuttle diplomacy." That is, I talk with one side and
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then I talk with the other side.
Usually I don't -- you know, Let's all talk about
some mediators try to do it all pUblicly. it together.
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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
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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
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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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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
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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.
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MR. CLEMENCY: Understood. THE COURT: I'll just pick a side. settlement offer? MR. CARMEL: dollars. MS. NYSTROM: THE COURT:
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And why don't I hear first -- I guess Mr. Carmel, what was your last
One million five hundred thousand
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I'm sorry? One million five hundred thousand. What is it? And
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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that? MR. CARMEL: Yeah, roughly speaking 616, and the bank So the bank would in
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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
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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
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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:
And if
Of the II?
I'm sorry?
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THE COURT: Chapter II? MR. CARMEL: THE COURT:
You mean administrative expenses of the
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Yes, sir.
Yes, sir.
That's not likely though, is it?
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MR. CARMEL: be paid?
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: next. 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
for trial starting on March 10'" before Judge Curley, she has two days -- two full days set aside. THE COURT: contract adversary? MR. CARMEL: THE COURT: MR. CARMEL: And Section 510. And 510, right. And -- yes. And then the other aspect The second --
And is that basically the breach of
breach of this -- the term sheet settlement
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is tomorrow we have an oral argument scheduled in front of the
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BAP. THE COURT: litigation, it's -MR. CARMEL: THE COURT: transfer? MR. CARMEL: THE COURT: BAP. MR. CARMEL: THE COURT: Yes, sir. So those two and they are both claims That is correct. And that's argument tomorrow before the Correct. -- now limited to a fraudulent On what was called the Deprizio
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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: January 22 nd , or a few day after that. Correct. All right. And when was this settlement
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The reason that I say January 22 nd 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
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MR. CLEMENCY: for Comerica.
Thank you, Your Honor.
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What Comerica is prepared to do is to payor AN. TRONICS, INC.
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leave behind -THE COURT: Let me just clarify right now though, I'm
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not asking you right now what you're prepared to do. MR. CLEMENCY: THE COURT: that they received? MR. CLEMENCY: THE COURT: not. MR. CLEMENCY: I think there were discussions, Your Well, I don't -Right.
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But I am asking what was your last offer
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Maybe they're different, maybe they're
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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:
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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,
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So in effect, you would release your lien
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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
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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.
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Most of the claims have been resolved
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through summary judgment, but one or two of them are still floating through the appellate courts. We would expect that
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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.
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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
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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
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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
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Honor, was 500 in response to -- actually, in response to a
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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
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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
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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
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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
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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.
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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.
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And with that, we are off the record.
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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. not necessarily first in time
First of all, there will be a
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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.
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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
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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
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Is there anything else, or have I
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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.
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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.
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THE COURT:
That's true.
Ultimately obviously the
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BAP appeal will be dismissed. MR. CARMEL: THE COURT: Yeah. And in the interim, until that gets filed
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and the settlement agreement gets signed and approved, you will postpone or continue -MR. CARMEL: THE COURT: 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 Right. -- the argument scheduled for
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MR. CLEMENCY:
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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
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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
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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: guess. MR. CLEMENCY: THE COURT: Right. That's right. and some are in federal court, I
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But the intent is, to the extent that the
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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
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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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AIV. TRONICS, INC.
E-Reporting and E- Transcription Pboenlx, AZ (602) 263-0885 Tucson, AZ (520) 403-8024
Case 2:03-cv-01587-JAT
Document 132-4
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MS. NYSTROM: THE COURT: MR. CARMEL: THE COURT:
Thank you, Judge. Thank you all. Congratulations.
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Thank you, Your Honor. Thank you for your cooperation.
(Proceeding Concluded)
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I certify that the foregoing is a correct transcript from the record of proceedings in the above-entitled matter.
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Dated: April 16, 2008 A/V Tronics, Inc. 365 E. Coronado Road Suite #100 Phoenix, AZ 85004-1525
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AfV~
TRONICS, INC.
