Document 262-12
Filed 01/04/2008
Page 1 of 42
Case 1:04-cv-01494-JJF
Document 262-12
Filed 01/04/2008
Page 2 of 42
Page 1
k
1
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE
2
Civil Action No. C.A. No.
3
04-1494
(JJF)
MAGTEN ASSET MANAGEMENT CORPORATION and
4
5
6
LAW DEBENTURE TRUST COMPANY OF NEW YORK, Plaintiffs, v.
NorthWestern Corporation,
Defendant.
7
8
9
10
······11
)
Civil Action No. C.A. No.
05-499
(JJF)
MAGTEN ASSET MANAGEMENT CORP., Plaintiff,
12
13
14
15
16
v.
MICHAEL J. HANSON and ERNIE J. Defendants. KINDT,
17
18
19
DEPOSITION OF MERLE LEWIS
20
21
22
23
"24
;. :\2 5
TAKEN ON:
6/20/2007
BY:
Elisa Dreier Reporting Corp, (212) 557-5558
780 Third Avenue, New York, NY 10017
Case 1:04-cv-01494-JJF
Document 262-12
Filed 01/04/2008
Page 3 of 42
Page 2
1 APPEARANCES:
I
Page 4
2 3
4
2 3
4
Au£D, FRANK, HARRIS, SHRIVER & JACOBSON LLP
One New York PIaU! New York, New York 10004-1980 By: Bonnie Steingan. Esq. Sabita Knshnan, Esq. For Ihe PlainliOs
INDeX
fu.amini1tion by Ms. Sicingao. page 7
INDEX Of EXH !BITS
E.'hibil Number I, Confidentiality Agn:clnen~ page 8
Exhibil Number 2, Managemenl Financial and
Information Rcpon Meeting 2002 Calendar. pa~e 19
Exhibil Number 3, NorthWe~aem Corpof3(ion SLalT MeclingfExCGuu\'c Commjn~ MCClillg Minutcs, J3nU
5 6
~
~
5
6
7
28, 2002, p"se 21
9
S
9 CURTIS, MALLET-J'REVOST. COLT & MOSLE LLP
10
11
10
II
101 Park Avenue New York, New York 10178-0061 D}~ Nancy E. Delancy, Esq.. for NorthWeslern Corporation
E.,hibi' Number4, February 25, 2002 E-mail from Barbara Forinash 10 KoIC" Smook n:garding NOR Staff/Exec COII01linc<: Materials. page 22 Exhibil Number 5. January 17,2001 E·mail fronl Richard Hyl1and 10 Trey Bradley and Merle Lewis n:garding Scoreard for January. pago 29
.
I
l
I
~
~
~
12
13
14
12 13 14 15 16 17
LEONARD. STREET AND DEINARD, P.A.
150 Soulh fiOh Slreel, Suile2300 Minneapolis, MN 55402 By: Michael G. Taylor Esq. for rhe Witness
15 16
Exlubil NumbeT6. March 18,2002 Confidenti.l Memor.mdum from Eric Jacobsen and Mi\:c Hanson 10 Merle Lewi', Dick Hyll.lld and lolO1 Von Camp regarding MrC Compensalion Proposal, pago 38 E.,hibil Number 7. April 9, 2002 E·moil from Merle Lewis to Riehard Hylland regal1ling 800111, p1Se 43 Exhibil Number 8, April 16,2002 E-mail from Paul Wyche '0 Mike Hanson, David MonagJ.." and Daniel New"l1 «sarding Fi"l Quaner fomings Rel""se. page 45 ,.
E.xllibiI Nun'bcr9, NortbWcslCm Management financial
i
i
~
18
19 20
I
,
~
:i
I
~ ~
IS
19 20 21 22 23 24 25
21 22 23 24 25
and lnfonnalion Repon For Momh Ended May ll, 2002, page 47 Exhibit NUlnber 10. NorthWC:Sll..'1T1 Management Financial ond Infonnalion Repon for 11\e Mon.h Ended June lO. 2002. pail" 57
11."
I
j
ij
PageJ
I
Page 5
INDEX OF EXHIBIlS (eominued) Exhibil Numbl.."f 11. NtlnhWcstcm M,Jn:\gCnlcnl financial "nd Infornl3\ioll Rl.:pon Foe TIle Momh Ended July 31. 2002. pJge 62 E:'l;hibil Number I~. ~hy 28,2002 Mcmor3ndwn tram Kipp Onne 10 Merle Ll!l..-iS, Dick '"hlland ;Jnd Eric Jacob$en reg.arding Financing J'lJn~ ond Consider:\tions. p3gC
2
3
4
5 6
7
8
APPEARANCES (continued): BROWNING, KALECZYC, BERRY & HOVEN, PC 139 North Last Chance Gulch Helena, MT 59601 By: Stanley Kaleczyc, Esq.
Kimberly A. Beatty, Esq.
For Michael J. Hanson and Ernie J. Kindt
I s
~ , ·
~
i
;~
~
~
~
i
63
Exhibit Number 13, June 11, 2002 Memorandum trom Kipp Onnc 10 NorthWcstern Bo;1rd o(OirecIOf"$ r~·Ci)rding Financing 3nd IR PI3ns, page 72 Exhibil Number J4, luI)' 9, ~OO2 Confidenli31 Mc.mor3ndum from Eric J:Jcobien lind Mike Hanson LO Mcl1e Lewis, Dick Ihiland lind john V:ln Camp n:gllrding NorthWeslcrn Energy LTlr. PJgc 75 £."'dlibit NUlnbcr IS, May Ia, 200.2 E·m3i1 from Richard lhiland 10 JOlul Cl\3r1~rs. Mcrl~ lc\vis and Richard
~
~
~
9
10
I]
NIXON PEABODY, LLP
437 Madison Avenue New York, NY 10022-7039 By: Christopher M. Desiderio, Esq. For Law Debenture Trust Company of New York
i
~
~
~
10
II
l
12 13 14 15
16
Hylland «carding Pile Visi':p.>g< &0
E.'dLibil Number 16. June S, JOOJ E·m;'lil 6'om John O,3ners 10 mul\iplc fC:cipienls (cgMdinC C01JUllCni On Daily Flash /tepa". ""go 82 Ed,ibit Number 17, June 14, 200~ l!-mail from John Ch:U1ers 10 MlUlc Lewis rccudirlg D.3ily Rash Report
~ ·
·
12
13
14 15
6·12·02, page 84
E:
17 18 19 20 21
12
16
17
I ,
I
~
~
i 1·
18
19 20
21
E.",hibil Number 20, Sepll~mber G. ~002 £·mllil from John Chance'S 10 Merie I.e\vis. D3nic\ Newell lind JUeh:ud H~1.l2nd regarding Aus,uSI Upd3~e. p.1ge 95
E:"hibil Number:! I, Augu:1l 16. ~002 £·mail from Willi:lm Schwincr 10 Slcphcn Heamc and Fred r",nl.:,
I
22
23 24 25
2l
p'g< 97
2 (Pages 2 to 5) Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue, New York, NY 10017
Case 1:04-cv-01494-JJF
Document 262-12
Filed 01/04/2008
Page 4 of 42
Page 26
Page 28
~
I
2 3 4 5 6 7
8
"
..:
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
reviewed and approved NorthWestern's filings with the SEC, correct? A. Yes. Q. And was the same tl1le wiill respect to NorthWestern's press releases? A. No. We had a little bit different process there where certainly those kind of originated in the communications area. Generally I was aware of those, did receive copies. But in large part, rm not kind of a communications or media-type person and so typically they did not look to me to make comments or changes concerning the press release. That essentially was between the communication area, financial area and the operating areas. Q. Did you review the press releases that were issued to assure yoursel f that the statements being made about NorthWestern or its earnings were accurate? A. When I was furnished a copy, certainly I would read over that copy to see, you know, is there anything in here that, you know, does not sound to me like exactly the information that I had recei ved or become aware of during our quarterly review process.
I
2 3
4
5 6 7 8 9 10
11
12 13 14 15 16 17 18 19 20 21 22 23 24 25
to be my recollection that Ulat was our process. Q. Now, at the begilUling of2002, do you recall that NorthWestern closed on its acquisition of the Montana Power Company? A. I think that's Correct. Q. And that was an acquisition that had been in the works for a period of a year or more, correct? A. I think it was closer to two years. Q. And that initial acquIsition was in February of 2002, do you recall that? A. I believe that is correct, ma'am. Q. And later in the year in November of 2002 there occurred what is -- what we call here the going-flat transaction. Is that something that you recall? A. I don't have a current recollection of that, but subject to check, that perhaps did occur then. Q. If! refer to the going-flat transaction as one where the assets that were being held through a subsidiary of the Montana Power Company, were transfen'ed up to NorthWestern Corporation, is that something that you can understand?
