WEBVTT

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Your honor, may it please the court, Blake Cleary

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of Potter Anderson and Caroon on behalf of NECA

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Corp and its affiliated debtors and debtors in

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possession. Your honor, first of all, thank you

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for scheduling confirmation today. We do much

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appreciate it. It's an important day in the life

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of this company and the natural progression and

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next step. With that, we did file a couple of

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pleadings at the end of yesterday. So we have

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an amended agenda and hopefully those have. excuse

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me, made their way to you. They relate to a plan

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supplement, an amendment to the witness and exhibit

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list, as well as a notation of the withdrawal

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of Mr. Milton's objection to confirmation, Your

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Honor. Yes. Thank you. With that, I wanted to

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make, you know, I'm here with my colleagues from

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Potter Anderson, as well as Josh Morris and his

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colleagues from Hillsbury. He's going to make

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further introductions, but I wanted to just...

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Set that up for your honor. And again, thank

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you. And I will turn it over to my co -counsel.

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Thank you, Mr. Cleary. Good morning, Mr. Morse.

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Good to see you. Good morning, your honor. Very

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wonderful to see you on this Friday afternoon.

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Yes. For the record, Joshua Morse from Pillsbury

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Winthrop Shop, Hitman LOP, Council to the Debtors.

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We have some new and some... not -so -new faces

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here today with me, and I want to make sure to

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introduce members of my team as well as the witnesses.

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For my team, we have Rachman Connolly, my partner,

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and Ari Berman, my partner Swell, as well as

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my colleagues Andrew Alfano and Chas Berman.

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Chas Coleman, sorry. Yes. I'm familiar with his

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work. A lot going on in my head right now. The

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declarants, we have three. One appearing remotely,

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and that's Emily Young, who is the director at

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Epic Corporate Restructuring LLC, the debtor's

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claims and noticing agent. She'll be in a moment

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submitting the ballot tabulation declaration,

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which appears at docket number 952. This just

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confirms the debtor's compliance with solicitation

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procedures order. providing a tabulation summary

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and a report of excluded balance, as well as

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a report of the opt -outs. We also have, who's

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appearing in the courtroom today, Ryan Rowan,

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a managing director at M3, advisory partners.

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Good morning. LP, the debtor's financial advisor.

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He submitted a confirmation brief declaration

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that appears at docket number 958 that provided

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an updated liquidation analysis. which was attached

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as exhibit one to his declaration. It was also

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attached as an exhibit to the second amended

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plan, which we filed on Tuesday. He had provided

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some testimony regarding feasibility of the plan

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as rebuttal evidence to the Milton confirmation

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objection, which appeared at 910, which has now

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been withdrawn as Mr. Cleary indicated. Also

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in the courtroom is Britton Worthen Chief legal

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officer of debtor Nikola corporation. He submitted

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a number of Declarations some of which May be

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pertinent today some which may may not be just

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want to run through those to give your honor

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some context First the confirmation brief declaration,

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which is dr. Number nine fifty seven provides

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the evidentiary support for not only our confirmation

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brief but provides the 90 -19 support for the

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SEC resolution, which I'm going to walk through

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in a moment, the settlement of the derivative

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actions, which we'll be seeking final approval

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of today, support for the appointment of the

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liquidating trustee, and then provide some limited

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rebuttal evidence to the Milton Equitable Support

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Nation objection, which that appears at docket

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number 911. He also has provided four other declarations,

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which will be seeking to move into evidence.

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The SEC classification memo declaration, which

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appears at docket number 796 -1, that provides

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the evidentiary support for the relief request

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in the SEC classification memo, docket number

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796. That's now been rendered moot by virtue

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of the SEC resolution. as well as the Reyes Action

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Classification Memo Declaration, which appears

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at docket number 804 -1. That provides the evidentiary

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support for the relief requested in the Reyes

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Classification Memo, which is docket number 804.

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That is not contested. No objections were filed

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to that one. As well as the Milton Claim Classification

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Memo Declaration, that's docket number 808 -1.

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that provides the evidentiary support for the

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relief requested in the Milton claim classification

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memo. That's docket number 808. In that one,

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there is also a counterparty to that docket that

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is unsealed. There'll be some discussion about

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that that we'll need to deal with in a little

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while. And finally, the shareholder securities

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claim classification memo declaration. which

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is docket 820 -1 that provides the evidentiary

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support for the relief requested in our shareholder

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securities claim classification memo that's docket

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820. Now as you are well aware we are here today

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seeking entry of the confirmation order which

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we initially filed at docket number 964 and then

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we had some additional cleanup changes between

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Tuesday late last night and we filed a notice

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of revised order as well as a black line at docket

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number 999. That order seeks to approve the disclosure

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statement that you entered back in July on a

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final basis and confirms the second amended plan

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which appears at 955. I do want to note that

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as I spoke about in the beginning of the presentation

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that we did file a black line on Tuesday against

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the solicitation version of the plan. That was

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docket number 744, and that black line appears

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at docket number 956. Now the plan is a fairly

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straightforward liquidating plan. Does a few

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things, establishes liquidating trust to pursue

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and monetize. remaining assets, including preserved

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estate claims. Paves the way for the settlement

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of the derivative actions, which I'm happy to

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report. We found out yesterday that the Chancellor

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McCormick has scheduled for November 22nd. Wines

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down the remaining operations, which are very,

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very limited at this point, the debtors estates.

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And after paying administrative claims and priority

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claims in cash in full on the affected date,

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set forth in the liquidation analysis, it estimates

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that Class 3 general unsecured claim recoveries

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are going to be between 20 .7 % and 75 .3%. As

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discussed in the Young Declaration, the debtors

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complied with all the solicitation procedure

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order requirements regarding service of the required

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notices, as well as the solicitation packages.

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and appropriate certificates of service are filed

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on the docket. The Young Declaration also confirms

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that the debtors received near unanimous approval

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in favor of the plan. 99 .98%, if my math is

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correct, representing 148 .1 million in amount

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and 97 .4 representing 68 out of 70 in number.

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from class three, the only impaired class under

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the plan, entitled to vote in favor of the plan.

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In anticipation of today's hearing, the debtors

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have also been working diligently to reach consensual

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resolution of various objections. As indicated

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on Tuesday night, the second amended plan, which

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is filed at docket number 955, addresses certain

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of these. resolutions, including the SEC objection,

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which is docket number 935, the Mitsubishi objection,

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which is docket number 937, and then also a few

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informal objections that we received prior to

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the filing of that plan, including objections

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raised by the Texas Comptroller of Public Accounts

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and the U .S. Department of Justice. And I want

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to walk through I want to walk through and give

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the court just a brief update on each of those

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resolutions. Most importantly, the SEC objection.

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And Mr. Baddeley and Ms. Shurer, I'm sure I butchered

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the pronunciation of her name, even though I've

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had at least 100 phone calls with her, so I apologize,

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are here in court. And they've been great partners

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with us throughout this case. to try and work

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this out. But the SEC objection, which appears

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at docket number 935, again, the debtors and

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the SEC were able to reach agreement on a consensual

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resolution of the debtors' purported subordination

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of the SEC claim under the plan for the reasons

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that are explained in the SEC claim memorandum

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that we filed at docket number 796. and then

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as they objected to. And under this defined term

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that's in the plan, the SEC claim resolution,

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it's contemplated to be approved by the confirmation

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order. The debtors in the SEC have agreed that

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the SEC claim, which is claim number 10420, which

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the SEC filed recently in excess of $83 million,

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and that amended the SEC's scheduled claim. in

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the amount of $80 .2 million will be allowed

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and treated under the plan in three different

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ways. First, the SEC has voluntarily agreed that

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$40 million of that $83 .052 million is going

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to be classified and treated junior in priority

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to the general unsecured claims. and therefore

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the SEC junior claim, as we've defined it under

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the plan, is going to be allowed and treated

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in class seven of the plan. And then second,

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the debtors have agreed to classify the residual

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$43 ,052 ,974 .90 of the SEC claim as a general

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unsecured claim in class three, provided, however,

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that The sole distribution on account of that

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SEC unsecured claim is going to be a $4 million

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cash payment to the SEC on the effective date.

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And the SEC has agreed to forego any further

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distributions on account of the SEC unsecured

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claim under Class 3 of the plan. And then finally,

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there is an agreement that the debtors, the estates,

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liquidating trust, and their successors and signs

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will release all causes of action that each of

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them may have against the SEC. And with that,

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I would just ask Mr. Baddeley and or Ms. Shearer

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to confirm that their understanding of the resolution

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has articulated. Good morning, Mr. Baddeley.

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It's good to see you. Good morning, Your Honor.

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You as well. David Baddeley for the SEC with

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Trey Scheuer. Mr. Morris's description of the

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compromise is correct and it's set forth in Article

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4J of the plan. Yes, thank you very much. I also

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want to point out that the committee works hand

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in glove with the debtors on this resolution

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as confirmed in the committee statement. that

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appears at docket number 965. The committee helped

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develop the SEC claim resolution and supports

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that fully. And if Mr. Mantle is willing to confirm

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that on the record? For the record, Doug Mantle.

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Good morning, Mr. Mayor. Good morning, Your Honor.

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Confirmed. Mr. Morse, the committee is fully

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supportive of the SEC resolution. Thank you,

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Mr. Mantle. Okay, moving on to the Mitsubishi

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resolution. Mitsubishi filed an objection that

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appears in document number 937 that has agreed

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to add language to the proposed confirmation

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order that we understand resolves that objection.

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With that, I'd ask counsel to Mr., excuse me,

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to Mitsubishi, which I believe today is Mr. Detweiler,

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to confirm on the record that the resolution,

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the Mitsubishi objection. Good to see you, Mr.

00:14:11.620 --> 00:14:13.840
Detweiler. Welcome. Good to see you, Your Honor.

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May it please the Court, Don Detweiler, on behalf

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of Mitsubishi HC Capital. Mitsubishi's objection

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has been resolved by the inclusion of the language.

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Thank you, Mr. Detweiler. Thank you, Your Honor.

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Thank you, Council. I'd also mentioned a few

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informal objections. The Texas Comptroller. had

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a few issues that we were able to address through

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agreed provisions to the confirmation order.

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I'm unclear as to whether anyone from the Texas

00:14:47.259 --> 00:14:52.080
Comptroller is either here in the courtroom or

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at the period of the hearing. However, we have

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email communications that confirm that the informal

00:14:57.539 --> 00:15:01.659
communications, or excuse me, the informal objection

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has been resolved with the changes agreed. Okay,

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let me just pause and see if anybody from the

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Texas Controller is on the line and would like

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to be heard. Okay, I hear no response. Thank

00:15:15.809 --> 00:15:19.330
you. Similarly, with the U .S. Department of

00:15:19.330 --> 00:15:23.009
Justice, we've had active dialogue with counsel

00:15:23.009 --> 00:15:25.769
to the U .S. Department of Justice in various

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capacities, but with respect to... informal objections

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and comments we addressed those concerns through

00:15:37.759 --> 00:15:40.840
the changes to the confirmation order and I believe

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if counsel has appeared or would like to confirm

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that on the record we're happy to step aside

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and have that happen as well. Okay would the

00:15:49.600 --> 00:15:57.139
Department of Justice like to be heard? Good

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morning Mr. Prevan, welcome. Good morning Your

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Honor. Dr. Vaughan on behalf of the United States,

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we'd just like to confirm that we have worked

00:16:03.940 --> 00:16:05.440
with the Debtors' Council and all of our issues

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have been resolved. Thank you. And then one more

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that I didn't mention and that's the Milton confirmation

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objection at Docket Number 910. That one took

00:16:20.379 --> 00:16:23.779
issue with the feasibility of the plan. We found

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out during a meet and confer call yesterday afternoon

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that that objection was going to be withdrawn.

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and I believe the notice of withdrawal was filed

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yesterday afternoon. Yes, I saw that. So that

00:16:35.590 --> 00:16:43.350
leaves just a handful of unresolved issues. First

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of all, the certain components of the... Oh,

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I do want to mention the United States trustee

00:16:50.389 --> 00:16:54.750
objection that appears at docket number 908 take

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an issue with the opt -out releases and then

00:16:57.450 --> 00:17:01.139
the injunction. I did confirm to Mr. Fox that

00:17:01.139 --> 00:17:05.660
the objection to the Bankruptcy Rule 30 -20 waiver,

00:17:06.000 --> 00:17:09.339
that we've resolved that issue. I'll walk through

00:17:09.339 --> 00:17:15.299
that during my presentation. Also unresolved

00:17:15.299 --> 00:17:18.680
is the Milton Equitable Subordination Objection

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that appears at docket number 911, taking issue

00:17:22.200 --> 00:17:24.839
with the plan's classification treatment of the

00:17:24.839 --> 00:17:30.049
Milton claim in... class eight. And then there's

00:17:30.049 --> 00:17:32.970
two others that I will talk about in a moment.

00:17:33.490 --> 00:17:39.089
I did want to raise one thing that we also learned

00:17:39.089 --> 00:17:42.750
during our meeting conferred with Milton's counsel

00:17:42.750 --> 00:17:46.130
yesterday afternoon. We found out for the first

00:17:46.130 --> 00:17:53.029
time yesterday that Mr. Milton intends to cross

00:17:53.029 --> 00:17:56.859
-examine Mr. Worthen. on various topics to support

00:17:56.859 --> 00:18:01.539
a brand new legal theory, which isn't reflected

00:18:01.539 --> 00:18:05.640
in the equitable subordination objection, this

00:18:05.640 --> 00:18:10.440
is document number 911, that somehow Nikola's

00:18:10.440 --> 00:18:13.759
relative conduct should alleviate the Milton

00:18:13.759 --> 00:18:18.660
claim from being equitably subordinated. We don't

00:18:18.660 --> 00:18:22.859
believe there's any legal or factual support

00:18:22.859 --> 00:18:26.640
that's been offered. in the record or for us

00:18:26.640 --> 00:18:30.359
to be able to respond to, other than potentially

00:18:30.359 --> 00:18:33.599
on the fly. And so we may need some guidance

00:18:33.599 --> 00:18:36.920
from you later today as to how to proceed as

00:18:36.920 --> 00:18:42.140
this morning develops. Okay, we'll get there.

00:18:42.440 --> 00:18:44.680
We'll get there. Just previewing some information.

00:18:46.279 --> 00:18:50.880
One other preview issue. We also understand that

00:18:50.880 --> 00:18:57.369
Mr. Milton is here today. to attempt to substantiate,

00:18:57.369 --> 00:19:00.809
apparently, his proof of claim. This is claim

00:19:00.809 --> 00:19:04.990
number 54. And by way of background, you may

00:19:04.990 --> 00:19:07.970
have seen some of this percolate a little bit

00:19:07.970 --> 00:19:11.490
when we were here during the relief from stay

00:19:11.490 --> 00:19:15.869
proceedings, as well as you saw some of it in

00:19:15.869 --> 00:19:21.269
the papers. And exhibit C to that claim includes

00:19:21.269 --> 00:19:25.769
a listing of... 19 professional firms and dollar

00:19:25.769 --> 00:19:27.990
amounts that are alleged to have been paid to

00:19:27.990 --> 00:19:34.529
such firms as of April 1st, 2025. As detailed

00:19:34.529 --> 00:19:39.289
at paragraph 139 of our memorandum, back on July

00:19:39.289 --> 00:19:45.369
8th, I requested proof of payment, confirmation

00:19:45.369 --> 00:19:49.009
of how much had already been paid, because we

00:19:49.009 --> 00:19:52.170
believe as set forth in other pleadings that

00:19:52.359 --> 00:19:55.859
Nearly $40 million of that had already been advanced.

00:19:56.519 --> 00:19:59.599
And then also to provide copies of all the invoices

00:19:59.599 --> 00:20:03.740
subordinating that proof of claim. Nothing was

00:20:03.740 --> 00:20:08.500
provided to the debtors. And then in the Milton

00:20:08.500 --> 00:20:12.640
Equitable Subordination Objection, that's, again,

00:20:12.759 --> 00:20:18.839
docket number 911. At page 10, footnote three,

00:20:19.440 --> 00:20:21.200
there's an allegation that we didn't request

00:20:21.200 --> 00:20:25.099
the information. quote until quite recently and

00:20:25.099 --> 00:20:28.539
Milton will supply the information once the compilation

00:20:28.539 --> 00:20:36.000
is complete. We inquired yesterday whether the

00:20:36.000 --> 00:20:40.180
during a series of meet and confers when the

00:20:40.180 --> 00:20:43.160
compilation was going to be complete and we're

00:20:43.160 --> 00:20:49.539
still awaiting an answer. This may be a question

00:20:49.539 --> 00:20:56.099
for Mr. Milton's counsel. Mr. Milton has not

00:20:56.099 --> 00:20:59.859
identified any exhibits to be admitted today.

00:21:01.039 --> 00:21:03.019
And Mr. Cousins, good morning. It's good to have

00:21:03.019 --> 00:21:12.319
you here. If the fees that have been paid to

00:21:12.319 --> 00:21:14.640
professionals are properly at issue today, and

00:21:14.640 --> 00:21:16.240
I think that's an issue that I'm sure we would

00:21:16.240 --> 00:21:22.279
get to, the only evidence of those would be the

00:21:22.279 --> 00:21:25.210
invoices. testimony regarding what they might

00:21:25.210 --> 00:21:30.170
say clearly would not be admissible. Good morning,

00:21:30.289 --> 00:21:33.089
Your Honor. Scott Cousins and Sean Bronecki on

00:21:33.089 --> 00:21:36.269
behalf of Trevor Milton, who is in the courtroom,

00:21:36.450 --> 00:21:39.829
Your Honor. It's identified on the debtor's exhibit

00:21:39.829 --> 00:21:44.130
list. We had a meet and confirm. We tried to

00:21:44.130 --> 00:21:47.130
agree to avoid bringing Mr. Milton in, but we

00:21:47.130 --> 00:21:49.589
just couldn't reach an agreement. He will testify

00:21:49.589 --> 00:21:51.869
that the fees are paid. They're entitled to cross

00:21:51.869 --> 00:21:55.410
-examine him. We believe that satisfies prima

00:21:55.410 --> 00:21:58.509
facie evidence that has to get rebutted. The

00:21:58.509 --> 00:22:02.829
court can rule on it as appropriate, but it is

00:22:02.829 --> 00:22:05.130
identified as, I think it's the debtor's last

00:22:05.130 --> 00:22:08.509
exhibit. And we just couldn't come to an agreement

00:22:08.509 --> 00:22:14.490
about admissibility. And I will add, his testimony

00:22:14.490 --> 00:22:17.650
is going to be limited to just what's in the

00:22:17.650 --> 00:22:20.069
proof of claim, and the debtors in the committee

00:22:20.069 --> 00:22:22.609
can cross -examine him. Thank you very much.

00:22:22.809 --> 00:22:28.049
Thank you. We're previewing this issue now to

00:22:28.049 --> 00:22:33.089
avoid this circus of Mr. Milton going to come

00:22:33.089 --> 00:22:35.269
up and try and substantiate more than 70 million

00:22:35.269 --> 00:22:37.609
dollars of alleged professional fees that have

00:22:37.609 --> 00:22:40.430
been paid. He shouldn't be allowed to show up

00:22:40.430 --> 00:22:42.890
today and offer testimony to attempt to do so

00:22:42.890 --> 00:22:46.349
without... supporting documentation, we believe

00:22:46.349 --> 00:22:49.269
it's wholly inappropriate and prejudicial. The

00:22:49.269 --> 00:22:51.529
one thing that they have provided thus far, just

00:22:51.529 --> 00:22:53.990
to give you a sense of the games that are going

00:22:53.990 --> 00:22:58.849
on, are to the committee, they provided pages

00:22:58.849 --> 00:23:03.450
of the Cahill invoices. As you may have seen

00:23:03.450 --> 00:23:07.730
from the exhibit C, Cahill is owed quite a bit

00:23:07.730 --> 00:23:12.349
of money, allegedly. And it's pages and pages

00:23:12.349 --> 00:23:17.849
and pages, however, Every single time entry is

00:23:17.849 --> 00:23:23.009
completely redacted as to render the the provision

00:23:23.009 --> 00:23:27.869
of these invoices wholly irrelevant to the ability

00:23:27.869 --> 00:23:33.609
to do anything with them and so again to ask

00:23:33.609 --> 00:23:40.549
us to on the fly Be able to comprehend what he's

00:23:40.549 --> 00:23:48.900
going to tell us to not be able to take in, to

00:23:48.900 --> 00:23:53.839
not be able to analyze, especially when this

00:23:53.839 --> 00:23:57.819
request has been pending for two months and we

00:23:57.819 --> 00:24:01.539
show up at trial, it seems like something else

00:24:01.539 --> 00:24:04.960
is going on here. We'll cross that bridge when

00:24:04.960 --> 00:24:10.019
we come to it. Two other objections are also

00:24:10.019 --> 00:24:12.779
unresolved. The lead securities class action

00:24:12.779 --> 00:24:17.220
plaintiff Objection, docket number 909. That

00:24:17.220 --> 00:24:19.480
takes issue with the plans classification treatment

00:24:19.480 --> 00:24:22.859
of their claim in class seven. And then the individual

00:24:22.859 --> 00:24:27.400
shareholder objections, including a number of

00:24:27.400 --> 00:24:31.960
informal objections that were listed on the initial

00:24:31.960 --> 00:24:34.279
agenda. I don't have the updated docket number,

00:24:34.279 --> 00:24:38.819
I apologize. The initial one was docket 969 as

00:24:38.819 --> 00:24:41.920
responses and objections. Items, Romanet three.