E-Reportlng and [-Transcription Phoenix, AZ (602) 263-6885 Tucson, AZ (520) 403-8024
Case 2:03-cv-01587-JAT
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Law Offices of MICHAEL W. CARMEL, LTD. 80 East Columbus Avenue Phoenix, Arizona 85012-2334 Telephone: (602) 264-4965 Arizona State Bar No. 007356 Facsimile: (602) 277-0144 E-mail: [email protected] Attorney for Plaintiffs IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF ARIZONA In re: GTI CAPITAL HOLDINGS, LLC, an Arizona limited liability company dba ROCKLAND MATERIALS, G.H. GOODMAN INVESTMENT COMPANIES, LLC, an Arizona limited liability company, Debtor. GT! CAPITAL HOLDINGS, LLC, an Arizona limited liability company dba ROCKLAND MATERIALS, G.H. GOODMAN INVESTMENT COMPANIES, LLC, an Arizona limited liability company, Chapter II Proceedings Case Nos. 2-03-bk-07923-SSC through 2-03-7924-SSC Jointly Administered Adversary Proceeding No. _
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COMPLAINT BREACH OF CONTRACT; BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING; EQUITABLE SUBORDINATIONBANKRUPTCY CODE § 510(C);RECOVERY OF ADEQUATE PROTECTION PAYMENTS
v.
Plaintiffs,
COMERICA BANK-CALIFORNIA, as Successor by Merger to IMPERIAL BANK,
a
California banking corporation, Defendant.
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567993
Plaintiffs, by and through its counsel undersigned, for its Complaint against Defendant, hereby alleges: GENERAL ALLEGATIONS 1. Plaintiffs filed Chapter II petitions in this Court on May 8, 2003.
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2.
Defendant Comerica Bank-California is a creditor in these bankruptcy
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proceedings and has filed a Proof of Claim herein, thereby consenting to this Court's jurisdiction with respect to all of the matters addressed in this Complaint. 3. Plaintiffs were in the business of manufacturing and supplying aggregate
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and ready-mix concrete for use in residential and commercial construction projects. 4. Defendant is Successor-by-Merger to Imperial Bank, which in September
2001 entered into a credit agreement with Plaintiff to provide a line of credit and loans totaling $21,250,000.00. As of the Petition Date, Defendant asserted a claim in these
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Chapter 11 proceedings of approximately $17,000,000 (the "Bank Claim"). 5. The Court has jurisdiction over the matters addressed in this Complaint, and
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these matters present core proceedings over which the Court may enter a final judgment. See 28 U.S.C. §§ 157(b) (2) (A), (C), (E) and/or (0) and 1334(b). 6. Defendant filed a Proof of Claim on June 6, 2003, and an Amended Proof of
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Claim on September 10, 2003 in the Administrative proceedings, and has therefore consented to this Court's jurisdiction. 7. 8. 9. Venue is proper in this District. Defendant filed a motion to appoint an examiner on June 19,2003. Edward M. McDonough is the examiner in these Chapter 11 proceedings
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(the "Examiner"). 10. Defendant used the Examiner and the bankruptcy process in a deliberate
strategy to liquidate its collateral through this Court. Defendant's plan in these Chapter 11 cases was to liquidate its collateral through the efforts of the Examiner in this Court. 11. Defendant's exit strategy in these cases was to seek a going concern sale
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through the Bankruptcy Court. Defendant aggressively pursued the sale of the Debtors' assets consistent with its internal plan through the Examiner. Defendant set in motion a chain of events that had the Examiner in charge of executing the bank's strategy. 12. Defendant is the party that sought the appointment of the Examiner.
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Defendant also requested and obtained the expansion of the Examiner's powers after his
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initial appointment in these Chapter 11 proceedings so that the Examiner had the power to (among other things) sell Plaintiffs' assets. 13. At the time Defendant initially sought the appointment of an examiner and
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at all time periods thereafter, Defendant knew these bankruptcy estates were administratively insolvent. Defendant knew the Examiner would need to, and did, retain various professionals in perfonning his duties in these Chapter II cases. 14. For all time periods relevant to this Complaint, Defendant knew that these
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bankruptcy estates would, and did, incur substantial administrative expenses because of the appointment of the Examiner and his professionals. Defendant did not object or
otherwise voice any concern regarding the fees and costs incurred by the Examiner and his professionals until July 2004. 15. For all time periods relevant to this Complaint, Defendant knew that it was
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an undersecured creditor in that its collateral in the Debtors' cases was worth less than the amount of the Bank Claim. At the latest, Defendant knew it was an undersecured creditor by October 2003. 16. Defendant's claimed collateral and all of Plaintiffs' other material tangible
assets were sold in a court-approved transaction that closed in February 2004. After its claimed collateral was sold through this Court, Defendant consented to having the Examiner lead a process of sorting out all of the administrative expenses incurred during the pendency of these cases. Defendant further consented to having the Examiner use "shuttle diplomacy" to resolve the administrative expenses of these estates. 17. During April through June 2004, the Examiner and his counsel conducted
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negotiations with the various administrative claimants and conducted a settlement process. During this process, Defendant, through its counsel, was kept apprised of these negotiations and the overall settlement process. At no point in time during this settlement process did Defendant advise the Examiner that the settlements agreed upon by the Examiner were unacceptable to Defendant.