I l l ,
}
.i
,I
I
I
.j
l ~
i t
l!""
~
~
I i
! i
~
I
I
! , , ·
~
·
~
i
~ ~
i 1
l
~
Page 27
Page 29
I
2
3 4 5
6
7
8
9 10
11
12 13 14 15 16 17 18 19 20 21 22 23 24 25
-~
Q. You signed NorthWestern's IO-K for 2001, correct? A. I believe that's COITe{;t. Q. Pursuant to Sarbanes-Oxley you certified NorthWestern's 10-Qs for the second and third quarters of 2002, correct? A. I believe that's correct. Q. And the same is true with respect to the amended 10-Qs for the first and second quarters of 2002 that were filed on September 20th? A. I may want to qualify that. I thiilk that's the case, but I maybe have to see that document to be sure. But I believe that to be the case. Q. Okay. Now, during 2002 there were also a number of management representation letters to NorthWestern's outside auditors. Do you recall that during 2002 you signed a management representation letter to NorthWestern's outside auditor for the period ending March 31, 20027 A. r don't recall that specifically. But I do recall that that was our normal process, that 1 would submit a Jetter, a representation letter. And I believe the CFO may have also signed on with that with me. I'm not sure. But it seems
1 2 3
4
5
6
7
8
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
24
25
A. Well, I understand it, ma'am. I really don't have much recollection of it. But I do understand that's what the telminology means. Q. Okay. Great. Let's talk a little bit about Expanets during the end of 2001 and the begi nning of 2002. (Deposition Exhibit Number 5 marked for identification.) BY MS. STEINGART: Q. Now, at the end of2001, Expanets put in place a billing system called Expert. Do you recall that? A. Yes, r do. Q. And after that there was a switchover to that system in November of 200 1, correct? A. I believe that's correct. Q. And at the time that the switchover occurred, there were initially significant problems with the functionality of Expert, correct? A. I guess I'm not Sure what you mean by "significant problems." But yes, the -- there were some challenges associated with the system as it was cut over. Q. When it was cut over for the first month, there were no bills produced, right?
-;". . ....'
,~
'j
~ ~
j
~ ,
i
i
1
·
l
·
~ , ,
~ ,
I
j
,
a
~ ,
J
j
1
.~
"
~
j
j
I , r.
I
I
i
¥
(''¢'.",'~ ~~
···~",;,:,,,,,~,::)<.;,,:~~~~~~,~~~~·),,,~:;.&;.'~·':'l:':l::";.:;..v ..;r.;,·t.·Al'::.l:-=.";,,~,~.~~~:_1V;(~~~"'$~'I:'"~:;;L·~;·;rA-'T--."l:(,~,:,""""A~J._·l":;1::>{"·~_':fL"J.:<:~·-j.a: ..:C..:.:"_;":'t>·i\.~ .... "':-::''''·'
l::l-...:a...;;..:<":::::+.-··. \.'.~ .....-.~).~~,;.
.
8 (Pages 26 to 29)
Elisa Dreier Reporting Corp. (212) 557-5558
780 Third Avenue, New York, NY 10017
Case 1:04-cv-01494-JJF
Document 262-12
Filed 01/04/2008
Page 5 of 42
Page 30
Page 32
~
i
t
I
2
3
4
5 6 7 8
9 10
II 12 13 14 15 16 17 18
19
20 2] 22 23 24 25
A. We come to understand that I tbink some five or six weeks. later and the cut-over period was not immediately something we became aware of. But we did become aware of that in January of maybe 2002 or whatever that timeframe is. Q. I'd like to show you an e-mail we've marked as Lewis 5 and it's dated January 17, 2002 and it's from Mr. Hylland to a Trey Bradley and you ani shown as a cc? A. (Reviews document.) Q. Who is Trey Bradley? A. Trey Bradley had the position at NorthWestern Corporation of vice president of - I think something like information services. Q. Uh-huh. A. So essentially we looked to Trey Bradley to be a communication link with more of the technical people at each of the organizations and to understand and then translate the information regarding what was happening with all kinds of information systems in each of the entities back to us in a fasbion that we may be able to understand. Q. And as you -- have you seen tlus e-mail before? A. I don't recall it specifically, but I may have
I
2
3 4 5
6
7
8
9
to
11 12 13 14
15 16 17 18
19
20 21
22
23 24 25
to 15 to that." Do you see that? A. I see that. Q. And so did you understand Mr. Hylland at that time to be saying that the problems at Expanets were going to cause a utilization of between 55 and $65 million? A. I'm not sure if that's exactly what he's representing here. But yes, I do see those figures and I don't knnw. I don't know exactly what that means. I don't know what the normal level of working capital was. Q. Ub-huh. A. And perhaps that was included in these numbers. I just couldn't tell you from this (indicating) or from my knowledge exactly what the impact is. Q. Okay. But, in general, there was beginning to be an impact? A. I think that a fair interpretation would be that there was going to be additional working capital required over and above what had been budgeted. Q. Ifwe could look at the January 28th minutes that we have already marked as Lewis 3. These
i.
~ ,f
~
~
I
1
I
I
~
i
~ !
~
~
"
~ l
! I
I ,
!
~
1
1----------------------+------------------------iJ
Page 31 Page 33
~
I
2
3 4
5
6 7
8
9
10
11
12 13 14 15 16 17
18
19 20 21
22
23 24 25
(:>.,..;,.,
received it. Q. And you generally rccall, you know, learning in January that -- and reading from the first part of the e-mail that starts on the second page, "111at as of today... " that e-mail is January 16th, "...as of today the billing from Expert is a mess and has resulted in extensively billings affecting cash flow:' That's something that you learned at that time, correct? A. I'm not sure exactly what time I learned about that. But I think we all need 10 understand that Mr. Hylland had a little flare for the dramatic when he became concerned and he may have used different ways to kind of impress his current thoughts on others that maybe you or I wouldn't necessarily use. But the point is he was trying to get across that he had a level of concern and so this was kind of maybe just his way of passing on that concern to otbers. Q. And later on as we get to the top of that e-mail on January 17th Mr. Hylland says "In case you are unaware, this little billing issue has utilized over 50 million in working capital and this last update is expected to add five
,,:,,,~ ~4~"~-"""."""'"
I 2 3 4 5 6 7 8 9 10 II 12 13 14 15 16 17 18 19 20 2] 22 23
124
25
'I
are the minutes of the staff executive committee meeting from January 28, 2002. On the first page there is an Expert system update. Do you see that? A. Uh-huh. MR. TAYLOR: You have to say yes or no. THE WITNESS: Yes. BY MS, STEINGART: Q, If you could just read that to yourself. A. (Reviews document.) Okay. Q. Do you recall this report being provided during the staff executive meeting in January 2002? A. I don't recall. But I do recall that this was our nonnal process, so I expect that this was a report that was issued. Q, As the year went on, were there additional reports that were issued at the staff executi ve conunittee meeting about Expert and the issues that existed? A. I would expect that we did have additional reports that follow up on this. Q. And if we could look at the next page, there is a section entitled Finance Update. And was a
..'!..:o:\·... ~..r_
i ~ i
~
~
i
1
i
~
' ,
1
I
i i
~
~
~
I
!
~
~ lj
i
~
~
:
1
1
~
-·;;r.-'··~~~V. -.:~·..b:(:..::LlJ.:'~...~"'.~""'~...-:-:z/..!'r.~';,\ .·-·.~.!.i~. ~.:"l""'.L~.!l~.:
.;:.,\>\.~~.)j
9 (Pages 30 to 33) Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue, New York, NY 10017
Case 1:04-cv-01494-JJF
Document 262-12
Filed 01/04/2008
Page 6 of 42
Page 34
J
Page 36
I 2 3 4 5 6 7
2 3 4 5 6 7
8
9 10 II 12 13
14
15 16 17 18 19 20 21 22 23 24 25
finance update another typical component of the meetings staff/cxecutive committee meetings that were held in 2002? A. Certainly t11CY would because the CFO was a member of the committee and the things that he would report on typically would come under a category of finance update. Q. And the people who were attending these staff/executive committee meetings were the scnior executives from NorthWestern. correct? A. And the CEOs from the operating entities. Q. SO each of the partner entity CEOs had an idea of what was going on in the company as a whole as well as in their own subsidiary, correct? A. To the extent that there was information about that, that was part of these meetings, yes. 1 do not know that they received any other independent infonnation about other partner entities other than perhaps what was discussed at these meetings. Q. And also the management information financial reports were provided to all the partner entity CEOs, correct? A. The compiled NorthWestern report was submitted, yes.
