Let's begin with our 130 matters, please. 23
and me holding co. at all. Appearances in the
courtroom. Good afternoon, Your Honor. Tom Riskin,
Nathan Wallace, Carmen McDonald as co -counsel
for the debtors. Good afternoon, Your Honor.
Christopher Hopkins, Paul Weiss -Rifkin, Morgan
Garrison as co -counsel to the debtors. I'm here
with my colleague, Max Siegel, and Jeffrey Rector.
Very good. from Stinson LLP as proposed co -counsel
to the committee. Good afternoon, Your Honor.
Jason Adams, Kelly Dryen Warren, proposed counsel
to the Official Committee of Unsecured Creditors.
With me in the courtroom today is Megan McLaughlin,
and on the Webex today is Eric Wilson. We also
have Andrew Scruton and Matthew Diaz from FTI
Consulting, proposed counsel. For the official
committee of unsecured creditors also on the
web apps to the extent your honor has any questions
with respect to We're good. Thank you Good afternoon
your honor Josh watts for jambi and with chitsky
abc 2 .0 llc and with chitsky revocable trust
and the and chitsky foundation definitely joe
schlotzauer on behalf of the u .s. trustee good
afternoon definitely schlotzauer good afternoon
your honor michael cassel walktail leptin rosen
and katz for generon pharmaceutical zinc as the
successful bidder i'm here with I'm sorry the
last I'm here with Ben Strube of Lathrop GPM.
Got it Castle. You said sorry my pins as they
tend to do are all out of ink at the same time
Yes, I got it. Thank you Castle. Thank you. Thank
you. Mr. Castle Good afternoon, you are Joshua
Jones the United States of America. Good afternoon
Any other princes in the courtroom are the princes
on the WebEx? Good afternoon, Your Honor. It's
Robert Hirsch. I am, I sometimes roll my camera
at the moment. I have to fix it in a second,
but yeah, thanks for joining me. My name is Kevin
Barnes. I'm a Class A shareholder. Welcome back,
Mr. Barnes. Good afternoon, Your Honor. Charles
Pasito, Class A shareholder. Welcome back, Mr.
Pasito. Good afternoon, Your Honor. This is Abigail
Ryan with the National Association of Attorneys
General, representing the nine client states
to which Oklahoma and South Dakota are joining.
So we're a little larger now. So those are your
new clients, Oklahoma, South Dakota? Yes, Your
Honor, I'm going to update and add South Dakota
this afternoon. Okay, very good. Thank you. Good
afternoon. Good afternoon, Your Honor. I'm Sage
Nemeth -Orohi. I'm counsel to the Cross Action
Plaintiffs in Canada. It's a privilege to be
here. Thank you. Thank you, sir. Anyone else?
Good afternoon, Your Honor. This is Andy Goldman
from Wilmer Hale in New York. We are a proposed
council to Neil Richards, the Consumer Privacy
Ombudsman. Very good. Good afternoon, Your Honor.
This is Dahlila Jordan with the State of Minnesota,
representing the people of Minnesota. Ms. Jordan.
All right, Mr. Riskey. I'm risky for the debtors
as your honors aware typically when we when we
have these hearings I asked mr. Hopkins Give
an update as the case stands and some of the
coming attractions If it's okay with the court
As the court knows we've agreed to push a number
of matters tomorrow, and I think as part of those
accommodations We we're agreeing to not really
raise any of those issues today Is that satisfactory
that seems like a good idea? We could get sidetracked
if we all decide we need to argue today about
what? So I think they're probably a good plan.
Thank you honor So as your under those we filed
a proposed agenda I noticed from the court stock
at your honor already took off the the motion
of reject as your honor knows If we can take
that matter up we filed the stipulation miss
Jones and mr. Gregor on it contemplates setting
a rejection date contemplation of their administrative
expense claim and payment the offsetting of the
security deposit And some additional language
in there, just clarifying the removal issues
with respect to the waste. But the long and short
is that issue has been resolved. The parties
have negotiated in good faith. We believe the
settlement is in the best interest of the estate.
So we've submitted that to your honor. So I just
wanted to touch on that. And the committee in
the dip lander reviewed that as well, the order,
I mean, the general terms of the settlement.
To be honest, given the time constraints yesterday,
no. That's why we went ahead and filed it, just
so the parties could see it. But I'm happy to
talk with them after the hearing today and talk
to them about any comments before. Sure. If you
give Mr. Espino a report about where that stands
with key parties, and then we'll take a closer
look. And if there are any disputes, we'll get
them resolved, of course. Perfect. Thank you,
Your Honor. With that, would the court be OK
if we took up some of the retention matters and
then saved the? This day matters till the end.
I think that would make sense. Sure. Perfect
your honor. Well up next is the debtors application
to retain Deloitte As your honors aware there
was a separate OCP application for Deloitte with
respect to some of their services, but the services
contemplated by this are more in tune with actual
retention and 330 review We haven't received
any formal objections. The US trustee did have
some Informal questions as right after we filed
it we walked through those with them, so I do
not believe there any Informal or formal objections
the applications we'd ask that Okay a question
for you mr. Risky on the indemnification provisions
seem a little broader than normal in the proposed
order at least the last one I looked at didn't
have the usual three paragraphs that Sort of
bring that back to earth is that is that one
of the comments you received from the US trustee?
It actually was not your honor, but I'm happy
to Now that you've highlighted that issue go
back and see if that needs to be reined in no
no party has said that that's Sure, I think the
way we handle the mollusk order paragraph 12
is standard and and ought to be acceptable to
everyone so First let me Find out if anybody
else wishes to be heard on the Deloitte retention
Apparently not all right, so I'll grant the application
But subject to the the usual language as in the
molus order for example, and if that's an issue
Let's reset it and we'll sort it out, but I suspect
it won't be perfect and if you'd submit an order,
please Thank you. I believe that the next retention
and applications are those of the committee site
and see the podium You're good good afternoon
your honor megan mclaughlin kelly dry and warren
counsel to the committee on may 5th stinson kelly
dry and fti all filed their retention applications
at docket numbers 383 384 and 385 respectively
on the same date we filed a notice of hearing
advising all parties of the may 27th objection
deadline end of today's hearing the applications
were served on the master service list The certificate
of service was filed at docket number 397. The
committee professionals did not receive any formal
or informal objections to their applications.
I understand that the orders have been submitted
to your chambers already. We're happy to resubmit
if needed, but we request entry of those orders.
Okay, let's take one at a time just in case someone
wants to be heard. The Stinson application, anybody
wish to be heard on the Stinson application?
that appears to be in order. So I'll grant that
application, and no need to resubmit if there's
an issue with the order that we have. We will
be in touch. How about the Kelly Dry application?
Anyone wish to be heard on the Kelly Dry application?
All right, Ms. McLaughlin, the only question
I had there is the associate who owns a couple
of shares of stock. If that were a partner, I
would say maybe the partner should donate it
to charity. Since it's an associate, how about
we implement a formal wall as you would with
a lawyer who comes over from another firm or
government service or something like that. I
think that will take care. It's obviously a de
minimis issue. And as you mentioned, the associate's
not going to be working on the matter. Correct,
sure. So with that change, I'll grant the application.
OK. And I'll ask you to resubmit orders. So you
can describe. Your formal walling procedure using
the correct terminology and and we'll look for
that All right, how about the FTI application
385 anyone wish to be heard All right, I read
that one as well the indemnification protocols
there do seem to be standard to me so I don't
think we need further tweaking there and I'll
grant the FTI application and we'll Run with
the order that you've submitted Thank you, Your
Honor. Thank you. Up next, we have Wilmer Hale.