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567993
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18.
By no later than May 14, 2004, Defendant knew Plaintiffs' estates had at
least $2.0 million in post-petition administrative expenses which would dilute Defendant's recovery in Plaintiffs' Chapter II cases. This knowledge was reflected in Defendant's own internal file memorandum dated May 14,2004 (the "May 14 Memo"). 19. Defendant knew that the Examiner was negotiating discounts with all
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administrative claimants in the settlement process agreed upon by Defendant. The May 14 Memo confirms that Defendant was awaiting the outcome of these negotiations so that it would know the amount of dilution it would have from recoveries in Plaintiffs' cases. 20. On or about July 1, 2004, Defendant and the Examiner, on behalf of
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Plaintiffs' estates, executed a term sheet ("Term Sheet"). A true and correct copy of the Term Sheet is attached hereto as Exhibit "A." The Term Sheet sets forth the material terms of an agreement between Defendant and the Examiner, on behalf of Plaintiffs' estates. 21. In negotiating the Term Sheet with Defendant and executing the Term
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Sheet, the Examiner was acting on behalf of the Plaintiffs' estates. Defendant knew that the Examiner was acting on behalf of Plaintiffs' estates in connection with the negotiation and execution of the Term Sheet. 22. After the Term Sheet was executed by the parties thereto, Defendant
claimed that the Examiner breached the Term Sheet. Despite the fact that Defendant was unaware of any facts in support of this argument, Defendant argued that Plaintiffs and the Examiner were responsible for pushing these cases into "free fall" mode. 23. in July 2004. 24. By breaching the Term Sheet, Defendant was responsible for causing Defendant purposefully, willfully and in bad faith breached the Term Sheet
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extensive litigation in Plaintiffs' Chapter II cases. Defendant caused litigation regarding, without limitation: (i) the settlement of various administrative claims; (ii) the fee
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applications of the Examiner and his professionals; (iii) (iv) Chapter 7 conversion; (iv)
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interim distributions to various administrative claimants; (v) the Rolling Stock (as defined
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below) and (vi) the Surcharge Litigation (as defined below). 25. Plaintiffs and the Examiner ultimately filed joint motions to surcharge
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Plaintiffs' collateral which motions are set forth in this Court's administrative docket as Docket Entries 829 and 869. In the surcharge motions, Plaintiffs and the Examiner sought to surcharge Defendants' claimed collateral for certain administrative claims of these Chapter II estates. 26. Defendant objected to Plaintiffs' surcharge motions and litigation ensued
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regarding the amount (if any) that Defendant's claimed collateral should be surcharged (the "Surcharge Litigation"). In the Surcharge Litigation, Defendant's position was that none of the administrative claims in these Chapter II cases - which also included the professional fees and costs of the Examiner sought by Defendant - could be surcharged against Defendant's claimed collateral. 27. Having set in motion a chain of events that resulted in the sale of its
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collateral and its receipt of millions of dollars of sale proceeds, all the while knowing that Plaintiffs' cases were administratively insolvent, Defendant took the position in the Surcharge Litigation that it was not responsible for any of the administrative expenses incurred by these estates during the Chapter II cases. 28. Defendant, directly and through its counsel, engaged in vexatious litigation
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during the Surcharge Litigation. Defendant, directly and through its counsel, purposefully engaged in inappropriate obfuscation of the facts in the Surcharge Litigation. In so doing, Defendant drove up the administrative expenses of the estate professionals and further damaged these estates. 29. In the Surcharge Litigation, Defendant, directly and through its counsel,
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purposefully ignored the Court's instructions to provide the Court with an analysis of the benefit it obtained from the efforts of the Examiner and his professionals. 30. In the Surcharge Litigation, Defendant, directly and through its counsel,
purposefully failed to properly respond to discovery requests by the Examiner requesting