00:24:42.269 --> 00:24:45.950
through Romanet 9, and then also the Scudder

00:24:45.950 --> 00:24:48.750
objection, which is docket number 904, taking

00:24:48.750 --> 00:24:51.670
issue with various planned confirmation issues.

00:24:53.609 --> 00:24:55.829
Turning to the first order of, I guess, real

00:24:55.829 --> 00:24:59.150
business, is to move into evidence the declarations

00:24:59.150 --> 00:25:01.710
that are gonna be providing the evidentiary support

00:25:01.710 --> 00:25:06.559
for today's hearing. The first declaration. that

00:25:06.559 --> 00:25:08.940
we'd like to move into evidence is the Young

00:25:08.940 --> 00:25:11.160
Declaration, Your Honor. That appears at docket

00:25:11.160 --> 00:25:15.519
number 952. And again, we appreciate the accommodation

00:25:15.519 --> 00:25:18.140
of allowing Ms. Young to appear remotely at today's

00:25:18.140 --> 00:25:22.519
hearing. We ask that that declaration be moved

00:25:22.519 --> 00:25:25.319
into evidence. Okay, does anybody object to the

00:25:25.319 --> 00:25:27.339
admission of Ms. Young's declaration in support

00:25:27.339 --> 00:25:30.839
of confirmation? Okay, I hear no response. The

00:25:30.839 --> 00:25:32.619
declaration is admitted. Is there anybody who

00:25:32.619 --> 00:25:36.319
wishes to cross -examine Ms. Young? Okay, once

00:25:36.319 --> 00:25:38.559
again, I hear no response. Ms. Young, thank you

00:25:38.559 --> 00:25:41.079
for appearing this morning. I appreciate it.

00:25:42.380 --> 00:25:51.710
Thank you so much, Your Honor. Good morning,

00:25:51.769 --> 00:25:53.269
Mr. Fides. Good morning, Your Honor. May it please

00:25:53.269 --> 00:25:54.970
the Court, Tim Fox on behalf of the United States

00:25:54.970 --> 00:25:58.089
Trustee. Just to preview issues with respect

00:25:58.089 --> 00:26:00.269
to the unresolved items in the U .S. Trustee

00:26:00.269 --> 00:26:03.029
objection, I did identify that my office would

00:26:03.029 --> 00:26:06.390
like to move into evidence on Nicola Corporation's

00:26:06.390 --> 00:26:09.349
bankruptcy schedules at Docket Item 203. I just

00:26:09.349 --> 00:26:11.730
wanted to preview that we'll be using information

00:26:11.730 --> 00:26:13.869
from Docket Item 203 in connection with some

00:26:13.869 --> 00:26:15.890
of Ms. Young's testimony, so I thought this was

00:26:15.890 --> 00:26:18.329
an appropriate time to identify that item for

00:26:18.329 --> 00:26:22.720
the Court. Okay. Thank you. And Your Honor, just

00:26:22.720 --> 00:26:24.980
so you know, we will not have any objection to

00:26:24.980 --> 00:26:27.539
doing that. We understand what the purpose of

00:26:27.539 --> 00:26:29.599
that is going to be. Okay. Thank you, Mr. Morrison.

00:26:36.180 --> 00:26:38.359
The next declaration, Your Honor, is the Rowan

00:26:38.359 --> 00:26:40.220
confirmation declaration, which appears in docket

00:26:40.220 --> 00:26:44.460
number 958. Mr. Rowan is in the courtroom today

00:26:44.460 --> 00:26:47.240
and available for cross -examination. If none,

00:26:47.319 --> 00:26:50.579
we'd ask to move to admit that declaration into

00:26:50.579 --> 00:26:52.950
evidence. Does anybody object to the admission

00:26:52.950 --> 00:26:55.109
of Mr. Rowan's declaration and support a plain

00:26:55.109 --> 00:26:58.230
confirmation? Okay, I hear no response. It is

00:26:58.230 --> 00:27:00.269
admitted. Does anybody wish to cross -examine

00:27:00.269 --> 00:27:06.849
Mr. Rowan? Okay, I hear no response. Thank you,

00:27:06.910 --> 00:27:09.130
Roaner. This is going to be a bit tedious, but

00:27:09.130 --> 00:27:12.970
I'd like to do Mr. Worthen's declaration just

00:27:12.970 --> 00:27:16.289
one by one. I think that makes sense. I apologize.

00:27:17.109 --> 00:27:19.890
First, the SEC classification memo declaration.

00:27:20.279 --> 00:27:26.079
which appears at docket number 796 -1. As I indicated,

00:27:26.180 --> 00:27:28.319
Mr. Worthen is available for cross -examination.

00:27:28.960 --> 00:27:30.940
If none, we seek to move that into evidence.

00:27:31.240 --> 00:27:35.299
Okay, does anybody object to the admission of

00:27:35.299 --> 00:27:37.279
Mr. Worthen's declaration that appears at docket

00:27:37.279 --> 00:27:42.380
number 796 -1? Okay, I hear no response. It is

00:27:42.380 --> 00:27:47.559
admitted. Next is the Reyes Action Classification

00:27:47.559 --> 00:27:51.240
Memo Declaration. from Mr. Worthen, docket number

00:27:51.240 --> 00:27:55.319
804 -1. Again, he's available for cross -examination.

00:27:55.440 --> 00:27:58.779
If no objection or cross -examination, we'd like

00:27:58.779 --> 00:28:02.839
to move that into evidence. Does anybody object

00:28:02.839 --> 00:28:05.339
to the admission of Mr. Worthen's declaration

00:28:05.339 --> 00:28:09.160
that appears at docket number 804 -1? I hear

00:28:09.160 --> 00:28:12.400
no response. It is admitted. Next is the Worthen

00:28:12.400 --> 00:28:14.779
Shareholder Securities Claim Classification Memo

00:28:14.779 --> 00:28:20.099
Declaration, which appears at 820 -1. If no objections,

00:28:20.240 --> 00:28:22.200
I'd like to move that into evidence. Does anybody

00:28:22.200 --> 00:28:24.859
object to the admission of Mr. Worthen's declaration

00:28:24.859 --> 00:28:29.279
that appears at docket number 820 -1? I hear

00:28:29.279 --> 00:28:32.279
no response. It is admitted. Thank you, Your

00:28:32.279 --> 00:28:34.599
Honor. Next is the Worthen confirmation brief

00:28:34.599 --> 00:28:38.720
declaration, which appears at 957. If no objections,

00:28:39.039 --> 00:28:42.000
I request to move that into evidence. Does anybody

00:28:42.000 --> 00:28:44.500
object to the admission of Mr. Worthen's declaration

00:28:44.500 --> 00:28:48.900
that appears at docket number 957? Okay, I hear

00:28:48.900 --> 00:28:51.339
no response it is admitted. Thank you, your honor

00:28:51.339 --> 00:28:55.039
and finally the Wurthen -Milton claim classification

00:28:55.039 --> 00:28:57.079
memo declaration which appears at docket number

00:28:57.079 --> 00:29:01.240
808 -1. Okay subject to the ability to cross

00:29:01.240 --> 00:29:03.380
-examine does anybody object to the admission

00:29:03.380 --> 00:29:05.579
of Mr. Wurthen's declaration that appears at

00:29:05.579 --> 00:29:09.200
docket number 808 -1. Mr. Cousins. Good morning

00:29:09.200 --> 00:29:12.140
again your honor, Scott Cousins on behalf of

00:29:12.140 --> 00:29:14.299
Trevor Milton. We don't object to the admission

00:29:14.299 --> 00:29:16.339
but we do want to cross -examine. Okay, very

00:29:16.339 --> 00:29:20.069
good. Thank you. And Your Honor, one thing, we

00:29:20.069 --> 00:29:25.329
are going to offer Mr. Worthen for some supplemental

00:29:25.329 --> 00:29:29.089
direct examination. I propose that we do that

00:29:29.089 --> 00:29:34.450
first and then allow Mr. Cousins to do cross

00:29:34.450 --> 00:29:38.710
-examination so that he could listen to the testimony

00:29:38.710 --> 00:29:42.329
and then cross on that plus anything else he'd

00:29:42.329 --> 00:29:45.109
like to cross on with respect to the declaration.

00:29:45.569 --> 00:29:47.819
Okay, very good. It seems like a more efficient

00:29:47.819 --> 00:29:51.299
way to do everything. I agree. I agree. And with

00:29:51.299 --> 00:29:55.660
that, I'll invite Mr. Connolly to come up to

00:29:55.660 --> 00:29:58.559
the podium and call Britton Worthen to the stand.

00:29:58.740 --> 00:30:02.160
Okay, very good. Mr. Connolly, it's a pleasure

00:30:02.160 --> 00:30:09.839
to have you here. One thing that I'm forgetting

00:30:09.839 --> 00:30:14.880
is before we have the witness on the stand, we'd

00:30:14.880 --> 00:30:18.740
like to... Just go ahead and move our exhibits,

00:30:21.000 --> 00:30:26.980
certain of our exhibits, into evidence. Move

00:30:26.980 --> 00:30:34.539
in exhibits 1 through 37 and 39 through 52. Okay.

00:30:34.819 --> 00:30:37.839
Does anybody object to the admission of debtors

00:30:37.839 --> 00:30:42.819
exhibits 1 through 37 and 39 through 52 in support

00:30:42.819 --> 00:30:49.240
of claim confirmation? Mr. Cousins. Your Honor,

00:30:49.480 --> 00:30:51.920
I'm sorry to stand up no objection. I guess I

00:30:51.920 --> 00:30:54.900
could have shouted that from the table. No, that's

00:30:54.900 --> 00:30:56.619
fine. That's fine. It's good to have you at my

00:30:56.619 --> 00:31:00.339
podium. Good to see you. Thank you. Those exhibits

00:31:00.339 --> 00:31:03.700
are admitted. Thank you, Your Honor. Appreciate

00:31:03.700 --> 00:31:11.940
it. Mr. Connolly. Good morning, your honor. Good

00:31:11.940 --> 00:31:13.859
morning. Pleasure to be here. Yes. Pleasure to

00:31:13.859 --> 00:31:16.500
have you. For the record, Rachman Connolly, Pillsbury,

00:31:16.779 --> 00:31:21.119
for the debtors. As Mr. Morse mentioned, we are

00:31:21.119 --> 00:31:23.640
calling Mr. Worthen up for supplemental direct

00:31:23.640 --> 00:31:26.420
testimony. Okay. Mr. Worthen, could you remain

00:31:26.420 --> 00:31:29.180
standing, please? Thank you. Good morning. Would

00:31:29.180 --> 00:31:31.740
you please raise your right hand? Do you affirm

00:31:31.740 --> 00:31:33.059
that you will tell the truth, the whole truth

00:31:33.059 --> 00:31:34.460
and nothing but the truth to the best of your

00:31:34.460 --> 00:31:36.460
knowledge and ability? Yes. Would you please

00:31:36.460 --> 00:31:38.539
state your full name and spell your last name

00:31:38.539 --> 00:31:47.359
for the record? Thank you, you may be seated.

00:31:49.839 --> 00:31:52.200
Okay, Mr. Connelly. Good morning, Mr. Worthen.

00:31:52.680 --> 00:31:54.619
You stated your name for the record. Could you

00:31:54.619 --> 00:31:59.019
please state your current position? Yes, I'm

00:31:59.019 --> 00:32:01.000
currently serving as the chief legal officer

00:32:01.000 --> 00:32:03.359
of Nicola Corporation. How long have you served

00:32:03.359 --> 00:32:07.119
as the chief legal officer? About 10 years. What

00:32:07.119 --> 00:32:09.859
are your primary responsibilities as chief legal

00:32:09.859 --> 00:32:13.119
officer? As chief legal officer, I'm generally

00:32:13.119 --> 00:32:16.279
responsible for all legal matters at the company.

00:32:17.160 --> 00:32:19.299
So would that include staying apprised and keeping

00:32:19.299 --> 00:32:22.900
up to speed on legal matters involving the company,

00:32:23.200 --> 00:32:27.140
so pending proceedings? Yes. And as part of your

00:32:27.140 --> 00:32:29.039
responsibilities, did you have any role in the

00:32:29.039 --> 00:32:32.059
engagement of outside counsel? Yes, I did. And

00:32:32.059 --> 00:32:34.859
did you generally review invoices from outside

00:32:34.859 --> 00:32:39.299
counsel? Yes, I did. Are you familiar with the

00:32:39.299 --> 00:32:41.359
claim filed by Trevor Milton in these Chapter

00:32:41.359 --> 00:32:44.700
11 cases? I am. And are you aware if the debtors

00:32:44.700 --> 00:32:46.539
are seeking to equitably subordinate that claim?

00:32:46.960 --> 00:32:50.779
That is my understanding, yes. Who was Trevor

00:32:50.779 --> 00:32:53.440
Milton in relation to Nikola? Trevor Milton was

00:32:53.440 --> 00:32:58.319
the founder, largest shareholder and CEO, and

00:32:58.319 --> 00:33:00.259
then changed to the executive chairman when the

00:33:00.259 --> 00:33:04.410
company went public. And are you aware if Mr.

00:33:04.829 --> 00:33:07.210
Milton was alleged to have made any false or

00:33:07.210 --> 00:33:09.609
misleading statements to investors or the public

00:33:09.609 --> 00:33:13.009
about Nikola? Yes, I believe there were allegations

00:33:13.009 --> 00:33:16.490
related to statements made by Mr. Milton and

00:33:16.490 --> 00:33:18.569
the veracity of those statements. So I don't

00:33:18.569 --> 00:33:20.730
want to get into the content of those statements,

00:33:20.809 --> 00:33:22.910
but I want to talk about the fallout of those

00:33:22.910 --> 00:33:25.769
allegations. So Mr. Worthen, are you familiar

00:33:25.769 --> 00:33:29.049
with a Hindenburg research report involving Nikola?

00:33:29.210 --> 00:33:32.150
I am. And can we talk about that, I guess, just

00:33:32.150 --> 00:33:35.309
starting from the basic question of who's Hindenburg

00:33:35.309 --> 00:33:40.430
Research? Hindenburg Research is a short -seller

00:33:40.430 --> 00:33:43.170
report that at various times targets different

00:33:43.170 --> 00:33:45.650
companies. It was led by an individual named

00:33:45.650 --> 00:33:48.470
Nate Anderson. We came to find out he'd published

00:33:48.470 --> 00:33:51.690
a report about NECLAB in September of 2020 time

00:33:51.690 --> 00:33:54.470
period. And can you describe from a very high

00:33:54.470 --> 00:33:58.359
level the nature of that report? The general

00:33:58.359 --> 00:34:01.480
headline of the report is that Nicola was a fraud,

00:34:02.259 --> 00:34:06.720
but the contents of the report went on to make

00:34:06.720 --> 00:34:10.179
certain allegations related to various public

00:34:10.179 --> 00:34:12.119
statements that Mr. Milton made in his social

00:34:12.119 --> 00:34:15.219
media account and other things. And so following

00:34:15.219 --> 00:34:18.719
the report, did any regulators, the SEC or the

00:34:18.719 --> 00:34:21.460
DOJ, take any actions with respect to Mr. Milton

00:34:21.460 --> 00:34:26.320
or with respect to Nicola? Following the report,

00:34:27.079 --> 00:34:31.079
Nikola actually engaged counsel to receive advice

00:34:31.079 --> 00:34:33.039
on how to actually deal with this. They thought

00:34:33.039 --> 00:34:36.260
it was best that we actually reach out to the

00:34:36.260 --> 00:34:39.480
SEC and the DOJ to tell them that we were doing

00:34:39.480 --> 00:34:42.039
our own internal investigation. At the time that

00:34:42.039 --> 00:34:45.719
they had reached out our counsel was told that

00:34:45.719 --> 00:34:48.099
the SEC had already begun an investigation on

00:34:48.099 --> 00:34:51.599
the company related to some of Mr. Milton's social

00:34:51.599 --> 00:34:55.590
media. And then shortly thereafter, we received

00:34:55.590 --> 00:34:58.230
subpoenas from the Department of Justice and

00:34:58.230 --> 00:35:01.369
the SEC and an investigation ensued. Okay, and

00:35:01.369 --> 00:35:03.610
do you recall who your outside counsel was for

00:35:03.610 --> 00:35:06.750
that matter? That's Brooklyn and Ellis. So let's

00:35:06.750 --> 00:35:10.349
start with the SEC. So the SEC served you with

00:35:10.349 --> 00:35:12.590
the subpoena, you said, right? They did. And

00:35:12.590 --> 00:35:15.570
do you recall the nature, what is your understanding

00:35:15.570 --> 00:35:19.289
of the nature of the SEC's inquiry? The major

00:35:19.289 --> 00:35:21.150
of the SEC's inquiry was to determine whether

00:35:21.150 --> 00:35:23.869
or not any of the allegations that were leveled

00:35:23.869 --> 00:35:26.309
in the Hindenburg report were accurate, whether

00:35:26.309 --> 00:35:28.969
or not Nikola was in fact a fraud and whether

00:35:28.969 --> 00:35:33.510
or not there was truth or not truth to some of

00:35:33.510 --> 00:35:35.010
the statements that had been made by the company's

00:35:35.010 --> 00:35:37.889
executive chairman at the time. And did the investigation

00:35:37.889 --> 00:35:40.590
culminate in any formal proceeding or enforcement

00:35:40.590 --> 00:35:44.269
action? It did. The company ended up settling

00:35:44.269 --> 00:35:48.809
with the SEC. I believe in December of 21. Do

00:35:48.809 --> 00:35:50.630
you recall the settlement amount? It was about

00:35:50.630 --> 00:35:53.809
$125 million. And as of the bankruptcy petition

00:35:53.809 --> 00:35:55.670
date, do you recall how much of that had been

00:35:55.670 --> 00:35:58.969
paid? I believe approximately $45 million had

00:35:58.969 --> 00:36:02.750
been paid. So if my math is correct, that would

00:36:02.750 --> 00:36:05.929
mean $80 million or so remained unpaid. Is that

00:36:05.929 --> 00:36:11.489
correct? That's correct. Did Nikola face any

00:36:11.489 --> 00:36:13.889
litigation from shareholders or investors or

00:36:13.889 --> 00:36:17.809
other stakeholders? Yes, shortly after the company

00:36:17.809 --> 00:36:22.309
had received the subpoenas from the SEC and the

00:36:22.309 --> 00:36:27.369
DOJ, and those were made public, we received

00:36:27.369 --> 00:36:30.550
service of lawsuits as it related to securities

00:36:30.550 --> 00:36:33.849
class action and derivative actions based basically

00:36:33.849 --> 00:36:35.510
on the same allegations that had been raised

00:36:35.510 --> 00:36:38.730
in the Hindenburg report related to statements

00:36:38.730 --> 00:36:42.539
made by Mr. Milton. And do you recall, did Nikola

00:36:42.539 --> 00:36:44.880
hire outside counsel in connection with those

00:36:44.880 --> 00:36:47.239
lawsuits as well? We did. Who was your outside

00:36:47.239 --> 00:36:50.119
counsel for that? I would say counsel for both

00:36:50.119 --> 00:36:53.260
the derivative and class action eventually landed

00:36:53.260 --> 00:36:55.179
at Paul Weiss. We originally had Kirkland helping

00:36:55.179 --> 00:36:56.900
on that and then we transitioned to Paul Weiss.

00:36:58.000 --> 00:37:01.500
And then you mentioned also a Department of Justice

00:37:01.500 --> 00:37:04.519
investigation. Can you just describe your understanding

00:37:04.519 --> 00:37:06.480
from a high level of the nature of that investigation?