8
9 10 II 12 13 14 15 16 17 18 19 20 21 22 23 24 25
that document speaks for itself. I can't
recall specifically the elements of their comp packages. Q. As CEO and chairman of the board of NorthWestern, '-Vas it important to you to have the CEO of the partner entities have their compensation tied both to the performance of their subsidiaries as well as the performance of NorthWestern as a whole? A. I guess fm not real sure how to answer that. Certainly if their compensatiOI' was tied to their performance within their entities, that performance contributed directly. And so -- to NorthWestern's performance. And so it's kind of a little bit redundant to say that there is an element of both. I just don't recall whether we went that second step with the CEOs or not. That being said, they certainly could not impact the other three entities that were contributing to NorthWeJtern overalL So I don't know how specific, you know, we tried to draw that connection. But I kno'w we put the heavy emphasis based upon what they were accomplishing within their entity. And that part I do recal1.
I
,
I
t
~
~
,
.f
-
I ,
· 1
I!
~
~
I
J.
j
i ·
· ·
H.
I
i
~
I ,
l
i
i
i
~
i[
Page 35 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Page 37
~ , ·
~ ,
l
Q. And the partner entity CEOs, was pal1 of their
compensation NorthWestern stock?
KALECZYC: Object to form.
BY MS. STEINGART:
Q. Do you recall?
MR. TAYLOR: Do you have a certain
period?
MS. STEINGART: During 2002. Thank
you.
THE WITNESS: I don't recall specifically without looking back at the comp packages of the individuals. I don't have a specific recollection. Certainly at the NorthWestern level, which would be all of Ulese people except the partner entity CEOs, there was attempts made to tie compensation in some fashion to the company's equity. BY MS. STEINGART: Q. And to the extent that the proxy statements or other fi lings reported payment of compensation to some of the partner CEOs, payment of stock as compensation, you don't dispute that that occurred? A. I would have to look through that record or
rvm..
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
17
18
i9
20 21 22 23 24 25
Q. If we look at the finance update together. A. Exhibit 3? Q. Yes, page 2, that section on the finance update. A. Okay. Q. If you see there Mr. Orme is reporting that., and I'm looking at the last two sentences in particular, that NOR has gone through 175 million in cash during the last quarter. And then in essence were no better off regarding working capital tban we were before the 200 million offering that's referenced in thal paragraph. Do you see that? A. Yes. Q. Was there a concern at that time that the need to fund Blue Dot and Expenets and CornerStone was affecting NorthWestern's liquidity? A. I think that this is an expression that there was concern regarding the needs of the entities and that they understood that. I do not interpret from this that there is any COncern regarding NorthWestern's liquidity. I certainly did not have that understanding or not read that into this particular report.
.... ';c.:-:.
"'~}·~·~o~~
;
il
J
1
~ ~
l
i
,
i ~i ~
~
~
!
~
~
i
,
\i
l
f
.~
~
; ,
~
~
~ \
<
~
~
f;
~
~
~
~
1
1
,
1
.. ' ' .
";i,'·· .
'~:
· "'4<:"
'
,·~~.. ,<.'iif"'-':~';"'!.:A.~";';'=~;:"-::~',":;'~.·~~~~"""'4...u.. ... ~=1oio::';:' -"""'.l.-":';~I··."''''·';;~'1::: ~
;.-=-"""'.. .
:',;,;;;;';O;.~<.,,Ji
.· . ·.l.'''''--''-'':fn'.:.
·
~ '"
- ''loo".'-'>I. r:~~~",".
,.
10 (Pages 34 to 37) Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue, New York, NY 100 17
Case 1:04-cv-01494-JJF
Document 262-12
Filed 01/04/2008
Page 7 of 42
Page38
Page 40
1 2 3 4 5 6 7 8 9 10 II 12
Q. At that time that the $200 million was being
raised that Mr. Orme references there, what
were the intended uses of it?
A. I don't recall.
Q. Was it intended at that time that that
200 million was being raised that it should be
used for working capital expense?
MR. TAYLOR: To the extent you recall.
BY MS. STEINGART:
Q. To the extent that you recall. A. Yeah, I'm sorry, but Ijust don't recall those types of things. 1 was not that closely involved with the financial side. (Deposition Exhibit Number 6 marked for identification.) BY MS. STEINGART: Q. I'd like to show you what we've marked as Lewis 6. A. (Reviews document.) Q. It's a memo dated March 18, 2002 from Eric Jacobsen and Mike Hanson addressed to you and Mr. Hyl.land and Mr. Van Camp. Do you recall receiving this on or about March 18, 2002? A. I don't recall it specifically, but I see 1 was
13
14 15 16 17 18 19 20 21 22 23 24 25
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
would NorthWestem be ifit had not been for
the Montana Power transaction?" There is an
indication that Expanets had delivered
2,000 - that in 2001 Expanets delivered
negative EBITDA. Do you see that? A. Yes.
Q. And further the next sentence says 'The
difficulties encountered in obtaining a
third-party credit faci~ty and in implementing the Expert software system required NOR to substantially increase its cash commitment to Expanets." Do you see that? A. Yes. Q. Do you recall what that cash commitment was at the time you received this memo, that is in the middle of March 2002? A. No. Q. Did you regard (hose events as warranting additional compensation for Mr. Hanson and Mr. Jacobsen? A. What events? Q. The fact that there were difficulties encountered in obtaining a third-party credit
~
.~
I
I
I
i
~
~.
-0
.; i
I
U
I
9
I
i
~
~
i ,
~
~
Page 39
Page 41
I ~
{
I
2
3
4
5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
on it so I'm sure that further review would help me in that recollection. Q. As you look at it now, do you recall this being an unusual request being made for additional compensation? MR. TAYLOR: Take a chance to look al it. THE WITNESS: (Reviews document.) BY MS. STEINGART: Q. Did you regard this as an unusual request for compensation? A. No. 1 don't recall that 1 did feel that it was unusual. Q. And was it your undcrstanding, if you look at page 6 with me, that Mr. Jacobsen and Mr. Hanson were requesting compensation that included both cash and NorthWestern stock options? A. Yes, I do see that. Q. Now, .in connection with the request for this compensation. Mr. Jacobsen and Mr. Hanson made some statements about the current status of NorthWestern's other subsidiaries. If you could look with me at page 2 to 3 of the memo and on the bottom of page 2 it says "Where
I 2
3
4
5 6
7
8 9
10
11
12 13 14 15
16
17 18 19 20 21
22
23 24 25
facility and implementing the Expert software
system that required NOR to substantially
increase its cash commitment to Expanets.
rvfR.. K.ALECZVC: Objection
mischaracterizes the document.
BY MS. STEINGART:
Q. Well, did you -- strike that.
At a time when NorthWestern was being
pressured to provide additional cash to its
telecommunication subsidiaries, Mr. Hanson and Mr. Jacobsen are asking for additional money, aren't they'! MR. KALECZYC: Objection. THE WITNESS: I guess I have a little bit ofa concern with your question and giving a simple answer. But at this point in time March 18,2002, certainly Mr. Jacobsen and Mr. Hanson were seeking compensation based upon their perfonnance in preparing and closing of the Montana Power acquisition. In tenns of any other reference to NorthWestern being pressured or anything else, I think this may be their characterization of how they viewed the
i,
.~
1
i
,
i ~.
~
1
~
~
~
I
~
,
~
" ·
I
~ a
1
~
1
~·
'J .j
ij
l .~
~
,
i
J
~:"'~.'Olw.~;';;~j:: \£.~:-b'~'Q.;;,:;~i>r.,- ......'~"''''''''''-<:-'- . ~
:1
~
II (Pages 38 to 41) Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue, New York, NY 10017
Case 1:04-cv-01494-JJF
Document 262-12
Filed 01/04/2008
Page 8 of 42
Case 1:04-cv-01494-JJF
Document 262-12
Filed 01/04/2008
Page 9 of 42
IN THE UNITED STATES DISTRICT COURT" FOR THE DISTRICT OF DELAWARE
2
I
I I
Civil Action No. C.A. No. 04-1494
3
(JJF)
..
