Free Motion to Expedite - District Court of Connecticut - Connecticut

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UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE IN RE: . . ACE-TEXAS, INC., . . . Debtor. . . . . . . . . . . . . . . . . . UNITED STATES OF AMERICA, . . v. . . STATE STREET BANK AND . TRUST COMPANY, as Trustee . for Junior Subordinated . Secured PIK Notes, et al.,. . Defendants.. . . . . . . . . . . . . . . Case No. 96-00166-PJW

824 Market Street Wilmington, Delaware June 5, 2006 2:00 p.m. Adv. No. 1-01-04605

19801

TRANSCRIPT OF HEARING BEFORE HONORABLE KEVIN J. CAREY UNITED STATES BANKRUPTCY COURT JUDGE APPEARANCES: For the United States of America: U.S. Department of Justice Tax Division By: ALAN MARTIN SHAPIRO, ESQ. PETER SKLAREW, ESQ. P.O. Box 55 Washington, D.C. 20044 Foley Hoag, LLP By: ANDREW Z. SCHWARTZ, ESQ. EURIPIDES D. DALMANIERAS, ESQ. Seaport World Trade Center West 155 Seaport Boulevard Boston, MA 02210 Todd Kirk

For Media Communications Partners L.P.:

Audio Operator:

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

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APPEARANCES (CONT'D): For U.S. Bank: Shipman & Goodwin LLP By: KATHLEEN M. LAMANNA, ESQ. One Constitution Plaza Hartford, CT 06103 Sidley Austin LLP By: GUY S. NEAL, ESQ. TERESA CHAN, ESQ. 787 Seventh Avenue New York, NY Zuckerman Spaeder LLP By: THOMAS G. MACAULEY, ESQ. 919 Market Street, Suite 990 Wilmington, DE 19899 Ashby & Geddes, LLP By: JOSEPH C. HANDLON, ESQ. WILLIAM P. BOWDEN, JR., ESQ. 222 Delaware Avenue, 17th Floor Wilmington, DE 19899 Monzack & Monaco, P.A. By: FRANCIS A. MONACO, JR., ESQ. 1201 North Orange Street Suite 400 Wilmington, DE 19899-2031 Buchanan Ingersoll & Rooney, P.C. By: TERESA CURRIER, ESQ. The Brandywine Building 1000 West St., Suite 1410 Wilmington, DE 19801 Akin Gump Strauss Hauer & Feld, LLP By: ABID QURESHI, ESQ. 590 Madison Avenue New York, NY 10022-2524 Brown Raysman Milstein Felder & Steiner LLP By: JEFFREY WEINGART, ESQ. KATHERINE McGRATH, ESQ. 950 Third Avenue New York, NY 10022

For Allstate Insurance Co.:

For Media Communications Partners LP:

For Allstate Insurance Co.:

For U.S. Bank:

For Scott Cable Communications, Inc.:

For Scott Cable Communications, Inc.:

For Stanley Bloch:

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THE CLERK: THE COURT:

Court is now in session. Good afternoon, counsel. Good afternoon.

UNIDENTIFIED SPEAKER: MS. LAMANNA:

Good afternoon. Good afternoon, Your Honor.

UNIDENTIFIED SPEAKER: THE COURT:

Has anything occurred since the filings

7 of any of the issues been resolved? 8 MR. SKLAREW: Not to my knowledge, Your Honor. This

9 is Peter Sklarew. 10 THE COURT: All right. I'd like to first consider Who will be arguing

11 the government's motion to postpone trial. 12 on behalf of the government? 13 14 MR. SKLAREW: THE COURT:

Peter Sklarew, Your Honor. Mr. Sklarew is the movant.

All right.

15 Would you like to begin? 16 MR. SKLAREW: Yes, Your Honor. As my motion

17 indicates, we have been essentially diligently litigating a 18 conversion issue in Connecticut since 2002. It was our belief

19 that we were bound by that ruling until and unless it was set 20 aside on appeal. Nevertheless, we made it clear in the

21 pleadings in the Connecticut case, and I believe it was known 22 to everyone here, it's no secret that it was always our 23 position that the main purpose of that appeal was to have a 24 disinterested trustee determine whether to waive an attorney25 client privilege so that we could ask not just a specific --

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1 not just get the specific documents that Judge Walsh ruled were 2 subject to the crime fraud waiver, but more broadly gain access 3 to all of the records of the debtor on both levels in the 1996 4 and 1998 case, and also re-ask the questions at the various 5 depositions, and there were dozens and dozens of questions that 6 two of the debtors' attorneys and one of its principals had 7 objected to on grounds of the attorney-client privilege. 8 have been doing that for a long time. We

We have repeatedly, as

9 much as one can do without incurring the ire of the Court, 10 tried to ask the District Court in the most polite way as 11 possible, to hurry up. 12 We were advised that we would not be able to get the

13 Judge to get a ruling until the Cendant litigation was over. 14 That advice was given to us in March of 2005, which was a time 15 that the Court did deny all the motions to dismiss the appeals 16 and assure that the appeals would go forward, and indicate that 17 he would at least rule on them at some point. 18 We learned that the Cendant case -- or that the I guess it does go

19 Cendant case resulted in a second retrial. 20 forward.

But that -- we learned that Judge Thompson took

21 himself off that case for the third retrial right about the 22 time of the hearings before Your Honor in March and April, I 23 believe right before the March hearing. And the way this issue

24 came up before your Court is in response to -- actually it was 25 in response to our motion to transfer the case. J&J COURT TRANSCRIBERS, INC. The parties

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1 adverse to us argued that there was nothing left to do in 2 Connecticut, and that's when we indicated, you know, there was 3 a lot left to do, but we still didn't really have any 4 indication from Judge Thompson that anything would happen. 5 had just learned that the Cendant trial would no longer be 6 occupying him and he had indicated that this would be the first 7 thing on his burner after that trial. So, at the March 29th We

8 hearing all of this was discussed briefly, but there was no 9 real resolution of it, and on March 30th, one day later, Judge 10 Thompson spontaneously issued an order for oral argument, at 11 which point the parties got in a dispute about when oral 12 argument would be, and my adversaries in the appeal 13 specifically asked Judge Thompson to postpone the argument and 14 the entire appeal until the trial went forward in this 15 adversary first because it might moot the appeal. Judge

16 Thompson rejected that view and said no, he thinks the 17 determination should be made before the trial. 18 think of one reason for that. And I can only

Implicit in his ruling he

19 understood that we should have a Chapter 7 trustee determine 20 whether to waive the privilege, acting in the best interest of 21 the estate rather than in the best interest of the debtor's 22 management before that. And so, then he indicated he would

23 rule before the trial and he asked us to report back to him on 24 what happened at the April 12th hearing because he knew that 25 there was a motion pending to postpone the trial from May 8th J&J COURT TRANSCRIBERS, INC.