00:37:07.070 --> 00:37:09.590
Yes, it would have been the same as the SEC's

00:37:09.590 --> 00:37:11.690
investigation. So the DOJ and the SEC were working

00:37:11.690 --> 00:37:14.670
in tandem. They weren't really two separate investigations.

00:37:16.670 --> 00:37:18.250
When there were witness interviews, both the

00:37:18.250 --> 00:37:20.710
SEC and the DOJ would attend. And so the nature

00:37:20.710 --> 00:37:23.389
of the DOJ's investigation was the same as the

00:37:23.389 --> 00:37:26.130
SEC's. They were looking into allegations of

00:37:26.130 --> 00:37:28.670
fraud and misrepresentation at the company. And

00:37:28.670 --> 00:37:31.349
did you hire separate outside legal counsel for

00:37:31.349 --> 00:37:33.409
that investigation? We did not. It was the same

00:37:33.409 --> 00:37:35.630
counsel. Kirkland and Ellis represented the company.

00:37:35.960 --> 00:37:38.599
in both investigations from the SEC and the DOJ.

00:37:39.420 --> 00:37:43.039
So in your role as chief legal officer, you received

00:37:43.039 --> 00:37:46.380
invoices, I assume, from Kirkland and Ellis and

00:37:46.380 --> 00:37:50.500
Paul Weiss. Is that right? That's correct. And

00:37:50.500 --> 00:37:54.440
Nikola incurred, would it be a fair characterization

00:37:54.440 --> 00:37:56.880
to say significant legal fees in connection with

00:37:56.880 --> 00:38:00.900
those proceedings? Yes. Do you recall the amount?

00:38:01.300 --> 00:38:05.079
Yes, I think the amount... was quantified as

00:38:05.079 --> 00:38:07.679
part of an arbitration proceeding that was eventually

00:38:07.679 --> 00:38:11.519
adjudicated in 2022 and then confirmed by a federal

00:38:11.519 --> 00:38:13.679
district court in Arizona. That amount is about

00:38:13.679 --> 00:38:20.219
$46 million. Moving on, are you aware of any

00:38:20.219 --> 00:38:23.199
arbitration proceedings between Nicola and Mr.

00:38:23.380 --> 00:38:26.980
Milton? Yes, there were two. One I just mentioned,

00:38:27.219 --> 00:38:29.500
which was brought by the company at the direction

00:38:29.500 --> 00:38:32.420
of the company's board against Mr. Milton for

00:38:32.420 --> 00:38:34.980
breach of fiduciary duty. and the other was a

00:38:34.980 --> 00:38:38.019
fee arbitration as there was a dispute as it

00:38:38.019 --> 00:38:41.340
related to the advancement of fees and the reasonableness

00:38:41.340 --> 00:38:43.699
of those fees that were being incurred as part

00:38:43.699 --> 00:38:45.980
of Mr. Milton's defense. Okay, so there were

00:38:45.980 --> 00:38:48.960
two arbitrations. I want to focus for now on

00:38:48.960 --> 00:38:52.300
the breach of fiduciary duty arbitration. You

00:38:52.300 --> 00:38:55.320
said Nicola brought claims in an arbitration

00:38:55.320 --> 00:38:59.119
proceeding against Mr. Milton. Can you describe

00:38:59.119 --> 00:39:01.179
from a high level the basis of those breach of

00:39:01.179 --> 00:39:07.320
fiduciary duty claims? Sure. The gist of the

00:39:07.320 --> 00:39:12.500
claim was that Mr. Milton's conduct related to

00:39:12.500 --> 00:39:16.099
certain things he was saying in social media

00:39:16.099 --> 00:39:19.679
via his own social media account or whether it

00:39:19.679 --> 00:39:21.860
be on a podcast were not in the best interest

00:39:21.860 --> 00:39:24.300
of the company. In fact, were made in bad faith

00:39:24.300 --> 00:39:27.760
and were a breach of his duty of loyalty and

00:39:27.760 --> 00:39:30.280
care to the company. And do you recall how the

00:39:30.280 --> 00:39:32.659
arbitration panel ruled on those claims? Yes.

00:39:33.159 --> 00:39:36.300
The three -judge arbitration panel ruled in favor

00:39:36.300 --> 00:39:39.179
of the company, finding that Mr. Milton was 97

00:39:39.179 --> 00:39:42.260
% responsible for the harm that he had caused

00:39:42.260 --> 00:39:44.539
as a result of his breach of fiduciary duty.

00:39:45.719 --> 00:39:48.079
And did the arbitration panel grant Nikola any

00:39:48.079 --> 00:39:52.559
monetary remedy? Yes. The arbitration panel granted

00:39:52.559 --> 00:39:58.440
total award of $167 million dollars, broken down.

00:39:58.650 --> 00:40:02.230
to 46 million of that being approximate from

00:40:02.230 --> 00:40:05.590
fees and costs incurred related to professionals

00:40:05.590 --> 00:40:08.989
that the company had to engage as fallout from

00:40:08.989 --> 00:40:12.869
Mr. Milton's conduct, as well as the $125 million

00:40:12.869 --> 00:40:14.650
settlement that the company had entered into.

00:40:15.349 --> 00:40:21.170
Both of those numbers at a 97 % amount. Just

00:40:21.170 --> 00:40:24.469
to keep the record clear, the $125 million settlement

00:40:24.469 --> 00:40:29.280
was with the SEC, right? That's correct. So in

00:40:29.280 --> 00:40:31.179
connection with the breach of fiduciary duty

00:40:31.179 --> 00:40:34.039
arbitration proceeding, did Nikola hire outside

00:40:34.039 --> 00:40:37.019
legal counsel? We did. And do you recall who

00:40:37.019 --> 00:40:38.800
outside counsel was for that matter? Yes, it

00:40:38.800 --> 00:40:41.679
was Kasowitz, Benson and Torres. And do you recall

00:40:41.679 --> 00:40:45.500
approximately the amount of fees that Kasowitz

00:40:45.500 --> 00:40:49.139
incurred? Yeah, the arbitration proceeding that

00:40:49.139 --> 00:40:51.719
was handled by Kasowitz cost the company about

00:40:51.719 --> 00:40:57.480
$11 million. Do you recall when the SEC and DOJ

00:40:57.480 --> 00:41:01.940
investigations became public? Yeah, I believe

00:41:01.940 --> 00:41:03.760
it was shortly after the company had received

00:41:03.760 --> 00:41:06.619
the subpoenas, which would have been, you know,

00:41:07.019 --> 00:41:09.159
October time period of 2020, the company had

00:41:09.159 --> 00:41:11.559
an obligation to, as a publicly traded company,

00:41:11.659 --> 00:41:14.159
to report all material matters that a reasonable

00:41:14.159 --> 00:41:16.219
investor would want to know, and the disclosure

00:41:16.219 --> 00:41:18.820
was made. So does that mean that you would have

00:41:18.820 --> 00:41:22.360
had to have filed an SEC filing disclosing...

00:41:22.139 --> 00:41:24.980
the outstanding investigations, is that fair?

00:41:25.679 --> 00:41:28.280
Yeah, either, and I can't remember exactly, it

00:41:28.280 --> 00:41:29.760
either would have been a standalone filing, or

00:41:29.760 --> 00:41:31.559
it would have been as part of an upcoming 10Q

00:41:31.559 --> 00:41:33.039
that was filed with the company, because it would

00:41:33.039 --> 00:41:35.519
have been right around third quarter. And around

00:41:35.519 --> 00:41:37.639
that time, or following that public disclosure,

00:41:37.860 --> 00:41:41.380
how did Nicholas stock perform? Not well. Yeah,

00:41:41.519 --> 00:41:46.699
the stock took a significant hit, not only as

00:41:46.699 --> 00:41:48.820
a result of the disclosure of the SEC and the

00:41:48.820 --> 00:41:52.219
DOJ investigation, but... continuing activities

00:41:52.219 --> 00:41:54.539
and conduct continue to put a downward pressure

00:41:54.539 --> 00:41:58.619
on the stock price. And based on your recollection,

00:41:58.860 --> 00:42:01.579
did these events, you know, the public disclosure

00:42:01.579 --> 00:42:05.340
of the SEC and DOJ investigations and then the

00:42:05.340 --> 00:42:08.559
dip in the stock price, did those events have

00:42:08.559 --> 00:42:14.059
any impact on Nicolas' operations? Yes. As a

00:42:14.059 --> 00:42:16.800
result of the DOJ and the SEC investigations

00:42:16.800 --> 00:42:20.809
and the continual News about Mr. Milton's indictment

00:42:20.809 --> 00:42:25.530
and eventual conviction. The company faced significant

00:42:25.530 --> 00:42:29.530
headwinds. The company lost partners. The company

00:42:29.530 --> 00:42:34.750
lost professionals. The company's ability to

00:42:34.750 --> 00:42:38.289
raise capital was significantly hindered. Cost

00:42:38.289 --> 00:42:43.670
of capital went up. Insurance costs went up.

00:42:43.869 --> 00:42:46.769
There were significant, significant problems.

00:42:48.269 --> 00:42:50.130
Various parties that we'd entered into term sheets

00:42:50.130 --> 00:42:52.170
with that had stepped away from those agreements

00:42:52.170 --> 00:42:55.409
because of concerns about the allegations So

00:42:55.409 --> 00:42:57.650
we're not expound a little bit on that. You talked

00:42:57.650 --> 00:43:01.329
about partners Do you have any specific examples

00:43:01.329 --> 00:43:04.349
in mind? Sure, the company had publicly disclosed

00:43:04.349 --> 00:43:06.750
a deal that it had entered into with General

00:43:06.750 --> 00:43:11.809
Motors where it was going to jointly Develop

00:43:11.809 --> 00:43:14.510
fuel cells or buy fuel cells from GM batteries

00:43:15.869 --> 00:43:18.510
GM was gonna take a significant stake in the

00:43:18.510 --> 00:43:21.050
company. It was a several billion dollar transaction.

00:43:22.710 --> 00:43:25.530
That was announced before. All of this came out.

00:43:25.849 --> 00:43:28.949
Then after the ICC and the DOJ investigation,

00:43:29.690 --> 00:43:34.369
GM stepped away from that deal. Sorry, let me,

00:43:34.469 --> 00:43:36.710
please finish. Don't mean to cut you off, sorry

00:43:36.710 --> 00:43:37.570
about that. No, you're good. I was gonna move

00:43:37.570 --> 00:43:38.929
on to a separate one if you're gonna ask me about

00:43:38.929 --> 00:43:42.349
that. In your recollection, with the partnership

00:43:42.349 --> 00:43:46.489
with GM, was that expected to be valuable for

00:43:46.489 --> 00:43:50.070
the company? Oh, for sure. I mean, GM is a household

00:43:50.070 --> 00:43:53.610
name, and their investment in Nikola and partnering

00:43:53.610 --> 00:43:56.030
with them on technology would have allowed us

00:43:56.030 --> 00:43:58.710
to build trucks at a cheaper cost. We could have

00:43:58.710 --> 00:44:01.610
gotten the scale faster. So it was a significant

00:44:01.610 --> 00:44:03.329
partnership that the company was excited about

00:44:03.329 --> 00:44:05.389
that evaporated as a result of these investigations.

00:44:05.829 --> 00:44:08.429
And do you think that partnering with a household

00:44:08.429 --> 00:44:10.889
name, as you put it, would be good for brand

00:44:10.889 --> 00:44:13.909
value for Nikola? Absolutely. For sure. Okay,

00:44:13.949 --> 00:44:15.730
so we talked about GM. Do you have any other

00:44:15.730 --> 00:44:18.409
specific examples in mind? Yes, we'd entered

00:44:18.409 --> 00:44:21.710
into an agreement also with Republic Services

00:44:21.710 --> 00:44:25.489
to work on a refuse truck. Similarly, as a result

00:44:25.489 --> 00:44:27.829
of the DOJ and SEC investigation, they had backed

00:44:27.829 --> 00:44:30.630
away from that. Not publicly disclosed. At the

00:44:30.630 --> 00:44:32.769
time, we had been having conversations with BP

00:44:32.769 --> 00:44:35.969
about doing a partnership related to energy and

00:44:35.969 --> 00:44:37.929
producing hydrogen and hydrogen filling stations.

00:44:38.489 --> 00:44:42.280
Those conversations evaporated. We also had been

00:44:42.280 --> 00:44:45.400
in very lengthy and deep conversations with Amazon

00:44:45.400 --> 00:44:49.079
about truck purchases. Once this hit, those went

00:44:49.079 --> 00:44:51.639
away. And we tried repeatedly to get them back

00:44:51.639 --> 00:44:53.480
to the table to have a conversation. They would

00:44:53.480 --> 00:44:55.559
never talk to us again, despite repeated efforts.

00:44:56.139 --> 00:44:59.400
And just to clarify the record, is BP, does that

00:44:59.400 --> 00:45:04.099
mean British Petroleum? Yes, thank you. And like

00:45:04.099 --> 00:45:07.420
the GM relationships, were these potential partnerships

00:45:07.420 --> 00:45:10.090
expected to be valuable for the company? Absolutely,

00:45:10.210 --> 00:45:12.769
otherwise we wouldn't have been pursuing them.

00:45:13.590 --> 00:45:15.969
So you talked also about other relationships.

00:45:16.289 --> 00:45:20.550
I think you said with advisors. Can you elaborate

00:45:20.550 --> 00:45:22.789
on that a little bit? Sure. I mean, we had been

00:45:22.789 --> 00:45:24.670
using Morgan Stanley as our investment banker.

00:45:24.750 --> 00:45:27.150
They had helped us through the public IPO process.

00:45:28.010 --> 00:45:31.349
Because the IPO had gone so well, we were in

00:45:31.349 --> 00:45:33.710
discussions with Morgan Stanley to go back out

00:45:33.710 --> 00:45:38.460
the market to raise more money. Raised money

00:45:38.460 --> 00:45:41.659
as the lifeblood of the company. We weren't producing

00:45:41.659 --> 00:45:43.679
vehicles yet. We didn't have any revenue yet.

00:45:43.679 --> 00:45:47.539
So we were depending on additional Proceeds either

00:45:47.539 --> 00:45:50.380
equity or debt to kind of help the company along

00:45:50.380 --> 00:45:52.179
and continue and finish out its development of

00:45:52.179 --> 00:45:54.420
the products And so what the plan was to go back

00:45:54.420 --> 00:45:58.679
to market immediately This hit DOJ and ICC investigation.

00:45:58.739 --> 00:46:01.300
There's no there's no raising money while that's

00:46:01.300 --> 00:46:04.539
pending. Nobody will talk to you We had been

00:46:04.539 --> 00:46:07.179
working with Morgan Stanley. They said that they

00:46:07.079 --> 00:46:08.920
could still potentially help us out, but eventually

00:46:08.920 --> 00:46:11.360
they told us that their committee would not approve

00:46:11.360 --> 00:46:14.139
working with Nikola going forward. So we lost

00:46:14.139 --> 00:46:17.079
our investment banker as a result of this. We

00:46:17.079 --> 00:46:19.460
lost our bank. Our bankers even told us they

00:46:19.460 --> 00:46:21.739
wanted us to move their money. And we had, frankly,

00:46:21.860 --> 00:46:23.260
hundreds of millions of dollars parked from the

00:46:23.260 --> 00:46:25.980
IPO with the bank. Bank said, get out, go find

00:46:25.980 --> 00:46:29.320
another bank. So in your capital raising efforts,

00:46:29.699 --> 00:46:33.260
would you normally have relied heavily on an

00:46:33.260 --> 00:46:35.980
investment banker like Morgan Stanley? Absolutely,

00:46:36.000 --> 00:46:37.840
I mean they have the relationships with the potential

00:46:37.840 --> 00:46:40.800
investors and they're significant and who you

00:46:40.800 --> 00:46:44.699
hire as a banker You're relying on them to be

00:46:44.699 --> 00:46:46.780
able to generate the interest in what you're

00:46:46.780 --> 00:46:48.940
trying to do from a money raise able to communicate

00:46:48.940 --> 00:46:54.059
You know the company's value And so having the

00:46:54.059 --> 00:46:56.639
right investment banker is a critical piece Morgan

00:46:56.639 --> 00:46:58.099
Stanley has a very good name particularly in

00:46:58.099 --> 00:47:01.039
the vehicle Investment making space losing them

00:47:01.039 --> 00:47:03.059
as a partner was difficult. So would you say

00:47:03.059 --> 00:47:06.400
that losing an investment banker? precluded you

00:47:06.400 --> 00:47:08.579
from raising additional capital? I don't know

00:47:08.579 --> 00:47:10.820
if that's a fair statement. I mean, you can always

00:47:10.820 --> 00:47:15.400
go and try to get with other investment bankers,

00:47:15.420 --> 00:47:18.559
and we did eventually, but what you're left with,

00:47:18.579 --> 00:47:23.179
particularly after the negative publicity that

00:47:23.179 --> 00:47:27.260
Nikola had borne was raising capital in less

00:47:27.260 --> 00:47:29.119
than ideal circumstances. The company needed

00:47:29.119 --> 00:47:31.820
money to continue to operate, and so then at

00:47:31.820 --> 00:47:34.880
that point, you're having conversations with...

00:47:36.250 --> 00:47:40.230
very expensive money partners that put terms

00:47:40.230 --> 00:47:43.349
to you that are less than ideal because you need

00:47:43.349 --> 00:47:45.010
the money to keep the company afloat, to keep

00:47:45.010 --> 00:47:47.150
people employed, to keep development going, and

00:47:47.150 --> 00:47:52.070
it's a tough cycle. So I want to talk about the

00:47:52.070 --> 00:47:54.949
final item that you mentioned, which is insurance

00:47:54.949 --> 00:47:57.010
premiums. Can you elaborate on that? You said

00:47:57.010 --> 00:47:59.369
that your insurance premiums went up, I believe,

00:47:59.389 --> 00:48:02.130
right? They did. I mean, D &O coverage, any other

00:48:02.130 --> 00:48:04.400
coverage for the company given the history of

00:48:04.400 --> 00:48:06.980
the company, it got expensive. DNO coverage during

00:48:06.980 --> 00:48:11.019
that time was already expensive. They were already

00:48:11.019 --> 00:48:13.059
seeing historical highs, but when we went to

00:48:13.059 --> 00:48:19.480
re -up policies, it was millions more. So, all

00:48:19.480 --> 00:48:21.400
right, I appreciate that. To wrap it all up,

00:48:22.039 --> 00:48:25.840
so the SEC and DOJ investigations were linked,

00:48:26.599 --> 00:48:29.159
as you testified, to statements Mr. Milton made

00:48:29.159 --> 00:48:32.760
to the public. Is that a fair characterization?

00:48:33.199 --> 00:48:35.400
Yeah, I think that's fair. I mean, it was born

00:48:35.400 --> 00:48:38.159
out of the Hindenburg report that came public,

00:48:38.699 --> 00:48:41.460
and then there was a direct inquiry by the SEC

00:48:41.460 --> 00:48:44.199
and the DOJ. Like I said before, though, when

00:48:44.199 --> 00:48:47.260
we had come to the SEC, because the goal, when

00:48:47.260 --> 00:48:49.559
you're under investigation, or when something

00:48:49.559 --> 00:48:51.539
like this happens, at least this is what I learned

00:48:51.539 --> 00:48:54.219
from counsel, the goal is to get to the SEC and

00:48:54.219 --> 00:48:56.780
DOJ first, kind of self -report, say we're going

00:48:56.780 --> 00:48:58.139
to do an investigation, we're going to get to

00:48:58.139 --> 00:49:01.000
the bottom of this. When we went to the SEC and

00:49:01.000 --> 00:49:03.139
said, hey, you know, we're coming to you hat

00:49:03.139 --> 00:49:04.320
in hand. We're going to get to the bottom of

00:49:04.320 --> 00:49:05.780
this and figure out if there's any truth to any

00:49:05.780 --> 00:49:07.420
of these allegations in the Hinnibor report.