I
....
i
I
I
i
i
MAGTEN ASSET MANAGEMENT CORPORATION and
4
LAW DEBENTURE TRUST COMPANY OF NEW YORK, Plaintiffs,
v.
5
6
7 8
NORTHWESTERN CORPORATION, Defendant.
9
10
~1
.;;.
---------------------------------------------------
Civil Action No. C.A. No. 05-499 MAGTEN ASSET MANAGEMENT CORP., Plaintiff, v. MICHAEL J. HANSON and ERNIE J. KINDT, Defendants.
---------------------------------------------------
(JJF)
1.2
13 14 15
16
17 18 19
20
DEPOSITION OF RICHARD HYLLAND ---------------------------------------------------
21
22
23
24
\ .c"25
TAKEN ON:
5/2/2007
BY:
DANA ANDERSON
Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue, New York, NY 1a()} 7
Case 1:04-cv-01494-JJF
Document 262-12
Filed 01/04/2008
Page 10 of 42
"
.f~
Page 130 Page 132
1
2
3 4
5 6 7 8 9 10
II 12 13 14
15 16 17 18 19 20 21 22 23 24
25
have had to transfer to itself the Montana utility assets, correct? A. I don't know that that was an entire requirement. Certainly, there is a lot of ways to do debt transactions. It could have been done at a subsidiary level, could have been done with a purchased money transaction like Montana-Dakota Utilities probably does with collateralizing assets. 1 don't know that that was a hard requirement Q. But isn't that what happened here? A. 1 would have to go back and look and see what the first - the exact terms of that fmancing, whether there were, in fact, first mortgage bonds and leveraged on the collateral, those documents should be very clear in stating that Q. And wasn't that the thrust of the going-flat transaction for NorthWestern, to get these assets and then use them to collateralize further debt? A. 1 don't know that that was the - when you say "the thrust," implying that that's the main reason for that transfer. 1 don't know that I can agree with you on that. I think that you
I 2 3
4
5
6 7 8
9
10 11
12 13 14
15 16 17 18
19
. 20 21 22 23 24 25
events. Do you see that? A. Yes. Q. Did you continue to evaluate and prepare presentation to the board regarding the status of large liquidity events? A. Which number are you referring to, four or five? Q. Five. A. Letme- Q. Did you continue to evaluate and prepare for .. the board presentations regarding the status of large liquidity vents? A. Again, rd have to go back and look at the weekly reports. rro assuming that those reports took each one of the items and reported on who was responsible for those and what progress they were making. There were a variety of reports. I think the answer would be yes, I don't recall the specific actions or activities around number 5 without seeing that document. Q. Now, did you assign responsibility to assist you in these tasks to others who were senior officers at NorthWestern?
Page 131
Page 133
I 2 3
4
5 6
7 8 9 to
II 12
13 14
15 16 17 18
19
20 21 22 23 24 25
could have potentially leveraged those assets, again, as I just stated, at the subsidiary or other structures, but I'm not the person to ask on that question. You'd have to look at the documents, ask Mr. Jacobsen, Mr. Orme, Mr. Hanson as to how the mechanics ofthat could or could not work. Obviously, they could have done subordinated debt or other potential avenues that wouldn't involve first mortgage bonds, but you'd have to talk to them on that. Q. What they did do is they transferred the Montana utility assets to NorthWestern then they encumbered them, didn't they? MR. KALECZYC: Object to the form of the question. BY MS. STEINGART: Q. If you know. A. 1would have to go back and look at the - I don't recall the dates of when the assets were transferred, and I don't recall whether they were encumbered at that parent company to all your specifics. We can answer that very quickly with documents. Q. Let's look at number 4 on the next page, and here we are talking about other liquidity
1 2 3
4
5
6
7
8
9 10
11
12 13
14
15 16 17 18
19
20 21 22 23 24 25
A. My general recollection was yes, those were the people that were specifically responsible for these kinds of areas. Q. And they reported to you their progress in each of the items that were listed? A. That was my general recollection. Q. Did you provide them with a copy of this memo? A. I don't recall specifically if! did. They may have been provided that. I seem to have a vague recollection that Merle might have routed them this and said, you know: Get on the details and we'll assign responsibility and let's move forward. Q. One of the liquidity events here is the MFM sale or partnership. Why was that a liquidity event? A. Well, if there was a potential for that Montana First Megawatt project to be sold or a partnership that would partner with Hanson and Jacobsen in funding the remainder of that project, that would be a positive in terms of cash to the company's plan. Q. That would bring in proceeds of some kind? A. The sale could bring in proceeds, the partnering could have proceeds alongside the
34 (Pages 130 to 133)
Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue, New York, NY 10017
Case 1:04-cv-01494-JJF
Document 262-12
Filed 01/04/2008
Page 11 of 42
.
Page 134
rage 136
I
2 3
4
5 6 7 8 9 10
11
12 13 14 15 16 17 18 19 20 21 22 23 24 25
investment to grow and finish the project
Q. The Colstrip sale, how was that a liquidity
event?
A. As we've talked in early questions, the
Colstrip sale, as I understand it, was
represented by Hanson and Jacobsen to be an
available $97 million sale. It was part of the
transaction, it was represented to us that that
was going to OcCUr, and so it represented,
potentially. $97 million, as you termed it,
earlier proceeds to NorthWestern.
Q. Did that occur any time during the period that
you remained at NorthWestern?
A. Not that I recall.
Q. A receivable facility at NorthWestern Energy,
how is that a liquidity event?
A. The utility personnel is not atypical of a
utility to what's called factor its receivables
or essentially leverage its receivables,
because they are very collectible. And so that
would provide capital, cash by, for example,
putting up the receivables to raise cash.
Q. And the same is true with the sale leaseback of
assets?
A. r don't know if the same is true, they are two
I
2 3 4 5 6 7 8
9
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Let's look at the cost-savings
schedule. You were directed by Mr. Drook to
continue to pur-me cost savings that can be
accomplished within the next few months A. Which number are you on?
Q. I'm on number 6.
Did you consider, as listed here, sale
of the plane?
A. Number??
Q. I'm on number 6, it says, "C~~ider ~~n~ . others, A, seU plane." Is that something that you considered in COnhection with this direction? A. I'd have to go back and look at the reports and the evaluations of what that transaction would have looked like. I think there was some analysis done of a sale leaseback, but I'd have to go back and see the reports, and aU of that. Q. "B, reduction in ~orporate events and contributions." Do you see that? . A. Yes.
Q. Do you recall which corporate events or
contributions were sacrificed to have a cost
I I
I
'.
-
.v
I· I I
I
.
-
Page 135
Page 137
I 2 3 4 5 6 7 8 9
10 11 12 13 14 IS 16 17 18 19 20 21 22 23 24 25
different items. In terms of sale leaseback of assets, as an example, ifyou were to take one of the office buildings in the utility and sell it to a REIT ahd lease it back, that may provide proceeds to be offset by payments that you would have to make over a period oftime. Q. Did this have reference to utility assets Or non-utility assets or just the whole universe of what was - A. The sale leaseback of assets? Q. Yes. A. I think that was generally any area that could be looked at. For example, there was an airplane that the company had, and I Q. We are getting to nothing is sacred. A. I don't know. As you know, the sale leaseback of the airplane is one of those things that seemed to be Mr. Drook selling the airplane, same one he used at $17,000 a pop to commute from Naples, Florida. So that is kind of interesting, isn't it? You will have to ask Gary about that one. Q. I will.
I 2 3
4
5 6 7 8 9 10 11 12 13 14 IS 16 17 18 19 20 21 22 23 24
25
savings?
A. Not specifically the entirety of those.
Without documents in front of me. I wouldn't be
able to answer that. r know one specific event
that 1do recall is Drook and Lewis had plalUled
a Naples board meeting for that February, and
it was cancelled.