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quantification of any benefit provided to Defendant from the services of the Examiner and his professionals. 31. In the Surcharge Litigation, Defendant, directly and through its counsel,
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purposefully misled the Court that no bank representatives other than Ms. Diane McDonald and an in-house lawyer were involved in Defendant's decision-making process relative to settlements in Plaintiffs' case. Defendant, directly and through its counsel, purposefully hid the fact that senior management of Defendant and its parent company were involved in evaluating and approving Defendant's proposed settlement with the Examiner. 32. At a hearing before this Court on April 15, 2004, Defendant agreed the
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Examiner had the right to be heard regarding the extent to which Defendant's collateral should be surcharged for administrative claims. Thereafter, Defendant embarked on a legal strategy designed to silence the Examiner, so that these estates would not have the benefit of his insight and familiarity with these cases in the Surcharge Litigation. 33. After the conclusion of the Surcharge Litigation, Defendant opposed all of
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the fee applications filed by the Examiner and his legal counsel. At all time periods relevant to this matter, Defendant knew, or should have known, that Plaintiffs' estates would incur, and did in fact incur, substantial litigation costs in connection with these fee disputes. 34. At the onset of these Chapter II proceedings, Defendant represented to the
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Court that the Bank Claim was secured by a valid and perfected lien in substantially all of Plaintiffs' assets (the "Lien Representation"). See Docket Entry No. 10 in the
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Administrative Docket of these Chapter 11 cases. Defendant's Lien Representation to the Court was false. 35. At the time the Lien Representation was made to the Court, Defendant
either knew, or should have known, that the Bank Claim was not secured by a valid and perfected lien in substantially all of Plaintiffs'assets.
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36.
At the time Defendant made the Lien Representation to the Court, During these
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Defendant knew that Plaintiffs owned various parcels of real property.
Chapter 11 proceedings, Defendant and various other parties referred to one of Plaintiffs' parcels of real property as the Deer Valley property. 37. cases. The Deer Valley property was sold during the pendency of the Debtors'
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At the time Defendant made the Lien Representation to the Court, Defendant
and/or its counsel knew the Deer Valley property was property of Plaintiffs' estates. 38. After the Deer Valley property was sold, along with all of the other material
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tangible assets of these estates in sale authorized by this Court in February 2004, the sale proceeds of the Deer Valley property were assigned a value of $950,000 by the Court. Defendant never challenged or opposed in any way this assignment of value. 39. At the time the Lien Representation was made to the Court, Defendant,
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directly or through its counsel, knew that: (i) the Deer Valley property was a substantial asset of Plaintiffs; and (ii) Defendant did not have a lien in the Deer Valley property. 40. In early 2004, the Examiner filed an adversary proceeding against In this adversary proceeding, the
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Defendant - Adversary No. 2:04-ap-00676-SSC.
Examiner sought to avoid Defendant's lien asserted in certain rolling stock (the "Rolling Stock Adversary Proceeding" and the "Rolling Stock," respectively). 41. Through its counsel, Defendant consented to having the Examiner pursue
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the Rolling Stock Adversary Proceeding on behalf of these estates against Defendant. However, when the Examiner initiated the Rolling Stock Adversary Proceeding, Defendant denied that the Examiner had the right to initiate the Rolling Stock Adversary Proceeding. 42. Despite having agreed that the Examiner could pursue the Rolling Stock
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Adversary Proceeding, Defendant continued to argue that the Examiner did not have the right to initiate the Rolling Stock Adversary Proceeding before this Court and in its appeal before the Bankruptcy Appellate Panel for the Ninth Circuit (the "BAP"). This Court and the BAP both rejected this argument by Defendant.
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43.