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1 to June 12th, or to actually postpone it at that point. 2 hadn't set a date yet.

We

Your Honor, I think, had given us three And we went back essentially

3 areas in June, July and August.

4 to Judge Thompson and told him that the -- in a filing that 5 everyone got notice of, that Your Honor had postponed the trial 6 until June 12th, and in that filing we specifically 7 nevertheless urged the Court to expedite a ruling because we 8 indicated it would take time for a trustee to get up to speed, 9 it would take time for a trustee to be appointed -- a little 10 bit of time, at least, and that so even though your case had 11 been postponed to June 12th, we asked that his ruling still 12 come before May 8th, or as soon thereafter as possible. 13 Defendants opposed that, as well. 14 again. They wanted him to delay

At least the indenture trustee and the debtor on behalf

15 of the estate opposed that. 16 The next thing that happened is we did get an --

17 well, what -- we were approaching the trial date in your Court, 18 and we sent another notice to Judge Thompson, essentially in a 19 filing that said, you know, things are approaching and if you 20 could please give us a possible ruling. And at that point he

21 held a telephonic conference on May 23rd and indicated what his 22 ruling would be, but that he was having trouble finishing the 23 opinion because he still had some -- a memo to write for the 24 incoming Judge in the Cendant case, and he expected to get to 25 it soon, but he wanted us to have the benefit of his ruling in J&J COURT TRANSCRIBERS, INC.

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1 advance so that we could take whatever steps we needed to take 2 in respect to the Delaware proceedings. It was the next day

3 that we had oral argument on the government's motion for leave 4 to appeal the denial of transfer in front of Judge Jordan. And

5 I won't go into that right now, but some things I think relate 6 more to our other motion in respect to that, although Judge 7 Jordan did indicate at the very end of his ruling that he 8 understood as a result of the recent events, including the 9 conversion, that the parties would be arguing before Your Honor 10 about whether to reschedule the trial, and that he was not 11 indicating any way of what the ruling should be on that, but he 12 understood that this provided a basis for us to at least to be 13 arguing to extend the trial, and the other side would be 14 arguing not to. 15 So, that sort of brings us to where we are, and I

16 would like to quote something I just found in a transcript in 17 preparing for this this morning. It relates partly to the It's Mr.

18 other motion but also partly to this motion.

19 Schwartz, on Page 72 of the April 12th, 2006 hearing before 20 Your Honor, and it had to do with getting in the IRS memos and 21 depositions of the IRS witnesses, whose memos had been in the 22 files of the debtor and the defendant since we produced them in 23 2002, August of 2002. Without any explanation why they

24 couldn't have made the motion sooner to depose them, Mr. 25 Schwartz said in that hearing, quote, "It would be a crying J&J COURT TRANSCRIBERS, INC.

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1 shame if this case was determined here without all of the 2 evidence, went up on appeal to the District Court, the Court of 3 Appeals, even the Supreme Court, and ended up having to be 4 remanded for further fact development. We already have --

5 we're already seven-plus years into the case, so that's yet 6 another reason why the administration of justice and the 7 Court's discretion of this evidentiary record should be as 8 fully developed as possible when we conduct this trial." 9 think that's very appropriate to consider for both of the 10 motions in the current context. 11 THE COURT: Well, Mr. Sklarew, let me stop you for a And I

12 moment and talk about the standard that I must apply here in 13 determining whether to grant the relief that the government has 14 requested. And I don't think the parties necessarily would

15 disagree about this, but the decision law in this District and 16 in this Circuit indicate clearly that the decision to grant or 17 deny this type of delay is within the Court's discretion. 18 Among other cases I looked at, Judge Farnan's decision in 19 Cognex v. National Instruments. 20 Westlaw 34368283. That's reported at 2001

It's a 2001 District of Delaware decision.

21 In that he said, "In determining whether a stay is appropriate, 22 the Court should weigh the competing interests of the parties 23 and attempt to maintain an even balance." Where a stay will

24 forestall the trial date, the Court has -- he says, "this Court 25 has required the party requesting the stay to make a showing of J&J COURT TRANSCRIBERS, INC.

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1 a clear case of hardship or inequity before the Court can enter 2 a stay order." 3 to apply here. And I think that's the standard that I am going Tell me, under these circumstances, why the

4 government has met that standard. 5 MR. SKLAREW: I will in a moment, Your Honor, but I

6 first preliminarily must take issue with the standard for this 7 unique case. We are in a one of a kind situation in which we

8 have an appellate ruling that clearly indicates the Judge in 9 the Appellate Court that has the administration of this estate 10 and has the in rem jurisdiction over the estate believes that 11 the government always had the right to a disinterested trustee, 12 and it's been stalled on that basis for many years now. 13 always had a right to that. 14 we've had a right to that. We've

We've always made the argument We've made that clear all along.

15 And the fact that we're at trial at this point is because the 16 defendants, or particularly the debtor, and on behalf of all 17 the defendants, purportedly, and the indenture trustee on 18 behalf of all of the noteholders, purportedly, resisting 19 conversion, indicating there was no conflict of interest and 20 that there was no reason to have an independent trustee, and 21 that nothing would change in the adversary proceeding as a 22 result of that. We now have law in another Court that is They cannot argue to

23 binding on those parties to that effect. 24 the opposite.

It would be highly unusual, I think, for this

25 Court to basically essentially nullify the effect of that fourJ&J COURT TRANSCRIBERS, INC.

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1 year appeal by going forward.

So, I disagree that the standard

2 here in these unique circumstances where we have this split 3 jurisdictional problem, is abuse of discretion standard. I

4 submit that the standard here is one of comity and respect for 5 the District Court's already made ruling, or announced ruling, 6 even though it hasn't written the opinion yet, in Connecticut. 7 Secondly, do think we meet the standard, and we meet

8 the standard because we are talking about if the Court looked 9 at these documents, some dynamite evidence, we're talking about 10 dynamite evidence that, at worst, was excusable neglect that 11 the government did not discover at this -- you know, did not 12 have because of a lack of a comparison of the production logs 13 and the items that were produced, simply -14 THE COURT: And I will tell you, in considering that

15 circumstance in which neither party accuses the other of any 16 untoward behavior, I find it still remarkable and frankly I 17 guess it shows a lapse on behalf of both parties, one for not 18 having reviewed the hard copies of the documents when they were 19 received, and then subsequently deleting the e-mail, and yet on 20 the other hand having sent hard copies of documents, an 21 incomplete set of documents that were ordered to be produced. 22 And it's remarkable that those mutual lapses have gone 23 undiscovered for so long. 24 MR. SKLAREW: I'm just amazed by it.

Well, Your Honor, let me address that,

25 but I do want to get back to the standards also on the hardship J&J COURT TRANSCRIBERS, INC.