Q. There is a note here, "Reduction in corporate
persolUleI. tl
What did you understand this to be an instruction to do? A. I think that's pretty self-explanatory. That if there were opportunities to reduce corporate costs in people, that those would potentially be opportunities to enhance performance. As you probably know from reviewing materials, the operational excellence initiatives had substantial cost savings and reduction of pcrsolUlel, and there was actually almost a Phase II of that being contemplated that had those kinds of things available in it as well. Essentially, what Mr. Drook is stating here if you look through these items is the agenda for the November board meeting which he was already aware.
,
-
.
35 (pages 134 to 137) Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue, New York, NY 10017
Case 1:04-cv-01494-JJF
Document 262-12
Filed 01/04/2008
Page 12 of 42
Case 1:04-cv-01494-JJF
Document 262-12
Filed 01/04/2008
Page 13 of 42
Page 1
:
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
2
..
'''';
Civil Action No. C.A. No. 04-1494
3
(JJF)
·.2-"': ..
MAGTEN ASSET MANAGEMENT CORPORATION and 4
5
LAW DEBENTURE TRUST COMPANY OF NEW YORK, Plaintiffs,
v.
6
7
8
9
NORTHWESTERN CORPORATION, Defendant.
10
:"!"
~:::~-:::::~-::~-~~:~-::~-~~~:~~-~~~~~-------------MAGTEN ASSET MANAGEMENT CORP., Plaintiff,
v.
I
I
» ·
}l
.'t
~11
i
12
13
14
15
MICHAEL J. HANSON and ERNIE J. KINDT, Defendants. DEPOSITION OF BART THIELBAR
16
17
18
19
20
21
22
23
24
"
.
~ ,
!
i
~
q
l ~
TAKEN ON:
.......
''25
6/21/2007
!·. $
"'-i.","v""'o.
BY:
DANA ANDERSON i
.,...,.
~
'---;,z.~w;;~1ol>t"". "'"".-:.. .." ".
-:<\<""".".'~m.~""","""",IW.u""~~"""","",~"",~",,,···.~,""""""~.",,,.'' ' l:f"~",",'
=>'"=~
> -~
Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue, New York, NY 10017
Case 1:04-cv-01494-JJF
Document 262-12
Filed 01/04/2008
Page 14 of 42
Page 2 1 2
3
4
~ Page 4 '
I 2 3 4 INDEX Examin,l.ion by Mr. K.lplao P"JlC 6
INDEX OF EXHIBITS
Exllibir NWl1bef I. Amended Notiee ofDepositiol\ ""sc 6
Exhibit Number ~. Stipulated Pro,cctive Oilier. P3gc l6
hhibi. Number l, April 6. ~OOJ E·mail from Bort
Twelbor O.. id Mon'l:hon.nd Mikc Honson rosanfin;
NCS ""
lIan,on to Robert Min; rel:'Udio; NCS Audit Upd."c. 1"'111'60
Exhibit Nwnber~, AugLlSl 12. ~OO~ Co.nMI from Ilort Thictbar 10 David l\-fonagh.1n, lana Quam. Keith Ill, Ill, a<::~hlc;:r and Cuy Griswold Je,Rrdint NCS Audil. pace 66
.APPEARANCES: FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LLP One New Yolk Piau New York, New Yorl< 10004"1980
By: Gnry Kaplan, Esq.
S
For the Plaintiffs 5
6
7
? 8
9 10
'0
8 9
10
CURTIS, MALLET-PREVOST, COLT & MOSLE LLP 101 Park A.ellue New Yorl<. New Yorl< 10178-0061
By: Npncy Delancy, Esq.
For NorthWestern COI!lOrntion
J"
11 I~
13
14
11
12
13
15
page 90
Exhibit Number 6, September n, 200~ E·mail froin
Mik()' HOl\SOn to Robert Mi.ng regarding Noreom Audit,. .
Exhibit Number 1. September 18, 2002 E-mail \Vimam Jall~J,;e IQ ..\udit Services Jl:gardinR ResolyinG Audit Jssucs, p;lCe 93
fi'OlU
14
15
FAEGRE&llENSON,LLP
2200 Wells Fugo Center
90 South Sc.enUl Street
16
11
16 17 18
19
Minne.ajX>Jis, MN 55402 By: Wendy Wild"ng, Esq.
18
Forth. Witness
19
Cxhibil Nwnbtr 8. OCtobl:rJ 1. 2002 E-mail froul Druce SlIlilh 10 WiJlI:tfu Janockc reQ:'lrdinc Audit Report Dislribu'ion Proceduros. ""se 101
20
20 21
22
23 24
21
22
f.xh..ibilNulnbe'r 9. October 7, 2002 E-mail from Dan llueloor to Mike Hanson and D.1\'id Mon.,ghan l1:g.llrdihg NCS Audit Management Response, pace' t)
[:dlibil Number fO. OCtober 25.2002 CommWliquc £rom .\udil Services (0 MU<.~ Hanson and MUltiple RccipiculS rt:&"rding Audil Repor1 for NorthWestern CtJmmunic:UitJn SoJu[ions. p.1C¢ J 19
l
m
23
24
25
25
e-----I 2
3
·····--------+-------------~i
Pilge 3 Poge 5
J
~
I
·
I
4 5 6
7
8
9
APPEARANCES (continued): BROWNING, KALECZYC, BERRY&. HOVEN, PC
139 North Last Chance Gulch Helena, MT 59601
By: Stanley Kaleczyc, Es,! Kimberly A. Beatty, Esq.
For Michael 1. Hanson and Ernie J. Kindt
1
3 4 5 6 7 8 9 10
II
10
IJ
NIXON PEABODY, LLP 437 Madison Avenue New York, NY 10022.-7039 By: Christopher M. Desiderio, Esq. for Law Dcbent\lfe Trust Company of New York
INDEX OF EXHIBITS (continued)
Exhibit Number II, November 5, 2002 Memorandum from Dilvid Monaghan and Bart Thiel bar 'to Mike Hanson and
Inulliple recipients regarding Management Response to Summary Audit Report for NorthWestern Communication
Solutions, page 123
Exllibit Number 12, April 10, 2003 Memorandum from
Davc Monaghan lind Bart Thielbar (0 Mike Hanson and
multiple recipients regarding NCS Audit. page 127
Exhibit Number 13. March 20. 2003 E-rnail from William Janecke to Tom Knapp, John Van Camp and Mike Hanson regarding NCS Audit. page 138 Exhibit Number 14, Complaint. page 142
12 13 14 15 16 17
18 19 20
21
22
23
24
25
12 13
14
IS 16 17
18
19
20
21
22
23
24
25
2 (Pages 2 to 5) Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue. New York, NY 10017
Case 1:04-cv-01494-JJF
Document 262-12
Filed 01/04/2008
Page 15 of 42
Page 34
Page 36
1 2 3 4 5
6
7 8
9
10 II 12 13
t4
15 16 17 18 19 20 21 22 23 24 25
the group that handled Expanets, yes, that transfer occurred in 2002. If you meant NorthWestern COlTununications Solutions, no, because it wouldn't have transferred to itself. But, yes·· Q. Right, from NCS to NCG. So it did transfer' from NCS to NCG? A. In 2002, correct. Q. In 2002. So in 2002 after the transfer happened, it no longer reportcd up to NSG but now reported up to NCG? A. In what timeframe? Q. 2002 once the transfer happened, A. That's correct. Q. Why was it transferred from NSG to NCG? A. There was a corporate directive initiative to put all of the telecommunication-type holdings in one bucket basically and all the energy.type stuff in another bucket. Instead of having NSG had utility and telecom and a little HV AC company and then an energy company, it was basically to provide, I believe, organizational clarity, if you will. Q. What were your responsibilities at NCS following the transfer to NCG?
1 2 3 4 5
6 7 8 9
10 II 12 13 14 15
16
17 18 19 20 21
22 23 24
25
Q. Presumably cash flow is always important. So is there a particular emphasis in 2002 on cash flow? A. How do you mean by "particular," it was more emphasized than it had been in prior years. Q. Was there more emphasis on meeting revenue targets than in prior years? A. No. Q. Was there increased management pressure to achieve financial forecasts? · A. Increased? No. · MR. KAPLAN: Could we go off the record for a second? MS. DELANEY: Sure. (Off the record.) MR. KAPLAN: Back on the record. MS. DELANEY: Mr. Thielbar and his counsel, I believe, have reviewed the ·Protective Order, and Mr. Thielbar has agreed to be bound by the terms and conditions and has executed a document dated today 2007 which I'd like to mark as Thielbar Exhibit 2. (Deposition Exhibit Number 2 marked for identification.)