The Rolling Stock at issue in the Rolling Stock Adversary Proceeding had a
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value of $1 ,010,851. Thus, whether or not Defendant had a valid and perfected lien in the Rolling Stock was a significant issue for Plaintiffs' estates. 44. By no later than June 25, 2004, Defendant and its counsel knew that
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Defendant did not have a valid and perfected lien in the Rolling Stock. 45. By no later than June 25, 2004, Defendant and its counsel knew that
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Defendant had no chance of prevailing in the Rolling Stock Adversary Proceeding. This was more than a month after Defendant filed its Answer in the Rolling Stock Adversary Proceeding, in which Defendant disputed liability and requested dismissal of the Examiner's Complaint in the Rolling Stock Adversary Proceeding. 46. Exhibit "B" attached hereto is an internal document from the files of
Defendant (the "Internal Memo"). Pages 2 and 3 of the Internal Memo is a document prepared by Mr. Tom Shanle who, at the time, was a Vice President and Senior Litigation Counsel for Defendant.
14
In the Internal Memo, Mr. Shanle explained why Defendant
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should approve the settlement embodied in the Term Sheet. 47. Page 1 of the Internal Memo is signed by four members of semor
management within Defendant. Defendants' representatives who approved the settlement discussed in the Internal Memo are: (i) Dale Greene - Chief Credit Officer at the time of Defendant's parent company, Comerica, Inc.; (ii) Jon W. Bilstrom - Chief Legal Officer at the time of Defendant; (iii) J. Michael Fulton president at the time of Defendant's California operations; and (iv) Joseph 1. Buttigieg, III - the vice chairman at the time of Defendant. 48. The Internal Memo states, in relevant part, as follows:
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567993
Under Arizona law, a security interest in rolling stock can only be perfected by registering the lender's lien interest with the Arizona Department of Motor Vehicles. That was not done in this case, and the Examiner has filed an action to avoid the Bank's lien and keep the Bank from receiving that portion of the sale proceeds. There is no likelihood of our being able to defeat this claim.
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Our counsel has had infonnal settlement discussions with the Examiner's counsel. He believes that we could settle the Rolling Stock Avoidance Action, the DiPrizio Avoidance Action and OTI's portion of the state court Action for $1.1 MM. This would be $100,000 more than the amount we expect to lose on the Rolling Stock Avoidance Action. [Internal Memo, pp.2-3 (emphasis added)] 49. The Rolling Stock Avoidance Action referred to in the Internal Memo is, in By no later than June 25, 2004,
6 fact, the Rolling Stock Adversary Proceeding. 7 Defendants' business representatives and counsel responsible for handling the Rolling Stock Adversary Proceeding knew that Defendant had no likelihood of prevailing in the 9 Rolling Stock Litigation. 10 50. 11 Stock Adversary Proceeding through the time this Court entered a judgment against 12 Defendant in the Rolling Stock Adversary Proceeding (the "Rolling Stock Judgment"). 13 Defendant then pursued an appeal of the Rolling Stock Judgment to the Bankruptcy 14 Appellate Panel for the Ninth Circuit, which appeal was unsuccessful. 15 51. 16 Defendant never obtained a stay of the Rolling Stock Judgment. 17 administrative case, the Examiner attempted to make an interim distribution of the
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Notwithstanding this knowledge, Defendant denied liability in the Rolling
The Rolling Stock Judgment is a final and nonappealable judgment. In Plaintiffs'
approximately $1.1 million in proceeds that represented the Rolling Stock to various 19 administrative claimants. 20 21 52. At all time periods relevant to this matter, Defendant, knew or should have interim distribution. Defendant objected to the Examiner's attempt to make this
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known, that Plaintiffs' estates would incur substantial litigation costs in connection with the Rolling Stock Adversary. Substantially all of these litigation costs were incurred after Defendant's business representatives and its counsel knew that Defendant had no likelihood of prevailing in the Rolling Stock Adversary Proceeding. 53. As of the Petition Date, Plaintiffs' estates had at least $2.0 million in assets
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which were not subject to Defendants' valid and perfected liens - the Deer Valley property and the Rolling Stock. Defendant's plan utilized in these Chapter 11 proceedings
567993
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eventually turned into a "war of attrition" against Plaintiffs and the Examiner which is continuing to this very day. As a direct result of Defendant's plan, Plaintiffs' estates have incurred administrative claims and litigation costs substantially in excess of $2.0 million. 54. On September 15, 2003 this Court conducted a cash collateral hearing.