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1 in a moment.

But in addressing that, I agree with Your Honor

2 that there's no accusations here of any deliberate untowardness 3 by either party in this. 4 both sides. There are a series of mistakes on

But Your Honor did mention that we -- and I'm not It may have been the way you

5 sure you meant this, really. 6 spoke.

But you said something about not having reviewed the

7 documents, the hard copy, and then getting rid of the e-mail. 8 Actually, Mr. Shapiro, who is here with me, and you can 9 question him if you like, he did review the hard copies 10 immediately, and he immediately called his opponents and asked 11 for follow-up depositions because he thought that even what 12 they did contain was highly probative. And they refused

13 follow-up depositions, and he had to make a motion for follow14 up depositions and brief it. And I think what has to be

15 gleaned from this is really something that Your Honor said also 16 in the -- I'll go back to the April 12th hearing. 17 Page 99 of the transcript. And this is

You said, "You know, whenever I

18 have an adversary or contested matter of this magnitude, it's 19 inevitable that things come up pretrial, after discovery is 20 closed, and you know the ideal would be not to have that happen 21 at all. But in real life, it happens, so, my goal here is to

22 try to be as focused as possible and have the parties be as 23 focused as possible, without delaying the trial, yet being as 24 fair under the circumstances to all the parties as can be." 25 Now, at that point we were able to do that without delaying the J&J COURT TRANSCRIBERS, INC.

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1 trial, at that time, because it was still April 12th.

But --

2 or actually, we did, I think, end up delaying the trial a 3 little bit because it went from May 8 at that hearing to the 4 June 12th, because the defendants were not available in August 5 or July, at least one of them wasn't in July, and one in 6 August. 7 The point I'm making, though, is that in addition to

8 what I just said, Mr. Shapiro was laboring with a humongous 9 record. We have 20 boxes of documents in this case. We were

10 fighting essentially a large motion that was heavily briefed on 11 the motion to compel, and it was briefed months and months 12 before it was actually ruled upon. 13 sorry. So, it is true -- I'm We had more than 60

Mr. Shapiro has just corrected me.

14 boxes of documents.

You know, in all of this, to be sure, the

15 prudent thing to have done when he got the hard copy, not just 16 to review it and decide whether he wanted to take follow-up 17 depositions, which was preoccupying him, but also would have 18 been to compare it to the privilege logs. But he didn't at

19 that time because he had no reason to believe that it wouldn't 20 be complete. It had just been ordered produced and it was 45

21 pages of information for what was supposed to be, if he even 22 remembered the number of documents at the time, 13 documents. 23 So, it was an understandable error, and it is very And the reason I think the equities weigh

24 important evidence.

25 in our favor is you weigh that very important evidence against J&J COURT TRANSCRIBERS, INC.

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1 the fact that we have -- one, we don't even know the degree of 2 hardship that will be conferred -- you know, imposed on the 3 government with respect to other documents until the trustee 4 decides whether to waive the privilege. So, we don't even know

5 what else is out there, and we don't know what we'd get if we 6 got answers to our deposition questions, or trial questions 7 from some of the other lawyers we've learned about recently who 8 had something to do with some of these documents. So, it's

9 sort of delving in the dark in the sense of that, and we have 10 this additional reason, which is the trustee's appointment to 11 postpone the trial coupled with these documents that have been 12 discovered. I'm not relying solely on the late discovery, or

13 recognition of these documents, as much as the trustee's 14 appointment, but the documents bear into it as well. It was a

15 good faith mistake, and it is dynamite evidence when we look at 16 it. And the government should have an opportunity to get this

17 evidence in. 18 Now, there is a solution that doesn't require

19 postponing the trial except for the trustee's additional 20 documents which I have proposed, and that is, and I do believe 21 Your Honor can do this. We have the Baer Marks firm, we have

22 all the attorneys that worked on the case who also worked in 23 the 1996 case when they worked on the 1995 documents that we're 24 looking at, they also continued to work on the case in 1996. 25 They were authorized as counsel, who are now having a dispute J&J COURT TRANSCRIBERS, INC.

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1 about some of the documents that they drafted and that were 2 pre-bankruptcy planning documents for planning the very 3 bankruptcy that's at issue now. And I believe it's well within

4 the authority of this Court, in light of the nature of those 5 documents and what they show, to order the Baer Marks attorneys 6 to appear. They have contacts with Delaware. They have more

7 than minimum contacts.

They appeared in Delaware in this case, That year, by the

8 in the case that, you know, the 1996 case.

9 way, the adversary proceeding is currently captioned under in 10 the Delaware Court, or associated with. 11 There's also the 1998 Stroock Stroock & Stroock memo

12 of the debtor's present counsel, and the lead counsel from 13 Stroock Stroock and Stroock went over to Akin Gump from that. 14 That's now one of the memos that's now in contention, as well. 15 Clearly the government can -- excuse me -- the Court can order 16 present counsel to appear, just like the Court has indicated 17 the IRS witnesses should appear. And I think that's an The

18 important, you know, analogy here to the whole situation.

19 IRS witnesses, the documents that they had with respect to the 20 IRS were not even missing. 21 August of 2002. They admit they had them since

They simply argued that they are important

22 evidence and they should be able to authenticate them, and the 23 solution was to bring people to trial. Well, the solution here

24 with Baer Marks is to bring people to trial from the Baer Marks 25 firm and from the former Stroock Stroock & Stroock firm, whose J&J COURT TRANSCRIBERS, INC.

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1 attorneys are currently at Akin Gump, which is current counsel 2 for the debtor. 3 So, I think the Court can do that.

Now, I'm not suggesting it do that, because to me the

4 more appropriate thing to do here for a different reason is to 5 postpone the trial, and that is because we should have a 6 trustee waive the privilege and be able to question these 7 gentlemen without that specter looming, and also ask questions 8 of the previous deponents who refuse to answer those questions. 9 So, I think for that reason we should postpone the trial, and 10 then we can go ahead and take the additional depositions of the 11 Baer Marks attorneys, or not, depending on what a trustee does. 12 And, Your Honor, if a trustee doesn't waive the privilege, Your 13 Honor could then order them to appear at trial, at least for 14 the ones that the privilege has already been overruled by Judge 15 Walsh, at least for these six documents that we now have. So,

16 I think that it's a confluence of other -- of events that have 17 conspired, essentially, through no -- and when I say conspired, 18 I certainly don't mean any kind of bad faith. I agree with you

19 there has been no untowardness on either side in that regard. 20 But the confluence of events have conspired to a situation 21 where when we have a last minute appointment of a trustee, and 22 it's certainly not the government's fault that it's a last 23 minute appointment, and there was resistance on behalf of every 24 -- all the defendants that was made, and we also have the 25 inadvertent failure of the government to have realized that the J&J COURT TRANSCRIBERS, INC.