..... :.,..;
I
.i
~
['i
~
. .......
~
~
i
I
t
~
;
i ~
~
~
1
f---------------+--------------i!
I'age 35 Page 37
1 2
3
4
5
6
7
8 9 10 II 12 13 14 15 16 17 18 19 20 21 22 23 24 25
A. I didn't have responsibility for NCS once it was transferred. Q. What were your responsibilities at NorthWeslern thcn after the transfer occurred? A. I was -- that's the senior vice president of IT and C[O for the energy company which included Montana Power and NorthWestern Public Service and so forth. Q. What was your·· what was your role, ifany, in the transfer ofNeS to NeG? A. To help facilitate it. Q. Since we are in 2002, couple questions about that. At any point in 2002, do you recall being told that NorthWestern's liquidity was tight? A. In any time in 2002, nothing is coming to mind, no. Q. Do you recall ever being told anything about its cash·flow situation in 20027 A. Yes. Q. What do you recall being told? A. I can't recall the specifics. The basic emphasis was the cash flow is important and we need to watch it. I can't teU you when or where.
.."",. .. .....
l
2
3 4 5 6 7
8 9 10
II 12 13 14
15 16 17 18 19 20
21 22
MR. KAPLAN: We are going to mark as Thiel bar Exhibit 3 a document that's Bates stamped NOR 521869 and while this document is stamped on the bottom "Attorney's Eyes Only," counsel for NorthWestern has acknowledged that we can show this document to Mr. Thielbar, THE WITNESS: (Reviews document.) (Deposition Exhibit Number 3 marked for identification.) BY MR. KAPLAN: Q. Let me know when you are done looking at it, Mr. Thielbar. A. Okay. Q. Do you recall sending this e-mail to Tom Knapp and John Van Camp? A. V~guely, yeah, it's been four years ago now. Q. I want you to look fi ve lines down there is a sentence that - A. In which paragraph? Q. In the first paragraph.
A.
~
I
1
~
~
j
I I
~ ~
i
i ~ ~
okay.
~
23 24 25
Q. There is a sentence that reads ''This is particularly true when an 'aggressive' environment exists in tenns of striving to make
l
'-;" .~"'.,"',._ " ,"~"'" ." ,~" ~,;," ~; :
...
.·
\
,
. ;.J
10 (Pages 34 to 37) Elisa Dreier Reporting Corp. (212) 557-555& 780 Third Avenue, New York, NY 10017
Case 1:04-cv-01494-JJF
Document 262-12
Filed 01/04/2008
Page 16 of 42
Page 38 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
financial targets exists." Do you see that sentence? A. [do. Q. What did you mean by that? A. There was demands to meet financialtargets. Q. What kind of demands? A. I'm not sure. There is different types of demands. It was .- really had to meet the financial targets. Q. Well, presumably in every company and at every time people always want to meet - A. Right. Q. -- financial targets. A. Exactly. Q. [s it fair to say that -- when you were saying there was an aggressive environment that there was more than just the usual: Hey, we should meet our targets. A. There was a lot of emphasis on meeting targets more so than when I had experienced at my prior company. Does that make sense? Q. Were you ever given a reason why there was more focus on it? A. That's a good question. None that come to mind.
I 2
3
4
5
6 7
8
9
10 11 12 13 14
IS 16 17 18
19
20 21 22 23
24 25
Page 40 and certainly my view is that that's correct, you should try to meet the financial targets whenever possible. The pressure applied, though, that I put on my staff I think was different than what had been applied to me. Q. And how was it different? A. It was coupled with --let me back up, it just wasn't as intense I guess you'd say or whatever. ' , Q. Can you describe for me the nature of the intense pressure that you were feeling from management to meet the targets? A. It was a -- we talked earlier about the staff meeting _. or the board meetings, it was just kind of a: Here is your target. Go meet the target. It was kind of a recurring message all the time. And my messaging encompassed that.or there was a lot of other stuff, that would be how it would be different. Like being safe, being customer focused. Q. Did when you were receiving this pressure, did you always meet the financial targets? A. No. MR.. KALECZYC: Objection.
II ~.
J.i, .·,;
f
.. ... 0
~
.1
l
I
i
~
i
1
~ ~
~
I
1---------------+---------------11
Page 39
I 2
Page 41
i
Q, Did you ever ask and say: Hey, why are you
guys harassing us to meet targets? A. If I did, it's not coming to mind, no, Q. Did you pUI the similar pressure all people who reported to you to make sure they met the financial targets? MS. WILDUNG: Objection, vague. I think it misstates his pri or testimony as to -. I don't think you ever asked him about whether there was pressure. You can go ahead and answer. THE WITNESS: By "similar" - BY !vIR. KAPLAN: Q. Well, you said there was more -- you said there were a lot of demands to meet financial targets, is that a fair statement? A. Correct. Q. Did you put similar demands Oll the people who reported to·you or worked with you'! A. No, Q. Whynot? A. Stylistically I'm different·- well, this is wherc we get caught up in a lot of things. You had mentioned earlier that every company has pressure to meet financial targets
I
2
3
4
3 4
5
6 7
5
6
8 9
10
7 8 9
10
II 12
13 . 14 15
11 12 13
14 15
16
17 18 19 20
21
16
l7 18
19
22 23 24 25
20 21 22 23
24
25
MS. WILDUNG: Objection. You can answer the question. BY MR. KAPLAN: Q. When you were receiving this pressure, did the groups that you were responsible for meet the financial targets? A. No. Q. And what was the response by senior management when you didn't? . ~ MR. KALECZYC: Objection. MS. WILDUNG: Objection, vague as to , "senior management." THE WITNESS: By "targets," what time period are you talking about? BY MR. KAPLAN: Q. In 2002. When you didn't meet ,- you -- let me clarify the question. vou testified that at the board meetings you would constantly be told.: Meet your target. Meet your target. If you didn't meet your target, .what would they say at the board meetings? . MS. WILDUNG: Objection, vague as to which target. Are you intending to encompass the objectives for the IT grQUP as well as for NCS, or are you just talking
I
II (PagesJ8 to 41) Elisa Dreier Reporting Corp. (2I2) 557-5558
·780 Third Avenue, New York, NY 10017
Case 1:04-cv-01494-JJF
Document 262-12
Filed 01/04/2008
Page 17 of 42
Page 42
Page 44
I
I 2 3
4
5 6
7
8
9 10
11
12
13 14
15 16 17 18
19
20
21
22
23 24 25
aboutNCS BY MR. KAPLAN: Q. I'm talking for whatever groups that you were responsible for. A. On the IT side if our expense budget was higher than anticipated for II given month, there was disappointment - inquiry as to why -- help understand the variance or whatever. Similarly for NCS there was disappointment expressed if you missed, you know, inquiry as to why. Q. Was it ever anything more than disappointment? A. I'm trying to think of -- intense disappointment? I don't know. I don't know I guess how to quantify or -- what you are talking about. Q. Were there ever threats of losing jobs, for example? A. No, my job was never threatened that I recall. Q. How abollt anybody else's job? A. Not that I recall. Q. Threats of any other actions Or tactics to ensure that groups don't miss their targets in the future? !vIR. KALECZYC: Objection. THE WITNESS: What was the question?
1
Q. What is the "whatever means necessary" comment
refemng to? A. There was an internal audit and there was an allegation that people had told the auditors that their directive was to make the numbers by whatever means necessary or an allegation to that effect. I disagree with that, continue to disagree with that. Q. Is it fair to say this e-mail was intended to explain where the "whatever m~~s necessary" comment could have come from? A. Let me read the e-mail again. Your question was: If this e-mail was meant to explain where it may have come from? Q. Yes. A. (Reviews document.) No, I don't think that was the purpose of the e-mail. Q. What was the purpose of this e-mail? A. I take your question to mean by wherever it came from, the people who said the comment. Am I interpreting your question correctly? Q. No, [ was meaning were you trying to explain why pcople might have interpreted what was said whatever means -- as -- in coming up with the phrase of "whatever means necessary"?
I:.'
2
3 4 5 6 7
8
.....
~
...
9
10 11 12 13 14 15
'
.......