Yes, good afternoon, Your Honor. Andy Goldman
again from Wilmer Hale, and I'm joined in the
virtual courtroom by my partner Kirk Nara in
Washington, D .C. Your Honor, we filed our application
to serve as counsel to Neil Richards, the Consumer
Privacy Ombudsman back on. May 13th, cognizant
of the stipulation in order which appointed Mr.
Richards, we styled this as a 327 application
and obviously went through the standards that
one would go through with respect to disclosure,
parties in interest, complex check and the like.
We received no objection from anyone formally
or informally on the application. My declaration
is attached to the application explaining the
procedures that the firm went through in terms
of clearing conflicts and confirming to this
court that we are disinterested and hold no interest
adverse. We did file a short supplement just
to disclose that Ryan Dury, who is going to work
with Mr. Richards and assist him in Mr. Richards'
tasks, at one point, because he worked for Amazon,
held some Amazon shares and was also a consumer
himself. That declaration, that supplemental
declaration was filed on May 30th. Again, Your
Honor, we've received no objections. I'm happy
to walk the court through the application if
Your Honor has any questions or concerns. But
again, no objections were filed. Nobody has reached
out to us asking us any questions with respect
to our application. All right. Thank you. Mr.
Goldman the certificate of service shows that
the application was served on May 29 So aren't
we a little a little tight on timing here? Yeah,
well Your honor Tom risky for the debtors, I
think there was some Confusion by the parties
with respect to this we we agreed to file it
on behalf of them to move this press forward
But I think there was some miscommunication with
on serving that immediately. I don't know if
there's a workaround to have it go on negative
notice for a little bit longer to satisfy any
notice concerns the court may have. But I think
that's why it was served last week formally.
That's the reason for the delay. Negative notice
is a creative solution. I don't have in front
of me the actual language of what went out. If
it would tell someone to object by a certain
time, I could probably get my head around negative
notice. if not it if not it may file send it
that you want to send a supplemental notice yes
okay well it looked the CPO should have counsel
and why don't why don't you do that why don't
you send a negative notice giving 14 days from
whenever that is for anyone to object to the
Wilmer hail application and failing receipt or
filing of an objection I do want to also talk
at the same time about Mr. Durie. I don't understand
from the application who Mr. Durie is or whether
he has any connection with Wilmer Hale. I'm not
saying Mr. Durie shouldn't work for the CPO,
but I didn't get the sense that he's a lawyer
with Wilmer Hale, and so I wasn't sure. Oh, no,
no, no, Your Honor. Yeah, first of all, I apologize.
With respect to the notice question, Your Honor,
this is the first... that I am hearing of any
of this with respect to any delay or close service.
We had thought that this was served on May 13th
when it was filed with the court. For any confusion,
I apologize. I'm as surprised by hearing this
as anyone. Beyond that though, Your Honor, with
respect to that question, no, Mr. Berry is not...
He is not a Wilmer Hale lawyer. He is somebody
who Mr. Richards knows well. He is the director
of AI initiatives at Washington University St.
Louis School of Law. And I believe, although
Mr. Richards is on, if the court wants to ask
him directly, but I believe that in Mr. Richards'
preparation of his reports to the court and the
work that he is going to do, he is going to utilize
Mr. Dury's services as necessary. And it is for
that reason that I wanted to make sure that there
was supplemental disclosure, both of Mr. Dury,
which we did disclose, and then of Mr. Dury's
very, if you will, tenuous parties and interest
contacts with respect to Amazon and a former
health lawyer and small shareholder, et cetera.
I don't know if that answers the court's question
in full or not. That's helpful. Mr. Dury probably
needs his own application. I assume he's a lawyer,
he's a professional person. And I think he ought
to, or the CPO ought to apply on his behalf to
retain him as a professional person. So primarily,
Mr. Goldman, because your declaration about Mr.
Dury is probably missing a little foundation
because he doesn't even work for you. And so
why don't we Subject to the negative notice issue,
I'll grant the Wilmer -Hale application, but
let's carve Mr. Durie out into his own application.
I'm not anticipating there will be any problem
with that, but I'll take up any objections as
they are, and we'll deal with that. And it won't
impair the timing of his attention or his ability
to charge for his time, beginning from the outset
of his engagement. second supplemental application
if your honor would like. We obviously ran our
exhaustive conflicts check off the parties in
interest which we were provided at the time the
parties in interest list was circulated. Mr.
Richards obviously wasn't on the list because
he wasn't there at the inception. And so we did
not disclose and we just learned embarrassingly
for me, since I've been a partner at the firm
for now 24 and a half years, that from 2002 to
2003, Mr. Richards was affiliated with the firm,
I believe, and associate in one of our offices.
Obviously, his world and my world don't really
intersect in any way until now. But I did want
to disclose that to the court, obviously, that
he left the firm 22 years ago. uh... but i didn't
want to go back to the front of your wish is
i'm happy to finally second supplemental declaration
of the record can stand as such with respect
to the separation and my uh... my comment on
the record life in a large law firm uh... so
without uh... leaking into tomorrow's subject
matter there is a separate declaration from paul
weiss about I don't believe we've seen supplemental
declarations from the other professionals who
are interacting with the bidders about any connections
with the bidders. So Wilmer Hale may be due to
file something of that nature anyway, Mr. Goldman,
and if so, go ahead and put the one -liner in
there about Professor Richards' affiliation with
the firm in the past, and that'll take care of
that. But we'll take this up again tomorrow as
necessary, but I do think the other professionals
who've been involved in the sale process ought
to get supplemental declarations on file and
seal them as appropriate based on the order from
last week. Okay, so we'll look for an order following
a negative notice period on one more hail and
we'll look for a separate application for Mr.
Dirt. Thank you, Your Honor. Thank you, Your
Honor. I believe that brings us to the stay motion
and Mr. Siegel will be presenting it for the
debtors. Very good. Mr. Siegel shall we start
with the motion to expedite? Happy to your honor
We've we've sought to expedite this motion because
there is an impending hearing in the Canadian
class actions that are the subject of our substantive
stay motion that hearing is scheduled to occur
on June 16th and despite the debtors best efforts
in Canada um respondents have thus far refused
to agree to an adjournment of that hearing and
thus in order to avoid all of the prejudice and
harm to the debtors that would come from further
proceedings in the canadian case we request that
the court expedite this matter all right so anyone
wish to be heard on the motion to expedite your
honor on stage and it's a lady on behalf of the
canadian plaintiff i i just With with notes for
the record that I do not necessarily agree with
my friend's characterization of the events, but
we have no objection to the motion to expedite.
Thank you. Okay. Thank you. Anyone else? All
right, I'll grant the motion to expedite. Let's
proceed to the merits. Thank you, your honor.
Present motion seeks an order confirming that
the automatic stay applies to two Canadian cumulative
class actions, including as to certain non debtor
defendants. These class actions arise from the
October 2023 cybersecurity incident that this
court has heard much about in the course of these
Chapter 11 cases. In the alternative, the motion
asks that the court extends the automatic stay,
and it also seeks an injunction against continuation
of the Canadian putative class actions during
these Chapter 11 cases. A Canadian court has
already granted recognition of these Chapter
11 cases and thus is prepared to give effect
to any order that this court issues with respect
to a stay of the class actions. First, I'd like
to deal with some housekeeping evidentiary matters.
As an initial matter, we'd like to admit the
declaration of Mary Buttery in support of the
motion at docket number 434. Ms. Buttery is counsel
to the debtors and the individual defendants
in the Canadian class actions. And her declaration
describes the proceedings thus far in those cases.
She's available on Zoom should the court have
any questions for her. But we understand the
respondents do not intend any cross -examination.