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1 documents that were received in response to Judge Walsh's 2 production order compelling production was an incomplete set at 3 the time that we inspected those documents and moved to take 4 follow-up depositions and did take follow-up depositions of 5 some of the Baer Marks attorneys with respect to the documents 6 we were aware of right after that order, and diligently. 7 So, with that confluence of events, particularly

8 coupled with the fact that it's clear that the Connecticut 9 District Court agrees with -- has no agreed with our reasons 10 for needing a disinterested trustee, always the primary focus 11 of the appeal and it's the primary focus of the statement that 12 Judge Thompson made on the record on May 23rd as to his reasons 13 for granting conversion, sets up an unusual situation, possibly 14 a unique situation, and this case is already fairly unique. 15 have -- you know, before this we have not only the split 16 jurisdiction, we have -- a lot of parties have argued that 17 certain aspects of this are a case of first impression. 18 Certainly aspects of the equitable subordination case are, 19 which is really what this discovery is really more about than 20 the other issue. And given the unique case and the unique We

21 situation, I would suggest that the Court certainly has 22 discretion to grant the continuance, and ought to grant the 23 continuance so that the truth comes out. 24 case. This is a $40 million

We are seven years into it, as Mr. Schwartz said, and it

25 would be a shame not to have all the evidence in the record at J&J COURT TRANSCRIBERS, INC.

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1 this point to go forward in this trial without it because of 2 the, and I think you have to weigh the other side, this is just 3 part of the standard, let me get back to the standard, is 4 weighing the damage to the other side, and there really is no 5 damage on the other side. There is some delay. There is a

6 possible 60, 90, maybe even 120 day delay. 7 predict. The Court could stagger it.

It is hard to

Your Honor could, of

8 course, grant a partial -- you know, a continuance for some 9 time and see what happens, see if the -- what the trustee does, 10 how far we get along, and keep a tight rein on us. 11 many ways, you know, to do that. There are

But I think we have an

12 unusual confluence of events, and the damage on the other side 13 of a 90-day delay when money is in an interest-bearing account, 14 we've waited seven years, is really extremely minimal, if any 15 recognizable damage, at all. Because if every delay was

16 automatic damage, you'd never be able to meet the standard. 17 18 others. 19 MR. SCHWARTZ: Your Honor, Andrew Schwartz for the THE COURT: Thank you, Mr. Sklarew. Let me hear from

20 Media defendants.

We oppose the motion for a continuance And

21 primarily on the grounds that the motion is speculative.

22 we agree with you that the standard that the government, as the 23 movant, must meet is clear case of hardship or inequity, and we 24 submit to you by definition, speculation cannot be a clear 25 case. We also oppose the motion on the grounds that the J&J COURT TRANSCRIBERS, INC.

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1 continuance requested is open-ended and could lead to extensive 2 delay upon delay. 3 As we have stressed repeatedly in recent months, the That's now seven-

4 case has been pending since November `98. 5 and-a-half years.

The trial was supposed to happen in October

6 of 1995 -- I'm sorry, 2005, then it was supposed to happen in 7 May of this year. At the government's request it was pushed

8 back to June 12th, which is, I'm sure you're well aware, is 9 just a week away. Your Honor has dealt with all the various

10 motions in limine and the other pretrial motions in the last 11 several months. The government, last week, served its portions

12 of the joint pretrial order including 681 supposedly undisputed 13 facts. The defendants worked on the weekend readying their

14 portions of the joint pretrial order extensively, now due on 15 Wednesday. The final pretrial conference is Thursday. All of the witnesses who are Your Honor has This

16 case is ready for trial.

17 appearing live have cleared their calendars. 18 cleared your docket.

All of the lawyers involved have blocked And as I've argued to you before, it's

19 out the necessary time.

20 not easy to get all the planets aligned so that an exercise of 21 this magnitude can be conducted on the road, but everyone has 22 done it in reasonable reliance on the trial date, and we are 23 all ready to go, and that includes the government, judging by 24 the extensive submissions we received from Mr. Shapiro last 25 week. J&J COURT TRANSCRIBERS, INC.

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1

The government now however says we should all stop

2 dead in our tracks and go into what amounts to an indefinite 3 holding pattern. And they say this because on May 23rd Judge

4 Thompson indicated that at some point in the future he was 5 going to issue an opinion reversing the denial of the 6 government's motion to convert. And that motion was filed, as It was

7 I understand the facts, for the first time in 2000. 8 withdrawn, and then renewed in 2001 and/or 2002.

It was denied

9 in July 2002, nearly four years ago, and it's been the subject 10 of an appellate process since then, since mid-July 2002, and 11 it's still not resolved because as Judge Thompson certainly has 12 indicated what his inclination is to do, and I'm not suggesting 13 he's going to do anything else, it hasn't happened yet and we 14 don't know when it's going to happen. 15 THE COURT: Mr. Schwartz, I called Judge Thompson Now, I had read the

16 this morning to confirm two things.

17 transcript of the conference that was submitted to me by the 18 government of the -- I guess May 23rd discussion I'll call it, 19 to confirm, number one, that Judge Thompson was, consistent 20 with what was indicated in the transcript, going to either 21 convert the case or remand it to the Bankruptcy Court with an 22 order to convert the case. 23 that's still his intention. And he confirmed to me today that Secondly, I wanted to confirm that

24 this was something on which he was presently working, and that 25 a written decision would be issued soon. And consistent,

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1 again, with what he had indicated in the transcript, he offered 2 no specific date by which the opinion would be issued, but told 3 me, my words, not his, that he was working on it. 4 something soon. 5 MR. SCHWARTZ: Well, that's useful information, Your So, I expect

6 Honor, but it does not materially impact our position, and I'll 7 explain why. 8 9 THE COURT: Go ahead. The government -- its motion basically

MR. SCHWARTZ:

10 speculates that once the denial of conversion is reversed, the 11 Chapter 7 trustee may attempt to, quote, switch sides, end 12 quote. Those are the government's words, not mine. Or it may

13 accede to the government's request that the trustee broadly 14 waive the debtor's privilege beyond the waiver that Judge Walsh 15 effectively ordered. And then the government speculates, on

16 top of that, that if the privilege is waived, it may find 17 documents helpful to its case, which by the way it already says 18 is rock solid, and it says that if the privilege is waived it 19 may want to take more depositions, including re-deposing people 20 who have already been deposed, to attempt to develop what it 21 speculates may be additional helpful evidence. So, what the

22 government envisions is that we put this adversary proceeding 23 into a state of abeyance for an uncertain period of time, and 24 wait not only for the decision in Connecticut, but for the 25 actual appointment of a trustee, for the trustee to retain J&J COURT TRANSCRIBERS, INC.