00:49:08.159 --> 00:49:10.340
The SEC said, not so fast. We're not going to

00:49:10.340 --> 00:49:11.900
give you credit because you're already under

00:49:11.900 --> 00:49:13.599
investigation. You just didn't know it. We've

00:49:13.599 --> 00:49:15.099
been following you guys for a while based on

00:49:15.099 --> 00:49:16.519
statements that Mr. Milton had been making in

00:49:16.519 --> 00:49:19.800
the public. OK. And just to wrap it up, we talked

00:49:19.800 --> 00:49:23.260
about penalties and fees. Is it fair to say that

00:49:23.260 --> 00:49:25.800
the SEC investigation, the DOJ investigation,

00:49:25.940 --> 00:49:28.820
were bad for the company's balance sheet? Absolutely,

00:49:28.880 --> 00:49:30.480
I don't know how they could be good. They were

00:49:30.480 --> 00:49:33.179
devastating. We talked about $45 million out

00:49:33.179 --> 00:49:36.500
the door to pay the ICC fine, right? Yes, that

00:49:36.500 --> 00:49:39.539
was what has been paid, at least as the filing

00:49:39.539 --> 00:49:42.420
of the bankruptcy of the $125 million. And I

00:49:42.420 --> 00:49:44.539
think you mentioned a similar amount, about $46

00:49:44.539 --> 00:49:47.119
million for advisor fees in connection with those

00:49:47.119 --> 00:49:49.800
proceedings? Yeah, I mean that was up until the

00:49:49.800 --> 00:49:55.280
date of the arbitration award. But we continue

00:49:55.280 --> 00:49:57.949
to incur costs as it relates to... At least we

00:49:57.949 --> 00:50:00.389
did, prior to bankruptcy, the class action litigation,

00:50:01.190 --> 00:50:04.090
the derivative litigation. And then you also

00:50:04.090 --> 00:50:07.409
mentioned fees payable or paid to Kasowitz, about

00:50:07.409 --> 00:50:09.389
$11 million, right? That's right, to bring the

00:50:09.389 --> 00:50:13.969
arbitration, to try to recover from Mr. Milton.

00:50:14.230 --> 00:50:17.710
So if my math is right, that you add those numbers

00:50:17.710 --> 00:50:20.010
up, the amount paid to the SEC, the amount paid

00:50:20.010 --> 00:50:22.329
to Kirkland and Ellis, the amount paid to Kasowitz,

00:50:22.710 --> 00:50:25.289
brings you over $100 million about, right? I

00:50:25.289 --> 00:50:29.659
think that's about right, yeah. No further questions,

00:50:29.800 --> 00:50:35.039
but like the reserve for a redirect. Yes. Mr.

00:50:35.179 --> 00:50:49.360
Breneke. Good morning and welcome. Good morning,

00:50:49.400 --> 00:50:52.280
Your Honor. Thank you for allowing me to come

00:50:52.280 --> 00:50:54.260
in this morning. Sean Brenek, Lewis Bresboy,

00:50:54.619 --> 00:51:05.280
representing Trevor Milton. Yes please do. Good

00:51:05.280 --> 00:51:26.360
morning. Good morning. You testified on direct

00:51:26.360 --> 00:51:31.159
that some of your responsibilities as the chief

00:51:31.159 --> 00:51:35.199
legal officer were to generally oversee all the

00:51:35.199 --> 00:51:38.119
legal matters for the company. Do I have that

00:51:38.119 --> 00:51:39.699
generally correct? Yeah, I believe that's what

00:51:39.699 --> 00:51:43.360
I testified. And does that include making sure

00:51:43.360 --> 00:51:47.320
that public statements are complete and accurate?

00:51:48.179 --> 00:51:50.119
To the extent that I was aware of those statements,

00:51:50.480 --> 00:51:52.480
yes. We would always want to make sure that anything

00:51:52.480 --> 00:51:54.039
that was said by the company was complete and

00:51:54.039 --> 00:52:02.440
accurate. And you're aware that both Delaware

00:52:02.440 --> 00:52:05.679
law and federal securities law require companies

00:52:05.679 --> 00:52:09.940
to have a level of controls in place at the board

00:52:09.940 --> 00:52:12.659
level to make sure that information is correct

00:52:12.659 --> 00:52:26.539
and accurate, right? Sure, yes. testified a bit

00:52:26.539 --> 00:52:30.840
about Mr. Milton's proof of claim in the case

00:52:30.840 --> 00:52:36.760
here. And are you aware or are you not that the

00:52:36.760 --> 00:52:40.340
debtor is arguing that Mr. Milton is not entitled

00:52:40.340 --> 00:52:44.099
to indemnification? Is that correct? I believe

00:52:44.099 --> 00:52:45.880
that's one of the arguments that's been made,

00:52:46.059 --> 00:52:51.320
yes. And that is in part because the indemnification

00:52:51.320 --> 00:52:55.260
issue had already been determined. Yes, I believe

00:52:55.260 --> 00:52:57.820
you're referencing the arbitration award by the

00:52:57.820 --> 00:52:59.480
three -judge panel that was confirmed by the

00:52:59.480 --> 00:53:03.599
federal court. We're in both documents. The federal

00:53:03.599 --> 00:53:07.099
court and the panel determined that, based on

00:53:07.099 --> 00:53:10.539
Minister Milton's conduct, that indemnification

00:53:10.539 --> 00:53:17.199
was not warranted. Do you have the two exhibit

00:53:17.199 --> 00:53:20.219
binders up? I don't. The debtors council brought

00:53:20.219 --> 00:53:54.420
up two notebooks. Oh certainly. I'm going to

00:53:54.420 --> 00:54:03.400
ask you to turn to exhibit 10. Is that tab 10?

00:54:03.679 --> 00:54:08.860
Tab 10, yes, I believe. The debtor's memorandum

00:54:08.860 --> 00:54:11.599
of law in support of the debtor's chapter 11

00:54:11.599 --> 00:54:14.559
liquidating plan regarding proper classification

00:54:14.559 --> 00:54:18.260
of the Milton claim pursuant to section 510c,

00:54:18.539 --> 00:54:21.780
bankruptcy code, and objection to the Milton

00:54:21.780 --> 00:54:26.809
claim. Yes, I see that. Thank you. And I will

00:54:26.809 --> 00:54:32.190
note that exhibit 10, tab 10 here, has been filed

00:54:32.190 --> 00:54:36.670
under seal. So I will ask you the questions I

00:54:36.670 --> 00:54:39.130
will ask you. I'm going to try to avoid having

00:54:39.130 --> 00:54:43.130
you testify as to anything that was redacted

00:54:43.130 --> 00:54:46.809
and put in the public record. But I'm sure my

00:54:46.809 --> 00:54:49.469
colleagues here will correct me if I go over

00:54:49.469 --> 00:54:52.309
that line and tell me that I'm going too far

00:54:52.309 --> 00:54:58.090
afield. Do you recognize this document, sir?

00:54:58.630 --> 00:55:02.170
I do. Did you have any involvement in putting

00:55:02.170 --> 00:55:06.090
this together? Not really. Council did that.

00:55:06.090 --> 00:55:08.070
I had an opportunity to review it and provide

00:55:08.070 --> 00:55:13.050
comment, but given the fact that it was a legal

00:55:13.050 --> 00:55:15.650
memorandum, it was handled mostly by Council.

00:55:16.809 --> 00:55:18.110
I apologize for interrupting. No, you're fine.

00:55:18.809 --> 00:55:22.190
And you submitted a declaration of testing to

00:55:22.190 --> 00:55:24.880
the accuracy of... the information in here, is

00:55:24.880 --> 00:55:27.519
that correct? Yes, correct. And I believe that's

00:55:27.519 --> 00:55:42.059
Exhibit 11. Yes. Bear with me for a second here,

00:55:42.059 --> 00:55:44.940
I want to make sure that I have the redacted

00:55:44.940 --> 00:55:48.420
version of this as well, and that's Exhibit 20,

00:55:49.820 --> 00:55:52.929
the redacted public. I'm going to ask you if

00:55:52.929 --> 00:55:59.210
you can put both of those side by side. Thank

00:55:59.210 --> 00:56:41.690
you. Am I correct here that on page 30 in paragraph

00:56:41.690 --> 00:56:50.010
101 at the last line there, this is where the

00:56:50.010 --> 00:56:55.010
debtor is talking about the indemnification amounts

00:56:55.010 --> 00:56:58.309
have already been found to be unreasonable and

00:56:58.309 --> 00:57:00.750
should therefore be disallowed. Is that correct?

00:57:02.800 --> 00:57:06.980
You're referring to page 30, paragraph 105? 101,

00:57:07.119 --> 00:57:15.920
I'm sorry, it starts on page 29. That'll be my

00:57:15.920 --> 00:57:25.639
first question. For simplicity, I'll strike that

00:57:25.639 --> 00:57:31.840
and I will ask you about paragraph 105. Just

00:57:31.840 --> 00:57:35.280
read that. My question's simply going to be,

00:57:36.199 --> 00:57:39.460
in this paragraph, the debtor is saying, confirming

00:57:39.460 --> 00:57:42.539
what you had just testified to, that the claim

00:57:42.539 --> 00:57:45.559
for indemnification is precluded because of the

00:57:45.559 --> 00:57:48.340
arbitration award that was issued. Is that right?

00:57:49.159 --> 00:57:51.420
Collies, are you referring to paragraph 101 or

00:57:51.420 --> 00:57:55.719
105? 105. Okay. Nothing on 101? Nothing on 101.

00:57:56.000 --> 00:58:10.840
Okay. Yes, it references the determination in

00:58:10.840 --> 00:58:17.420
the arbitration proceeding that talks about their

00:58:17.420 --> 00:58:20.559
ruling that Mr. Milton is not entitled to identification.

00:58:23.159 --> 00:58:37.219
I believe that's what the award says, yes. Footnote

00:58:37.219 --> 00:58:48.820
6 on page 29. This has a redacted portion. So

00:58:48.820 --> 00:58:51.619
I will do my best to only ask you a question

00:58:51.619 --> 00:59:08.730
about the unredacted portion. Yes. So if the

00:59:08.730 --> 00:59:11.389
arbitration provision, if the arbitration award

00:59:11.389 --> 00:59:18.369
had precluded a claim for indemnification, but

00:59:18.369 --> 00:59:21.409
isn't that contradicted by footnote six, which

00:59:21.409 --> 00:59:26.030
says that Nikola's request in the Nikola breach

00:59:26.030 --> 00:59:30.409
of duty arbitration proceeding to recover and

00:59:30.409 --> 00:59:33.239
it was redacted out. was denied without prejudice

00:59:33.239 --> 00:59:36.019
for resolution of such issues in the Milton fee

00:59:36.019 --> 00:59:38.800
arbitration following resolution of the federal

00:59:38.800 --> 00:59:43.539
conviction. So doesn't it doesn't it stand to

00:59:43.539 --> 00:59:47.619
reason that the issue was actually pushed down

00:59:47.619 --> 00:59:51.820
the line until after the resolution of the federal

00:59:51.820 --> 00:59:57.380
conviction process? I don't believe so. The arbitration

00:59:57.380 --> 01:00:02.820
award clearly says that there is no indemnification.

01:00:03.119 --> 01:00:07.059
That's a clear statement in there. My interpretation

01:00:07.059 --> 01:00:10.119
of what the panel was trying to do was to set

01:00:10.119 --> 01:00:15.320
aside the separate advancement issue on the Cahill

01:00:15.320 --> 01:00:17.980
fees that had already been advanced and they

01:00:17.980 --> 01:00:20.440
were letting that be and therefore not bringing

01:00:20.440 --> 01:00:23.300
that in. So advancement is my interpretation

01:00:23.300 --> 01:00:24.900
of what I thought the panel was trying to do

01:00:24.900 --> 01:00:26.420
was there was a difference between advancement

01:00:26.420 --> 01:00:29.699
in that instance and kind of indemnification.

01:00:30.880 --> 01:00:34.679
going forward. And you understand that the basis

01:00:34.679 --> 01:00:38.380
for Mr. Milton's proof of claim here is his right

01:00:38.380 --> 01:00:43.639
to indemnification, right? Yes, I believe that

01:00:43.639 --> 01:00:46.500
is the underlying basis for his proof of claim.

01:00:47.539 --> 01:00:50.980
So you had mentioned what your interpretation

01:00:50.980 --> 01:00:53.599
of the arbitration award is. I'd like to turn

01:00:53.599 --> 01:00:57.179
to see what the actual award says. And this is

01:00:57.179 --> 01:01:01.750
another situation where we have a document that

01:01:01.750 --> 01:01:05.050
was filed confidentially and then a redacted

01:01:05.050 --> 01:01:07.650
version. The confidential version is exhibit

01:01:07.650 --> 01:01:14.329
15 and the redacted is exhibit 25. You could

01:01:14.329 --> 01:02:21.639
pull both of those. of those. Turning to page

01:02:21.639 --> 01:02:31.719
79 onto 80 and I'll ask you sir to look at the

01:02:31.719 --> 01:02:36.920
un -redacted exhibit 15. My questions will be

01:02:36.920 --> 01:03:00.900
general so as not to reveal any of them. Did

01:03:00.900 --> 01:03:05.739
the arbitration panel reach any decisions about

01:03:05.920 --> 01:03:17.400
Mr. Milton's right to indemnification. It would

01:03:17.400 --> 01:03:20.519
be a yes or no, I believe. You'd have to disclose

01:03:20.519 --> 01:03:22.579
what's in the confidential information in order

01:03:22.579 --> 01:03:25.900
to, one way or the other. Yeah, sorry, what's

01:03:25.900 --> 01:03:27.960
the question you wanted to answer? The arbitration

01:03:27.960 --> 01:03:34.219
panel here, render any decisions about Mr. Milton's...

01:03:34.239 --> 01:03:53.039
right to indemnification. This is not it I'm

01:03:53.039 --> 01:03:55.420
not trying to get out what his understanding

01:03:55.420 --> 01:03:58.300
is your honor trying to get out what the panel

01:03:58.300 --> 01:04:08.099
actually came out with. Yeah, I I guess and I

01:04:08.099 --> 01:04:10.300
invite your response on this if it's a matter

01:04:10.300 --> 01:04:15.579
of what the arbitration ruling says That's her

01:04:15.579 --> 01:04:19.659
thing. That's for me to read. I don't know that

01:04:19.659 --> 01:04:25.739
mr. Worthen's Take on what it says would be instructive

01:04:41.039 --> 01:04:43.719
And you had testified earlier that there were

01:04:43.719 --> 01:04:49.320
two arbitrations pending. The first was a breach

01:04:49.320 --> 01:04:52.780
of fiduciary duty arbitration that Nikola brought.

01:04:53.480 --> 01:04:56.480
And there was a second, but I think counsel would

01:04:56.480 --> 01:04:59.840
only focus on the breach of fiduciary duty arbitration.

01:05:00.139 --> 01:05:02.860
I'd like to ask you about the other arbitration.

01:05:03.880 --> 01:05:10.099
What is your understanding of that? Yes, that

01:05:10.099 --> 01:05:13.960
arbitration actually was originally brought by

01:05:13.960 --> 01:05:17.820
Mr. Milton against Nikola because there was a

01:05:17.820 --> 01:05:20.739
dispute about the reasonableness of Cahill's

01:05:20.739 --> 01:05:25.480
fees. And so there was repeated conversations

01:05:25.480 --> 01:05:28.219
between myself and Mr. Milton's attorney Brad

01:05:28.219 --> 01:05:32.420
Bondi at Cahill about the size of the legal bills

01:05:32.420 --> 01:05:37.860
that we were getting. And under the indemnification

01:05:37.860 --> 01:05:40.420
agreement, I believe the company did have an

01:05:40.420 --> 01:05:44.199
obligation to advance fees, but it said specifically

01:05:44.199 --> 01:05:46.079
that the company had an obligation to advance

01:05:46.079 --> 01:05:48.840
reasonable fees. And so the company was taking

01:05:48.840 --> 01:05:51.260
issue with the reasonableness of Cahill's fees.

01:05:51.960 --> 01:05:56.800
And so while we were disputing that, there were

01:05:56.800 --> 01:05:59.780
several months that bills went unpaid to Cahill.

01:05:59.880 --> 01:06:03.019
Cahill filed the arbitration to request payment.

01:06:03.280 --> 01:06:05.280
The issue was never about whether or not, at

01:06:05.280 --> 01:06:07.400
least from Nicholas' position, whether or not

01:06:07.400 --> 01:06:09.360
Mr. Milton was entitled to advancement. That

01:06:09.360 --> 01:06:11.420
was in the agreement, and we had said that. The

01:06:11.420 --> 01:06:13.179
issue was always about the reasonableness of

01:06:13.179 --> 01:06:15.400
the fees that were being incurred by Cahill,

01:06:17.199 --> 01:06:19.300
literally millions and millions of dollars a

01:06:19.300 --> 01:06:21.940
month. And so we had an arbitration proceeding

01:06:21.940 --> 01:06:27.260
that was in Arizona under the AAA, three -judge

01:06:27.260 --> 01:06:31.639
panel. We had argued that... 18 million dollars

01:06:31.639 --> 01:06:33.219
of the fees were unreasonable and I think the

01:06:33.219 --> 01:06:36.079
panel came back and said that 17 .2 million of

01:06:36.079 --> 01:06:37.880
the fees were found to be unreasonable. They

01:06:37.880 --> 01:06:39.699
basically found in our favor on the unreasonableness.

01:06:40.139 --> 01:06:43.980
So what is the status of that arbitration by

01:06:43.980 --> 01:06:46.820
the way? I mean nothing has happened in that

01:06:46.820 --> 01:06:49.780
arbitration for multiple years. Stayed? Is that

01:06:49.780 --> 01:06:52.599
correct? I don't know about stayed. We had a

01:06:52.599 --> 01:06:55.579
ruling. The parties can go back at any time to

01:06:55.579 --> 01:06:57.860
the extent I believe that there is still any

01:06:57.860 --> 01:07:03.909
issues with bills. No, no bills have ever been

01:07:03.909 --> 01:07:08.789
put back in front of that panel for years The

01:07:08.789 --> 01:07:13.730
arbitration is still pending it's just like I

01:07:13.730 --> 01:07:16.530
said before I don't know if if that's accurate

01:07:16.530 --> 01:07:20.510
I think it's The panel had reached out at one

01:07:20.510 --> 01:07:22.969
point to determine whether or not it could be

01:07:22.969 --> 01:07:25.800
closed and I think the parties potentially said

01:07:25.800 --> 01:07:27.619
you can leave it open to the extent that anybody

01:07:27.619 --> 01:07:29.519
is going to be bills, but nobody has brought

01:07:29.519 --> 01:07:31.480
any bills or any issues before that panel for

01:07:31.480 --> 01:07:35.239
a couple of years. Do you understand that the

01:07:35.239 --> 01:07:38.360
reason for that is the automatic stay imposed

01:07:38.360 --> 01:07:42.659
by the filing of the bankruptcy? The reason for

01:07:42.659 --> 01:07:48.039
what? The reason for the stay or the lag in the

01:07:48.039 --> 01:07:51.050
first arbitration proceeding. I am generally

01:07:51.050 --> 01:07:52.969
aware of the automatic stay, but I don't believe

01:07:52.969 --> 01:07:54.869
that's the reason why nothing has been put in

01:07:54.869 --> 01:07:57.530
front of that panel in a couple years. Could

01:07:57.530 --> 01:08:14.420
I ask you to turn to exhibit 28, please? And

01:08:14.420 --> 01:08:17.100
this is the second amended combined disclosure

01:08:17.100 --> 01:08:20.140
statement in Chapter 11 plan of liquidation of

01:08:20.140 --> 01:08:22.600
Nicola Corporation and its debtor affiliates.

01:08:23.819 --> 01:08:28.140
Have you seen this document? I believe I have.

01:08:28.180 --> 01:08:30.479
There's been a lot of filings in this case. I

01:08:30.479 --> 01:08:32.020
actually make an effort to review everything,

01:08:32.100 --> 01:08:34.859
so I'm sure at one point I did review this document.

01:08:35.279 --> 01:08:37.020
All right. If you have any questions, you can

01:08:37.020 --> 01:08:42.140
turn to Exhibit 30, which is a declaration. The

01:08:42.140 --> 01:08:50.939
title says it's in support of this. Does that

01:08:50.939 --> 01:08:54.319
help you with whether you reviewed this? Yes,

01:08:54.340 --> 01:08:58.539
like I said, I believe I had reviewed it. In

01:08:58.539 --> 01:09:08.800
exhibit 28, you could turn to page 34. I'm going

01:09:08.800 --> 01:09:11.180
to direct your attention to the bottom of page.

01:09:17.579 --> 01:09:27.779
last paragraph? You see that? I do. And doesn't

01:09:27.779 --> 01:09:31.060
this say that it's the Milton fee arbitration,

01:09:31.140 --> 01:09:35.119
which do you understand that to mean that that's

01:09:35.119 --> 01:09:38.739
the arbitration that Mr. Milton filed that we've

01:09:38.739 --> 01:09:40.500
been talking about as the first arbitration?

