Pg of 0 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK IN RE:. Case No. 0-00-mg. MOTORS LIQUIDATION COMPANY,. Chapter et al., f/k/a GENERAL. MOTORS CORP., et al,. (Jointly administered). Debtors................... MOTORS LIQUIDATION COMPANY. Adv. Proc. No. 0-000-mg AVOIDANCE ACTION TRUST, by and. through the Wilmington Trust. Company, solely in its capacity. as Trust Administrator and. Trustee,.. Plaintiff,. v... JPMORGAN CHASE BANK, N.A.,. individually and as. Administrative Agent for. Various lenders party to the. One Bowling Green Term Loan Agreement described. New York, NY 000 herein, et al.,.. Thursday, November, 0 Defendants.. :0 p.m.................. TRANSCRIPT OF ADVERSARY PROCEEDING: 0-000-mg MOTORS LIQUIDATION COMPANY AVOIDANCE ACTION TRUST V. JPMORGAN CHASE BANK, N.A. ET AL, TELEPHONE CONFERENCE, ON THE RECORD, REGARDING DISCOVERY DISPUTE BEFORE THE HONORABLE MARTIN GLENN UNITED STATES BANKRUPTCY COURT JUDGE TELEPHONIC APPEARANCES CONTINUED Audio Operator: F. Ferguson, ECRO Transcription Company: Access Transcripts, LLC 00 Youngwood Lane Fishers, IN 0 () - www.accesstranscripts.com Proceedings recorded by electronic sound recording, transcript produced by transcription service.
Pg of 0 TELEPHONIC APPEARANCES (Continued): For the Plaintiff: Binder & Schwartz, LLP By: ERIC B. FISHER, ESQ. Madison Avenue, th Floor New York, NY 00 () - For Hahn & Hessen, LLP: Hahn & Hessen LLP By: MARK T. POWER, ESQ. Madison Avenue New York, NY 00 () -0 For General Motors, LLC: For JPMorgan Chase Bank, N.A.: King & Spalding, LLC By: DAVID M. FINE, ESQ. Avenue of the Americas th Floor New York, NY 00 Wachtell, Lipton, Rosen & Katz By: MARC WOLINSKY, ESQ. HAROLD S. NOVIKOFF, ESQ. CHRISTOPHER L. WILSON, ESQ. West nd Street New York, NY 00-0 () 0-000 Kelley Drye & Warren, LLP By: MARTIN KROLEWSKI, ESQ. NICHOLAS J. PANARELLA, ESQ. 0 Park Avenue New York, NY 0 () 0-00 ACCESS TRANSCRIPTS, LLC --USE-ACCESS (-)
Pg of 0 0 0 (Proceedings commence at :0 p.m.) THE COURT: All right. This is Judge Glenn. We're on the record in Motors Liquidation Company Avoidance Action Trust v. JPMorgan Chase Bank, N.A. et al. It's adversary proceeding number 0-000. This is a telephone hearing concerning a discovery dispute in this adversary proceeding. The Court has received letters with attachments from counsel for JPMorgan Chase. Their letter is at ECF Docket Number 0, and for the Avoidance Action Trust at ECF Docket Number. The discovery dispute, as I understand it, concerns the notice of depositions for six deponents that were served by counsel for the AAT, and JPMorgan's counsel argues that the subpoena should be quashed because teh testimony that is sought is irrelvant as a matter of law, given this Court's prior ruling that the terms in the collateral agreement are not ambiguous, and therefore under applicable New York law, parol evidence is not admissible to interpret that agreement. The Court ruled on that issue in an order entered on April, 0, granting a motion in limine to preclude parole evidence relating to the meaning of the term "on agreement." That order is at ECF. I have the list of counsel who are -- were on the phone. Who's going to argue for the AAT? MR. FISHER: Eric Fisher from Binder & Schwarz, Your ACCESS TRANSCRIPTS, LLC --USE-ACCESS (-)
Pg of 0 Honor. 0 0 THE COURT: Okay. Mr. Fisher, let me -- and I've pored through the materials that were attached. Whether I -- we'll see whether I understand everything that's there. Let me ask you a couple of questions to start out. Were any of the 0 representative assets involved in the first trial listed in the EFAST ledger categories for buildings and land improvements, land, or construction in progress? MR. FISHER: Your Honor, I believe that the courtyard enclosure and the CUC assets were. THE COURT: Okay. I thought -- I was pretty sure about the CUC assets. I hadn't focused on the courtyard enclosure. Let me ask a few more questions. Well, let me ask a followup question. If the courtyard enclosure and some of -- I remember the pipes and other things at the central utilities complex. If they were listed in buildings and land improvements, land, or construction in progress, how come there was no objection at the time of the first trial to considering whether those were fixtures or not if your position is that only things listed in the machinery and equipment and specialty tools were fixtures? MR. FISHER: Your Honor, at the trial, the first issue was that those were excluded from the trial because they were leased assets. And the issue of them being building and land improvements wasn't raised, but the issue of building and ACCESS TRANSCRIPTS, LLC --USE-ACCESS (-)
