Case KG Doc 1012 Filed 03/02/15 Page 1 of 6 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE : : : : : : : :

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1 Case KG Doc 1012 Filed 03/02/15 Page 1 of 6 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re TRUMP ENTERTAINMENT RESORTS, INC., et al. 1, Debtors. Case No (KG) (Jointly Administered) Chapter 11 LIMITED OBJECTION AND RESERVATION OF RIGHTS WITH RESPECT TO THE DEBTORS 9019 MOTION 1. The Official Committee of Unsecured Creditors (the Committee ) of Trump Entertainment Resorts, Inc. ( TER ) and its affiliated chapter 11 debtors and debtors- inpossession (collectively, the Debtors ), by and through its counsel, hereby submits this limited objection and reservation of rights with respect to the Debtors proposed form of order ( Proposed Order ) approving the Debtors Motion for Entry of an Order Pursuant to Section 105(a) of the Bankruptcy Code and Bankruptcy Rule 9019 Approving Settlement By and Among the Debtors and FinCEN [D.I. 906] (the 9019 Motion ), which motion seeks the Court s approval of a Consent Agreement dated January 27, 2015 (the Consent Agreement ) between the Debtors and the U.S. Treasury s Financial Crimes Enforcement Network ( FinCEN ). 2. The Committee has objections to the Proposed Order to the extent it determines the priority and/or treatment of FinCEN s claim under the Plan (as defined below). Specifically, to the extent the Proposed Order is intended to allow FinCEN s claim as a general unsecured 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, are Trump Entertainment Resorts, Inc. (8402), Trump Entertainment Resorts Holdings, L.P. (8407), Trump Plaza Associates, LLC (1643), Trump Marina Associates, LLC (8426), Trump Taj Mahal Associates, LLC(6368), Trump Entertainment Resorts Development Company, LLC (2230), TER Development Co., LLC (0425) and TERH LP Inc. (1184).

2 Case KG Doc 1012 Filed 03/02/15 Page 2 of 6 claim entitled to be treated as a Class A Distribution Trust Beneficial Interest, 2 which would materially dilute the assets available for distribution to general unsecured creditors in these cases, the Committee objects to entry of the Proposed Order. 3. However, it is the Committee s understanding that the Proposed Order and the Consent Agreement are not intended to predetermine the priority and/or treatment of FinCEN's general unsecured claim. As such, the Committee does not otherwise object to the amount or substance of the Consent Agreement or the 9019 Motion, so long as the Order approving that motion is entered without prejudice to the rights of the Committee (if before the Plan Effective Date) or the Distribution Trust (if after the Plan Effective Date) to seek to subordinate FinCEN s claim or treat FinCEN s claim as a Class B Distribution Trust Beneficial Interest. RELEVANT BACKGROUND 4. On January 30, 2015, the Debtors filed the Disclosure Statement for the Debtors Third Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code [Docket No. 840] (the Disclosure Statement ). 5. By Order dated January 30, 2015 [Docket No. 845], the Court approved the Debtors Disclosure Statement as containing adequate information within the meaning of section 1125 of the Bankruptcy Code, and authorized the Debtors to solicit votes to accept or reject the Debtors Third Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (including all exhibits thereto and as amended, modified or supplemented from time to time, the Plan ). 6. According to the Consent Agreement, Debtor Trump Taj Mahal Associates, LLC ( Taj Associates ) admits that from 2010 through 2012 it violated the [Bank Secrecy Act s 2 Capitalized terms not otherwise defined herein have the meaning ascribed to such terms in the Plan (as defined below). -2-

3 Case KG Doc 1012 Filed 03/02/15 Page 3 of 6 ( BSA )] program, reporting, and recordkeeping requirements. See the Consent Agreement attached to the 9019 Motion as Exhibit 1. Specifically, Taj Associates admits that it failed to implement and maintain an effective anti-money laundering program, failed to report suspicious financial activities, failed to properly file Currency Transaction Reports, and it failed to meet the BSA s recordkeeping requirements. 7. Pursuant to the Consent Agreement, among other things, Taj Associates consents to the assessment of a civil money penalty in the amount of $10 million and grants FinCEN an allowed general unsecured claim against Taj Associates in that amount (the FinCEN Claim ). LIMITED OBJECTION AND RESERVATION OF RIGHTS 8. As set forth above, the Committee has no objection to the substance of the Consent Agreement or the amount of the FinCEN Claim. The Committee is, however, concerned that allowance of the FinCEN Claim (which is essentially a fine), as a general unsecured claim will dramatically dilute the recovery for general unsecured creditors in the Debtors cases. Accordingly, the Committee s objection is limited to the entry of the Proposed Order approving the 9019 Motion and the Consent Agreement to the extent that they purport to determine the priority and/or treatment of the FinCEN Claim under the Debtors proposed Plan. 9. To the extent that FinCEN is permitted recover its penalty-based claim pari passu with other unsecured creditors, the effect of that recovery will be that the Debtors creditors will be the ones paying the fine for Taj Associates violations of the BSA. At that point, the $10 million FinCEN fine has zero impact on Taj Associates, the target of FinCEN s investigation. 10. It is the Committee s understanding, however, that the Consent Agreement and the Proposed Order are not intended to predetermine the priority and/or treatment of the FinCEN Claim and that FinCEN intends to provide the Debtors with language that would modify certain -3-