01:09:42.239 --> 01:09:45.260
Yes, I believe that's right. and that that state

01:09:45.260 --> 01:09:48.520
remains stalled and subject to the automatic

01:09:48.520 --> 01:09:52.359
state, right? I'm not disputing that. I thought

01:09:52.359 --> 01:09:54.840
your previous question was, you know, the reason

01:09:54.840 --> 01:09:56.720
why there hasn't been anything put in front of

01:09:56.720 --> 01:09:58.199
that court for the last few years was because

01:09:58.199 --> 01:09:59.840
of the automatic state that was recently issued

01:09:59.840 --> 01:10:03.819
by this court. I guess my testimony was trying

01:10:03.819 --> 01:10:05.880
to clarify that that's not my understanding of

01:10:05.880 --> 01:10:07.760
the reason why nothing has been done in that

01:10:07.760 --> 01:10:30.760
arbitration proceeding for years. testified a

01:10:30.760 --> 01:10:38.140
bit about the SEC investigation and specifically

01:10:38.140 --> 01:10:41.760
the investigation that it had started into Nikola.

01:10:42.739 --> 01:10:52.539
Do you remember that? I think your testimony

01:10:52.539 --> 01:10:55.359
was that the nature of that inquiry was whether

01:10:55.359 --> 01:10:58.340
the allegations in the Hindenburg report were

01:10:58.340 --> 01:11:02.100
accurate and fraud and truth of the statements

01:11:02.100 --> 01:11:05.039
that Mr. Milton made. Is that correct? It was

01:11:05.039 --> 01:11:07.460
a high -level generalization, but I think that's

01:11:07.460 --> 01:11:11.920
generally accurate, yeah. I'd ask you to turn

01:11:11.920 --> 01:11:35.960
to Exhibit 7. I'm there. So if we turn to page

01:11:35.960 --> 01:11:41.960
two, step back. Do you recognize this document?

01:11:42.319 --> 01:11:46.500
I do. This is the titled order instituting cease

01:11:46.500 --> 01:11:49.000
and desist proceedings pursuant to section 8A

01:11:49.000 --> 01:11:52.659
of the Securities Act 1933 and section 21C of

01:11:52.659 --> 01:11:56.000
the Securities Exchange Act 1934, making findings

01:11:56.000 --> 01:11:58.659
and imposing remedial sanctions and a cease and

01:11:58.659 --> 01:12:03.590
desist order. this the document that Nikola entered

01:12:03.590 --> 01:12:09.909
into to resolve the SEC investigation? Yes. And

01:12:09.909 --> 01:12:16.510
you've reviewed this document? I have. If we

01:12:16.510 --> 01:12:23.449
turn to page two, paragraphs one, two, and three,

01:12:24.550 --> 01:12:27.789
isn't it true that the inquiry that at the SEC

01:12:27.789 --> 01:12:31.840
was investigating in the subject this order was

01:12:31.840 --> 01:12:36.140
not limited to the truth of statements that Mr.

01:12:36.460 --> 01:12:40.779
Milton had made, but also included Nicholas violations

01:12:40.779 --> 01:12:47.880
of federal securities rules pertaining to the

01:12:47.880 --> 01:12:51.600
implementation and the maintenance of controls

01:12:51.600 --> 01:12:59.460
and procedures. Yes, I would agree that the document

01:12:59.460 --> 01:13:05.939
includes not only allegations about Like it says

01:13:05.939 --> 01:13:08.119
in paragraph to that Nikola primarily misled

01:13:08.119 --> 01:13:10.020
investor through scores and misrepresentations

01:13:10.020 --> 01:13:12.319
by its CEO and later executive chairman Trevor

01:13:12.319 --> 01:13:17.279
Milton There is other allegations in here as

01:13:17.279 --> 01:13:20.659
it relates to company conduct, but I would also

01:13:20.659 --> 01:13:25.100
add one that you're given this document by the

01:13:25.100 --> 01:13:27.460
SEC and not given any opportunity to make any

01:13:27.460 --> 01:13:29.880
revisions to it. It's a take it or leave it document,

01:13:30.560 --> 01:13:32.539
given that they tell you it's on a no admit or

01:13:32.539 --> 01:13:36.779
deny basis. Two, while the company disagreed

01:13:36.779 --> 01:13:40.399
specifically with specific things related to

01:13:40.399 --> 01:13:44.600
things that the SEC took issue with in the company's

01:13:44.600 --> 01:13:47.460
filings, the company has never restated, never

01:13:47.460 --> 01:13:52.050
changed, never had to correct. a financial statement

01:13:52.050 --> 01:14:02.869
based upon its disclosures. I guess the answer

01:14:02.869 --> 01:14:06.130
to my question then was that the SEC investigation

01:14:06.130 --> 01:14:08.770
wasn't just limited to the truth of statements

01:14:08.770 --> 01:14:11.409
that Mr. Milton had made, right? Yeah, that's

01:14:11.409 --> 01:14:13.189
correct. And I don't believe I testified previously

01:14:13.189 --> 01:14:14.989
that that's the only thing that it was about.

01:14:28.970 --> 01:14:39.970
If we turn to page five, paragraph 19, the SEC

01:14:39.970 --> 01:14:44.510
here finds that Nikola did not have a process

01:14:44.510 --> 01:14:47.369
in place to ensure that information published

01:14:47.369 --> 01:14:50.569
by Milton was communicated to management. As

01:14:50.569 --> 01:14:52.510
the general counsel, wouldn't that have been

01:14:52.510 --> 01:14:55.069
within your scope of responsibility to make sure

01:14:55.069 --> 01:14:59.640
that that was in place? Yes, I would agree with

01:14:59.640 --> 01:15:03.359
that and I would disagree with this statement

01:15:03.359 --> 01:15:07.479
by the SEC. We did have a process in place. We

01:15:07.479 --> 01:15:10.659
had asked Mr. Milton to have his social media

01:15:10.659 --> 01:15:14.220
reviewed. He had refused. The only time that

01:15:14.220 --> 01:15:17.060
Trevor came to me and asked me to review pieces

01:15:17.060 --> 01:15:19.020
of his social media was when I had to do something

01:15:19.020 --> 01:15:24.539
related to the SPAC filing or something related

01:15:24.539 --> 01:15:27.119
to our public offering, which... Frankly, none

01:15:27.119 --> 01:15:29.560
of those were ever considered inaccurate or were

01:15:29.560 --> 01:15:31.159
the subject of the investigation against Mr.

01:15:31.359 --> 01:15:34.140
Milton. If it had to do with anything about vehicle

01:15:34.140 --> 01:15:38.140
technology, the advancement of our fueling, any

01:15:38.140 --> 01:15:41.760
of those other things, Trevor never would have,

01:15:41.800 --> 01:15:44.439
nor did he ever come to me about those types

01:15:44.439 --> 01:15:47.380
of things in his social media. He was considered

01:15:47.380 --> 01:15:51.520
the expert on those, not me. And despite our

01:15:51.520 --> 01:15:54.119
requests, not only from me, but also from the

01:15:54.119 --> 01:15:56.260
CEO at the time, Mark Russell and Ken Brady,

01:15:56.500 --> 01:16:02.359
the CFO at the time. We couldn't get Mr. Milton

01:16:02.359 --> 01:16:05.359
to comply with that. He was posting things on

01:16:05.359 --> 01:16:07.760
social media. We had asked the media team to

01:16:07.760 --> 01:16:09.899
alert us to any issues that they were aware of.

01:16:10.439 --> 01:16:12.319
Occasionally they did, and when they did, I would

01:16:12.319 --> 01:16:14.699
raise those issues with Mr. Milton. But as we

01:16:14.699 --> 01:16:16.039
came to find out in the Hylenberg report, there

01:16:16.039 --> 01:16:17.359
were a whole bunch of things that we were never

01:16:17.359 --> 01:16:20.539
aware of, and that apparently the media department

01:16:20.539 --> 01:16:26.850
didn't know were issues. the SEC includes in

01:16:26.850 --> 01:16:31.409
this cease and desist order that don't pertain

01:16:31.409 --> 01:16:36.210
to things about Mr. Milton, including misleading

01:16:36.210 --> 01:16:39.890
pictures and statements about refueling capabilities,

01:16:40.649 --> 01:16:44.289
hydrogen stations, the ability to produce electricity.

01:16:45.949 --> 01:16:48.789
All of those things are included in here, correct,

01:16:48.930 --> 01:16:52.609
without involving statements pertaining to Mr.

01:16:52.710 --> 01:16:56.479
Milton. As you heard just briefly, this goes

01:16:56.479 --> 01:17:02.699
back to my issue with this whole sojourn into

01:17:02.699 --> 01:17:10.100
these questions. We made a point to tee up today's

01:17:10.100 --> 01:17:14.159
proceedings what I would characterize as the

01:17:14.159 --> 01:17:20.260
right way. We filed our plan. We filed our disclosure

01:17:20.260 --> 01:17:23.859
statement and approval of that. We filed our

01:17:24.300 --> 01:17:30.539
memorandum of law seeking to equitably subordinate

01:17:30.539 --> 01:17:38.479
Mr. Milton's claim on July 29th, 2025. The objection

01:17:38.479 --> 01:17:45.760
that we got back did not take issue with or raise

01:17:45.760 --> 01:17:50.640
this comparable faults theory that is trying

01:17:50.640 --> 01:17:55.819
to be manufactured in front of our eyes, which

01:17:55.819 --> 01:17:59.020
we don't understand the basis for in the law,

01:17:59.920 --> 01:18:03.520
and believe is quite a waste of the court's time.

01:18:05.140 --> 01:18:08.420
We continue to object, and we've been very patient

01:18:08.420 --> 01:18:12.899
with the witness this time, who traveled here

01:18:12.899 --> 01:18:18.159
from Arizona to support confirmation, but...

01:18:19.760 --> 01:18:23.579
I think enough is enough, and we'd like to close

01:18:23.579 --> 01:18:27.420
this portion of the proceeding and move forward

01:18:27.420 --> 01:18:31.100
with the rest of our confirmation hearing. Mr.

01:18:31.239 --> 01:18:35.000
Browning? I can certainly appreciate their desire

01:18:35.000 --> 01:18:38.260
to close this portion. I would suggest, though,

01:18:38.500 --> 01:18:42.279
that, Your Honor, that they are seeking to subordinate

01:18:42.279 --> 01:18:46.880
this claim on equitable basis, and they have

01:18:46.880 --> 01:18:51.260
painted a picture throughout the course here

01:18:51.260 --> 01:18:54.140
of these proceedings as to all of these actions

01:18:54.140 --> 01:18:56.779
that Mr. Milton had taken and how he did all

01:18:56.779 --> 01:19:00.500
of this and actually on direct it was all testimony

01:19:00.500 --> 01:19:03.460
about how Mr. Milton's actions caused all this

01:19:03.460 --> 01:19:06.380
harm and how he had done all of this. What we're

01:19:06.380 --> 01:19:08.479
doing, Your Honor, is in an equitable position.

01:19:08.979 --> 01:19:11.699
Your Honor needs to consider all the factors,

01:19:12.100 --> 01:19:15.399
everything that's going on. Okay, this might

01:19:15.399 --> 01:19:20.159
be a good time to talk about what I think the

01:19:20.159 --> 01:19:24.020
relevant evidence may be regarding the equitable

01:19:24.020 --> 01:19:27.079
subordination issue. The argument for equitable

01:19:27.079 --> 01:19:30.739
subordination is based upon the conviction for

01:19:30.739 --> 01:19:33.279
which Mr. Milton subsequently was pardoned by

01:19:33.279 --> 01:19:37.100
President Trump. And it's also based upon the

01:19:37.100 --> 01:19:42.079
orbital rulings that were affirmed and made an

01:19:42.079 --> 01:19:46.079
order of the district court. It just seems to

01:19:46.079 --> 01:19:49.520
me as a... as a matter of issue of preclusion,

01:19:50.680 --> 01:19:57.859
I can't and won't revisit what the court found

01:19:57.859 --> 01:20:01.439
and what the jury found in the criminal proceeding,

01:20:02.140 --> 01:20:05.779
nor the findings that were affirmed by the district

01:20:05.779 --> 01:20:12.680
court in Arizona. As a general matter, I think

01:20:12.680 --> 01:20:17.279
I understand where you're going. But also, you're

01:20:17.279 --> 01:20:22.479
raising issues that could have been raised in

01:20:22.479 --> 01:20:26.439
the two plan objections and wasn't raised there.

01:20:26.560 --> 01:20:29.100
And I'm struggling to determine why they aren't.

01:20:30.579 --> 01:20:35.000
Any new objections haven't been waived. On the

01:20:35.000 --> 01:20:37.060
plan objection point, Your Honor, may I have

01:20:37.060 --> 01:20:39.420
a moment to consult my colleague? Oh, of course.

01:20:39.600 --> 01:21:42.869
Please do. Please take a moment. Thank you for

01:21:42.869 --> 01:21:48.390
your patience. Yes, Mr. Frank, certainly. I'll

01:21:48.390 --> 01:21:50.050
refer to my colleague about the inclusion of

01:21:50.050 --> 01:21:52.970
the objections. Your Honor, this is not a part

01:21:52.970 --> 01:21:55.989
in the objection. It's under Rule 510C, and it's

01:21:55.989 --> 01:21:59.329
asking the Court to consider all of the relevant

01:21:59.329 --> 01:22:03.550
factors, and the witness had testified to one

01:22:03.550 --> 01:22:07.510
of the arbitrations and got into some detail

01:22:07.510 --> 01:22:10.430
about that. partially exploring that. And then

01:22:10.430 --> 01:22:12.630
there was a mention of the second arbitration,

01:22:12.689 --> 01:22:16.829
but nothing there. And that is the basis or one

01:22:16.829 --> 01:22:19.649
of the bases for the equitable subordination

01:22:19.649 --> 01:22:23.149
and then to some extent also the claim disallowance.

01:22:24.529 --> 01:22:26.630
So we would ask Your Honor to allow us to continue

01:22:26.630 --> 01:22:30.090
this to show what actually was going on in that

01:22:30.090 --> 01:22:33.850
arbitration, exploring the testimony and discussing

01:22:33.850 --> 01:22:36.890
the arbitration that wasn't covered. Mr. Morris.

01:22:38.600 --> 01:22:46.000
Your Honor, the other side appears to be attempting

01:22:46.000 --> 01:22:50.380
to craft an argument about comparable faults.

01:22:52.600 --> 01:22:56.020
The main arbitration panel, as you are well aware,

01:22:56.699 --> 01:23:01.340
after many witnesses, I think the proceedings

01:23:01.340 --> 01:23:06.329
went on for nine or ten days, found that... Mr.

01:23:06.529 --> 01:23:08.949
Milton was 97 percent at fault and what we're

01:23:08.949 --> 01:23:11.250
gonna litigate that and talk about the SEC order

01:23:11.250 --> 01:23:13.670
and things like that Yeah, that was my question.

01:23:13.789 --> 01:23:15.810
That was the question I was going to pose it

01:23:15.810 --> 01:23:19.430
seems to me that the arbitral finding was that

01:23:19.430 --> 01:23:23.189
There there was three percent fault of the company

01:23:23.189 --> 01:23:29.310
and that's an issue or it's a fact that is Is

01:23:29.310 --> 01:23:36.430
before the court and I am bound by so I appreciate

01:23:36.430 --> 01:23:40.029
the point that you're trying to get to, but I

01:23:40.029 --> 01:23:43.710
think it's already been established and nothing

01:23:43.710 --> 01:23:49.069
that Mr. Worthing could testify to would cause

01:23:49.069 --> 01:23:55.869
me to take the improper step of revisiting issues

01:23:55.869 --> 01:24:05.439
that I'm precluded from revisiting. fee arbitration,

01:24:05.619 --> 01:24:09.220
as you recall, this is the same fee arbitration

01:24:09.220 --> 01:24:12.800
that they attempted to obtain relief from the

01:24:12.800 --> 01:24:16.380
automatic stay in order to restart after had

01:24:16.380 --> 01:24:21.880
been long dormance. Our position, and this is

01:24:21.880 --> 01:24:26.979
more argument for later, is that once the arbitration

01:24:26.979 --> 01:24:30.119
panel had ruled that Mr. Milton was not entitled

01:24:30.119 --> 01:24:32.970
to indemnification, and then the district court

01:24:32.970 --> 01:24:37.489
affirmed that on page four of exhibit 50, which

01:24:37.489 --> 01:24:40.890
Mr. Worthen also confirmed through his testimony,

01:24:41.590 --> 01:24:45.130
that of course nothing happened because Mr. Milton

01:24:45.130 --> 01:24:48.770
knew that he wasn't entitled to any indemnification,

01:24:48.970 --> 01:24:52.029
notwithstanding, apparently, that he had paid

01:24:52.029 --> 01:24:55.630
40 -something million dollars. If he was entitled

01:24:55.630 --> 01:24:59.319
to this indemnification, you know... that if

01:24:59.319 --> 01:25:02.460
I'm coming out of pocket $40 million, that I'm

01:25:02.460 --> 01:25:05.800
going absolutely back to that panel every month

01:25:05.800 --> 01:25:08.560
as I'm stroking checks and I'm going back to

01:25:08.560 --> 01:25:11.180
the company if I think that I have a right. I

01:25:11.180 --> 01:25:16.260
mean, actions speak louder than words. Your Honor,

01:25:16.319 --> 01:25:19.600
I think Council was correct when he started that

01:25:19.600 --> 01:25:22.579
that's for argument. That's certainly an argument

01:25:22.579 --> 01:25:27.180
here. But I think he missed one point in that

01:25:27.390 --> 01:25:30.670
He's presuming there was a decision on the right

01:25:30.670 --> 01:25:33.770
to indemnification. I'm going to submit that

01:25:33.770 --> 01:25:36.470
wasn't the case under the arbitration award.

01:25:37.729 --> 01:25:41.970
Right, and that's something that I can read the

01:25:41.970 --> 01:25:50.229
documents and interpret. There's no map of outside

01:25:50.229 --> 01:25:53.970
extrinsic evidence that would inform my reading

01:25:53.970 --> 01:26:03.430
of the arbitral ruling. So, you know, where does

01:26:03.430 --> 01:26:09.710
that leave us? I don't think that the, you know,

01:26:09.810 --> 01:26:13.609
what I agree is a line of questioning that seems

01:26:13.609 --> 01:26:17.810
to be going at the relative fault of Nicola as

01:26:17.810 --> 01:26:20.869
opposed to Mr. Milton is at issue because it's

01:26:20.869 --> 01:26:26.069
already been determined. So, I don't know that

01:26:26.069 --> 01:26:33.239
it's... necessary or really relevant to pursue

01:26:33.239 --> 01:26:35.020
further line of questioning going to that issue

01:26:35.020 --> 01:26:37.159
because again I think it's it's your preclusion

01:26:37.159 --> 01:26:39.539
I'm bound by it there's nothing nothing new that

01:26:39.539 --> 01:26:47.840
I can learn okay thank you mr. Brennan just a

01:26:47.840 --> 01:27:06.510
few more questions And this goes to your testimony.

01:27:06.510 --> 01:27:09.569
You had talked about the agreement with General

01:27:09.569 --> 01:27:13.109
Motors. Yes. Right. And I think your testimony

01:27:13.109 --> 01:27:18.069
was that that was harmed as a result of the SEC

01:27:18.069 --> 01:27:35.479
investigations. Yes. That was... That was also

01:27:35.479 --> 01:27:39.500
There were other aspects to the General Motors

01:27:39.500 --> 01:28:05.689
issue right not just those investigations You

01:28:05.689 --> 01:28:09.750
had also testified that the other shareholder

01:28:09.750 --> 01:28:14.430
suits were also borne out of the statements by

01:28:14.430 --> 01:28:19.489
Mr. Milton, right? Yes. Like we had discussed

01:28:19.489 --> 01:28:21.649
earlier, there were also other bases for those

01:28:21.649 --> 01:28:23.949
suits, right? Yeah. They've brought other allegations

01:28:23.949 --> 01:28:26.789
in those class action and derivative actions,

01:28:27.289 --> 01:28:50.869
yes. One more moment, Rob. Yeah, certainly. Mr.

01:28:51.210 --> 01:28:53.770
Detweiler. May it please the court, Donald Detweiler

01:28:53.770 --> 01:28:58.850
on behalf of Mitsubishi H .C. Capital. Your Honor,

01:28:59.430 --> 01:29:01.609
I have another matter and it has to be excused.

01:29:01.609 --> 01:29:03.170
I thought you were rising to ask to be excused.

01:29:03.489 --> 01:29:08.649
My counsel is on as well. We both ask to be excused.

01:29:08.869 --> 01:29:10.909
Certainly. Okay. Have a good weekend, Mr. Detweiler.

01:29:10.909 --> 01:29:14.170
Yes, thank you, Your Honor. You too. Thank you.