OK. Any objection to receipt of the Buttery declaration
and evidence? No objection your honor. Thank
you. Okay. I'll receive it 434 is in evidence
And just for clarification your honor We'd also
move to admit the exhibits to that declaration
which are all public records of Canadian court
proceedings including complaints in the two putative
class actions and Anonymization order in those
cases and a proposed amended complaints We would
offer those into evidence as well All right.
Any objection? No objection, Your Honor. Thank
you. Thank you. Third minute. Next, we'd move
to admit exhibit A, B, and C to the Segal Declaration
filed at docket number 435. Those documents consist
of certificates of incorporation for the debtors
23andMe Folding Co. and 23andMe Inc. There are
public records that have been filed with the
Delaware Secretary of State's we would request
that the court admit those as well You said a
B and C but not D D is a red line comparison
of Exhibits a and D to the buttery declaration.
So we think it's better considered as an Illustrative
aid rather than an actual item to be admitted
into evidence. Okay Fair point. All right. Any
objection to the receipt of exhibits A, B, and
C to the Segal Declaration 435? No objection,
Your Honor. Okay. That will be admitted as well.
Thank you. On the substance, Your Honor, this
motion concerns two Canadian class actions arising
out of this cybersecurity incident of October
2023, which has been the subject of many proceedings
in this court. Respondents filed the first class
action in October 2023, bringing contractual,
statutory, and tort claims solely against the
debtors. The claims focus on what respondents
allege were deficient data privacy and security
practices at 23andMe. Then nearly one year later
in September 2024, respondents sought to add
additional defendants to the complaint against
the debtors. Namely, these are certain officers,
directors, and employees of 23andMe, as well
as KPMG, who was then the debtor's auditor. Instead
of obtaining leave to amend, though, respondents
filed a duplicate class action. They again sued
the debtors on largely identical claims to the
first class action and based their claims entirely
on the same conduct as before. The only difference
is that they now tacked on these additional defendants,
calling them at least three times throughout
the complaint co -principals and or co -conspirators.
That's in Exhibit C to the Buttery Declaration,
paragraphs 6, 9, and 47. This second complaint
does not bring a single claim against the non
-debtor defendants that is not also alleged against
the debtors. and doesn't differentiate between
the debtors and non -debtors in any way in the
non -debtor claims. There are some claims in
the complaints that are just claims against the
debtors, but there are no claims that are just
against the non -debtor defendants. I'm glad
to walk, Your Honor, through the causes of action
in the complaint, if helpful. I've reviewed it.
Thank you. I appreciate that. The face of the
complaints, thus, in no way reveals any sort
of claim against the non -debtor defendants.
That's not also a claim against the debtors.
And the proposed amended complaints, which is
exhibit D to the buttery declaration, is even
worse in this regard. It pleads five causes of
action, and each one of those is against, quote,
each of the defendants. the plaintiffs in the
many other class actions arising from the cybersecurity
incident, respondents here have to date refused
to pursue their claims in these Chapter 11 cases
or to utilize the procedures that have been extensively
negotiated and discussed for resolving claims
arising out of the cybersecurity incident. And
while it appears that Respondents agree that
the automatic stay applies to their claims against
the debtors. They're continuing what amounts
to proxy litigation against the debtors by bringing
claims against the debtors, former directors,
officers, and employees, as well as KPMG. And
that's because the claims asserted against the
non -debtors are the same as the claims asserted
against the debtors. are based entirely on the
debtor's alleged wrongdoing in the cybersecurity
incident, and would result in recovery from the
debtors because of indemnification obligations
that the debtors undisputedly have. In fact,
the cases are already taxing estate resources
because the debtors are required to indemnify
the individual defendants, not just for any judgment,
but also for their legal fees. So Mr. Siegel,
the response Mentions that insurance is defending
the litigation And I didn't see a rebuttal to
that in your in your reply So is the estate coming
out of pocket for defense costs right now or
is an insurance company? At the moment the State
is out of pocket for those there is insurance
That is applicable with a retention that may
be waived in the case of bankruptcy But ultimately,
the estate, at the end of the day, stands liable
based on its indemnification obligations. So
is there a denial of coverage or dispute about
coverage, or is it just you haven't reached the
retention level yet? My understanding is the
latter. OK, thank you. Now, respondents. have
not been able to identify a single case where
litigation has been allowed to proceed under
the circumstances I just described. In fact,
they don't cite a single US case in their briefing.
By contrast, other similarly situated plaintiffs
who have asserted claims against the debtors
and non -debtors in analogous circumstances have
reasonably consented to stay their cases, including
against the non -debtors. Your Honor's familiar,
for example, with the pixel litigation that is
pending against... Well, I know that it exists,
but that's... I don't even know why it's called
pixel, so... If you want to go into that, you're
going to have to spoon feed me a little bit about
the pixel litigation. It's a class action that's
not based on the cybersecurity incident. It's
based on certain tracking pixels, as they're
termed, on a website operated by Lemonade, but...
As relevant today, one of the defendants in that
case is a non -debtor. And shortly after a suggestion
of bankruptcy was filed, the district court in
the Northern District of California asked whether
the stay applied to the non -debtor defendant.
And plaintiffs in that case came to an agreement
and a stipulation with the debtors that applied
the automatic stay. to the non -debtors, and
that's available on the docket at ECF number
216. But respondents, the Canadian plaintiffs,
have refused to agree to any sort of stay or
stipulation with respect to the non -debtor defendants
here, which plainly is an effort to evade this
court's jurisdiction. and the orderly resolution
of data breach claims that the parties and the
court have sought to establish in these cases.
The court should grant the motion for three fundamental
reasons. First, as noted, the claims against
the non -debtor additional defendants in the
Canadian proceedings are identical to the claims
against the debtors and arise from the debtors
alleged misconduct in the cybersecurity incident.
In essence, the complaint says the debtors did
something wrong and certain additional defendants
are liable because of it. This means that resolution
of those claims based on the debtor's alleged
wrongdoing without the debtor's participation
would be highly prejudicial to the debtors. Second,
the individual non -debtor defendants have an
undisputed right to indemnification for claims
against them, which means that At the end of
the day, the debtors are the ones on the hook
for any judgment in the Canadian class actions,
as well as for legal fees. And courts routinely
apply the automatic stay to non -debtors in such
circumstances. Third, the continuation of the
Canadian class actions, even as to the additional
defendants, would disturb these Chapter 11 cases,
where the debtors are presently resolving their
other liabilities stemming from the data breach
incident. By contrast, applying the stay threatens
no prejudice to respondents who would face at
most a slight delay while these Chapter 11 cases
are resolved. The only argument that respondents
have presented to the contrary seems to be that
there is some hidden distinct liability theory
as to the non -debtor defendants, but that's
simply contrary to the face of the complaint.
As I've mentioned to your honor, every cause
of action against the non -debtors is also a
cause of action against the debtors. The complaint
states that it, quote, arises out of two main
allegations, which are that, quote, the 23 and
me defendants did not introduce, implement, and
or maintain proper data retention practices.
End quote, the 23 and me defendants did not introduce,
implement, and or maintain proper data protection
measures and or practices. That's at paragraph
8 of exhibit C to the buttery declaration. So
simply, the suggestion that there is some sort
of distinct liability theory is contrary to the
face of the complaint, which says the debtors
did something wrong and the non -debtors are
liable for it. At the end of the day the claims
against the non debtors are the same claims as
those against the debtors are based on the same
conduct as that as of the debtors and Ultimately
seek the same source of recovery Which is the
debtors and for those reasons unless the court
has any questions We would ask that the court
grant the motion. Okay. Thank you. I do have
a few questions for you personal jurisdiction
the Canadian plaintiffs, at least in their declaration,
have made what I'm interpreting as a special
appearance. They're not acknowledging that this
court has personal jurisdiction over them. Tell
me your thoughts on that. There are a couple
of answers to that, Your Honor. First, as you
mentioned, this is kind of a throwaway. statement
in Mr. Clark's declaration, and there's no argument
in the motion whatsoever that there's a lack
of personal jurisdiction. Typically, a party
entering a special appearance would be required
to contest personal jurisdiction in their first
filing, which did not happen in these motions,
nor in the stipulation that respondents previously
agreed to, signed, and filed before this court.