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During the course of the hearing, the Court directed Plaintiff to make monthly adequate protection payments. Defendant's counsel acknowledged that every payment would be subject to a final consideration of Defendant's claim. (Transcript of hearing-Docket # 288, at p. 53, 11.9-11. The Court agreed that if Defendant did not have a lien on a particular asset Defendant would be required to return the funds. Id. at p. 53, II. ]5-p. 56, I. 5. 55. The final judgment in the Rolling Stock Adversary Proceeding is that
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Defendant does not have a lien on certain collateral valued at no less than $],010,000, for which, inter alia, Defendant received adequate protection payments. COUNT ONE - BREACH OF CONTRACT 56. Plaintiffs incorporate by reference all previous allegations of this Complaint
as if specifically set forth herein. 57. Defendant breached the Term Sheet by attempting to "retrade" the terms of
the Term Sheet and by otherwise failing to enter into a definitive settlement agreement with the Examiner. 58. As a result of Defendant's breach of the Term Sheet, Plaintiffs' estates
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2]
incurred substantial damages and injuries in an amount to be proved at trial. COUNT TWO - BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING 59. Plaintiffs incorporate by reference all previous allegations of this Complaint
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567993
as if specifically set forth herein. 60. Defendant exercised bad faith in performance of the obligations imposed by
the Term Sheet and failed to deal honestly with the Examiner in connection therewith.
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61.
Defendant's conduct impaired the ability of the estates of Plaintiffs to
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receive the full benefit and its reasonable expectations of performance by Defendant under the Term Sheet. 62. Defendant did not carry out its contractual obligations under the Term
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Sheet in good faith. 63. Defendant breached the covenant of good faith and fair dealing that
IS
implied in the Term Sheet, knowingly, without any reasonable basis and in bad faith. 64. As a result of Defendant's breach of the implied covenant of good faith and
9
10
II
fair dealing, Plaintiffs' estates incurred substantial damages and injuries in an amount to be proven at trial. COUNT THREE - EQUITABLE SUBORDINATION -11 U.S.C. § 510(c) 65. Plaintiffs incorporate by reference all previous allegations of this Complaint
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as if specifically set forth herein. 66. The above-stated allegations establish that Defendant has engaged in an
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extended pattern of conduct which caused injury to the estate's other creditors and/or sought to obtain/confer an unfair advantage to Defendant. Under the principles of
equitable subordination, said conduct constitutes a basis to subordinate the Bank Claim for purposes of distributions so that all other allowed claims may be paid in full. 67. The above-stated allegations establish that in applying the principles of
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equitable subordination the Court should, inter alia, enter an order transferring all liens that the Defendant has, or claims to have, to the Plaintiffs' estate so that all other allowed claims against Plaintiffs' estate may be paid in full from estate funds. 68. Alternatively, and to the extent it is necessary to pay all other allowed
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claims in full, the above-stated allegations establish that the Court should enter an Order directing Defendant to disgorge interim distributions previously made from Plaintiffs' estates.
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COUNT FOUR-RECOVERY OF ADEQUATE PROTECTION PAYMENTS
69. While the previously-mentioned adequate protection payments were initially
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authorized by the Court at the September 15,2003 hearing, the Court specifically reserved Plaintiffs ability and right to recover any and all adequate protection payments made to Defendant, to the extent it was ultimately determined Defendant did not have a valid lien against the Rolling Stock. 70. Both this Court and the Bankruptcy Appellate Panel for the Ninth Circuit Any and all transfers to
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ultimately determined Defendant did not have a valid lien.
Defendant in the form of adequate protection payments on the Rolling Stock, and any and all other over-payments of adequate protection are therefore recoverable by Plaintiff.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for a judgment and an order against Defendant:
15 16 17 A. Finding that Defendant breached the implied covenant of good faith and fair dealing with respect to the Term Sheet; B. Finding that Defendant breached the Term Sheet; Finding the Bank Claim is subordinate for purposes of making distributions to all of the other allowed claims (plus interest as allowed by law) in these Chapter 11 cases, under the principles of equitable subordination pursuant to Section 51 O( c) of the Bankruptcy Code; D. To the extent it is necessary to pay all other allowed claims in full (plus interest as allowed by law), requiring Defendant to disgorge interim distributions previously made from Plaintiffs' estates; E. 27 the estates in the full amount necessary to allow unencumbered estate funds 28
567993
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C.