01:29:14.329 --> 01:29:16.109
Your Honor, I have no further questions. Okay.

01:29:16.189 --> 01:29:18.390
Thank you, Mr. Brennan. Thank you, sir. Mr. Connolly,

01:29:18.510 --> 01:29:40.710
any redirect? I have good news, which is that

01:29:40.710 --> 01:29:42.510
pretty much everything I had for redirect has

01:29:42.510 --> 01:29:44.710
been addressed. There's just one point, one single

01:29:44.710 --> 01:29:47.909
question that I want to clarify. On direct, we

01:29:47.909 --> 01:29:50.409
talked about the Miltonian Arbitration Award.

01:29:51.210 --> 01:29:54.510
Do you recall that? Yes. That hasn't been collected

01:29:54.510 --> 01:29:56.550
yet, right? That's correct. It's not been collected.

01:29:56.680 --> 01:29:59.619
No further questions. Okay, thank you. Based

01:29:59.619 --> 01:30:02.899
upon that question, any more recross, Mr. Brennan?

01:30:03.439 --> 01:30:05.939
No. Okay, is there anybody else who wishes to

01:30:05.939 --> 01:30:09.020
question the witness? Okay, I hear no response.

01:30:09.420 --> 01:30:11.300
Mr. Worthing, you are excused, sir. Thank you,

01:30:11.319 --> 01:30:24.470
Your Honor. Thank you. Benches can jump out at

01:30:24.470 --> 01:30:26.890
you. Your Honor, I just wanted to make a quick

01:30:26.890 --> 01:30:29.329
statement. I hope it's an obvious point, but

01:30:29.329 --> 01:30:31.909
there was some testimony both on direct and cross

01:30:31.909 --> 01:30:36.069
examination about certain statements that members

01:30:36.069 --> 01:30:39.350
of the SEC staff may have made. We are not a

01:30:39.350 --> 01:30:41.829
party to this dispute, so we are not raising

01:30:41.829 --> 01:30:44.750
evidentiary objections. I just wanted to point

01:30:44.750 --> 01:30:46.850
out for the record that we consider that hearsay

01:30:46.850 --> 01:30:49.569
and that our silence should not be interpreted

01:30:49.569 --> 01:30:51.390
as any sort of agreement or endorsement with

01:30:51.390 --> 01:30:53.710
that testimony. I certainly understand. Thank

01:30:53.710 --> 01:31:09.470
you. Thank you, sir. Mr. Morris. Thank you, Your

01:31:09.470 --> 01:31:11.529
Honor. For the record, Joshua Morris for the

01:31:11.529 --> 01:31:15.550
debtors. I think that moves us to... The main

01:31:15.550 --> 01:31:19.210
fireworks, I guess. Plan confirmation. Our confirmation

01:31:19.210 --> 01:31:22.170
brief file that docket number 959 goes through

01:31:22.170 --> 01:31:25.229
exhaustively, I believe, all applicable requirements.

01:31:25.909 --> 01:31:28.810
And we appreciate you extending our page limit.

01:31:29.310 --> 01:31:32.149
We tried to put everything into a single document

01:31:32.149 --> 01:31:35.649
so that it would be perhaps more streamlined,

01:31:35.710 --> 01:31:41.130
I guess. But... We believe that all applicable

01:31:41.130 --> 01:31:43.689
requirements to not only approve the disclosure

01:31:43.689 --> 01:31:46.409
statement on a final basis, but find compliance

01:31:46.409 --> 01:31:49.649
with the solicitation procedures order, and finally

01:31:49.649 --> 01:31:52.390
confirm the plan are set forth in that brief.

01:31:53.369 --> 01:31:55.569
Confirmation brief also addresses the reasons

01:31:55.569 --> 01:31:59.550
the debtors believe each of the remaining objections

01:31:59.550 --> 01:32:01.890
that haven't been resolved as I've walked through

01:32:01.890 --> 01:32:05.109
should be overruled. Debtors also believe we've

01:32:05.109 --> 01:32:07.850
met all relevant final disclosure statement approvals,

01:32:08.069 --> 01:32:10.670
solicitation and confirmation requirements have

01:32:10.670 --> 01:32:14.409
been met, and the plan satisfies all of the debtor's

01:32:14.409 --> 01:32:16.489
obligations under the solicitation procedures

01:32:16.489 --> 01:32:20.949
order and sections, among others 1125, 1126,

01:32:21.130 --> 01:32:24.829
1129 of the bankruptcy code for efficiency purposes

01:32:24.829 --> 01:32:27.670
and to save everyone in the audience from falling

01:32:27.670 --> 01:32:31.770
asleep. I propose that we dispose of the recitation

01:32:31.770 --> 01:32:33.949
of all the individual confirmation standards,

01:32:34.810 --> 01:32:37.109
and we just sort of move straight into arguments

01:32:37.109 --> 01:32:40.010
regarding the remaining objections, and I'd like

01:32:40.010 --> 01:32:43.090
to first start with the United States Trustee

01:32:43.090 --> 01:32:48.329
objection. Then I'll move into the Milton Equitable

01:32:48.329 --> 01:32:50.630
Sport Nation objection. I'm gonna handle both

01:32:50.630 --> 01:32:53.130
of those, and then we'll do the lead securities

01:32:53.130 --> 01:32:56.640
class action plaintiff objection and the individual...

01:32:56.640 --> 01:32:59.420
shareholder objection and my colleague Mr. Alfano

01:32:59.420 --> 01:33:03.539
is going to handle both of those. Okay. Now at

01:33:03.539 --> 01:33:07.979
some point I believe that Mr. Cousins and Mr.

01:33:08.119 --> 01:33:09.779
Breinecker are going to want to put on evidence

01:33:09.779 --> 01:33:13.119
in support of their objection to confirmation.

01:33:13.319 --> 01:33:17.779
Am I correct about that? Good morning, Your Honor.

01:33:18.060 --> 01:33:20.630
Scott Cousins. Good morning. We're not objecting

01:33:20.630 --> 01:33:23.649
to confirmation, but to the reply. Well, yeah.

01:33:24.130 --> 01:33:27.430
Insofar as the plan would equitably subordinate

01:33:27.430 --> 01:33:31.369
Mr. Milton's claim. So on that issue, you do

01:33:31.369 --> 01:33:33.510
intend to put on evidence in support of your

01:33:33.510 --> 01:33:41.050
objection. Yes. Okay. Okay. Why don't you think

01:33:41.050 --> 01:33:44.050
about timing and whether it would make sense

01:33:44.050 --> 01:33:49.260
at some point in the next while to... stop for

01:33:49.260 --> 01:33:51.180
lunch and if there's going to be additional witness

01:33:51.180 --> 01:33:55.880
testimony whether we might do that after if you

01:33:55.880 --> 01:33:58.979
feel that an opportunity to have a bite. What

01:33:58.979 --> 01:34:04.840
if we were to perhaps do the U .S. trustee objection

01:34:04.840 --> 01:34:08.380
and then I sit down and let Mr. Alfano jump up

01:34:08.380 --> 01:34:11.619
and we do the other two and then we do the equitable

01:34:11.619 --> 01:34:14.659
coordination after the break? I think that's

01:34:14.659 --> 01:34:25.260
fine. Thank you. So the United States trustee

01:34:25.260 --> 01:34:28.380
has objected at documents, excuse me, a docket

01:34:28.380 --> 01:34:32.300
number 908, let's take issue with the opt out

01:34:32.300 --> 01:34:36.020
releases. And we were in front of your honor

01:34:36.020 --> 01:34:39.800
for the initial approval of the disclosure statement

01:34:39.800 --> 01:34:44.039
and solicitation procedures back on July 21st.

01:34:44.039 --> 01:34:50.460
We were exceedingly careful to determine a release

01:34:50.460 --> 01:34:55.829
approach. using an opt -out voting process for

01:34:55.829 --> 01:35:01.029
class three that we believe that was sound. That

01:35:01.029 --> 01:35:03.430
process ensured to provide members of class three

01:35:03.430 --> 01:35:07.050
with clear and conspicuous notice of the releases

01:35:07.050 --> 01:35:09.329
and a meaningful opportunity to opt out of granting

01:35:09.329 --> 01:35:13.069
them to the debtors. It also provided each of

01:35:13.069 --> 01:35:15.449
those members of that class an opportunity to

01:35:15.449 --> 01:35:19.029
object to the granting of those releases. That...

01:35:18.760 --> 01:35:21.300
ability to opt out and to object, of course,

01:35:21.380 --> 01:35:25.140
was separate and apart from their opportunity

01:35:25.140 --> 01:35:28.079
to vote on the plan. The release provisions in

01:35:28.079 --> 01:35:30.300
the plan are also structured as very limited

01:35:30.300 --> 01:35:32.979
opt -out consensual releases that apply only

01:35:32.979 --> 01:35:35.899
to the creditors who are entitled to vote on

01:35:35.899 --> 01:35:37.819
the plan. So it's only the holders of general

01:35:37.819 --> 01:35:40.600
unsecured claims in class three that receive

01:35:40.600 --> 01:35:43.289
notice of the plan and its releases. and that

01:35:43.289 --> 01:35:46.390
affirmatively elected not to opt out or didn't

01:35:46.390 --> 01:35:48.609
otherwise object to granting the releases in

01:35:48.609 --> 01:35:51.550
the plan. We didn't come up with this approach

01:35:51.550 --> 01:35:54.670
out of thin air. It's consistent with the approach

01:35:54.670 --> 01:35:56.770
to granting releases in many other Chapter 11

01:35:56.770 --> 01:36:00.689
cases in this district, including the Indianapolis

01:36:00.689 --> 01:36:04.069
Downs case, Spansion, Arsenal Intermediate Holdings,

01:36:04.210 --> 01:36:06.409
and Mallancourt, to name a few. And we've cited

01:36:06.409 --> 01:36:11.270
all these in our brief for your honor. We also...

01:36:11.399 --> 01:36:15.300
Now, you cite Arsenal, of course. That was a

01:36:15.300 --> 01:36:17.359
Judge Goldblatt decision, and I think it's fair

01:36:17.359 --> 01:36:21.539
to say he's reconsidered his views. Perhaps.

01:36:22.180 --> 01:36:27.039
Yes, I understand, Your Honor. We also intentionally

01:36:27.039 --> 01:36:30.479
styled it after what Your Honor ultimately approved

01:36:30.479 --> 01:36:35.600
in the Fisker case. And the goal was to provide

01:36:35.600 --> 01:36:38.619
detailed and transparent notice regarding the

01:36:38.619 --> 01:36:40.600
effect of third -party releases to the affected

01:36:40.600 --> 01:36:43.489
parties. and an opportunity to opt out or to

01:36:43.489 --> 01:36:47.329
object. The reply brief goes through the multiple

01:36:47.329 --> 01:36:49.930
avenues that Class 3 had to opt out and showed,

01:36:50.050 --> 01:36:52.949
Your Honor, what the form of ballot looked like,

01:36:53.130 --> 01:36:55.630
and we also did that in our disclosure statement

01:36:55.630 --> 01:36:59.529
reply. So what did the results yield? And this

01:36:59.529 --> 01:37:02.869
is what Mr. Fox is going to stand up and take

01:37:02.869 --> 01:37:05.960
issue with. But as set forth in the Young Declaration,

01:37:06.100 --> 01:37:08.840
and that's Docket Number 952, Class 3 did take

01:37:08.840 --> 01:37:10.600
advantage of the ability to opt out of granting

01:37:10.600 --> 01:37:15.420
releases. 42 of the 70 Class 3 holders that voted

01:37:15.420 --> 01:37:19.640
for the plan opted out of granting the releases.

01:37:19.859 --> 01:37:24.859
And that's Young Declaration Exhibit C. In addition,

01:37:25.399 --> 01:37:31.220
16 other holders who didn't vote on the plan,

01:37:31.500 --> 01:37:35.100
they submitted opt -outs. And that's Young Declaration,

01:37:35.359 --> 01:37:39.579
paragraph 12. We believe that this is evidence

01:37:39.579 --> 01:37:43.180
that the opt -out approach that we implemented

01:37:43.180 --> 01:37:48.420
actually worked. Our memorandum also cited, you

01:37:48.420 --> 01:37:50.680
know, Chapter 11 cases around the country that

01:37:50.680 --> 01:37:53.720
implemented kind of similar opt -out mechanisms

01:37:53.720 --> 01:37:56.479
in a post -Purdue world. And I'm not gonna go

01:37:56.479 --> 01:37:58.319
through the chapter and verse of all those because

01:37:58.319 --> 01:38:00.760
it's gonna put everyone to sleep. And I know

01:38:00.760 --> 01:38:04.369
you're very familiar with these cases. But recent

01:38:04.369 --> 01:38:07.130
Delaware cases have continued to reject similar

01:38:07.130 --> 01:38:11.930
arguments made by Mr. Fox's office, which I know

01:38:11.930 --> 01:38:16.489
you're also well aware of. And the debtor's solicitation

01:38:16.489 --> 01:38:21.590
process satisfies factors that are found in all

01:38:21.590 --> 01:38:23.569
of those recent cases, including among other

01:38:23.569 --> 01:38:26.729
things, transparent and prominent notice, overwhelming

01:38:26.729 --> 01:38:33.640
credit or support, and... limited release provisions

01:38:33.640 --> 01:38:37.340
as well. Based on that, we believe that the third

01:38:37.340 --> 01:38:40.520
party releases here are consensual and appropriate

01:38:40.520 --> 01:38:45.460
and should be approved. The U .S. trustee makes

01:38:45.460 --> 01:38:49.020
two other arguments. Number one, that there's

01:38:49.020 --> 01:38:51.140
no legal basis for the injunction barring the

01:38:51.140 --> 01:38:53.720
claims against the non -debtors. We understand

01:38:53.720 --> 01:38:56.659
that Judge Stickles ruled in the 99 cents store

01:38:56.659 --> 01:38:59.810
case. in a very similar context that the injunction

01:38:59.810 --> 01:39:03.369
provisions that are included in Article 12D of

01:39:03.369 --> 01:39:05.750
the plan just merely implement the release and

01:39:05.750 --> 01:39:08.649
exfiltration provisions. We believe it's appropriate

01:39:08.649 --> 01:39:12.369
here and the objection should be overruled. The

01:39:12.369 --> 01:39:16.289
U .S. Trustee also took issue with a waiver of

01:39:16.289 --> 01:39:21.590
the Bankruptcy Rule 3020 -FAY, given the timing

01:39:21.590 --> 01:39:25.609
between confirmation and the effective date.

01:39:25.850 --> 01:39:28.289
which can occur until we have the final hearing

01:39:28.289 --> 01:39:30.250
in the Chancery Court, which isn't going to happen

01:39:30.250 --> 01:39:32.909
until November 20th. We've just simply agreed

01:39:32.909 --> 01:39:35.449
to remove that and have informed Mr. Fox of that.

01:39:37.090 --> 01:39:40.250
And with that, I will pass the podium to Mr.

01:39:40.449 --> 01:39:45.810
Fox and reserve additional comments. Certainly.

01:39:49.390 --> 01:39:51.489
Good morning, Mr. Fox. Good morning, Your Honor.

01:39:51.590 --> 01:39:53.090
May it please the Court, Tim Fox on behalf of

01:39:53.090 --> 01:39:56.899
the United States Trustee. So your honor, I appreciate

01:39:56.899 --> 01:40:01.760
Mr. Morse's comments, and again, note the 30

01:40:01.760 --> 01:40:05.060
-20 issue has been mooted by the time here, so

01:40:05.060 --> 01:40:09.520
we appreciate that. I want to start similarly

01:40:09.520 --> 01:40:13.060
to where Mr. Morse did, and that's, your honor,

01:40:13.399 --> 01:40:16.000
our papers reflect the U .S. Trustee's position

01:40:16.000 --> 01:40:18.920
on this issue. I know your honor has ruled on

01:40:18.920 --> 01:40:21.319
this in the past, so I'm not gonna try to belabor.

01:40:22.000 --> 01:40:24.279
the points of law, but to the extent your honor

01:40:24.279 --> 01:40:26.939
has any questions about the briefing or anything

01:40:26.939 --> 01:40:29.420
with respect to those arguments as applied to

01:40:29.420 --> 01:40:31.659
the facts here, of course, I'm at your disposal

01:40:31.659 --> 01:40:36.039
to respond to those queries. What Mr. Morse in

01:40:36.039 --> 01:40:39.500
his argument outlined is that, and consistent

01:40:39.500 --> 01:40:43.199
with my earlier request to admit the bankruptcy

01:40:43.199 --> 01:40:46.020
schedules for Nicola Corporation at Dock at item

01:40:46.020 --> 01:40:51.609
203. Mr. Morse touted that you had 70 parties

01:40:51.609 --> 01:40:54.270
that voted on the plan, as well as an additional

01:40:54.270 --> 01:40:58.529
16 that acted on the opt -out. And, Your Honor,

01:40:58.569 --> 01:41:00.989
the reason the U .S. trustee moved into evidence

01:41:00.989 --> 01:41:04.229
the debtor's schedule, and this is at Nicola

01:41:04.229 --> 01:41:07.729
Corporation, the main operating debtor of these

01:41:07.729 --> 01:41:12.210
Chapter 11 debtors, is that in docket item 203

01:41:12.210 --> 01:41:16.069
for schedule E slash F, which is at page 155,

01:41:16.270 --> 01:41:18.789
according to the ECF stamp at the top of that

01:41:18.789 --> 01:41:24.149
document. Nicola Corporation scheduled 526 general

01:41:24.149 --> 01:41:28.210
unsecured creditors with respect to what was

01:41:28.210 --> 01:41:30.489
in its books and records as the schedules were

01:41:30.489 --> 01:41:34.449
prepared. If you compare that to the parties

01:41:34.449 --> 01:41:38.229
acting on the plan and the opt -out here in this

01:41:38.229 --> 01:41:42.729
case, that... results in about a 16 % level of

01:41:42.729 --> 01:41:46.069
engagement with the scheduled creditors of Nicola

01:41:46.069 --> 01:41:50.590
Corporation as it relates to that opt -out. And

01:41:50.590 --> 01:41:52.909
so, Your Honor, the U .S. Trustee, as noted in

01:41:52.909 --> 01:41:56.050
our papers, contends that that level of participation

01:41:56.050 --> 01:41:59.210
doesn't reflect consent among the creditors sought

01:41:59.210 --> 01:42:02.029
to be bound by these third -party releases, but

01:42:02.029 --> 01:42:07.329
rather reflects a default position as being forced

01:42:07.329 --> 01:42:10.539
to act on the opt -out as opposed to affirmatively

01:42:10.539 --> 01:42:13.460
agree to relinquish rights against non -debtor

01:42:13.460 --> 01:42:16.460
third parties. One of the common elements my

01:42:16.460 --> 01:42:19.039
office has stressed is that when talking about

01:42:19.039 --> 01:42:21.760
the third party release relief that is being

01:42:21.760 --> 01:42:24.600
sought, you have a non -debtor on the one hand

01:42:24.600 --> 01:42:26.880
in the form of the creditor or other party that

01:42:26.880 --> 01:42:30.239
the plan intends to bind, and another non -debtor

01:42:30.239 --> 01:42:32.460
on the part of the beneficiaries of the third

01:42:32.460 --> 01:42:36.180
party release. And again, the U .S. trustee contends

01:42:36.180 --> 01:42:38.659
that there's no provision of the Bankruptcy Code

01:42:38.659 --> 01:42:42.380
that requires non -debtor creditors or voting

01:42:42.380 --> 01:42:45.359
parties to act to avoid an impairment of the

01:42:45.359 --> 01:42:48.199
rights to non -debtor third party release beneficiaries.

01:42:48.359 --> 01:42:52.119
It's not the same as rejection of a contract

01:42:52.119 --> 01:42:55.140
or anything else under the code that would put

01:42:55.140 --> 01:42:57.920
a party's rights at risk of default if they don't

01:42:57.920 --> 01:43:01.659
appear and voice opposition to that relief. So

01:43:01.659 --> 01:43:05.350
Your Honor, again, There's low participation

01:43:05.350 --> 01:43:08.050
rate. I know that that exists in many cases with

01:43:08.050 --> 01:43:11.569
respect to voting on plans as a primary principle,

01:43:11.949 --> 01:43:14.210
but when it relates to the rights against third

01:43:14.210 --> 01:43:16.310
parties, again, the U .S. Trustee views that

01:43:16.310 --> 01:43:19.050
as not a sufficient manifestation of consent

01:43:19.050 --> 01:43:22.270
in light of the Supreme Court's guidance in Purdue

01:43:22.270 --> 01:43:25.329
to have those parties relinquish those rights.