4 Case KG Doc 1012 Filed 03/02/15 Page 4 of 6 release provisions set forth in Section XII of the Plan, which would, in the Committee s view, cause FinCEN to effectively opt-out of the Debtors proposed third-party releases, like other creditors that have elected to opt-out of the Plan s third-party releases. Creditors that opt-out of the third party releases under the Plan are only entitled to participate in a recovery from the Class B Distribution Trust Beneficial Interests. 11. Further, in bankruptcy, if punitive damages are recoverable at all, they must be accorded a lower priority than claims for compensatory damages ( 726(a)(4) in Chapter 7 cases, applicable here pursuant to 1129(a)(7) of the Bankruptcy Code.) [I]f subordination of punitive damage claims is mandated in Chapter 7 liquidations, it seems entirely appropriate to subordinate such claims in the Chapter 11 setting. Owens Corning v. Credit Suisse First Boston, 322 B.R. 719, 723 (D. Del. 2005). 12. Section 1129(a)(7)(A) requires a bankruptcy court in confirming a plan to find that general unsecured claimants either (i) have accepted the plan or (ii) will receive as much under the Chapter 11 plan as they would receive in a hypothetical Chapter 7 liquidation. To meet that latter test, Section 726(a)(4) must be applied, with the result that all penalty/punitive claims are subordinated. In re Friedman s, Inc., 356 B.R. 766, 778 (Bankr. S.D. Ga. 2006) 13. Although Section 726(a)(4) is inapplicable to Chapter 11 reorganizations, it is well-established that bankruptcy courts have inherent equitable power to disallow, limit, or subordinate claims for punitive damages in Chapter 11 reorganizations. In re Celotex Corp., 128 B.R. 478, 484 n.12 (Bankr. M.D. Fla. 1991). 14. The FinCEN Claim should be subordinated to the claims of other general unsecured creditors because, (1) in a chapter 7 the FinCEN Claim would receive no distribution and would be subordinated to general unsecured claims and (2) as set forth in the Motion of the Official Committee of Unsecured Creditors for Entry of an Order Granting Leave, Standing, and Authority to Prosecute Claims -4-

5 Case KG Doc 1012 Filed 03/02/15 Page 5 of 6 on Behalf of the Debtors Estates and for Related Relief [D.I. 826], if the case was converted to a chapter 7, the Committee believes that on the Petition Date the Debtors $17.5 million of cage cash would be unencumbered and available to general unsecured creditors. This amount is greater than the $3.5 million agreed to under the Plan. 15. All of the Committee s concerns with the 9019 Motion will be fully resolved if (i) FinCEN and the Debtors agree to treat the FinCEN Claim solely as a Class B Distribution Trust Beneficial Interest under the Plan, which is the treatment provided for holders of general unsecured claims that elect not to grant the third-party releases set forth in the Plan, or (ii) the proposed Order granting the 9019 Motion preserves the Committee s right to seek to subordinate the treatment of the FinCEN Claim below the treatment accorded general unsecured claims under the Plan. Therefore, revising paragraph 3 of the proposed form of Order granting the 9019 Motion with either of the following alternative provisions will fully resolve the Committee s objection 3. Pursuant to the Consent Order, FinCEN is hereby granted an allowed general unsecured claim against Trump Taj Mahal Associates, LLC in the amount of $10 million, to be treated solely as a Class B Distribution Trust Beneficial Interest under the Debtors Third Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code as Modified [D.I. 993] (as amended, the Plan ). [Or] 3. Pursuant to the Consent Order, FinCEN is hereby granted an allowed general unsecured claim against Trump Taj Mahal Associates, LLC in the amount of $10 million, without prejudice to the rights of the Official Committee of Unsecured Creditors (if before the Effective Date of the Plan), and/or the Distribution Trust (if after the Effective Date of the Plan) to seek to subordinate FinCEN s claim or treat FinCEN s claim as a Class B Distribution Trust Beneficial Interest. The foregoing is without prejudice to FinCEN s right to oppose such treatment. -5-

6 Case KG Doc 1012 Filed 03/02/15 Page 6 of Accordingly, the Committee is reserving its right to (i) assert that the FinCEN Claim should be subordinated and/or (ii) seek to treat the FinCEN Claim as a Class B Distribution Trust Beneficial Interest under the Plan. Dated March 2, 2015 Wilmington, Delaware GIBBONS P.C. /s/ Natasha M. Songonuga Natasha M. Songonuga, Esq. (Bar No. 5391) 1000 N. West Street, Suite 1200 Wilmington, DE Telephone (302) Facsimile (302) nsongonuga@gibbonslaw.com -and- Karen A. Giannelli, Esq. (admitted pro hac vice) Mark B. Conlan, Esq.(admitted pro hac vice) One Gateway Center Newark, New Jersey Telephone (973) Facsimile (973) kgiannelli@gibbonslaw.com mconlan@gibbonslaw.com -and- LAW OFFICE OF NATHAN A. SCHULTZ, P.C. Nathan A. Schultz, Esq. (admitted pro hac vice) Craig Road Traverse City, MI Telephone (310) Facsimile (231) nschultzesq@gmail.com Co-Counsel to the Official Committee of Unsecured Creditors -6-