Pg of 0 0 0 land improvements is front and center in the anticipated trial upcoming in this case. THE COURT: So with respect to the requirement that the collateral be approximately six-and-a-half-billion dollars, included in the six-and-a-half-billion dollars, was that the personal property, the equipment that was governed by the UCC- that was released in Delaware? MR. FISHER: Your Honor, the six-and-a-half-billion dollars was the sum total of the net book value of the original grant of collateral, and it included the machinery and equipment and special tools at all of GM's U.S. facilities. And pursuant to the collateral agreement, it included both equipment and fixtures within that universe of collateral. For example -- THE COURT: That's sort of precisely my point. The six-and-a-half-billion dollars was a figure that was included to assure that -- the term loan lenders, that there was six-and-a-half-billion dollars in collateral that covered the one-and-a-half-billion-dollar term loan. Wasn't that essentially a number that was sort of the floor that the term loan lenders wanted to be sure that was collateral coverage for the loan? MR. FISHER: Your Honor, I don't think it was so much a floor because I think that's why the agreement provides that there will be representation of the condition precedent that ACCESS TRANSCRIPTS, LLC --USE-ACCESS (-)
Pg of 0 0 0 the collateral value based on that book value is approximately six-and-a-half-billion dollars. It wasn't -- the language wasn't that it would be in excess of six-and-a-half billion. It's that the agreement was describing the actual sum total grant of collateral at the time. And, Your Honor, if I may, the loan-to-collateral value ratio was always calculated on the basis of that universe of collateral, and that's why when General Motors was in distress in the spring of 00 and there was discussion about amending the term loan and amending the ratio, it was always that same universe of collateral that was being considered. THE COURT: But that makes -- you know, all that says to me is that we don't have to look any further, we'll just look at those categories. There may be things that are additional collateral for our loans that are differently categorized, but we won't consider them. We'll just -- not that they're not fixtures, but that we don't have to look further as to whether they're personal property or fixtures or not. I mean, the things that went -- that were categorized as machinery and equipment and specialty tools, I take it you would agree that some of it was personal property and some of it was fixtures. MR. FISHER: Yes. THE COURT: So isn't it -- well, I haven't studied, and I don't know whether it's an -- you gave me all a pile of ACCESS TRANSCRIPTS, LLC --USE-ACCESS (-)
Pg of 0 0 0 documents I have here. Mr. Fisher, putting aside what you believe this term loan -- what the collateral agreement provided here, would you agree that there are items that -- in the buildings and land improvements, land, and construction in progress categories that would satisfy the Michigan test for fixtures? MR. FISHER: Yes. But, Your Honor, they were never -- those assets that may be in those categories were never a part of the grant of the collateral. In other words -- THE COURT: Mr. Fisher, you say that, but the -- I've already found that the language of the collateral agreement is clear and unambiguous and that parol evidence is not admissible to interpret it, and you're trying to get a second bite at that now. That, I'm not going to allow. What -- I'm not. I mean, I already -- you know, you briefed it once. The Barton parties briefed it once. I ruled once, and you're trying to get a second bite at it now. MR. FISHER: Your Honor -- THE COURT: Go ahead. MR. FISHER: I've been -- this is not at all a second bite at the apple. This is an entirely different issue. The Court ruled in the earlier in limine decision that it would not consider extrinsic evidence in terms of what the parties considered to be fixtures and what they considered not to be fixtures, and that -- those are terms that can be, you know, ACCESS TRANSCRIPTS, LLC --USE-ACCESS (-)
Pg of 0 0 0 understood using a dictionary and can be construed according to the UCC. We are not, in any way, seeking to revisit that ruling. The question that -- you know, and this came on on a discovery motion. Of course, the issues it raises are much more important maybe than a typical discovery motion. But the issue that is raised here is whether the term loan agreement and collateral agreement, read together as we believe they must be, provide that the sum total grant of collateral is limited to machinery, equipment, and special tools. And that is not an issue that was before the Court in connection with the earlier in limine ruling. And I believe I had in our letter, we believe that our reading of the contract in that regard is correct and doesn't require extrinsic evidence, but we've sought these depositions because we want to be prepared for every eventuality. We anticipated making a motion on this in connection with pretrial motion practice, and in the event that the Court found that there was an ambiguity, we wanted to have taken whatever discovery we needed to take so that, you know, we wouldn't be faulted for not being in a position to make whatever backup arguments we might need to make at that time. THE COURT: I take it you agree there's no language in the term loan agreement or the collateral agreement that limits the collateral that would satisfy the definition of fixtures to those that are machinery and equipment and specialty tools ACCESS TRANSCRIPTS, LLC --USE-ACCESS (-)