01:43:25.789 --> 01:43:27.850
So, Your Honor, if you have any questions, again,

01:43:27.970 --> 01:43:30.130
happy to address them and would otherwise just

01:43:30.130 --> 01:43:32.069
rely on our papers with respect to the issue.

01:43:32.409 --> 01:43:35.130
I understand the argument and its application

01:43:35.130 --> 01:43:39.609
to the facts of this case, and I do thank you

01:43:39.609 --> 01:43:43.010
and your office for the outstanding briefing

01:43:43.010 --> 01:43:47.270
on an issue that certainly remains somewhat contentious,

01:43:47.310 --> 01:43:49.770
and I understand the importance of it to your

01:43:49.770 --> 01:43:51.489
office. So I thank you for the presentation.

01:43:51.789 --> 01:44:00.050
Thank you, Your Honor. Thank you. Your honor,

01:44:00.229 --> 01:44:03.550
I don't have any comments in response, so I think

01:44:03.550 --> 01:44:06.350
we'll just rest on our papers and argument on

01:44:06.350 --> 01:44:09.970
that point and turn the podium over to Mr. Alfano.

01:44:16.449 --> 01:44:19.630
Good morning, Mr. Alfano. For the record, Andrew

01:44:19.630 --> 01:44:22.630
Alfano from Pillsbury for the debtors. I believe

01:44:22.630 --> 01:44:25.890
I might be the last act before lunch, so I will...

01:44:26.159 --> 01:44:31.819
trying to keep it brief, but also give the objections

01:44:31.819 --> 01:44:34.460
the thoroughness, particularly the pro se objections,

01:44:35.340 --> 01:44:38.560
the thoroughness that they deserve. So I'll be

01:44:38.560 --> 01:44:42.539
handling two different kinds of objections to

01:44:42.539 --> 01:44:45.239
the plan. The first is the objection by the lead

01:44:45.239 --> 01:44:49.340
class plaintiffs. That's Roman at 13 on the agenda.

01:44:49.850 --> 01:44:53.510
And then also the several formal and informal

01:44:53.510 --> 01:44:57.770
objections by class five equity holders. And

01:44:57.770 --> 01:45:01.270
those are listed at Roman at three through nine,

01:45:01.590 --> 01:45:07.710
11 and 16. Now with respect to the objection,

01:45:08.229 --> 01:45:11.350
the limited objection by the class action plaintiffs

01:45:11.350 --> 01:45:14.689
to subordination under the plan for the sake

01:45:14.689 --> 01:45:17.189
of the record, the debtors filed their brief

01:45:17.189 --> 01:45:21.130
in support of subordination. on August 1st at

01:45:21.130 --> 01:45:25.970
docket number 820. That was about 19 days before

01:45:25.970 --> 01:45:29.149
objections to the plan were due and over a month

01:45:29.149 --> 01:45:33.109
before the debtor's brief in support of confirmation

01:45:33.109 --> 01:45:35.970
was due and I'll talk a little bit more about

01:45:35.970 --> 01:45:39.270
why that's relevant later. The class action plaintiffs

01:45:39.270 --> 01:45:42.470
filed their limited objection with respect to

01:45:42.470 --> 01:45:44.869
subordination pursuant to the plan on August

01:45:44.869 --> 01:45:49.449
20th at docket number 909. And the debtors filed

01:45:49.449 --> 01:45:52.789
their reply to the limited objection and brief

01:45:52.789 --> 01:45:55.930
in support of confirmation and subordination

01:45:55.930 --> 01:46:02.350
at docket number 959 on September 2nd. Now, before

01:46:02.350 --> 01:46:04.789
I get into the objection, if I may set the stage,

01:46:05.750 --> 01:46:09.050
as Your Honor, I'm sure is aware from your view

01:46:09.050 --> 01:46:12.329
of the plan, Class 7 of the plan seeks to subordinate

01:46:12.329 --> 01:46:15.510
certain claims pursuant to Section 510B of the

01:46:15.510 --> 01:46:19.689
Bankruptcy Code. And Section 510B requires subordination

01:46:19.689 --> 01:46:22.010
of any claims that are based on the purchase

01:46:22.010 --> 01:46:27.229
or sale of securities. And while the court I'm

01:46:27.229 --> 01:46:29.130
sure is familiar with this provision of the code,

01:46:29.329 --> 01:46:32.010
I understand we may or may not have some new

01:46:32.010 --> 01:46:35.010
clerks in the room. And so, you know, for everyone's

01:46:35.010 --> 01:46:39.409
benefit, Section 510B is to essentially prevent

01:46:39.409 --> 01:46:43.090
equity holders who took the higher risk of an

01:46:43.090 --> 01:46:47.609
equity investment. to elevate that equity interest

01:46:47.609 --> 01:46:50.989
into a claim by alleging, for example, damages

01:46:50.989 --> 01:46:53.069
resulting from the purchase or sale of securities.

01:46:54.149 --> 01:46:58.229
And so the debtor's brief sets forth their arguments

01:46:58.229 --> 01:47:02.010
with respect to subordination. First, the class

01:47:02.010 --> 01:47:06.250
action plaintiffs filed a $13 million claim against

01:47:06.250 --> 01:47:08.850
debtor Nikola Corporation, and that's on the

01:47:08.850 --> 01:47:12.409
claims register as proof of claim number 10257.

01:47:13.270 --> 01:47:17.710
That claim is based on a pre -petition term sheet

01:47:17.710 --> 01:47:19.970
between Nikola and the class action plaintiffs

01:47:19.970 --> 01:47:24.710
that would have settled a reported class action

01:47:24.710 --> 01:47:27.010
pending in the United States District Court for

01:47:27.010 --> 01:47:30.859
the District of Arizona. titled Vortino v. Nikola

01:47:30.859 --> 01:47:34.359
Corporation. And that action essentially asserts

01:47:34.359 --> 01:47:38.119
securities law violations based on false and

01:47:38.119 --> 01:47:41.579
misleading statements and omissions by Nikola

01:47:41.579 --> 01:47:44.220
regarding its business plan and its business

01:47:44.220 --> 01:47:48.439
prospect in press releases and SEC filings and

01:47:48.439 --> 01:47:54.380
the like. And I quote from the complaint, as

01:47:54.380 --> 01:47:56.899
a result of those misrepresentations and omissions,

01:47:57.119 --> 01:47:59.779
Nikola shareholders who purchased or otherwise

01:47:59.779 --> 01:48:03.500
acquired shares of Nikola Securities did so at

01:48:03.500 --> 01:48:07.060
artificially inflated prices and then the subsequent

01:48:07.060 --> 01:48:12.319
decline in the value of those securities once

01:48:12.319 --> 01:48:15.699
those things came to light is the damages that

01:48:15.699 --> 01:48:20.319
they suffered. And that is that paragraph 884

01:48:20.319 --> 01:48:23.319
of the class action plaintiff's complaint which

01:48:23.319 --> 01:48:27.069
we attached as exhibit B. to our brief in support

01:48:27.069 --> 01:48:31.250
of subordination. Now there are multiple other

01:48:31.250 --> 01:48:34.130
instances in the class action plaintiff's complaint

01:48:34.130 --> 01:48:38.109
where they say in no unclear terms that the claims

01:48:38.109 --> 01:48:40.329
they assert arise from the purchase and sale

01:48:40.329 --> 01:48:44.550
of securities and that's at paragraph number

01:48:44.550 --> 01:48:49.470
is 416 and 886 of the class action plaintiff's

01:48:49.470 --> 01:48:51.829
complaint that is again attached to the brief

01:48:51.829 --> 01:48:56.600
in support of subordination. We also cite cases,

01:48:56.619 --> 01:49:01.100
including from this district, that show the law

01:49:01.100 --> 01:49:05.279
requires but for causation when analyzing whether

01:49:05.279 --> 01:49:07.840
a claim arises from the purchase or sale of securities.

01:49:08.680 --> 01:49:11.560
In other words, the fact that the B -class plaintiffs

01:49:11.560 --> 01:49:16.000
may assert a claim based on breach of contract,

01:49:16.199 --> 01:49:19.640
if the term sheet even was a contract. does not

01:49:19.640 --> 01:49:22.600
elevate it to a general, unsecured claim. We

01:49:22.600 --> 01:49:26.039
still believe it's subordinated. In response

01:49:26.039 --> 01:49:29.739
to our brief, which was filed on August 1st,

01:49:29.859 --> 01:49:31.859
the class action plaintiffs filed their limited

01:49:31.859 --> 01:49:36.340
objection on August 20th with respect to subordination.

01:49:37.300 --> 01:49:40.539
And the objection takes issue with the process

01:49:40.539 --> 01:49:44.880
that the debtors undertook. The class action

01:49:44.880 --> 01:49:48.550
plaintiffs assert that Bankruptcy Rule 3007 a

01:49:48.550 --> 01:49:51.329
claim objection is the proper procedural mechanism

01:49:51.329 --> 01:49:55.609
for the debtors to seek subordination. They also

01:49:55.609 --> 01:49:58.409
claim that a claim objection under Bankruptcy

01:49:58.409 --> 01:50:01.770
Rule 3007 would constitute proper notice and

01:50:01.770 --> 01:50:06.149
a hearing under the Bankruptcy Code and not subordination

01:50:06.149 --> 01:50:09.590
pursuant to the plan. And as we stated in our

01:50:09.590 --> 01:50:12.069
reply, Your Honor, we believe the Bankruptcy

01:50:12.069 --> 01:50:16.229
Rules say the precise opposite under Bankruptcy

01:50:16.229 --> 01:50:20.310
Rule 7001 -H. It actually requires an adversary

01:50:20.310 --> 01:50:24.489
proceeding to subordinate a claim, except when

01:50:24.489 --> 01:50:28.630
subordination is provided in a Chapter 11 plan.

01:50:29.390 --> 01:50:33.850
And although we believe Rule 7001H is enough

01:50:33.850 --> 01:50:40.010
on its own, we believe our request to subordinate

01:50:40.010 --> 01:50:44.010
their claim through the plan has provided more

01:50:44.010 --> 01:50:46.270
than appropriate notice and a hearing under these

01:50:46.270 --> 01:50:50.300
circumstances. Our brief in support of confirmation

01:50:50.300 --> 01:50:54.359
was not due until September 2nd. We filed our

01:50:54.359 --> 01:50:57.140
brief in support of confirmation with respect

01:50:57.140 --> 01:51:00.520
to subordination on August 1st. And so they had,

01:51:00.520 --> 01:51:04.939
you know, approximately 19 days until their objection

01:51:04.939 --> 01:51:09.300
deadline to respond to that. And we filed our

01:51:09.300 --> 01:51:12.159
reply in support of subordination on September

01:51:12.159 --> 01:51:15.850
2nd. And now, you know, we're here today before

01:51:15.850 --> 01:51:21.390
Your Honor to argue the issue after it's been

01:51:21.390 --> 01:51:24.729
fully briefed. And therefore, for those reasons,

01:51:24.789 --> 01:51:27.810
Your Honor, we ask that you overrule the class

01:51:27.810 --> 01:51:30.050
action plaintiff's objection to subordination.

01:51:30.609 --> 01:51:33.590
Okay. Well, let me hear from the elite class

01:51:33.590 --> 01:51:40.869
plaintiffs, please. Mr. Barcelona, great to have

01:51:40.869 --> 01:51:43.479
you here. Good morning. Good morning, Your Honor.

01:51:43.579 --> 01:51:46.239
For the record, Joe Barcelona from Paschman Steinwalder

01:51:46.239 --> 01:51:48.659
and Hayden on behalf of the class plaintiffs.

01:51:49.220 --> 01:51:51.560
Your Honor, we did file a limited objection.

01:51:51.699 --> 01:51:55.239
I think this is a very simple argument. It is

01:51:55.239 --> 01:51:59.260
procedural, but it's also legal in a bit. Can

01:51:59.260 --> 01:52:04.319
a plan object to a claim? Your Honor, the code

01:52:04.319 --> 01:52:07.819
and the rules do not contemplate that a plan

01:52:07.819 --> 01:52:11.819
is the proper procedural vehicle to object to

01:52:11.819 --> 01:52:14.810
a claim. Isn't clean objection objection and

01:52:14.810 --> 01:52:17.310
subordination two different concepts correct

01:52:17.310 --> 01:52:20.609
correct your honor Yes, but they can make a ruling

01:52:20.609 --> 01:52:24.930
on subordination But they didn't take the steps

01:52:24.930 --> 01:52:28.350
to give us our day in court to talk about the

01:52:28.350 --> 01:52:30.850
underlying guts of the claim itself I mean you're

01:52:30.850 --> 01:52:34.029
seeing in this hearing right now. Mr. Milton

01:52:34.029 --> 01:52:37.609
is prosecuting his claim That's because the code

01:52:37.609 --> 01:52:39.989
doesn't contemplate putting claim objections

01:52:39.989 --> 01:52:43.659
into a plan confirmation There are other components

01:52:43.659 --> 01:52:46.720
of the plan that can survive and continue. But

01:52:46.720 --> 01:52:49.539
still, it must be bifurcated. We must get our

01:52:49.539 --> 01:52:52.039
day in court because we're not just filing a

01:52:52.039 --> 01:52:53.720
proof of claim and saying this is our damages.

01:52:54.180 --> 01:52:57.340
There was a negotiated document with the debtors

01:52:57.340 --> 01:53:00.039
pre -petitioned their restructuring council based

01:53:00.039 --> 01:53:03.079
on a settlement and representations made to the

01:53:03.079 --> 01:53:05.760
class about what we would get. And then a signed

01:53:05.760 --> 01:53:07.920
written agreement, an executory contract was

01:53:07.920 --> 01:53:11.100
made. and we came into court believing the debtors

01:53:11.100 --> 01:53:13.600
would prosecute all the agreements that they

01:53:13.600 --> 01:53:16.300
committed to previously. In fact, they even listed

01:53:16.300 --> 01:53:19.220
under penalty of perjury on their top creditors

01:53:19.220 --> 01:53:22.859
list with the petition, our claim is the, I think

01:53:22.859 --> 01:53:26.760
the fifth largest gut claim at the time. So again,

01:53:26.880 --> 01:53:30.840
I'm not here to litigate that claim and the code

01:53:30.840 --> 01:53:33.220
contemplates that no one should have to litigate

01:53:33.220 --> 01:53:35.739
their claim in connection with confirmation.

01:53:36.369 --> 01:53:41.430
I am arguing the fact, Your Honor, that 503A,

01:53:41.449 --> 01:53:45.970
1123, none of these provisions provide for a

01:53:45.970 --> 01:53:50.930
plan to object to a claim. And honestly, if the

01:53:50.930 --> 01:53:53.689
debtors had reached out and said, well, extricate

01:53:53.689 --> 01:53:55.689
your claim, I wouldn't be standing here today.

01:53:56.250 --> 01:53:58.890
However, now it's wrapped up into this concept

01:53:58.890 --> 01:54:02.189
of the plan. And we have to think about appellate

01:54:02.189 --> 01:54:05.409
rights. I'm glad the 3020. waiver is now gone.

01:54:05.930 --> 01:54:08.029
There are other issues that we need to think

01:54:08.029 --> 01:54:11.649
about and deal with. And council can't state

01:54:11.649 --> 01:54:15.510
that they didn't think about filing proofs, objections

01:54:15.510 --> 01:54:17.810
to claims earlier because their first omnibus

01:54:17.810 --> 01:54:22.670
objection at 861 was to other equitable proofs

01:54:22.670 --> 01:54:24.869
of interest to subordinate them. They could have

01:54:24.869 --> 01:54:26.970
done the same thing with us. They could have

01:54:26.970 --> 01:54:30.369
filed a motion to reject. our executory contract,

01:54:30.470 --> 01:54:32.010
the settlement agreement, and then we could have

01:54:32.010 --> 01:54:33.810
dealt with all the subordination issues there.

01:54:34.069 --> 01:54:36.989
They did not. They wanted to consolidate it into

01:54:36.989 --> 01:54:39.869
this one plan to prosecute it with the momentum

01:54:39.869 --> 01:54:42.130
of confirmation, which I completely appreciate.

01:54:42.909 --> 01:54:44.770
But we should have our separate day in court,

01:54:45.050 --> 01:54:49.609
and the code gives us that right. What if they

01:54:49.609 --> 01:54:53.989
never object to the claim? If it's subordinated

01:54:53.989 --> 01:54:55.989
as a practical matter, why would anybody object

01:54:55.989 --> 01:55:01.010
to the claim, unless... the returns were into

01:55:01.010 --> 01:55:06.310
the estate were so large that you'd be dealing

01:55:06.310 --> 01:55:10.289
with a very good problem at that point. But I

01:55:10.289 --> 01:55:14.810
guess I just view the, I'm struggling to understand

01:55:14.810 --> 01:55:18.810
why subordination under 510B, which is specifically

01:55:18.810 --> 01:55:21.989
provided for under the code, should be viewed

01:55:21.989 --> 01:55:26.069
as an objection to a claim when it's really just

01:55:26.769 --> 01:55:30.789
seeking certain treatment of what presently is

01:55:30.789 --> 01:55:33.409
an allowed claim against the debtor's estates.

01:55:33.649 --> 01:55:37.109
Because Your Honor, the plan contemplates termination,

01:55:38.250 --> 01:55:42.869
disallowance, other rights and destruction of

01:55:42.869 --> 01:55:45.350
that claim through the plan, through the confirmation

01:55:45.350 --> 01:55:49.050
order. It is supposed to be a bifurcated claim.

01:55:49.510 --> 01:55:52.409
They should have taken the extra step. to bring

01:55:52.409 --> 01:55:54.409
us into court maybe they didn't want to deal

01:55:54.409 --> 01:55:56.170
with that issue because again there are a lot

01:55:56.170 --> 01:55:58.869
of thorny issues related to the facts of how

01:55:58.869 --> 01:56:00.970
we came to that settlement agreement and sat

01:56:00.970 --> 01:56:03.689
on our rights as we allowed the case to proceed.

01:56:04.729 --> 01:56:07.470
So again I'm not here to litigate the claim I'm

01:56:07.470 --> 01:56:10.590
here just on the legal argument that a plan cannot

01:56:10.590 --> 01:56:13.069
include an objection to that claim and that should

01:56:13.069 --> 01:56:15.050
be bifurcated and we should have our separate

01:56:15.050 --> 01:56:17.770
day in court. Okay thank you very much Mr. Barcelona.

01:56:18.109 --> 01:56:21.760
Thank you Ron. Mr. Alfano, any response to Mr.

01:56:22.239 --> 01:56:25.819
Barcelona's comments? Yes, Your Honor. I'll try

01:56:25.819 --> 01:56:28.659
and keep it brief. I think Your Honor understands

01:56:28.659 --> 01:56:31.180
well that we're not objecting to allowance of

01:56:31.180 --> 01:56:34.319
the claim at this point through the plan. We

01:56:34.319 --> 01:56:37.500
are seeking to subordinate the claim. Bankruptcy

01:56:37.500 --> 01:56:42.520
Rule 7001H clearly allows us to do so pursuant

01:56:42.520 --> 01:56:49.800
to the plan. simply if if we get subordination

01:56:49.800 --> 01:56:52.939
of the claim as your honor pointed out we don't

01:56:52.939 --> 01:56:56.039
intend to object to allowance it would it would

01:56:56.039 --> 01:57:00.600
be a waste of estate dollars and you know any

01:57:00.600 --> 01:57:04.100
concerns about us you know not wanting to use

01:57:04.100 --> 01:57:06.600
you know confirmation or not giving them their

01:57:06.600 --> 01:57:09.539
day in court it's sort of relied by the fact

01:57:09.539 --> 01:57:12.800
that you know we we filed this brief in subordination

01:57:12.800 --> 01:57:16.560
in support of subordination frankly earlier than

01:57:16.560 --> 01:57:20.640
we may have otherwise had to, I mean, under the

01:57:20.640 --> 01:57:24.380
solicitation procedures orders. In all, Your

01:57:24.380 --> 01:57:27.140
Honor, I'm just struggling to see how they square

01:57:27.140 --> 01:57:31.659
their position about a claim objection in light

01:57:31.659 --> 01:57:45.590
of the plain language of Rule 7001H. I have no

01:57:45.590 --> 01:57:52.970
further questions. Okay, great. Thank you, Your

01:57:52.970 --> 01:57:57.250
Honor. And with that, I will move on to the individual

01:57:57.250 --> 01:58:01.350
shareholder objections. The debtors received

01:58:01.350 --> 01:58:04.630
several formal and informal objections from Class

01:58:04.630 --> 01:58:07.829
V holders of equity interests under the plan.