We also attempted to resolve any jurisdictional
issues by agreement to proceed by motion and
therefore via an in rem proceeding in this court
as to the scope of the automatic stay rather
than any sort of impersonal adversary proceeding
against the respondents. And I'm happy to speak
to the minimum contacts that respondents have
with the United States if. that would be helpful.
But as noted, the Canadian court has recognized
these proceedings and stands ready to give effect
to this court's determination as to the automatic
stay. In other words, this court could make a
finding about the scope of the stay, and a Canadian
court can then tell the trial court in Canada
the proceedings have been stayed. So I see your
point about that aspect of the motion being more
or less in realm. But if I need to extend the
automatic stay to reach the plaintiffs, aren't
we in the world of impersonum at that point?
Don't I need personal jurisdiction over these
two plaintiffs and or their counsel to extend
the automatic stay to reach them? First, our
counsel has appeared, Prohap Viche, in this court
at this stage. And in determining the scope of
the stay, would be a matter within this court's
core jurisdiction. As to whether any further
relief would require impersonal jurisdiction,
I think it's helpful to take a look at exactly
what respondents have done here. I do think,
yeah, let's talk about minimum context. Give
me an overview of that, if you would, please.
Sure. As an initial matter, respondents purportedly
chose to do business with a US company by purportedly
entering contracts with using the products of
23andMe, which is a US -based entity. And thus,
they availed themselves of the privilege of doing
business in the United States. In connection
with that, they received saliva collection kits
from a US company. collected saliva, sent it
back to the United States for it to be processed
by a US company at a laboratory in the United
States and ultimately a return to them in Canada.
On top of that, the respondents have initiated
a lawsuit in which they repeatedly allege that
the debtors are US -based entities. And thus,
they've also recently filed a proposed amended
complaint in that lawsuit. And by doing so, during
this bankruptcy case, I'm happy to provide case
law to this court out of the Eighth Circuit that
says that filing a lawsuit against a US -based
debtor during the existence of a stay constitutes
minimum contact. brings the respondents within
this court's personal jurisdiction. I haven't
seen that. I'm not familiar with that specific
case law. I don't know if you have it handy or
if you have access to it, want to supply it in
rebuttal or something like that. I'd be curious
to hear about that because in poking around,
I've not found anything quite that specific.
Yes, I believe that is cited in the adversary
complaints that we initially filed, but I'm happy
to finds that and present it on rebuttal. Would
that be helpful? Thank you. I appreciate that.
OK. But even short of that, we'd submit that
doing business in the United States as respondents
did via their use of the 23andMe kits is sufficient
minimum contacts for purposes of this motion.
And so it seems to me you're talking about a
very specific kind of specific jurisdiction or
very specific aspect of specific jurisdiction.
I have personal jurisdiction over these plaintiffs
as to the scope of this lawsuit, and we don't
need to think about whether I would have personal
jurisdiction to handle a breach of contract claim
against them or something much further afield
from the core of the bankruptcy case. Is that
the nature of your personal jurisdiction theory?
I think with respect to our NRAAM theories, that's
certainly the case. With respect to in personam,
jurisdiction. I think there are sufficient minimum
contacts to exercise specific personal jurisdiction
regarding respondents' dealings with 23andMe,
which they state formed the basis of the claims
in this action. There simply is no, there are
no Canadian class actions without the exact business
transactions I just described. I don't think
the court needs to go farther than that in determining
the extent of jurisdiction. OK, that's helpful.
OK, well, we'll give you a chance, Mr. Numitalati,
after I run through some questions. Thank you.
Irreparable injury. So if I grant an interpretation
of the state or a preliminary injunction that
Stays this litigation How long does that preliminary
injunction or that stay last? We'd we'd submit
that it would be appropriate at least through
the Continuation of these chapter 11 cases that
they can they can proceed uninterrupted by what's
going on in Canada and We we think it would be
appropriate during that time to attempt to work
with respondents, as we already have, to help
them engage in the exact claim resolution process
that other class actions against the debtors
are undergoing at this time. So we're talking
about the stay or an injunction extending the
stay through confirmation of the plan? Let me
consult momentarily with my colleagues. Sure,
of course. So your honor to clarify We seek the
stay through the effective date of the plan And
just to note one one further point on jurisdiction
We are we are asking this court to issue an order
with respect to the scope of the stay But that
order as I noted well ultimately be recognized
by a Canadian court and enforced by a Canadian
court, which unquestionably has personal jurisdiction
over respondents. Okay, that's helpful. All right,
so if the stay extends or is extended through
the effective date of a plan, what is going to
happen in the litigation in Canada that's irreparable
injury if I don't do that? First there is a hearing
as I noted scheduled for June 16 and I'm sorry
to interrupt but the the Plaintiffs declaration
says that hearing is only on the motion to consolidate
the two cases. Is that right? Part of that motion
includes the amendment of the complaints the
amendments you can see at exhibit D to the Segal
Declaration and among those is to enlarge the
class so that it is no longer just individuals
in Canada whose data was breached and now expands
to all 23andMe customers in Canada, that sort
of vast expansion of the potential liability
of the debtors or the debtors by proxy through
the non -debtors is a substantial irreparable
threat to the estate. The debtors can't see scope
of their liability expanding as they're trying
to complete a reorganization. There are also
changes to the claims that are sought in the
proposed consolidation and there are the fees
that the debtors would need to indemnify the
individual defendants for as the June 16th hearing
occurs. Now past the June 16th hearing assuming
that the motion is granted we expect there to
be proceedings regarding motions that according
to respondents own words will Determine the universe
of claims against the debtors in other words.
There's the potential for liability against the
debtors to to accrue via those proceedings and
not give the debtors the breathing spell to wish
they are entitled. And subsequently, there will
be motions for class certification, which do
involve factual affidavits as set forth in Ms.
Buttery's declaration and that sort of fact gathering,
much like any discovery that might subsequently
occur in this In these actions would squarely
implicate the debtors. So the the plaintiffs
lay out a pretty extensive timeline in their
declaration Starting in paragraph 37 And you
haven't really addressed that with with the reply
but Is that timeline roughly accurate? I don't
have all the details on my screen here, but class
certification We're talking about 2027 or 2028
if I remember correctly I don't want to stand
here and speculate as to what will happen in
terms of timeline. As you see, the timeline set
forth in Mr. Karp's declaration makes a vast
number of assumptions about whether there will
be appeals from different orders, the timeline
for those appeals. What I think that the timeline
does speak to unquestionably though is that if
respondents are correct, then there is effectively
no prejudice to them from issuing a stay through
these fast -moving Chapter 11 cases to resolve
to give the debtors a breathing spell from what
respondents say will take many years beyond the
Chapter 11 cases. The plaintiffs refer to Ms.
Wojcicki as a Former director I thought in earlier
proceedings. There was a discussion that she
was still on the board, but not on the special
committee I'm sure there's a straightforward
answer to that. Do you do you have it handy?
For the record Christopher Hopkins are always
for the debtors your honor. Um, miss widgets
key is Currently still a member of the board
of directors of of the debtors. She is not a
member of the special committee That's been delegated
Effectively the full authority of the board with
respect to all restructuring related. I thought
that's what I remember. Thank you for clarifying
that All right, then how about KPMG I haven't
seen anything about indemnification of KPMG and
I do see in the complaint Some daylight between
the claims against KPMG and the claims against
everybody else Related to the fact that they're
the auditor and auditors do different things
then Officers and directors do and there's some
discussion of that complaint, but the more more
important issue is indemnification of KPMG Are
they indemnified and where is that in the record?