16
17 18 19
~
~
~
20
21 22
~
23 24 25
as
~
~
i
~
j
~
I',.,
Page 43
Page 45
I
2
BY MR. KAPLAN: Q. Were there ever any threats of any other actions aside from job losses to ensure that the groups met their targets in the future? A. Can you give me an eJ
1
3 4
5
2 3 4 5
6
7
G
7 8
8
9 10 11
9
10 II
12
13
14 15
12
13 14 15
16
17 18
16
17
18
19
19
20
21
22 23
24
20 21 22
23
24
25
25
A. No. Well- MR. KALECZYC: Could you repeat - MS. WTLDUNG: You answered that. THE WITNESS: Okay. MR. KALECZYC: Could you read it back. (Whereupon, the previous question was read back by the court reporter.) MR. KALECZYC: Objection- THE 'W1TNESS: r can't hear what he's saying. BY MR. KAPLAN: Q. What was the purpose of this e-mail? A. Based on looking at it four years later, my impression is that it was to explain that "whatever means necessary" is not something that r would have said or directed. Q. You see the first sentence of the second paragraph talks about a meeting, an NOR leadership meeting in Denver in early 2002? A.ldo. Q. Do you recall tit at meeting? A. Yes, generally, yep. .Q. And what was the purpose of tilat meeting? A. NorthWeslem Corporation at that poiHt in time held an annual COrporate leadership meeting
I
,
1
','.1
12 (Pages 42 to 45)
Elisll Dreier Reponing Corp. (212) 557-5558 780 Third Avenue, New York, NY 100 I 7
Case 1:04-cv-01494-JJF
Document 262-12
Filed 01/04/2008
Page 18 of 42
EXHIBITS 56 - 58
REDACTED IN THEIR ENTIRETY
Case 1:04-cv-01494-JJF
Document 262-12
Filed 01/04/2008
Page 19 of 42
Case 1:04-cv-01494-JJF
Document 262-12
Filed 01/04/2008
Page 20 of 42
/~.C~';.t,~.~
')
.<:<~:~~~jr.~.,l
f" ._:
~
HELEill 1\ Di':; I ::, j 0Il
F; . - .'.
(-
~.
3
4
5
6
:
7 8
9
10
o .:
MAGTENASSET MAMAGEMENT
CORPORA TION,
.J
I\
12
Case No. CV-04·26·BU·RfC
Plaintiff:
13 14
v.
MIKE J. HANSON nnd ERNIE J. KfNDT
REPLY TN SUPPORT OF MOTION
FOR SUMMARY JUDGEMENT
15
16
Defendanl~
~
Introduction
'..:.
;,'
'
17
18
,.
19 20 21 22 23
24
Rule 56(c) of the Federal Rules of Civil Procedure clearly stales that when a motion for summary judgment is made, "an adverse party may not rest on the mere allegations or denials of the ttdverse party's pleading, bllt the adverse parly's response, by affidavits or as otherwise provided in lhi:i nIle, must set forth specific lacts showing that there is a genuine issue for Irial. If the adverse party does not so respond. summary judgment, if appropriate, shall be entered against the adverse party." Here. Magten has failed to raise any material facts in dispute which would properly preclude the issuance of summary judgment in Defendants' favor.
·1"
25 26 27
In fact, Magten agrees with the facts set forth in Defendants Statement of Uncontroverted
Facls. or makes cOl1c!usory statements, which are neither material to the Jeglll issues raised by
-I.
Case 1:04-cv-01494-JJF
Document 262-12
Filed 01/04/2008
Page 21 of 42
Dcfendl:Ults nor supported by evidence in the form of docwnents or affidavit testimony, such that 2 "there exists a genuine issue to be tried." See generally, PJ.'s Stmt of Genuine Issues. Such
3
"
...:'
t· . · · ·
conclusory statements nre insufficient to raise a genuine issue of disputed fact or preclude summary judgment. Porter v. CA Dept of Corrections, 2004 WL 2029923 ·5 (9111 Cir, 2004)
4
5 (noling "once the moving party meets the requirements of Rule 56 by showing there is an
6 absence of evidence to support the non-moving pany's case, the burden shifts to the party
7 resisting the motion, who 'must set forth specific facts showing that there is a genuine issue for
8
trial.'''); Margolis v. Ryan, t 40 FJd 850, 852 (9 1h CiT. t 998) (holding "to defeat a summary judgment motion, the non-moving party must demonstrate that the evidence is such that a reasonable jury could return a verdict in his or her favor."). See also, Rattner v. Netbum, 930 F.2d 204, 209
9 10 11 12 13 14 15 16 17
18
(th Cir. 1991)
(holding "the function of the district court in considering the
motion for summary judgment is not to resolve disputed issues of fact but only to determine whether there is a genuine issue to be tried."). Further, Plaintif'rs "Statement of Genuine Issues" is inadequate; it consists of four statements, two of which are merely recitations of legal conclusions and none of which are relevant to or raise genuine material facts in dispute related to the matters raised in the motion for summary judgment. Mab>ten'8 Complaint in this Court asserts one cause of action: that Defendants as officers of Clark Fork and Blackfoot, LLC (CFB) breached fiduciary duties owed to creditors of CPB. Nowhere in the Complaint does Magten assert any claim for fraudulent conveyance or any claim to invalidate the transfer of assets by CFB
(0
~.
:
19 20 21 22 23 24 25 26 27
its parent corporation. Nor could it raise such
complaints without invoking the jurisdiclion of the federal bankruptcy court, thus divesting this Court ofjurisdiction. Magten further misstates the significance of Judge Case's August 20 opinion in an attempt to lend credence to the allegations raised by Magten in this Court. Magten erroneously cites Judge Case's opinion for the proposition that Magten has a cause of action against era and its officers. Judge Case's August 20 opinion, however, holds only that Magten has standing to
......
~':?;';'
}:;:" ; ' .
";.'
i!..:··:, '.
·2·
Case 1:04-cv-01494-JJF
Document 262-12
Filed 01/04/2008
Page 22 of 42
assert n claim for fraud against NorthWestern Corporation, an allegation Magten does not make 2 3
4
here. Judge Case's August 20 and July 23 opinions, however, arc dispositive in that they hold
(a) that Magtcn was never a creditor of CFS, an allegation Magtcn must prove if it is to prove
thm CFB's officers owed it any fiduciary duty in the flrst place l , (b) that CFB owes no duty to any QlHPS holder under either the Trust Indenture or the Guaranty Agreement, lind (c) that only
5
6
7
8 9
10
11
12
NorthWe.lltern may be liable for the unwinding of the Boing flat transaction if and only ifMagten
ctln prove to the Bankruptcy Court that NorthWestern committed fraud. Moreover, Judge Case's August 20 order has
110W
rendered mool whether the Trustee or the QUIPS holders waived their
right to challenge the validity of the going flat transaction since Judge Case detennined that
CFB's obligations under the Trust Indenture and the Guaranty Agreemenl were released in the going flat transaction.
Finally, the "factual issues" raised by Magten here are irrelevant to whether they have standing to assert claims of their predcccssors-in·intercst. First, what Magten's predecessors
mllY have known at the time of the transfer is not relevant to what Magtcn ilself knew when it
13
14
IS
16
acquired the QUIPS. Secondly, while Magten may have acquired the QUIPS securities without a writccn conveyance instmment, it cannot acquire the rights to choses in action related to those securities witho\lt a writ1cn instrument.
Argument
:'.
?
:" .,.
I;"
17
18
19
I.
20
21
The findin~ that Maglen is not t and ne,'er waSt a creditor of CFB is dispositive of the issues pending before this Court.
In its response to Defendants' motion to dismiss, Magten conveniently ignores that the Defendants also have pending before this Court a Motion to Di:m1iss in which Defendants argue that, as a matter of law, as "officers" of CFB they owed no fiduciary duties to the creditors of
CFB on November t 5, 2002. the dute of the going flat transaction. Judge Case, in his first
22
23
24
25
opinion dated July 23, 2004, made a specific finding that Magten was not - and is not today - a
26 creditor of Clark Fork. Exh. E to Ocf:>.' Stmt. Of Uncontroverted Facts, J. Case Memorandum
27
I
Defendants' haw filed
II
Motion to Dismiss the Complainl on grounds thlltlhey owe no fiduciary duties to
Plaintiff. That MOlion is currently pending before this Coun.
. J.