Pg of 0 0 0 categories. MR. FISHER: Your Honor, in the term loan agreement, there's a requirement that General Motors provide a collateral value certificate, which is a defined term, and the collateral value certificate has to be in the form attached to the agreement, and the form attached to the agreement indicates that it's going to tally up the value only of machinery and equipment and specialty tools. So I do think, Your Honor, that there's language in the term loan agreement itself indicating that the collateral is restricted to those two categories. And in your earlier in limine decision, the Court was construing the collateral agreement without reference to the term loan agreement because that's the context in which the issue arose, but as I said before, was a different issue. THE COURT: Who's going to argue for JPMorgan? MR. WOLINSKY: Your Honor, Marc Wolinsky is on. I'm here with Mr. Wilson, but I'm be handling the presentation today. THE COURT: Go ahead. MR. WOLINSKY: Thank you, Your Honor. Look, Your Honor, I think you put your finger on the core issues. This is an issue that should have been raised in connection with the representative assets trial, and actually, I think it was not only raised. If you look back at the record, it was not only raised in connection, raised and ACCESS TRANSCRIPTS, LLC --USE-ACCESS (-)
Pg 0 of 0 0 0 0 adjudicated in advance of the trial, but then conceded at the trial because as Your Honor put your finger on the other issue, were there any assets in these 0 that were categorized by New -- by Old GM as building and improvements, and our review of the EFAST ledger indicates that there were two: asset number two, the pits and trenches associated with the conveyers, and asset number four, the ELPO line. And the parties stipulated to you that those assets were fixtures, notwithstanding that they were categorized by New GM as building and -- as buildings and improvements. So let me step back and review what we believe happened in connection with the motion practice that led to a ruling that the contracts were not ambiguous. Mr. Fisher's right, the precise argument that they're making today wasn't literally presented to you then -- well, it was not literally presented to you then, but -- and it's an important "but." As I said, two of the assets that we're going to litigate were categorized by Old GM as building and land. So they were building improvements. They were not equipment. So the time to litigate this issue was going into the 0-asset trial. And if you look back at the briefing on our motion in limine, you'll see that the AAT relied on depositions of two witnesses who actually were deposed on the subject of whether there was any negotiation of what constitutes a fixture, Mr. Duker from JPMorgan and Mr. Burshtine of Weil Gotshal, ACCESS TRANSCRIPTS, LLC --USE-ACCESS (-)
Pg of 0 0 0 neither of whom are on the current list but both of whom were deposed in connection -- in advance at the last trial. And Mr. Duker actually testified that his understanding was that the loan covered machinery and equipment. He said that in 00, and he said that again 0. And I apologize for getting into things that are not covered in our letter, but frankly, the other side has presented a little bit of a moving target, so I hope you'll indulge me. At page -- THE COURT: Leave out the -- Mister -- MR. WOLINSKY: Yes? THE COURT: Leave out the editorial comments about their arguments, okay? Just make your own argument. MR. WOLINSKY: Okay, sure. In their brief to the Court on the motion in limine that we made, they specifically cited to Mr. Duker's testimony, and they said, for example, at his deposition, Mr. Duker testified that the parties referred to the term loan as the, quote, "machinery and equipment (or M&E) loan." So not only did the AAT have the opportunity to raise this issue before, it took discovery before on whether there was any parol evidence on the meaning of the term "fixtures" and whether the parties intended that the collateral be confined to machinery and equipment, cited Mr. Duker's testimony to you on that point, and decided not to make the argument that you're hearing today. They made a different argument, but notwithstanding the Court ruled, we believe ACCESS TRANSCRIPTS, LLC --USE-ACCESS (-)
Pg of 0 0 0 correctly, that the contracts are unambiguous, the granting clause refers to fixtures, fixtures as referenced in the UCC and defined in the UCC, and we proceeded to litigate the case on that basis on the basis of your ruling. As I said, two of the assets that we tried were categorized by New GM -- by Old GM as buildings, and here's what the AAT said in their post-trial brief in a proposed finding of fact. "Old GM and Saturn granted to JPMorgan, administrative agent for the term loan, a first priority security interest in equipment, fixtures, documents, general intangibles, all books and records, and their proceeds at Old GM and Saturn facilities throughout the United States." And that's what they defined as the collateral. They defined, in their post-trial brief, the collateral to be fixtures without any qualifications that fixtures did -- only referenced machinery and equipment. So both at the trial where they stipulated that these two assets were fixtures and collateral, and after the trial, they represented to Your Honor in a post-trial brief that those two assets categorized by GM as building and improvements, that those two assets were fixtures. So they had the opportunity to raise this issue. They consciously decided not to. They represented to you that ACCESS TRANSCRIPTS, LLC --USE-ACCESS (-)