They're not indemnified Your honor, but nonetheless
the proceedings against KPMG are all about what
occurred in the cybersecurity incidents and what
little there is in the complaints that is specific
to KPMG are, for example, statements that KPMG
puts in advertising materials on its website.
They're fundamentally ancillary to what respondents
describe as the main allegations in the complaints,
which are deficiencies in the debtor's cybersecurity
practices and data retention practices and KPMG
like the others is alleged to be a co -principal
and or co -conspirator. Okay and are they covered
by the same insurance that covers the debtors
or they have their own insurance or no insurance
at all? I'm not aware of they're being covered
by the insurance policy that covers the debtors.
Happy to look into that. to the extent the court
would like. All right. I have what's going to
sound like an oddball question, but I'll explain.
Are the debtors offering any security in support
of a preliminary injunction to the extent this
heads in the direction of preliminary injunction?
And the reason I ask that is I think the bankruptcy
lawyers know that the court can waive security
for a debtor under Rule 7065. But HR 1, the One
Big Beautiful Bill Act. moving through Congress
contains language that could be read to make
a preliminary injunction unenforceable unless
security has been provided. And it appears to
apply to injunctions that are in existence before
the bill is enacted into law. So that's a very
long explanation for why I asked what I think
is an odd question. Understood, Your Honor. We
don't believe that security would be appropriate
in these circumstances given given the financial
distress that the debtors find themselves in
and The fact that even as to the non debtors
as I've spent a lot of time on Those claims are
fundamentally claims against the debtors with
respect to the big beautiful bill, I'm candidly
not not certain of its application to this proceeding
It's it's not the sort of proceeding that Congress
has in mind. I'm pretty sure but It the language
is Big Understood that to something we're glad
to look into if it would be helpful to the court,
but Short of that answer is that a security wouldn't
be appropriate given the distress that the debtors
find themselves in and that the non -debtor claims
are really debtor claims. OK. Thank you. That's
helpful. That's all the questions I had for you,
Mr. C. Thank you very much. Let's hear from the
plaintiffs. I've been calling the plaintiffs,
the respondents in this motion. Mr. Neema Tolali,
am I saying that correctly? Yes, Your Honor,
absolutely correctly. Very good. Please proceed.
Thank you, Your Honor. So just wanted to touch
base quickly on the issues around jurisdiction
and I guess relatedly the injunction and security
for cost. I apologize if our claim or our declaration
was maybe a little bit not as clear as it could
have been. The language that we included was
in response to the adversary complaint. Obviously,
23 and me had filed against the clients. We were
shocked to receive that with no notice to us,
especially so given the very first day of the
commencement of these proceedings. We were in
direct contact with the Canadian Council to the
debtors, and we had stated to them that we would
comply with the scope of this day. There was
absolutely no reason to file an adversary complaint
and especially, you know, with no notice to us.
And just to be clear, the adversary complaint
includes incorrect statements regarding the fact
and the connection with the United States and
whatnot. So that language in the declaration
really speaks to the context of coming from that.
our adversary proceeding situation into this
more proper forum to address the scope of the
state. But besides that, there is really no dispute
that Your Honor has the authority to extend or
determine the scope of the state. And if you
determine that the state should be extended to
any up -and -on debtors, We, of course, comply.
As my friend indicated, the Canadian court has
now recognized these proceedings in Canada that
happened on our consent. So, if you're already
granted further order with respect to the state,
and that order will have to be recognized in
Canada as well. So, we will consent to that very
obviously as well. That is also to say also I
don't think there is any reason to have a discussion
around an injunction. We have been complying
and we say we will continue to comply with the
state of the proceedings as it may be in place.
And on that note, I think the issue regarding
a security for cost would also be moved. Okay.
Thank you. That's helpful. How about the merits?
Your Honor, we have a declaration of LE card
that I would like to introduce into evidence.
That is docket number 584. That obviously is
out of narrative regarding the events and proceedings
in Canada. The difference is that I did not object
to the declaration of Ms. Buttery being admitted
to evidence. But with respect, I do believe that
it's incomplete in some respects. A very clear
example would be when Ms. Buttery said, well,
if the action proceeds, we're going to get its
certification, and then there's going to be discovery.
Well, that is correct, but we've got to bear
in mind that that's not going to happen until
2029. So Mr. Carr's declaration provides further
detail from our perspective regarding the procedure
in Canada, so we do not exceed to the... to the
declaration of Ms. Buttery and we rely on Mr.
Karp's declaration with respect to the relevant
events and occurrences in Canada. So with respect
we ask or move to admit Mr. Karp's affidavit
including the exhibits A through F into the evidence
before the court. All right. Is there any objection
to receive the Karp declaration and exhibits?
No objection, Your Honor. Okay. It'll be received.
Thank you. Your Honor, my friend said in the
witness submissions and again on his feet that
we do not cite the single U .S. authority in
our response. And that is not fair. The law is
undisputed. We do not have any debate on the
law. Frankly, in Canada, I can tell you that
the concepts are largely the same. And we do
rely on the same authorities that my friends
cite in their motion. And specifically, I wanted
to take you to this case from the applet court
in the circuit, which is called Richey Capital
Management. It's a 2011 judgment of the court
and it's cited in my friend's motion at paragraph
So I wanted to take you to some excerpt of that
judgment, and I'm not sure if you have a copy
of it, or if it would be possible for you to
have a copy of it, or I can just read out to
you. I don't have a copy, but I've looked at
it within the last hour, if that's helpful. I
think you already allowed me. I would want to
take you to some of the... from the Appellate
Court because I think it's germane to what my
friend was even saying. So this decision has,
you know, room and numerals 1 and 2 and under
2 it has section A and section B and section
B is the one that I'm relying on. And I'm going
to read... I want to be complete and faithful
to the decision, but I'm going to skip over some
of the words and rely on the ones that I want
to emphasize, especially given that Your Honor
also read it just recently. But if you want me
to go and read the balance of the excerpt, just
maybe let me know. But the portions under Section
B that I wanted to highlight would be as follows.
Whatever the precise scope of this category of
action, it is significantly broader and more
amorphous than the group of actions affecting
the status of the receivership. The federal court
supervising an equity receivership has inherent
equitable authority to issue a variety of answerative
relief to protect the receivership and truly
enough, the scope of that relief is not limited
to parties before the court. We accept that 100%.
permissible answer release includes issuance
of orders imposing blanket state of litigation
in order to give the receiver a chance to do
the important job of marshaling and untangling
company's assets without being forced into court
by every investor or claimant. But the court's
power to save up suits by third parties turn
on the suit's ability to deplete the rest of
the receivership state, the court's equitable
powers do not reach cases that pose no threat
to the assets of the receivership. In this respect,
equitable powers of the receivership court are
similar to powers of the bankruptcy court. To
impose an automatic state, the pool in both securities
fraud receivership and liquidation bankruptcy
is identical to the third distribution of the
liquidated assets. The bankruptcy court can stay
action against any party, even a non -debtor,
whenever the objective of the action is to obtain
position or exercise control over the debtor's
property, unless the case involves unusual circumstances.
However, the bankruptcy court cannot halt litigation
by non -debtors. Even, this is very important
for my purpose, Your Honor, even if they are
in a similar legal or factual nexus with debtors.
And next paragraph says, the unusual circumstances
in which the bank of support can state cases
against non -debtors are rare. So I would pause
here. So our pitch is simply in your honor that
we already said from day one to our friends that
we're going to comply with the sale proceedings.
with respect to the nurse. We agree that a nurse
must preserve a state. My friend said that we
have refused to bring the claim within the chapter
11 proceeding. That is not fair and not accurate.