Case 1:04-cv-01494-JJF
Document 262-12
Filed 01/04/2008
Page 23 of 42
..;
,
,
,
.. '
Decision dated 7/23/04 at p. 3 ("the Debtor [NorthWelitern] asserts and Magten has not disputed, 2 3 4 5 6 7 8
<)
that Magten was never a creditor of Clark Fork ..."); at p. 6 ("MagI en was not a creditor of Clark
Pork 01 the time the transaction took place. "); lit p. 7 (Heven if third party creditors were injured
by the transaction, Magten was not one of them.") This adjudicative fact is not disputed. See,
P\"s Statement of Genuine Issues, at p 4,
~
13; p 5, ~ 20. This adjudicative fact is dispositive of
. "'1"
both the Defendants' Motion to Dismiss2 and this Motion for Summary Judgment, not because Judge Case made any specific finding about the standing of Magtcfl to sue the officers of CFB indeed, the officers nre not parties to the NorthWestern Bankruptcy proceeding and Judge Case made no such explicit finding - but because the fact that Magten never was a creditor of CFB may be properly relied upon by this Court in ruling in favor of the Defendants here and dismissing this case with prejudice. Magten further conveniently glosses over the fact that both Judge Case's July 23 ruling and the deposition of Talton Embry, Magten's sole owner, occurred after the Defendants filed
their Motion to Dismiss. Mngtcn .also ignores the fact that both these events occurred be/ore
.'
'.,
."
.:
10 II 12 13 14 15 16 )7 18 19
20
:.,',
Magten responded to either Defendants' Motion to Dismiss or Motion for Summary Judgment. Thus, Magten had in its possession facts relevant to this case be/ore these facts were known to the Defendants. It is therefore disingenuous at the very least for Magten to suggest that these fuelS should have been raised when the Defendants filed their Motion to Dismiss. Any
;.,'
'-',"
.... " .
'(,";..
suggestion by Maglcn thai the standing iss\le should have been raised carlier is simply misplaced
and sho\lld be summarily disrcgllnled us u desperate anempt by Magten to avoid
EUl
issue whieh
21
proves tatal to their case.
i·
r:'~
22
23
,..
24
25
26
27
\0
Iflhe Court decides \0 rely upolllhis adJudiclllive fuct, the Court certainly mllY convert Defendants' MOllon Dismiss into II Motion for Summary Judgment since Magten has had tho opportunity t() respond 10 this adjudicative fllcl And ils relevance \0 lhese proceedings. Fed. R. Civ. P. J2(b).
-4
Case 1:04-cv-01494-JJF
Document 262-12
Filed 01/04/2008
Page 24 of 42
i'-:'f,'r:'1:~t·
(iit'<,\,-;)
II.
The import of Judge Case's August 20 Opinion.
2
Magten blatantly misconstrues the import of Judge Case's August 20, 2004 order when it says thai Judge Case held that Magten has standing to pursue fraud claims against CFB. PI.'s Response to Defs' Mm. for Summary Judgment, p.l. In his August 20 Opinion, Judge Case makes several findings: First, there was no guarantee that the transferee of the QUIPS
3
4
5 6 7
8
obligations had to be solvent. ExIt. E to Decl. of J. Devlan Geddes, J. Case Under Advisement Decision Ie: Motion to Dismiss. dated 8/20/04 at p. 5. As a result, Magten's reliance on
solvency as a "genuine issue" is both misplaced Imd irrelevant. Second, CFB and NorthWestern fully complied with section 1102 of the Tnlst Indenture and with the temlS of the Guaranty Agreement, such Ihat CFB was fully released from all obligations 10 Ihe QUIPS holders as of the date of the going fiat transaction. [d. at pp. 6-9. Third, because Judge Case determined that
':.'\.
"',.
9
10
,.
~ '.: .
.'.
1\ 12
J3
CFO's obligations under the Trust lndenlllfc and the Guaranty Agreement were released in the going flol transaction. the issue of whether the Trustee or the QUIPS holders waived their right to challenge the validity of the going flat transaction is now moot. See, generall>:. id. FOllrth,
........
!::
~~.:
-.'
"-.:,
14 15
16
r:· .
~~:
.:
. ',:
~
Magten may maintain its adversary proceeding only again.H NorthWestern if. and only if,
NorthWestern commincd fraud.
~:!".:':
.
"
. '.'
Id. at 11. No where in Judge Case's Opinion does he even
.::.:'
"':,'
,.,.
..
'
17
18
remotely suggest thai Magten has any standing 10 bring this action against officers of CFB as
Maglen has asserted. Compare, PI. 's Response to MOlion for Summary Judgment at p. J 10
~(
,.
19 20
21
Judge Case's Opinion generally. Indeed, Magtell's own Complaint docs not allege a fmudulent conveyance by the Defendants here: the only counl of Ihe Complaint is one for alIeged breach of fiduciary duty. Moreover. even if Magtcn could bootstrap Judge elISe's August 20, 2004 order to form the legal basis
fOI
<.
22
23
this suit against officers of CFB, then just as Judge Haddon recently
ordered in Magten Asset Management Corporation v. Paul Hastings Janofsky & Walker, LLP, CV-04.40.BU-SEH,J this Court should find that these issues are integrally related to the
{
-
24
..
'j
,'
;:;:...::,::.
' :..
~j/~ ':~.~"
~j -
'.. ,
A copy of Judge Haddon's MClmorllndum and Order doted September 8.2004, is attached as Exhibil I.
'.'
'
'.......
·5 ·
Case 1:04-cv-01494-JJF
Document 262-12
Filed 01/04/2008
Page 25 of 42
NorthWestern bnnknlptcy estate and transfer jurisdiction of this cllse to the Delaware Bankruptcy 2 3 4 5 6
COlJrl
where it would be properly adjudicated as part ofthe NorthWestern bankruptcy estate. The Iynchpin of Judge Case's August 20 order is that Magten will be permitted to
continue its Adversary Proceeding and attempt to prove NorlhWeslern. nol CFB or ils officers. engaged in fraud - allegations not raised by Magten in these proceedings. Judge Case has exonerated CFB of all wrongdoing or liability with respect to the Boing flat transaction and has
~ ".,
7 . found that CFB was released of all obligations under the Trust Indenture and Guaranty 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Agreements. Exh. E to Dec!. of J. Dcvlan Geddes, J. Case Decision at p. 8 ("Here, the Indenture specifically provides that Clark Fork is released from its underlying liability on the debentures in a Section 1101 transaction. All oflhose obligations, incruding making distributions to the Trust for the purposes of paying the Holders, now lie exclusively with the successor in interest, here Debtor NorthWestern. Given the quasi in rem nature of the guarantee, (footnole omitted]il is nonsensical that a stranger to the ll"dnsaction (Clark Fork after the Section 1101 transaction)
would retain any liability under the Guarantee. It only makes sense that any such liability has
been released as welL"); p. 9 ("the Court concludes tha1 Plaintiffs are not creditors of Clark Fork
because of the Guarantee. Rather, Clark Fork's obligations under the Guarantee, to the same
extent as its obligations under the Debenture, were released in the Section 1101 transaction with
:.- ..
.,,". . .
I,."
,. ,
NorthWestern.") These facts and conclusions are consistent with the Defendants' position that NorthWestem, as the sole Member and Manager of CPB, had the authority to direct and implement the going flat transaction, and thus alone retains the liability, if any, with respect to that tl'ansaction. The Defendants here as the officers of CFB were merely performing ministerial acts implementing the mandates of the sole decision maker, a fact documented by that Written Consent of Sole Member and Manager to Action in Lieu of Meeting, dated 817/02, attached as Exh. E to Dcfs.' StOlt. of Uncontroverted Facts, and a fact that Magten neither disputes nor rcbutts with its own contrary evidence, documents or affidavit testimony. See, Pl.'s Statement of Genuine Issues, p. 2-3 , 9.
'
:.'"
"
".':
.. : .'~:.
:5' .
Case 1:04-cv-01494-JJF
Document 262-12
Filed 01/04/2008
Page 26 of 42
~
..
.'
.:~q~..;:.,......
).
~'.~ · :':'~'-I:~~;
1II.
Magten lad
i· .. ··
2 3 4 5 6 7 8 9 10 II 12 13 14 15 [6 17 18 19 20 21 22 23
24
Magten misapprehends the Defendants' argument that Magten lacks standing to assert a claim for breach of any fiduciary duty which these Defendants may have owed to creditors of CPA on the date of the "going flat" Iransnction (a legal proposition wh
United States Free Forms
Canada Free Forms
United Kingdom Free Forms
Australia Free Forms