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Requiring Defendant's liens securing the Bank Claim to be transferred to
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to be available to pay all other allowed claims (plus interest as allowed by law); F. Awarding the Debtors' estates its actual and consequential damages incurred, plus interest thereon at the highest rate allowed by law from the date of entry of judgment, until paid in full; G. Awarding the Debtors' estates its costs, expenses and reasonable attorneys' fees in prosecuting all claims in this action plus interest thereon, at the highest rate allowed by law, from the date of entry of judgment until paid in full; H. Awarding pre-judgment interest at the maximum rate allowable by law on all of the foregoing awards of damages, costs and attorneys' fees to the extent allowed by law;
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567993
1.
Recovery of any and all adequate protection payments for which Defendant is not entitled; and
J.
Awarding such other and further relief as the Court may deem just and proper.
DATED this 19th day ofJanuary 2007. MICHAEL W. CARMEL, LTD.
lsi M. W. Carmel #007356 . Michael W. Carmel 80 East Columbus Avenue Phoenix, Arizona 85012-2334 Attorney for Plaintiffs
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GTI BANJQlUPTCY CASES
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SollIemeut and Pa,- of AUowod Adminlalralivo C1abna.
Condition PrCcodont to Comorlca', Willinpa to SoUl. with the B _
The lbaminer IIld Cemerica wiD aook allewaneellld ~ pa,.- oflbo ~ admiIIiallllivo dalmo(1110 "A1Iewod Admioialrllive CIaimI") lballlll Iioted ""llahibIt "A" 10 lbia TOIIIlSboel. Allypadythat objoolalo lbia TcmtSbeol lhalillialod ....1l>hibIl·A· wiD ~ybe IlrIcba fiom Bld>ibII"A-1llId I ~.... &bibll "B"1llId doomod 10 be lboholdor ofa ClaIm. Thoro IIIl two coodillooa pIIlCedoot 10 e-Ica'. wlDiJIpoaa to ...... 10 lbo otrecllvoneaa of1llia Tam Shoot (I) aelllomonl of the Rollloa Stock Avoldaoco AdIon u poovldod herein IIlid Court approvaIlboroof, and (Ii) Court IJIPIOYII olthe BxamInct'. _ _ _ that the other clalml apInot ComcrIc:a be aetdod II
......
1 ThiI T.rm Sbcot ptO\'Idea the """" of ID . , . _ ~ (I) Comerica BaoJc ("Cemorica") and (Ii) Bdward M. Mc:Do......" in bla capoclty II the duly apiloinleiI1llwnIner in the a.pter II CUes 1Iwo1vins: (It) GIl c.pilal H01diop, L.Le., dba Roc1dand Malala1a ("011"), and (y) OJ{. Ooodmaa 1Dvea_ ~ L.Le. ("OHO", and IOsolbor wilb an, the "011 Dcblon"). UD1cu olborwise iDdlcatcd, capitalized lcrma'uaed in Ibis TODll Sheet will couwpond 10 lbo capilallzod lams in lbe "9rnn!hnt Poslvatlm Of Logy Kina" filed by Cornorica OD or a1>out May 14,2003, in the Chapter II c.... .