We have been in significant discussion. We are
looking into bringing into creating a channel
to bring the claim in this court. And just so
you know, your honor has already granted what
I refer to as a claim process order or claims
bar order within this proceeding. The debtors
did not give us notice of that motion. We had
asked to be included on the service list. We
were not provided with notice. And lo and behold,
one day they say, well, the order has been granted.
Now we are, we think there is a way for us to,
in accordance with your orders order, to bring
that claim within the Chapter 11 proceeding,
and we are putting a lot of efforts to do that.
But suffice it to say that debtors have already
secured what they wish to secure, a state of
proceeding against the debtors, the preservation
of the estate of the debtors, and channeling
all the claims against the debtors within this
Chapter 11 proceeding. That has all been achieved.
And now There is no, in the words of the Appellate
Court, there is no unusual circumstance which
we already know are rare to warrant that the
claims against a non -debtor or KPMG be stayed
at this time. And my friend keeps saying that
the claim against the debtors and former directors
and officers and KPMG are basically right out
of the same conduct of 23M8. That is just simply
false. We plead specific misrepresentations and
that is the evidence before the court. And then
my friend is actually now even acknowledging
in their reply, they acknowledge well, yeah,
there is a specific misrepresentation has been
pleaded against these entities. However, my friend
said that misrepresentation do not form the basis
for any cause of action, which is also false
because we have assumed reply and that directs
the court to the provisions of the claim. that
we're not going to rely specifically on the specific
misrepresentation we allege these non -daters
have made. So we, in our written submission,
we identify for the court two issues. And under
issue number two, basically the question is whether,
you know, this case is one of those unusual circumstances
that it would be warranted to extend the stay
of proceedings to non -debtors? And the answer
is absolutely no. If we look at the facts, the
claims are distinguishable. They're, you know,
in the words of the appellate court, they do
arise from the same legal and factual nexus.
But that is insufficient to grant a stay with
respect to non -debtors. The claims against them
is different. They are not going to be liable
for the conduct of 23andMe. They are going to
be liable for their own conduct. If they are
to be found liable, sometimes down the road.
That's point number one. The claims are not identical.
Secondly, there is no rational connection between
the state of proceedings and the restructuring
efforts of 23andMe. KPMG is an entirely independent
party, third party. They're doing their own thing.
They already have separate representation. They're
not even involved in any role or capacity here.
The forward directors of the company resigned
en masse in September of last year in an unprecedented
situation. We went back in memory. We cannot
recall any situation where all the non... All
the independent directors of the company, seven
of them, resigned en masse just one time. They
said, we don't want to have anything to do with
this company anymore. That was their wish, to
not have anything to do with this company or
the restructuring events anymore. So there is
no rational connection. Thirdly, we say there
is absolutely no adverse impact on the state.
Absolutely zero. The defense is being funded
by insurance. KPMG has their own resources. They're
not on the insurance policies that we have seen.
There are two sets of insurance policies that
we have to understand. I have never seen any
situation where either we'd be on the same set
of policies as the directors and officers or
the company. They're not on the same policy.
They have their own resources. They don't even
have indemnification rights, whatever. As for
DNOs, my friend says, okay, they have an indemnification
right against the debtors. Correct. But the estate
of the DNO claim is not going to dispose or resolve
that indemnification right. Presumably, they
already have or they will have to file the indemnification
right within the Chapter 11 Procedure. to state
the claim against the directors and officers
is not going to resolve that claim. What would
resolve the claim would be to allow that their
objections on pleadings or jurisdictional objections
be heard. Maybe they're right. Maybe the Canadian
court would agree with them to strike the claim
on pleadings against them or find that the court
doesn't have jurisdiction over them. That would
be the end of any indemnification right they
have asserted. It will be asserted against 23
and me, to stay the claim against them is not
going to address or resolve that claim. So that
is for that reason that, you know, we say the
universe of the claim. My friend says that that
should or argues that should somehow work against
us. No. To the contrary, I just explained to
Your Honor that the damn indemnification claim
already exists because the directors and officers
have already been sued. So how are we going to
deal with it? Either it has to be addressed in
the chapter 11 proceedings or if the directors
and officers are correct that the claim should
be struck against them or the claim against them
should be struck, that would be the end of the
debate. That's the big chunk of the claim off
the shoulder of the state. And I would pause
here to say this at least as far as my experience
goes. This is a peculiar insolvency proceeding
because as far as I know, there are no secure
lenders. This is really an insolvency proceeding
in pit and substance and in large part to deal
with these cyberclaims. So anything that we can
do to address this claim, and there is no cost
for their state, it's the pleading motion. You
know, it's going to be funded by insurance. Anything
that we can do to one way or another resolve
that any of the claims of the creators that arise
from the cyberclaim, I would submit to you, Your
Honor, that should be welcomed by the court because
it's going to be streamlining the process and
it's going to determine what claims are going
to stay and what claims are not going to stay.
as against a state, or what claims are going
to be struck, and that's going to be the end
of the debate. And lastly, we say, my friend
said there is no prejudice. It says, you know,
a slight delay. I don't know, my friend is really
not committing to any timeline for Chapter 11,
and you know, you ask him, you know, for how
long this injunction should remain in effect.
My friend is really not committing to a timeline.
If it is a matter of, you know, these fast -evolving
and unwrapping proceedings in a matter of, like,
fall, we're going to be done, before the Canadian
court is going to even hear these preliminary
objections on the pleading and jurisprudence,
the Chapter 11 is going to be done. Or substantial
legal. But on the other hand, we have the interest
of Again, the debtors will not tell us. Well,
about 700 ,000 Canadians in this privacy class
action, and I have gathered before you that in
Canada, these are serious rights. And Canadian
courts have very strong interest in them. They
treat these rights as, quote, the constitutional
rights of Canadians and have very strong interest
in dedicating them. And we obviously, you know,
really just, you know, I spend this council idea
all the time. I'm not saying it in a discouraging
way, but defendants would like delays. They want
to take the time. I deal with these delays very,
very often and there is a saying that says justice
denied, justice delayed, justice denied. Since
we're in the same situation, you know, we have
the claim of the significant population in Canada.
We have no connection with the debtor. We have
no cost for the debtor. at least for at these
preliminary stages. And my friend is not clueless
to any timeline, wants to basically get an order
that they, you know, stage the claim, finally
die until we know when, who knows when. But on
the other hand, we have a significant population
of Canada whose quasi -constitutional rights
are at stake. So in summary, it's subject to
any questions, Your Honor. The Appendix Course
says, We do not sustain the claim against non
-detectors even if they arise out of the same
legal or factual nexus. We've got to have rare
exceptional circumstances and an imminent harm
to the state resulting from the proceeding. And
in my respect of submission, Your Honor, this
is not a case of an exceptional circumstance.
The debtors have already gotten everything that
they would have wanted to accomplish. We have
been cooperating since very, very first day with
them, and we have complied with the state. And
the preliminary issues that are now before the
Canadian court does not adversely at all, at
all, not in the slightest, affect the state in
any way. But if there is any likelihood, as the
DNOs are saying, that the country is strong on
the free gain or for a lack want of jurisdiction,
I would submit to Your Honor that let's determine
that. forever later because backing back benefits
the state and that in fact we get back that they'll
get it up the chapter of the proceedings subjective
questions about what those would be my commission
thank you so uh... do you agree with mister seagull
on the scope of the june sixteenth hearing No,
Your Honor. The evidence, Mr. Siegel is not qualified
to provide any opinions on Canadian law. The
evidence that is before the court is the evidence
of Ms. Bonnery. And Ms. Bonnery has a brief description
as to what this motion is seeking to accomplish.