Pg of 0 0 0 these two assets were fixtures and were within the collateral, notwithstanding the fact that GM had categorized them as building and improvements. THE COURT: Mr. Wolinsky, could you address Mr. Fisher's argument that -- I don't know if it was either the term loan or the collateral agreement -- attached the form of the collateral report that was required to be delivered to JPMorgan. And he indicated -- I don't have that in front of me -- he indicated that that report only included two categories, machinery and equipment and specialty tools. MR. WOLINSKY: Yes. Yes, Your Honor. There are two forms attached to the term loan agreement. There's Form F-, which is the one that Mr. Fisher was referring to. There's also a Form F-. Let me explain to you the difference. They're different in a meaningful respect. Form F- does not refer to machinery and equipment. Form F- merely provides a certificate from New -- from GM to the lenders that the collateral is -- has value in excess of 00 percent of the amount of the loan outstanding. There's no cross-reference to machinery whatsoever. The other form, Form F-, only has to be provided under the term loan if GM falls below that 00-percent threshold. And in that instance and that instance only is there a cross-reference to the schedule providing for machinery and equipment. ACCESS TRANSCRIPTS, LLC --USE-ACCESS (-)
Pg of 0 0 0 I could -- we have a view as to why there's that difference. I mean, it's logical why there would be that difference, because in a circumstance where GM is in breach of a covenant, you want to look at things -- the term lenders would want to look at things that they could more readily get their hands on, as opposed to fixtures more broadly that might be attached to a building or might be, you know, a fire suppression system as opposed to equipment, a forklift that you could drive off a lot. So -- but there's -- I won't dispute, Mr. Fisher's correct that Form F- does cross-reference to machinery and equipment. The term loan agreement itself does not use the term, and the collateral agreement doesn't use the term. The collateral agreement and the term loan agreement, as we've discussed, only refer to fixtures as defined in the UCC, and they also -- as you know, the term loan required GM to file UCC-s, and UCC-s use the term "fixture" without limitation. THE COURT: Mr. Fisher, why six depositions? That seems -- the point you want to make, I don't understand why you want six depositions. MR. FISHER: So -- well, Your Honor, it is -- just as a practical matter, it's actually now down to four because we were only -- we only succeed in effecting service of four of the six subpoenas. And in the first couple of footnotes to our letter, we lay that out. ACCESS TRANSCRIPTS, LLC --USE-ACCESS (-)
Pg of 0 0 0 But it's two JPMorgan witnesses. It's one attorney who, at the time, was at Cravath and was counsel to JPMorgan on the term loan, and then it's one former Old GM, now New GM, employee who was involved in determining the values of the collateral, what made up the six-and-a-half billion, the collateral value certificates, et cetera. THE COURT: And what is it that you expect to ask these witnesses? MR. FISHER: In very broad strokes, we expect to get testimony to support what we think all of the documents consistently show, which is that the sum total of the collateral grant was always and everywhere only limited to machinery and equipment and special tools. And so we'd want testimony that relates to, you know, how that six-and-a-half-billion dollars was calculated on the closing date to show that the collateral only included machinery and equipment and special tools, how the collateral value certificate was prepared every quarter thereafter, and the values were based totally on machinery and equipment and special tools, why JPMorgan became concerned in spring of 00 about the value of their collateral, and how everyone understood that the collateral only included machinery and equipment and special tools. That's the kind of evidence that we'd be looking for in these depositions, Your Honor. THE COURT: Do you agree that the only thing that's ACCESS TRANSCRIPTS, LLC --USE-ACCESS (-)