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1 counsel, for the trustee and counsel of the trustee retains -2 to obtain access to the voluminous record of this adversary 3 proceeding with facts dating back to 1988, and then wait for 4 the trustee to obtain access to the record of the two 5 bankruptcy cases that were filed. Then we would wait for the

6 trustee to obtain access to whatever privilege documents might 7 exist. Then the trustee and his or her counsel would have to

8 review and digest all the documents that were assembled and 9 make a determination whether to take a position on the merits, 10 and if so, what position. 11 And you might stop there and ask why would the

12 trustee take a position or an interest in the litigation given 13 that it is obviously a dispute between two creditor 14 constituencies. And the government itself s on record in

15 Connecticut as having said that the debtor and the estate have 16 no legitimate interest in the outcome of the adversary 17 proceeding. 18 THE COURT: Well, let's talk about that for a minute.

19 One of the suggestions that the government made in one of its 20 submissions was given the development of events it was time to 21 pause, take a step back, and just look at things. I did that.

22 In fact, the government had asked that a hearing on its motion 23 be held Friday, and I set it for today to give me the time to 24 go back and review certain things with the specific issues here 25 in mind. And among the things I looked at was Judge Walsh's J&J COURT TRANSCRIBERS, INC.

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1 2002 decision, which is reported at 2002 Westlaw 417013.

It's

2 the short opinion in which Judge Walsh granted the motion of 3 the debtor to intervene in this adversary. 4 decision he said the following. And in that

"Although debtor may not have

5 a significant and financial interest in the outcome of the 6 adversary proceeding, it does have an interest and fiduciary 7 duty as debtor-in-possession to ensure that the estate's assets 8 are distributed in accordance with the proper legal and 9 equitable priorities of the parties in interest. It also has

10 an interest in the adversary proceeding because the outcome of 11 the proceeding has the potential to disrupt debtor's current 12 capital structure as established by the confirmation order 13 entered in connection with the debtor's prior reorganization 14 case." 15 Not coincidently, I think, in the decision that Judge

16 Schiff made in July of 2002, which is reported at 2002 Westlaw 17 1988166, the Judge, in determining -- well, first of all, in 18 denying conversion and denying the motion for the appointment 19 of a trustee, and in overruling the government's objections to 20 a cash collateral request, quoted that language from Judge 21 Walsh's decision. So, it seems to me both were in agreement

22 about the appropriate role of a debtor-in-possession, at least 23 in the context of these circumstances. 24 You then go to the transcript of the May 23rd

25 telephone conference held with Judge Thompson in which he says, J&J COURT TRANSCRIBERS, INC.

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1 very significant to me is the fact that there is a conflict of 2 interest on the part of the debtor's management and in its -3 in a situation where the plan was rejected as having a 4 principal purpose -- as a principal purpose the avoidance of 5 taxes. It seems to me that only a trustee could properly make

6 decisions about whether to waive attorney-client privilege or 7 whether the estate should pursue using the assets of the estate 8 for the benefit of a class of creditors that includes 9 management of the debtor. And then, upon conversion you have

10 Section 704, which sets out the responsibilities of the 11 trustee. And it strikes me that whether you view the issue in

12 the narrow sense of, well, ought the trustee or will the 13 trustee, Chapter 7 trustee, when appointed, waive the attorney14 client privilege? Or if you take a look at overall what the

15 trustee's responsibility is, the conversion obviously changes 16 dramatically the standing of the debtor to be the champion of 17 certain interests. So, with the conversion of the case and the

18 appointment of a trustee, while it has not yet occurred, it 19 seems to me there's a dramatic change in the role that the 20 debtor plays here, and one that the trustee will review, I'm 21 sure, and then choose to either agree with or disagree with, or 22 do something completely different with, including considering 23 the issue of whether to waive the attorney-client privilege. 24 So, you know, this portends a real change, I think, in the 25 tenor of the proceeding. Tell me why you think I'm wrong about

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1 that. 2 MR. SCHWARTZ: Well, as an initial response let me

3 say that the dramatic change that you are suggesting in the 4 role of the debtor that may occur presupposes that the debtor 5 has been playing a major role in the recent history of the 6 case, and I think the experience, since it's been before you, 7 attests to the fact that the ultimate interest holders have 8 been the parties who have been active primarily in defending 9 the case in its recent phase. The debtor has been quite quiet

10 in the various proceedings before you, as long as you have 11 presided over the case, and for some period of time before 12 that, so -13 THE COURT: And that's true, and there is a very good

14 reason for that

-- it's because the debtor doesn't have, as

15 the parties have argued before the various Judges a financial 16 stake in the outcome, that the debtor is here in this adversary 17 because of its other fiduciary responsibilities that both 18 Judges Walsh and Schiff have talked about, and it seems to me 19 that Judge Thompson has recognized. And it's that part of the

20 participation with the coming of a trustee which I think may 21 dramatically change what's going on here, because ultimately 22 it's the trustee's responsibility to see that the assets are 23 distributed in accordance with the priority scheme, and the 24 relief sought in this adversary goes to the very heart of who 25 gets the money. J&J COURT TRANSCRIBERS, INC.

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1

MR. SCHWARTZ:

There's no doubt about the last point,

2 but my point is that the debtor has been passive for quite some 3 period of time, since the noteholders have intervened. 4 Increasingly the noteholders have taken the lead in the defense 5 of the case because ultimately the beneficial interest, in 6 large part, is theirs. And the point I was raising that

7 resulted in your comments is that among the speculation we all 8 have to engage in now in trying to envision what might happen 9 with the trustee is a question of would the trustee get 10 involved? And I think when you look at the fact that the

11 ultimate interest holders are now active in the case, there is 12 no funding for a trustee except if, at the end of the day, the 13 government wins. The government itself has taken the position

14 that the estate party really, whoever it is, whether it's the 15 debtor or now a trustee, by extension has no economic interest 16 in the outcome. 17 18 position. 19 MR. SKLAREW: Objection. We never took that

I'll explain it later. MR. SCHWARTZ: Well, I would like to differ, Mr.