They do say that we are seeking to add that is
not entirely accurate because we are not adding
any defendant who is not already named. The defendants
are already there. We are just bringing the two
claims in the same umbrella. And just so you
know, just because my friend did mention something
and he's already had made some comments about
the manner of the filing of the second claim.
We do note in our declaration that Ms. Bartory
raised the same objection with Justice Douglas.
Justice Douglas was not very impressed, really.
She said, you know, those characterizations were
not correct. But if Ms. Bartory wanted to bring
a motion, she could do that, which is yet to
be brought. But in any case, this is how the
events unfolded. The discussion around the claims
with respect to deferment defendants had been
ongoing for some time. And again, we're dealing
with a delay issue that we wanted to add the
directors without, of course, any prejudice that
the defense may have to bring, you know, motions
to strike the claim or state the claim. You know,
it would be entirely without prejudice. The defense
were dragging their feet, not committing to any
timeline. They were looking for dates. We were
around September. They were looking for dates
in December for that kind of simple motion to
add some parties without prejudice. And what
happened as we were having these conversations,
the directors resigned en masse. So from our
perspective, to protect the interests of our
Canadian class, We had to take the steps to file
the claim because we know in the situation of
insolvency, those claims could entirely perish.
So we would be... Hold on a second. Hold on a
second. I'm asking a much more granular question.
What motions are being heard on June 16th? It's
a consolidation motion. So there are two existing
applications to bring them together. Exactly.
Adjoin them if you wish. Adjoin them. Okay, and
are you seeking to broaden the class, as Mr.
Siegel mentioned, from those who are known to
be impacted by the data breach to all Canadians?
That is an excellent question, Your Honor. We
are seeking to broaden the class. I say a couple
of things. That is a proposed class. That is
not a certified class. We have no bearing, no
nothing with respect to 23andMe. And especially
so that 23andMe is already subject to a claim
process order of the score. So there's not going
to be any claims against 23andMe at all in Canada.
And on the other hand, right now 23andMe has
sent notification to all the customers, I think
someone mentioned at some point 18 million customers,
that any customer can submit a claim within Chapter
11 proceeding. 23, and we have already invited
any customer who might have a claim to submit
a claim. The expansion of the definition of a
proposed class, which is without prejudice, to
a motion to strike, a motion to stay for wanted
jurisdiction. And eventually, a certification
motion has absolutely no bearing at this point
in time. It's a proposed definition on paper
that can happen as a matter of, you know, the
law in Canada, you know, someone can just propose
a new definition at the time of the hearing of
certification application. It really has no bearing
other than the court will consider whether or
not at certification time, certification, whether
or not that's going to be correct or should be
certified. It's a proposed, it's a matter of
merely definition. Okay. Let me see if I can
summarize part of your argument accurately, Mr.
Nemitwari. I think you were saying that litigation
in Canada would benefit the debtors and their
states and the other parties in interest because
your litigation would clarify issues, maybe in
the debtor's favor, maybe in favor of the Canadian
claimants. By determining whether certain parties
are liable whether the liabilities co -extensive
with other parties Whether there's a valid claim
under Canadian law at all I suppose is that is
that the point you're making that you're that
you're helping the debtors? Crystalize what's
going on in this case So your honor just to be
clear we have like five different Arguments,
and this is one of them and and almost but not
entirely Why what what I'm saying is that? the
outcome of the Canadian case would only benefit
the debtors and the Chapter 11 proceedings. Because
what? Because the claim, and that corresponds
with the indemnification claim that the DNOs
have. And KPMG doesn't have any indemnification
rights, so we're not talking about KPMG right
now. We're talking only about DNOs. So what I'm
saying is that The claim against DNOs is already
there. The state is not going to make it suddenly
go away. If the Canadian proceeding proceeds
and if the DNO succeeds on striking the claim
on pleadings or for want of jurisdiction, that
can only benefit the state. Even if the Canadian
court agrees with us, that still benefits the
state, bearing in mind that now the state knows
that there is this valid indemnification claim
that would not be strong, indemnification claim
that would not be strong for the benefit of the
DNOs. So when time comes to figure out how any
proceeds should be distributed and how should
all of their claims be discharged, et cetera,
that is also going to benefit their state. However,
I would go one step farther to just say, you
know, what's the non -issue of this indemnification,
right? Because we all know that at the end of
the day, all these claims are going to be bundled
together and they're going to be largely discharged.
So my friend Anani Stutel, you know, at the end
of the day, if there's judgment in favor of the
DNOs like five years down the road in Canada,
it's directly on me that has to provide for indemnification.
So... So all the insolvency matters that I have
dealt with, and when there was a plan that was
successful, it all discharged all the claims.
This is only an academic debate that never comes
into reality, never bears any air of reality.
It's just, you know, for people to say we have
an individual right, but that is realistically
against an insolvent company, it will never be
realized. So it's all I'm saying that if at all,
if anything, this Canadian proceeding would only
benefit the state and the Chapter 11 proceedings,
if at all. Not only that it does not harm the
state in any conceivable way, not in the slightest.
If anything, it would help the debtors and these
proceedings before your honor. Okay. Mr. Nematoli,
what's the prejudice to your clients if there's
a stay of their litigation against all the defendants
through the effective date of a plan, and let's
say it's six months from now. What's the prejudice
to your client if you're looking at a five or
six year litigation timeline? Well, firstly,
that's a very good question. Firstly, there is
no commitment that there's going to be, like,
if my friend that said that the estate is going
to be imposed only for six months, then I have
no issue with it, bearing in mind that realistically
those those applications that BMT and OVNK BMG
have indicated they would be bringing cannot
be brought until probably December. The timelines
are just like that. So if this proceeding, if
my friend was going to commit to a conclusion
or stay only for six months, I would have no
issue with any of that. You reminded me, Your
Honor, that I think my friend suggested that
we have not been amenable to any sort of resolution.
And if my friend said that, that is absolutely
not correct. We have many various scenarios to
come to a consensual arrangement and none of
them has worked. And I would just say for my
friend to suggest that we have basically been
very difficult and not amenable to any resolution,
that would not be accurate offer. In any case,
what I'm saying is that the timeline that we
are looking, you know, realistically, these applications
are going to have to be brought in December.
So, if there's going to be a stay only for six
months, again, I'm not aware of any reason for
that. But if Your Honor would be inclined to
impose a stay for six months only, you know,
that would be perfectly fine with us. But an
indeterminate stay, especially in the other considerations
where We say there is no unity of the claims.
You know, there is no identity of interest. There
is no adverse impact. And so on and so forth.
Any state, especially an indeterminate state,
is totally unwarranted. And again, I direct Your
Honor to the language in the Ritchie case that
I took you to. We must treat a state to non -detention
as a rare event. to be granted only in exceptional
circumstances. None of which exists here. And
we do feel very strongly about these claims in
Canada. You have it in the record before you,
the Privacy Commission of Canada is conducting
an investigation. And the Supreme Court of Canada
has said that these claims are quasi -constitutional.
They're important to us because they define our
values as democratic. society, we have a very
strong interest in adjudicating them to set the
standard that applies to all Canadians. This
would not be the best analogy, but just to get
the sense of what my head is, you know? It's
not like in a criminal proceeding, you know,
we want the accused to have the trial with no
delay. We're not in the exact same situation,
but the rights at the issue are quasi -constitutional
rights of Canadians. If, again, there was any
circumstance, you know, we've done many of these
cases, you know, we could see. If there isn't
any adverse impact on the state, if there was
anything really of substance, we would not be
here. We would be agreeing to stay. We know how
this, you know, this should be done. But in this
particular case, there's absolutely no reason
whatsoever that would justify a stay. and again
i'm repeating myself but i do have to go to the
language here from the apple of court there is
no exceptional that in this case towards as they
would expect to be an old or keep engine i think
it the committee or any other parties just like
to weigh in before we uh... Thank you your honor
again for the record Jason Adams Kelly dry and
Warren I think now officially counseled to the
yes going to be brief because I always try to
go with the mantra of not saying too much to
put myself in danger here because I think that
the briefing in the arguments they were exceptional
and I think the debtors have laid out the case
for for why it's actually the state is appropriate
here and we do support it your honor I don't
want to go through all the legal issues again
if they've been discussed exhaustingly here.