.!'---
Case 2:03-cv-01587-JAT
Document 132-4
Filed 06/13/2008
Page 34 of 83
66/30/2604
16:47
316-297~3039
ClJIoERlCA BAti<
000123STATE-BK Preemption
PAGE 03/63
'I J
I( \1
I').:.O!'OS \1
CoJiIaica~thalthoE..mlner
Wind-Up Re.erv. Iildllond P.ym...t ,
pro , rill oddldOlll1 $ZOO,OOO in CQh IIlllSl be naerved for addltioDll admiIllslzativo o>pOlIOOI. COII1Olioa Ilso acknowledges thaI tho I!xamlller will irittpodj·..ly rcQDbune bls 6Jm for Ill. iDcrouod DoDd proml\llll afSBQ,OOO pRYlously pdd by his fiJl;n al1lic ~l Qftho Ot&c aftho States Tnwo. ' Wilh reapcct to tile diopuIod ,clm1nimtlvc .1aimI set !bIdl 0Il1lzhlblt "8" (1bo Disallowance ofDlaputM "D1IpuIod Claims,? Comerica and lb,. E:><1lIIiDer will seck IIlc cIinlIowonco of aD of Administnlive CloimI. tWo eIalms; psovUled bDwOver dl&l e.-riCa wil1 be J'NPOIIIlble for,llIlpq !be Disputod AdI1IlDlatralIve Claims _ d by on', professDab. Willloull1mftlt>g tho foIeaoiD&. Comorica will haYe the rlibt 10 oppose ""l' claims of iurcIwgc uaerlod by 1bo holden of 1IicDlsputed Claims. Cash iD the possesGcm of tho EUllliaer In the IlIlDIIlll of tho DiIputed Claims will be .. aide in a RIeM &cCOlDlI (tll.e "Reserve fo, Di$pUled CIaimI,? peiIdiDa the 0II!c0IPe of 1bo U1iIalioJl over tho DisplI10d Claims. 'Ilao E:><1lIliDor wlU tlIm over to em"""" 'III)' fmldt JIllMiDinlln the ReBelYo1br Dlspu1ed Claims thaI oro "l'l 0JdeDd by die Court to be psid to tho holders ofdl. Dlstliited Claims. Se1tI.monl ofAdvenl1}' Wilh rospect to tbe AdYOI'SI1}' 1'ioeecdioI·· Comoriea and tho BT'''''lIOr ape IS ProceediDg No·. 03-583 (the £o1Jowl:
U_
OatEd:,
_
BOWARD M, McDONOUGH, tho dilly oppoinled Ibr"",_ ill.
, lb. Chaplet II CIsos
By:
Nome==-:;;Bd:;:ward=c;"M.~M;::;e1>ono==u..,.,sh,------
·2·
coMERICA 0012
Case 2:03-cv-01587-JAT
Document 132-4
Filed 06/13/2008
Page 35 of 83
000124STATE-BK Preemption
n
11 I, " 1 l'ldl! Ih \\
Wlad-Up a-1lIlI Boad
P.".....L
an pc = 1 DINI oddltioilll $200,000 In cub _be..-vell for ~ ..Iiilklkl:nllve UFCIIMI Comedoaollo ockDowledgc.tIIII .... B..ml_ wiD """""'-Iynbd>uno 1111 firm tllrlbo iDcr··aod boad i*ewiulIIOt$80,ooo pmiouIly poId by Idt firm lUbe IequooI of.... Oftlco orb UaiIod Slalol TruIlee., WIth IOIpCCI \10 .... dlapIlled edmbrildnll... claims lOt fi>I1h 0Il1llhiblt -0" (tile DiaaIIowaacc ofDlsputecl "DiapIled a.ima"). Comidca aacltIle IlxImiIler wiII_ .... dlaaIIOWUICe of all of AdmiDlaCnlivc CIalmL lbeac cIIimI; pIOrided bD.-er tIIII eo-lca will be rapoidlIc foolilipllna !be DiIpalod AdmlDiIlr&ll... a.imauaedod by on'. ~ Wltbout IlmiliDa !be fin&oIn& Comcrica wiD bavo!be ri&ht to 0JlIl0I" aay clalma ofIIIIdIqe uaatod b" .... hoIdcn or!be DIapuIod CIaImo. CUll III tile poueoaioIl oftbe J!;umiDer ill t b e . - oftbe DlaplIled CIIims will be lOt uIdo ill. -....1CCOIIIl1 (tbe "RcIerve Ibr DIapuIod datma") pllIlIIlIl8t1le outcome of tho Iiliplioll tile DiIpuced CIIims. The J!;umlner will tum_to Comorlca aay flIDds ........1111 III !be Iloaerw tllr DlaplIled CIIims that .... IlOl onIered by tile Court 10 be poId to the holclcnof.... ClaimL SettIemoIlI ofAdYuuly' With IOIpCCIIo the Adwnary P-oc«dlnp, Comerica aad lbo &..m-.pee as ProcecdiDB Nos. 03-583 (!be foIIowa: (I) 'PltimrS1Dcl: W""RAcUcm: Will be aetIIed iD-""'Be for "DcPrizio AvoidaDce Ac1ioJl") Comedoa opeciDB that $894,480 miW... i I l _ f\mdI ahoII be loft bebIDd Ia tho aIId 04-676 (tho "IlollillB Stock . . - "he aacI clear" liom any~, cIaImII or inImota ofComcrica, aIId this action ahoII be diaml.aod wi1h P"'j1ldice -lbo putica 10 bear lhoir _ h
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