20 Sklarew, in -- because I have an actual quotation in front of 21 me that goes back quite a few years, but in connection with the 22 dispute that took place in Connecticut in 2002 the government 23 did say in one of its oppositions that the debtor and the 24 estate have no legitimate interest in the outcome of the 25 adversary proceeding, so I stand by the quotation. J&J COURT TRANSCRIBERS, INC. I'd be

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1 happy to provide it to you off line. 2 THE COURT: Well, in any event, at least two Courts

3 have decided otherwise, so -4 5 6 MR. SCHWARTZ: THE COURT: That's true --

Let's just move on. -- with regard to the debtor. But we

MR. SCHWARTZ:

7 are still, Your Honor, in the realm of speculation, and I think 8 that when you go down the road of speculation, by definition 9 you're outside the scope of the standard of what the government 10 has to show. And we have raised a number of -- it would be as

11 much speculation for us, as for the government or anyone else 12 to say what's going to happen, and we're not saying what's 13 going to happen. But we have raised a number of factors

14 suggesting that a trustee could not or would not do what the 15 government contemplates. And foremost among them is the 1998

16 cash collateral order which was entered on notice to the 17 government and which the government did not appeal, and which 18 expressly provides in the first instance that the debtor 19 acknowledges the legitimacy of the secured claims and won't 20 challenge the liens, and they will cooperate with the lenders, 21 and then goes on to say that its binding on any successor, 22 including a Chapter 7 trustee. 23 Now, Mr. Sklarew says in his reply that that's

24 invalid and can be attacked under Rule 60(b), but Rule 60(b) 25 only gives you a year to attack orders. The government would

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1 be estopped from attacking this one, and the order was entered 2 seven years ago, seven-and-a-half years ago. So, that's one

3 big problem with the government's wishful thinking of what 4 might unfold in its favor. And again, when we look at the

5 prejudice that would flow from an indefinite delay on the cost 6 of all these various different developments unfolding over a 7 period of months, if not longer, we have to take a look at 8 what's the purpose of the proposed delay, and the purpose of 9 the proposed delay is to see, on a speculative basis, what 10 might develop. And given at least that one structural obstacle

11 that exists, we would suggest to you that, especially where the 12 debtor's privilege has already been overridden with respect to 13 specific documents, to delay the case which is now literally on 14 the eve of trial for an indefinite period of time because 15 something might happen would not be appropriate. 16 I also want to raise one other point and approach As we all acknowledge, Despite

17 this from a slightly different angle.

18 the conversion appeal has been pending since 2002.

19 that fact, it was not until March of this year, 2006, that the 20 government first suggested in this proceeding that the timing 21 of the trial should be affected by the conversion appeal. 22 to quickly review the history of this, the trial date of 23 October 2005 was originally set in February 2005 at a 24 conference before Judge Walsh. There was no mention then that Just

25 the resolution of the appeal would have any bearing on the J&J COURT TRANSCRIBERS, INC.

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1 timing of the trial.

Then we were before Judge Walsh in July

2 of 2005 when he denied the government's summary judgment motion 3 and set the trial for April `06. At that point the government

4 said nothing about the timing of trial being influenced by the 5 outcome of the appeal. And this was after the motions to Then, in December of 2005,

6 dismiss the appeal had been denied.

7 I think you're familiar with this history, the government 8 submitted a letter to Judge Walsh, said it was willing to go to 9 trial in May `06 or October `06 and there was a telephonic 10 hearing on that subject a few days later. Again, nothing was

11 said at that time about the resolution of the appeal having any 12 conceivable impact on the timing of the trial. And then, most

13 recently we appeared before Your Honor on February 13th of 2006 14 at which time the May 8th trial date was reaffirmed, and once 15 again the government said nothing about the timing of the trial 16 being impacted by the pending appeal in Connecticut. It wasn't

17 until February -- I'm sorry -- March 10th, `06, when Mr. 18 Sklarew submitted a reply brief, I believe, in connection with 19 the secondary transfer initiative, that this was mentioned. 20 So, you've only been with us, and we've only been with you 21 since early this year. You may have formed the impression that

22 the government has always been making this point in this Court. 23 It has not. The case has been pending since `98, the

24 conversion proceeding since 2000, and it was not until 2006 25 that this Court, the conversion issue was mentioned as a basis J&J COURT TRANSCRIBERS, INC.

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1 for possibly affecting the timing of the trial.

So, this is a

2 very recent vintage, and in our view another reason why it's 3 not a sufficiently compelling reason to derail a case that is 4 really on the verge of trial. 5 So, from our standpoint the case is ready for trial. I think that to entertain

6 It should go forward on June 12th.

7 the relief the government is requesting would lead to 8 potentially endless delay, including satellite litigation over 9 various issues of privilege and the cash collateral order, and 10 other things. And I wouldn't be surprised if we got another The motion

11 retransfer motion, which of course we would appose.

12 really piles speculation on top of speculation on top of 13 further speculation. It comes very, very late in the day. We

14 have already been prejudiced by the delay in getting the matter 15 to trial. Judge Walsh recognized that when he sent the case to

16 you saying that getting the case to trial in the near term was 17 important, and our view is it would be unfair to prejudice our 18 clients any further based on what amounts to a wish and a 19 prayer. So, we would ask that this motion be denied. We don't

20 think the government has satisfied the standard that you've 21 referenced and we've cited by relying on speculation as to what 22 might unfold. 23 THE COURT: Thank you. Does anyone else wish to be

24 heard in opposition to the motion? 25 MR. QURESHI: Your Honor, it's Abid Qureshi from Akin

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1 Gump Strauss Hauer and Feld on behalf of the debtor. 2 like to briefly be heard. 3 4 THE COURT: Go ahead.

I would

MR. QURESHI:

Your Honor, the debtor also opposes the

5 government's motion, and I'll confine my comments just to one 6 point that Mr. Schwartz made, and that is the speculative 7 nature of the relief that the government is seeking here. 8 talk constantly about the trustee waiving privilege. They

I would

9 just like to remind Your Honor that as far as I am aware, all 10 of the documents from the debtor that were withheld on a claim 11 of attorney-client privilege in the course of production the 12 government now has. 13 phases. They were given to the government in two

Prior to the motion to compel that the government

14 filed being argued the debtor agreed, having re-looked at some 15 of the documents on its logs that there were, in fact, a few 16 documents that upon further investigation we determined were 17 not privileged and provided those to the government. And the

18 remaining documents over which the government was seeking 19 access were provided when it won on the motion to compel. 20 There were a number of documents not ordered produced by Judge 21 Walsh, but on the reason that they were simply irrelevant to 22 the dispute between the parties. So, I think that just, again,

23 goes to the point that it is very speculative to delay this 24 trial even further on the theory that a trustee may waive 25 privilege and that there may be any documents there that would J&J COURT TRANSCRIBERS, INC.

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1 be of interest to the government in any event. 2 Honor. 3 MR. SKLAREW:

Thank you, Your

Your Honor, may I respond to some of

4 the arguments? 5 THE COURT: Let me -- Mr. Sklarew, let me just --

6 I'll give you an opportunity for a brief reply, but let me make 7 sure that I've heard from anyone else who wishes to be heard in 8 opposition to the motion first. 9 MR. NEAL: Your Honor, Guy Neal for Allstate We join in the opposition filed by the

10 Insurance Company. 11 Media Partners. 12 13

THE COURT:

All right.

Anyone else?

MS. LAMANNA:

Your Honor, this is Kathleen LaManna of

14 Shipman & Goodwin on behalf of U.S. Bank, which is the 15 indenture trustee. And Mr. Schwartz did a comprehensive job of I'd just like to

16 describing the position of the defendants.