I'll talk about maybe one or two things, which
is harm. Your Honor, you've asked questions about
harm today. What's the harm to the estate? What's
the harm to the plaintiffs here? I think the
harm to the estate is very clear, and I think
it was explained, but I'll highlight maybe a
few points. Your Honor, number one, the desire
for centralized reconciliation claims and a centralized
process for claims here. That's the purpose,
one of the core purposes of the bankruptcy case
that we're running here. Ultimately, hopefully,
once we get through a sale process, which we'll
talk about tomorrow, a plan. And that'll be addressed
in terms of how we ultimately bring claims in.
We've already dealt with that with the bar date.
Reconciliation of claims, that'll either be dealt
with down the road during this Chapter 11 bankruptcy
or potentially after the bankruptcy process by
another party or entity. Peripheral litigation
going on where we're not dealing with centralized
claims process here creates not only confusion
It creates costs and expense and it causes distraction
There are a lot of litigations as your honor
knows. It was the opening comment from from debtors
council today This is not isolated to a Canadian
litigation. We have multiple litigations. We
have arbitrations going on We have state court
litigations going on all with respect to the
same incident here all of those parties in the
US have said, yes, we're going to come to this
court. We're going to resolve our claims here.
We're going to file personal claims, whether
they're consolidated claims, whether they're
going to be class claims. We obviously have briefing
on that from one set of claimants already. So
to say all of those claimants need to stay, come
to this court and file claims, but another litigation
can proceed, doesn't necessarily jive with an
efficient way of reconciling claims. And it is
going to force the debtors to take action in
Canada. The debtors cannot sit idly by where
claims against so -called non -debtors, and they
are non -debtors, Your Honor, but it is the underlying
issues of whether or not there was some error,
mistake, problem by the debtors in terms of the
debt breach. That's the core of the questions
that are going to be addressed in the Canadian
proceedings. Whether you just say, well, we're
just talking about the representations of the
D's and O's or what KPMG did, it gets back to
the core of what is the debtor. And it's going
to force the debtors to participate in that process.
And that means cost. That means expense. That
means their time. And we have a lot going on
in this bankruptcy case right now, as Your Honor
knows. Some of those issues we'll deal with tomorrow.
Some of those we'll deal with them in the coming
weeks. So any distraction from the debtors in
terms of achieving the goals of this bankruptcy,
which is maximizing value and coming up with
an exit strategy, that's a harm to the estate.
We heard about indemnification rights. We've
talked about insurance rights here. Obviously,
if the debtors are forced and required to indemnify,
then any costs that are being incurred up there
right now is a cost to the estate. And that's
not something that we should be dealing with
today. We can deal with those issues in the future.
And if there's insurance covering this, then
that's depleting a potential resource and asset
for all stakeholders in this Chapter 11 bankruptcy.
We don't want to see those depleted. So from
the creditor's perspective, there's significant
harm here, whereas a stay, not dismissal, of
the Canadian proceedings, not eliminating it,
a stay of those proceedings and extending that
to the non -debtors is minimal harm to the plaintiffs
in this case. So those are my points on the harm,
Your Honor. With respect to the June 16th hearing
that would be coming up, Your Honor, I would
reiterate, and I suspect counsel will address
this as well, if there's a potential for expansion
of the class, happening at the June 16th hearing,
then that's a significant impact on the debtors.
It can't be that we're only expanding the class
with respect to the non -debtors and KPMG. It
means we're. Well, it's somewhere in between,
isn't it? It would expand the class, but the
class is a long way from being certified. So
it's expand the putative class. I don't know
what you call that exactly. There is an impact,
but it's not the death knell. I don't disagree
with Your Honor that it may not be the death
now, but it certainly is now expanding the pool
of claimants that are involved in that litigation.
Again, I think that's something that the debtors
would be extremely interested in as it impacts
them at a preliminary stage. I would want to
be involved in that. So again, we're dragging
the debtors again back into the litigation in
Canada, which would be problematic. And we've
had some conversations around this June 16 hearing.
And I guess the question is or maybe addressing
this eventually is, where are we stopping? Are
we stopping at the June 16 hearing? Are we stopping
at a July matter? What's the next thing? And
I don't think that's been really discussed today.
But again, I think for judicial economy's sake,
for the state's benefit, to minimize the harms
here, a stay for now, which is, again, applicable
to all of the other litigations that have to
do with the data breach, makes the most sense.
It's appropriate. It certainly satisfies the
legal standard here. So your honor we are in
support of expansion of the state in this proceed.
All right. Thank you Anyone else wish to be heard
before we go to the debtors for rebuttal? All
right, mr. Siegel Thank you your honor as an
initial matter to something that my friends on
the other side mentioned several times if respondents
are willing to agree to a consensual six -month
stay of the Puted of class actions as to all
defendants we are amenable to that Yeah, so if
we were all here. This would be an opportunity
for me to say you'll should go out in the hall
and talk about that Would you like to have an
opportunity to through the? miracle of telecommunications.
Talk about that with Mr. Nimotali without anyone
being on a live mic. Is that helpful? Is that
a question for me, Your Honor? Well, it's a general
question. You're welcome to weigh in. Well, we've
always welcomed Conversations around these topics
and I would not uh forfeit that opportunity now
if my friend is inclined to call me Should we
willing to take a short time should we take a
short call Okay, why don't why don't we do that
and i'll let you all figure out how to not be
on a hot mic, but um uh, it is is that clock
right? Yeah, it is 301. Should we take a 20 minute?
Recess what you tell me That's 20 minutes. All
right, if you all are still talking let mr. Spital
know and I will not emerge in the middle of your
discussion ideally Well, let's take let's take
a recess till 20 after 3 Thank you, please be
seated everyone All right, where do things stand
mr. Siegel mr. risky who's Who's got the mic?
Yes, your honor. We conferred with Mr. Nematahahi
during the recess, and we're pleased to report
that we appear to have an agreement. Under that
agreement, the parties will mutually agree on
a stay of the Canadian proceedings until the
earlier of September excuse me December 3rd 2025
and the effective date of a plan the debtors
reserve their rights to seek an extension of
the stay and Canadian respondents reserve their
rights to oppose such an extension Neither party
will use the fact of this stipulation to argue
that the stay should or should not be extended
The parties shall cooperate on adjourning existing
hearing dates in the Canadian proceedings for
a date on or after December 3rd and at a case
management Conference that we were advised is
scheduled To be held on June 6 the Canadian plaintiffs
will advise the court that they intend to seek
an adjournment of the hearing on the consolidation
motion until the week of December 15th or the
courts the Canadian courts convenience we Are
glad to memorialize this in a written stipulation
and submit that to the court Sounds great. This
new flies that consistent with your understanding
Thank you very much your honor. I feel the privilege
of thank you to our friends that this is an agreement
We have agreement on the terms and that my friend
is by the court. Thank you. Very good All right.
Well, thank you. I appreciate the party's getting
their heads together on that and it sounds like
a mutually beneficial resolution So very good
anything further for today then Very good. All
right. We have matters scheduled for 1 30 tomorrow
and so we'll see you all then court will be adjourned
Thanks, everyone