Pg of 0 0 0 relevant is the intent of GM objectively determined at the time that items were installed? MR. FISHER: In terms of the definition of "fixtures," yes, of course. And that's what the Court has already ruled on, but that's not the issue here. If I can just try to frame the issue as I see it, Your Honor. There was a grant of collateral, an original grant of collateral, under the term loan and the collateral agreement. And everyone knew what that was, and we think the agreement can -- without reference to extrinsic evidence to know what that was. It was six-and-a-half-billion dollars of net book value machinery and equipment and special tools. Then, by mistake, a UCC- was filed, which terminated the perfected security interest with respect to all of the equipment that was within that universe of collateral. And then, of course, what we've been trying ever since the Second Circuit remanded the case is, okay, from that original pie, what's now left. And what's left are fixtures covered by those fixture filings, so long as those fixtures were part of the original grant of collateral onto the term loan and the collateral agreement. And that's where we are today. And what JPMorgan is doing, basically, is saying -- is untethering the word "fixtures" from any limitation. I mean, I think if JPMorgan were to say there's a fixture at a plant in Mexico or Canada and it's a fixture, so it should be ACCESS TRANSCRIPTS, LLC --USE-ACCESS (-)
Pg of 0 0 0 part of our collateral, of course. THE COURT: No, it has to be one of the plants where there were fixture filings. It wouldn't be part of your collateral -- or certainly wouldn't be perfected. MR. FISHER: Right. So it has -- yes. Right. So it has to be at one of the plants. THE COURT: How much time do you expect to take with each of the four witnesses? MR. FISHER: I think that these could be -- each of them could be half-day depositions, Your Honor. THE COURT: All right. Mr. Fisher, I'm quite skeptical about your arguments. I think the fact that, as you acknowledged, at least two of the assets of the 0 representative assets in the first trial were not in the machinery and equipment or specialty tools category and no objection was made to considering whether those were fixtures is quite telling to me, but it also seems to me that while the deposition testimony that the AAT's counsel seeks to elicit will not necessarily be admissible at trial, the Court views the issue whether to permit the requested discovery differently from the issue of the admissibility of the evidence and therefore whether to permit the depositions to go forward. I'm going to permit the four depositions to go forward, each deposition not to exceed four hours in length. And the issues will be further fleshed out in briefing at a ACCESS TRANSCRIPTS, LLC --USE-ACCESS (-)
Pg of 0 0 0 time that's necessary. But I'm quite skeptical about your arguments because it seems -- you seem late to the party in making this argument because it was -- seemed clearly presented at the time of the 0 representative asset trial. There's certainly nothing in the four corners of the term loan agreement or the collateral agreement that expressly limits fixtures to the machinery and equipment and specialty tools categories. Despite my reluctance about it and feelings so far, I'm going to permit you to go forward and take four depositions, not to exceed -- each one -- no one to exceed four hours in length. Let's -- I wanted to cover a couple other things. I guess probably not everybody -- all parties are represented on the phone. Just give me a second. And maybe you can confirm to me. I guess with respect to the estoppel motion and the partial summary judgment motions, I think one brief is due tomorrow, as I understand it. I think, Mr. Wolinsky, you indicated you're filing one tomorrow. And am I correct, there's one last brief that's due on or before December th on the earmarking issue? MR. FISHER: Yes, that's right, Your Honor. Eric Fisher. It's our reply on the earmarking motion. THE COURT: Okay. So it's -- and I will enter an order to this effect. It's my intention to go forward with oral argument on the motions on January 0th at two o'clock. ACCESS TRANSCRIPTS, LLC --USE-ACCESS (-)
Pg of 0 0 0 It may well be -- I'm still not finally decided on it. It may well be that I will issue an order on the estoppel motion and not hear argument on it. The others, I think I'm going to hear argument on. But you'll have plenty of time to decide whether -- you know, what -- if you need to get ready for the argument on the estoppel or whether that will be decided before the argument. But otherwise, all of the other motions will be heard on January 0th at two o'clock, and I'm setting aside that afternoon for the argument. So -- I will enter an order to that effect, but I wanted -- it may not be until the beginning of next week when I get an order entered. I just wanted to alert everybody to that so you can mark your calendars now. All right. Is there anything else we need to take up today? MR. WOLINSKY: Marc Wolinsky, no. Thank you, Your Honor. Nothing from us. THE COURT: Mr. Fisher? MR. FISHER: No, nothing from the AAT. Thank you, Your Honor. THE COURT: All right. Anybody else has anything they want to raise? All right. We're adjourned. Thank you very much. (Proceedings concluded at : p.m.) * * * * * ACCESS TRANSCRIPTS, LLC --USE-ACCESS (-)
Pg 0 of 0 0 C E R T I F I C A T I O N I, Alicia Jarrett, court-approved transcriber, hereby certify that the foregoing is a correct transcript from the official electronic sound recording of the proceedings in the above-entitled matter. 0 ALICIA JARRETT, AAERT NO. DATE: November 0, 0 ACCESS TRANSCRIPTS, LLC 0 ACCESS TRANSCRIPTS, LLC --USE-ACCESS (-)