17 add I think it's unrefutable that the timing of the conversion 18 issue coming up is unfortunate, and it's unfortunate that the 19 conversion has not been entered. We do believe, as we have

20 said for years, that a trustee would agree that there's nothing 21 to be done on behalf of the estate. 22 they are not here to say that. It is unfortunate that

We believe that they will come But I just want to

23 to that conclusion, and hopefully quickly.

24 speak to one comment made by counsel for the United States, 25 that we are here because of resistence by the indenture trustee J&J COURT TRANSCRIBERS, INC.

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1 and the debtor to the conversion motion, and the government is 2 well aware that our resistence to that conversion motion was 3 based in very large part upon the fact that we believe no gain 4 would come from the appointment of a Chapter 7 trustee, but in 5 fact only delay. And unfortunately we find ourselves in that

6 place, or in fear or being in that place today, and I think 7 that Judge Jordan said it correctly when he recognized that 8 it's unrefutable in this case that there is regrettable delay 9 and that this needs to move forward. 10 Your Honor. 11 12 THE COURT: Thank you. All right. Mr. Sklarew? That's all. Thank you,

MR. SKLAREW:

Yes, Your Honor.

Several things have

13 been said that are really not accurate in terms of the history 14 of the case, and obviously I want to hone in on the speculation 15 issue, in particular as a legal issue. First of all, with

16 respect to the speculation -- let me take that first because I 17 think it's the most important thing, given that Mr. Schwartz 18 said it about six or seven times I counted, and then it was 19 said twice by Mr. Qureshi and once by Ms. LaManna, at least. 20 With respect to speculation, first of all, all of the

21 arguments about a trustee and what a trustee should do were 22 made in the appeal. One of the reasons that Judge Schiff

23 denied conversion, as Your Honor has already perceived, was in 24 quoting Judge Walsh's order. And what he said was it was the

25 law of the case, which gets to, by the way, why we haven't been J&J COURT TRANSCRIBERS, INC.

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1 screaming about the Connecticut appeal in this case all along, 2 because we've been bound by that decision all this time. 3 let me take that separately. But

The law of the case, it's been

4 ruled against us back and forth between the two Courts at least 5 four or five times now in different contexts, and one of the 6 very important contexts was the notion that the debtor had a 7 duty to defend its capital structure and a fiduciary duty to 8 the secured creditors. We argued, pointing to Second Circuit

9 BAC law, and several decisions, including a decision by Judge 10 Schiff himself in a prior case that the trustee's duty is 11 primarily to unsecured creditors and that the only duty to 12 secured creditors is a more limited duty. I think the more

13 limited duty was a different case and it was from another 14 jurisdiction, but it was essentially to the effect that a 15 trustee owes a duty to secured creditors in terms of protecting 16 their collateral. But in terms of representing them in a

17 litigation, they represent themselves, and it's the trustee's 18 duty to avoid secured claims where possible. 19 many avenues to do that. 20 subordination. The trustee has

One of them is equitable

One of them is setting aside fraudulent

21 conveyances and security interests that have been made 22 fraudulently. The trustee has a duty to object to claims that

23 are not valid claims, including claims that are debt when they 24 are supposed to be equity. 25 under 704. Those are all the trustee's duties

And the Supreme Court has said that a trustee's J&J COURT TRANSCRIBERS, INC.

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1 duty should be exercised in the best interest of the estate. 2 That would not be to support a security interest against the 3 estate. We were nevertheless held to be collaterally estopped, And in my

4 and all these arguments are made in the appeal.

5 argument in the appeal before Judge Thompson was four square 6 that the collateral estoppel only applies, at most, at the 7 coordinate level, and that when it reaches the appellate level 8 Judge Thompson is free to reject Judge Walsh's ruling because 9 it is a non-appealable ruling at that time. Judge Walsh's

10 ruling on granting intervention was an interlocutory ruling. 11 The government could not appeal it, therefore, to the extent it 12 has law of the case implications that spread to Connecticut, 13 which I think was disputable, it could not spread past the 14 Trial Court level. 15 appeal. That is the basis on which we took the

I suspect that will be addressed, although I cannot

16 predict Judge Thompson's opinion, but I suspect that will have 17 to be addressed in his opinion, that law of the case issue. On

18 that we will end up with a ruling if he's ruling in our favor 19 that at least he is not bound by that law of the case and that 20 he accepts our argument that a trustee has a primary fiduciary 21 duty to the unsecured creditors. 22 Mr. Schwartz indicated, when I indicated the

23 objection, because I did it twice, I apologize for that, that 24 the government was quoted as saying in early 2002 pleading that 25 neither the debtor nor the estate has an interest in the J&J COURT TRANSCRIBERS, INC.

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1 adversary proceeding.

I think, if you read it in context, the

2 argument we're making is that neither the debtor or the estate 3 has interest in defending a security interest. I'm not sure if

4 maybe there was a slip of the tongue made a slight bit 5 differently, but that's consistent with what we argued, because 6 we have always argued throughout the entire appeal in 7 Connecticut that a trustee has a duty to all of the unsecured 8 administrative creditors, including the state of Connecticut, 9 the state of Texas, the state of Delaware, I believe, is one of 10 the claimants, and certainly there are 11 state taxing 11 authorities that are claimants that didn't have the resources 12 to join this adversary proceeding, but particularly with it 13 being transferred to Delaware, and that -- that the state of 14 Connecticut, I think, has one of the largest claims, and I know 15 it didn't want to come down here, because we asked it to, to 16 join us down here, and they said they can't litigate in 17 Delaware. So, the -- that's the situation in terms of that.

18 There are unsecured, admittedly post-petition, but unsecured 19 creditors, and now it's going to be a converted Chapter 7 case, 20 and it's the trustee's duty to represent the claims of those 21 creditors against a disputable security interest. So, I don't

22 think there's any speculation here that a trustee is going to 23 reach the conclusion because he's compelled as a matter of law 24 to reach the conclusion that he must exercise or waive that 25 privilege in the best interests of the estate. J&J COURT TRANSCRIBERS, INC. So, unless he

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1 decides our claim is frivolous, he's going to have to waive the 2 privilege and give us access. 3 Now, whether they're join the litigation or not is

4 another matter, and I -- you know, that's really secondary as 5 far as I'm concerned. I do believe the trustee should have an

6 opportunity to join this litigation if he wants, and I 7 certainly do not believe that the cash collateral order entered 8 three weeks after the case was filed in a rush to have a 9 stipulated cash collateral order that would bind a future 10 trustee from never objecting to their claim, I just think the 11 notion that that's going to be held valid or anything but void 12 is completely absurd and it just shows the kind of misconduct 13 that's gone on in this case, including by the indenture 14 trustee, who helped and joined in that stipulated cash 15 collateral order to try to preclude a Chapter 7 trustee from 16 objecting to a claim. It's just bizarre to me that they could

17 make that argument, but I'll leave that to the trustee if he 18 wants to fight that argument. 19 THE COURT: Well, Mr. Sklarew, in fairness to the

20 defendants here, that type of provision has over the years 21 become pretty standard. Now, that's not to say given the

22 subsequent development of events since that time, and including 23 what appears to be Judge Thompson's view about management's 24 conflict of interest. That's not to say that the provision in

25 the order would be enforced in the context of this adversary. J&J COURT TRANSCRIBERS, INC.

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1 I just -- it doesn't, in and of itself, indicate to me any 2 misconduct on the other side, but that doesn't mean the order 3 at this point, given what's happened, ought to be -- or that 4 provision of it ought to be enforced. 5 on that issue, so -6 7 8 briefly? 9 MR. SKLAREW: MS. LAMANNA: Right. You're right -And we're not here today

Your Honor, may I speak to that

This is Kathleen LaManna. MR. SKLAREW: Do you want her to wait until I'm done,

10 Your Honor, or should I pause for a moment? 11 THE COURT: I don't want to get sidetracked on an

12 issue that isn't necessary for me to dispose of the motion 13 today. That's my concern. But, yes, Mr. Sklarew, you should

14 finish first. 15 MR. SKLAREW: All right. Your Honor, whether I agree

16 with you that -- whether that's any kind of evidence of 17 misconduct is not before Your Honor at this moment, so it need 18 not be decided. But the point is that a trustee can certainly But even if he

19 make arguments that he can still get involved.

20 doesn't get involved, we believe that the waiver is going to 21 come, and it's not just for documents. Mr. Qureshi did

22 indicate at the end that he gave us all the documents now, and 23 so there can't be any other documents. Well, the government

24 had to make a selective determination of what to compel at the 25 time. It did not take a shotgun approach. So, there were many

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1 other documents on their privilege log, or their three 2 privilege logs that we did not seek among those 13 documents at 3 that time. We don't know what they say from the nature of the We don't know what's in them. But more

4 information.

5 importantly, it is clear that we did not get all the documents 6 because the -- it is Item 35 in our second request for 7 production clearly called for all legal documents referring to 8 any of the debtor's lawyers, and that would have been the 9 billing records of Baer Marks, and they did not produce those 10 to us, so we never had those. That's part of my motion today.

11 We don't know what else could have inadvertently -- I'm not 12 accusing anyone of misconduct here -- inadvertently forgotten. 13 If a trustee allows us full access to the documents, we may 14 find other documents, and the documents that are at issue 15 today, these six smoking gun documents, or at least four or 16 five of them are, are examples of why it's important to do this 17 kind of thing, because if we had been given access to the 18 documents two years ago, for example, we would have found these 19 documents again anyway, notwithstanding our original error in 20 not cross checking the logs. 21 In that regard, the -- you know, they say there's

22 nothing else to give, but I have repeatedly invited -23 repeatedly invited the debtor to simply waive the privilege. 24 And probably, if they had done that a while back, might have 25 taken the wind out from under the sails of my appeal in J&J COURT TRANSCRIBERS, INC.

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1 Connecticut.

I asked them it three years ago, to waive the

2 privilege, if there was nothing else the government was going 3 to get, and let us go through their files, and they would not. 4 In addition, we now have the right, if the trustee waives the 5 privilege, to go not only through the Baer Marks files, but to 6 go through the files of the Akin, Gump firm, because they 7 represented the former -- the estate. And the trustee now One

8 represents the estate and gets to make that determination.

9 of the documents is the Stroock Stroock & Stroock document -10 excuse me, the Stroock Stroock & Lavan document, which is 11 before you today, shows that in the 1998 bankruptcy the 12 debtor's law firm and lawyers recognized that the first 13 bankruptcy could easily be characterized as a fraud, and 14 worried about whether or not they could then go forward with 15 the second plan and under what terms and did some research, and 16 apparently, they say, at least, they concluded they could go 17 forward without, you know, being part of that fraud. But they

18 recognized the prior plan was essentially a fraud on the 19 government, and they did analysis about it and decided how they 20 would go forward. And they made some very astounding

21 disclosures that were far more indicative and far more proper 22 than the first plan. So, it's going to be very interesting to

23 talk to some of the Stroock & Stroock attorneys, or the now 24 Akin Gump attorneys about what went through, and what 25 conclusions were made at that time as part of the evidence, and J&J COURT TRANSCRIBERS, INC.

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1 who they discussed it with and what statements were made to 2 them in discussing it with the Baer Marks attorneys, because 3 the Baer Marks attorneys' handwritten notes are all over that 4 Stroock Stroock & Stroock memo, so it was shared and talked 5 about. So, there's a lot going on here that we've just found

6 out that is not just getting documents into Evidence, it's 7 asking what went on behind the scenes in talking about these 8 documents and in getting these documents, and in creating these 9 documents. So, there's a lot at stake that we don't know.

10 There's been never a determination to waive the privilege in 11 order to, even though they say that nothing will be discovered, 12 and that could have been done at any time. 13 With respect to the notion that we have never

14 disclosed our desire in this adversary proceeding, everyone was 15 aware of it. It may not have been disclosed on the record in

16 this adversary proceeding until recently, but it was disclosed 17 numerous times in the Connecticut Bankruptcy Court and in the 18 Connecticut District Court in the appeal, and I argued 19 repeatedly in the appeal that we should have access to this 20 before the trial goes forward in order to have additional 21 discovery. And the reason we didn't disclose it in this

22 proceeding is unlike Judge Walsh's March 4th, 2000 -- I have 23 the date right, I think -- 2002 order granting the debtor 24 intervention, which was an interlocutory non-appealable order, 25 the order denying conversion was a final appealable order, and J&J COURT TRANSCRIBERS, INC.

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1 it definitely did bind the United States.

We were not allowed

2 to argue in the Delaware adversary proceeding that we had a 3 right to a trustee. And any argument to postpone the trial on

4 the grounds that we had a right to a trustee until there was 5 some indication which didn't come until very recently from the 6 District Court that that ruling was going to be reversed, or be 7 even determined quite soon would have been just improper. We

8 had no right to ask for a continuance of the trial on those 9 basis. We had no right to reopen discovery on that basis until

10 we had that kind of a ruling. 11 So, the bottom line here is any speculation I think

12 really should be -- should be a reason to postpone, not to not 13 postpone, because there's a very good chance that we will get a 14 waiver of the privilege, and there's no way to know whether or 15 not we might find very important evidence, particularly 16 testimonial evidence, unless the case is postponed and we get 17 the chance to question the debtor's former attorneys. Again,

18 the defendants have not really shown any harm in that regard. 19 Getting back to the comments, there was a mention

20 that the government didn't obje