01:58:08.829 --> 01:58:12.109
Those include the objections by Lisa Scudder,

01:58:12.430 --> 01:58:17.770
Lucas Niparko who filed their objections to the

01:58:17.770 --> 01:58:20.850
plan and some portions of those objections actually

01:58:20.850 --> 01:58:24.829
are more so disclosure objections to the disclosure

01:58:24.829 --> 01:58:28.609
statement and the formal objections will file

01:58:28.609 --> 01:58:33.010
at that docket numbers 904 and 922 on August

01:58:33.010 --> 01:58:37.750
19th and August 23rd respectively. The informal

01:58:37.750 --> 01:58:40.470
objections we've We've listed, they're not on

01:58:40.470 --> 01:58:42.710
the docket, but we've listed them on the agenda,

01:58:43.229 --> 01:58:51.149
and they're at Romanettes 3 through 9. The individual

01:58:51.149 --> 01:58:55.489
equity holders share some common themes among

01:58:55.489 --> 01:58:58.750
them, which we addressed in our reply brief.

01:59:00.329 --> 01:59:03.529
First, the objections alleged that debtors did

01:59:03.529 --> 01:59:06.670
not provide any detail on the valuation of assets

01:59:06.670 --> 01:59:10.390
or the methodology. At the same time, they also

01:59:10.390 --> 01:59:13.109
alleged that the debtors have not performed an

01:59:13.109 --> 01:59:16.489
independent evaluation of assets, or that there

01:59:16.489 --> 01:59:21.189
was no valuation of assets done at all. The debtors

01:59:21.189 --> 01:59:25.569
respectfully disagree. I think it would be difficult

01:59:25.569 --> 01:59:29.569
to find other cases where there were as many

01:59:29.569 --> 01:59:32.710
market checks on value of the debtor's assets

01:59:32.710 --> 01:59:36.560
as there were in this one. You know, there were

01:59:36.560 --> 01:59:40.880
multiple pre -petition marketing processes which

01:59:40.880 --> 01:59:46.960
are detailed in Article 3B2A of the plan, including

01:59:46.960 --> 01:59:52.279
by Citibank, BTIG, and Goldman Sachs. Before

01:59:52.279 --> 01:59:55.920
the petition date, around the same time that,

01:59:55.920 --> 01:59:58.359
you know, Pillsbury came onto the scene, there

01:59:58.359 --> 02:00:01.920
was a marketing process conducted by Hulahan

02:00:01.920 --> 02:00:06.199
Loki. to sell the business as a going concern.

02:00:06.739 --> 02:00:09.220
And then there were subsequent marketing processes

02:00:09.220 --> 02:00:14.319
by Hillco, STX Commodities, and Gordon Brothers.

02:00:15.000 --> 02:00:17.380
All these marketing processes are detailed in

02:00:17.380 --> 02:00:22.699
sections three, B2, and four E of the plan. And

02:00:22.699 --> 02:00:25.899
then attached as exhibit two to the Ryan Rowan

02:00:25.899 --> 02:00:31.389
declaration filed at docket number 958. shows

02:00:31.389 --> 02:00:35.189
the methodology and the assumptions used in the

02:00:35.189 --> 02:00:37.529
liquidation analysis and essentially the water

02:00:37.529 --> 02:00:41.890
flow, waterfall and distribution of estate proceeds

02:00:41.890 --> 02:00:45.329
which we believe show conclusively that that

02:00:45.329 --> 02:00:47.449
holders of equity interests are not entitled

02:00:47.449 --> 02:00:54.460
to any distribution under the plan. Next, the

02:00:54.460 --> 02:00:56.640
holders of equity interests allege that the debtors

02:00:56.640 --> 02:00:59.680
have failed to perform a meaningful investigation.

02:01:01.079 --> 02:01:05.180
Unfortunately, this company has been under some

02:01:05.180 --> 02:01:08.920
form of an investigation in one way or another

02:01:08.920 --> 02:01:12.960
since the fall of 2020 essentially. There were

02:01:12.960 --> 02:01:16.619
multiple investigations conducted by governmental

02:01:16.619 --> 02:01:20.319
authorities. internally by the company pre -petition,

02:01:20.420 --> 02:01:24.279
which Mr. Worthen spoke to earlier, and then

02:01:24.279 --> 02:01:29.039
most recently post -petition by the UCC, who

02:01:29.039 --> 02:01:33.500
takes their fiduciary role very seriously. The

02:01:33.500 --> 02:01:36.800
UCC ultimately agreed to support the derivative

02:01:36.800 --> 02:01:40.060
settlement and the narrower releases and exculpations

02:01:40.060 --> 02:01:45.060
in the plan for officers and directors. and therefore

02:01:45.060 --> 02:01:47.380
we believe that more than adequate investigation

02:01:47.380 --> 02:01:52.800
has been performed. Next, the holders of the

02:01:52.800 --> 02:01:55.979
equity interests argue a lack of meaningful participation

02:01:55.979 --> 02:02:00.579
in the bankruptcy process. The Young Declaration

02:02:00.579 --> 02:02:03.760
at docket number 952 shows that all holders were

02:02:03.760 --> 02:02:06.760
provided with notice of interim approval of the

02:02:06.760 --> 02:02:09.399
disclosure statement and of the planned confirmation

02:02:09.399 --> 02:02:13.430
hearing. The debtors took in all the informal

02:02:13.430 --> 02:02:16.729
and the formal objections that were filed, irrespective

02:02:16.729 --> 02:02:19.510
of when, and we are now addressing them here

02:02:19.510 --> 02:02:25.850
before Your Honor. Bankruptcy Code Section 1126

02:02:25.850 --> 02:02:30.989
-G, we believe, shows clearly, and that's consistent

02:02:30.989 --> 02:02:33.590
with Your Honor's ruling upon this solicitation

02:02:33.590 --> 02:02:36.329
procedures order that class five equity holders,

02:02:36.470 --> 02:02:38.590
because they're not entitled to anything under

02:02:38.590 --> 02:02:42.310
the plan, they are deemed to reject and simply

02:02:42.310 --> 02:02:45.890
not entitled to vote. And so we think that under

02:02:45.890 --> 02:02:48.369
these circumstances, holders of equity interests

02:02:48.369 --> 02:02:51.430
have had all the meaningful participation that

02:02:51.430 --> 02:02:56.090
they're entitled to in these cases. Just the

02:02:56.090 --> 02:02:58.630
last point that I will address is that Class

02:02:58.630 --> 02:03:02.989
5 equity holders argue unfair treatment. And

02:03:02.989 --> 02:03:06.609
while I do sympathize with them, unfortunately,

02:03:06.710 --> 02:03:09.380
under the absolute priority rule, under Section

02:03:09.380 --> 02:03:14.399
1129, B2B, Romanet 2. Senior classes must be

02:03:14.399 --> 02:03:16.899
paid in full before junior classes can receive

02:03:16.899 --> 02:03:21.800
any distributions under a Chapter 11 plan. And

02:03:21.800 --> 02:03:24.180
the liquidation analysis and the market test

02:03:24.180 --> 02:03:28.159
that we've conducted over the course of these

02:03:28.159 --> 02:03:32.159
cases prove conclusively that they simply are

02:03:32.159 --> 02:03:35.319
not entitled to any distribution on account of

02:03:35.319 --> 02:03:38.779
their equity. With that, Your Honor, I'd ask

02:03:38.779 --> 02:03:42.380
that you overrule the Class 5 equity holder objections.

02:03:43.640 --> 02:03:47.119
I did just want to note that at some point I

02:03:47.119 --> 02:03:52.479
saw one of the informal objectors pop up on Zoom,

02:03:53.319 --> 02:03:58.739
and I will leave it at that. Okay. Let me start

02:03:58.739 --> 02:04:05.500
by asking if the objectors who filed formal objections

02:04:05.500 --> 02:04:08.949
would like to be heard. So I'd first invite Ms.

02:04:09.109 --> 02:04:11.289
Scudder if she's on the line to offer her comments.

02:04:13.810 --> 02:04:22.149
Ms. Scudder, are you there? Okay, I hear no response.

02:04:24.630 --> 02:04:28.729
And then Mr. Niparko, are you on the line, sir?

02:04:34.369 --> 02:04:39.770
Okay, again, for the record, I've paused, waited

02:04:39.770 --> 02:04:42.510
for a response, and I've heard no response from

02:04:42.510 --> 02:04:48.170
either Ms. Scudder or Mr. Naparco. Are there

02:04:48.170 --> 02:04:52.569
any others on the line who are equity holders

02:04:52.569 --> 02:05:03.880
who wish to be heard? Okay, the record should

02:05:03.880 --> 02:05:06.000
show that I paused about ten seconds and have

02:05:06.000 --> 02:05:11.000
heard no response. Thank you. Okay Okay, mr.

02:05:14.960 --> 02:05:18.439
Morris I believe that leaves the Milton equitable

02:05:18.439 --> 02:05:21.539
subordination objection, which I think we talked

02:05:21.539 --> 02:05:24.460
earlier We maybe take a break and then come back

02:05:24.460 --> 02:05:28.079
given that it is Friday afternoon Still with

02:05:28.079 --> 02:05:31.319
great weather outside. I'd propose that we take

02:05:31.319 --> 02:05:35.520
a very accelerated break and conclude today's

02:05:35.520 --> 02:05:39.659
proceedings as promptly as possible. Yeah, I

02:05:39.659 --> 02:05:43.199
agree. Also not to put your staff at any inconvenience

02:05:43.199 --> 02:05:45.960
as well. Yeah. Now, I'd like to come back on

02:05:45.960 --> 02:05:50.920
the record at 1 .15. And, you know, I think we

02:05:50.920 --> 02:05:53.659
should think conceptually about what it is that's

02:05:53.659 --> 02:05:56.420
before us with regard to equitable coordination

02:05:56.420 --> 02:06:00.949
that gives everybody a chance to... refine their

02:06:00.949 --> 02:06:02.810
presentations for the afternoon. I think I've

02:06:02.810 --> 02:06:08.029
hinted at some of it. It seems that the analysis

02:06:08.029 --> 02:06:14.430
for me is that, again, I have President Trump's

02:06:14.430 --> 02:06:23.369
pardon, I have the conviction, and I have the

02:06:23.369 --> 02:06:26.529
orbital award that was confirmed by the district

02:06:26.529 --> 02:06:29.760
court. in Arizona, and those are sort of the

02:06:29.760 --> 02:06:32.899
issues that have been put in play in addition

02:06:32.899 --> 02:06:38.380
to remarks that President Trump has represented

02:06:38.380 --> 02:06:42.760
in the papers to have made following the granting

02:06:42.760 --> 02:06:48.500
of the pardon. As I've indicated earlier, it

02:06:48.500 --> 02:06:52.939
seems to me that there is an issue, well, there's

02:06:52.939 --> 02:06:58.380
a matter of issue preclusion, and that I have

02:06:58.380 --> 02:07:03.020
the fact of the conviction. I have the fact of

02:07:03.020 --> 02:07:11.520
the orbital award. And I can't revisit any of

02:07:11.520 --> 02:07:16.840
the findings made there. So we've had argument

02:07:16.840 --> 02:07:23.199
about the effect of the pardon. I'll offer an

02:07:23.199 --> 02:07:25.420
opportunity for parties to address this issue

02:07:25.420 --> 02:07:33.760
following lunch. But given... Well, let me start

02:07:33.760 --> 02:07:37.979
with this. Is there any question that the pardon

02:07:37.979 --> 02:07:42.640
that was attached as an objection to Mr. Milton's

02:07:42.640 --> 02:07:46.600
objection is the pardon that President Trump

02:07:46.600 --> 02:07:51.220
granted? We don't believe so, Your Honor. We've

02:07:51.220 --> 02:07:54.020
indicated it's not an innocence pardon. It's

02:07:54.020 --> 02:07:57.119
the normal regular way pardon that... There's

02:07:57.119 --> 02:08:00.100
no my question is there's no dispute about there's

02:08:00.100 --> 02:08:03.020
not gonna be any objection to them. It's authenticity

02:08:03.020 --> 02:08:09.220
or anything like that. Okay, okay, so again Have

02:08:09.220 --> 02:08:11.800
an opportunity to address this point. I want

02:08:11.800 --> 02:08:16.939
to offer you the chance to think about it The

02:08:16.939 --> 02:08:21.760
You know my presumption of course is that is

02:08:21.760 --> 02:08:24.960
that like any president president Trump speaks

02:08:24.960 --> 02:08:27.449
with absolute clarity when he issues a pardon.

02:08:29.130 --> 02:08:36.430
And the pardon says what it says. Any comments

02:08:36.430 --> 02:08:42.149
that may have made outside of the pardon would

02:08:42.149 --> 02:08:49.210
strike me as likely being inadmissible as extrinsic

02:08:49.210 --> 02:08:53.689
evidence to interpret what I think is a fairly

02:08:56.969 --> 02:09:01.430
straightforward and robust statement about the

02:09:01.430 --> 02:09:07.750
nature of the pardon. So I'm not making any decisions

02:09:07.750 --> 02:09:09.810
about admissibility of evidence, but I do want

02:09:09.810 --> 02:09:11.970
to offer you the opportunity to consider that

02:09:11.970 --> 02:09:17.229
as you prepare for the afternoon. So I think

02:09:17.229 --> 02:09:20.949
that the way I'm conceptualizing it, and I've

02:09:20.949 --> 02:09:24.100
spent a great deal of time. thinking about this,

02:09:24.239 --> 02:09:34.119
that the analysis requires looking at the findings

02:09:34.119 --> 02:09:37.260
of the courts and the arbitration panel that

02:09:37.260 --> 02:09:40.640
was confirmed by a court. What is the effect

02:09:40.640 --> 02:09:43.199
of those? Whether issue of preclusion applies

02:09:43.199 --> 02:09:55.130
and assuming for the sake of argument that the

02:09:55.130 --> 02:10:02.229
pardon would carry with it a determination of

02:10:02.229 --> 02:10:05.750
innocence, whether that's supportable under applicable

02:10:05.750 --> 02:10:12.409
law and whether in fact that occurred. So I think

02:10:12.409 --> 02:10:15.430
it could, I think with those comments, which

02:10:15.430 --> 02:10:18.590
I hope are helpful, I think it can inform the

02:10:18.590 --> 02:10:21.430
evidentiary presentation. for the afternoon,

02:10:21.710 --> 02:10:25.369
but it strikes me as, you know, if I go, if I

02:10:25.369 --> 02:10:29.550
make a determination that equitable subordination

02:10:29.550 --> 02:10:34.210
is appropriate, then I don't need to get to the

02:10:34.210 --> 02:10:36.329
alternative relief that was requested, which

02:10:36.329 --> 02:10:40.710
was disallowing the claim. If on the other hand,

02:10:41.250 --> 02:10:44.649
I determine that equitable subordination is not

02:10:44.649 --> 02:10:47.069
warranted, then there is a claim objection and

02:10:47.069 --> 02:10:52.149
there's... there is an issue that we have to

02:10:52.149 --> 02:10:57.409
determine there. So it may be that we deal with

02:10:57.409 --> 02:11:00.850
equitable subordination first, and after I've

02:11:00.850 --> 02:11:02.869
had an opportunity to consider everything before

02:11:02.869 --> 02:11:07.229
me, if we need to get to the claim allowance

02:11:07.229 --> 02:11:10.390
thing, that we can deal with that. But I think

02:11:10.390 --> 02:11:12.130
a step -by -step approach might be more efficient

02:11:12.130 --> 02:11:15.189
for everybody. I agree, Your Honor, and we'd

02:11:15.189 --> 02:11:20.420
be happy to proceed in that manner. Okay. Since

02:11:20.420 --> 02:11:23.859
I'm talking about Mr. Milton's issues, let me

02:11:23.859 --> 02:11:26.779
just hear from Mr. Cousins or Mr. Brannick if

02:11:26.779 --> 02:11:30.500
that conceptual approach to how to deal with

02:11:30.500 --> 02:11:32.699
the afternoon's proceedings makes sense to you.

02:11:34.319 --> 02:11:36.039
Good afternoon, Your Honor. Scott Cousins on

02:11:36.039 --> 02:11:38.819
behalf of Trevor Milton. Mr. Morris and I did

02:11:38.819 --> 02:11:43.000
have a discussion about... it's not really bifurcated,

02:11:43.300 --> 02:11:47.720
it's the gating issue. And then bifurcation,

02:11:48.739 --> 02:11:50.960
whether it goes back to the second arbitration

02:11:50.960 --> 02:11:53.079
panel or the court determines indemnification

02:11:53.079 --> 02:11:55.920
rights and reasonableness of fees. So I agree

02:11:55.920 --> 02:11:57.680
with the approach, I hear you loud and clear

02:11:57.680 --> 02:12:01.659
on both the criminal versus the civil, as the

02:12:01.659 --> 02:12:04.699
court knows, everybody knows, pardon doesn't

02:12:04.699 --> 02:12:08.819
get you out of civil liability, just related

02:12:08.819 --> 02:12:12.359
to the... conviction and we'll be prepared to

02:12:12.359 --> 02:12:18.659
address that. I'm going to defer to the court.

02:12:19.340 --> 02:12:22.920
Mr. Milton would not need to testify on the gating

02:12:22.920 --> 02:12:25.140
if the court determines the gating issue then

02:12:25.140 --> 02:12:27.319
we wouldn't need testimony about the claim because

02:12:27.319 --> 02:12:31.560
you would have subordinated it but I guess to

02:12:31.560 --> 02:12:33.619
create the record I think I have to put Mr. Milton

02:12:33.619 --> 02:12:37.159
on to talk about that and then whether court

02:12:37.159 --> 02:12:39.699
gives that any weight in bifurcates or whether

02:12:39.699 --> 02:12:43.000
the court knocks it out under 510c would come

02:12:43.000 --> 02:12:46.520
into play. Well I think what might be most efficient

02:12:46.520 --> 02:12:51.920
would be for us to view them as sort of two separate

02:12:51.920 --> 02:12:58.100
proceedings because if the equitable subordination

02:12:58.100 --> 02:13:03.859
issue turns out to be dispositive then there

02:13:03.859 --> 02:13:08.359
would be no need for Mr. Milton's testimony on

02:13:08.359 --> 02:13:12.640
the allowance and reasonableness of the fee issue.

02:13:15.420 --> 02:13:22.739
And so I tend to think that efficiency would

02:13:22.739 --> 02:13:27.119
ask us to actually bifurcate those proceedings.

02:13:27.159 --> 02:13:32.479
I mean, all in this afternoon, but that's where

02:13:32.479 --> 02:13:36.520
I'm going with that. The debtors are happy to

02:13:36.520 --> 02:13:39.100
proceed in that fashion, Your Honor. That makes

02:13:39.100 --> 02:13:42.220
a lot of sense to us. Does that make it... Does

02:13:42.220 --> 02:13:44.199
that prejudice in any way your ability to argue

02:13:44.199 --> 02:13:46.359
the equitable subordination issue? I take not

02:13:46.359 --> 02:13:49.279
because I think you've acknowledged that that's

02:13:49.279 --> 02:13:52.800
not an issue that requires testimony. That's

02:13:52.800 --> 02:13:56.380
correct, Your Honor. And I think that does make

02:13:56.380 --> 02:14:00.239
sense. And Mr. Morrison actually and I just yesterday

02:14:00.239 --> 02:14:02.399
talked about, you know, is there a way to make

02:14:02.399 --> 02:14:06.250
it more efficient for the court. Well, as Mr.

02:14:06.310 --> 02:14:08.029
Morris pointed out, it's a Friday. The weather

02:14:08.029 --> 02:14:11.029
is beautiful. No, but the important thing is

02:14:11.029 --> 02:14:13.510
that it matters a great deal to me that Mr. Morris

02:14:13.510 --> 02:14:15.069
has the opportunity to make all his arguments.

02:14:16.630 --> 02:14:20.390
And my client came in for a long way, so I want

02:14:20.390 --> 02:14:23.050
to make sure that if the court says, yeah, I

02:14:23.050 --> 02:14:25.069
want to hear that, that he has an opportunity

02:14:25.069 --> 02:14:28.210
to testify. Oh, he will. Yeah, absolutely. I

02:14:28.210 --> 02:14:30.270
appreciate him coming, and that's why we're here

02:14:30.270 --> 02:14:36.380
today. Thank you. Okay, so we'll come back at

02:14:36.380 --> 02:23:48.379
1 .15. We're in recess. Okay, Mr. Morris. Good

02:23:48.379 --> 02:23:51.459
afternoon, Your Honor. David Badley. We don't

02:23:51.459 --> 02:23:54.059
want to interrupt the proceedings later. I think

02:23:54.059 --> 02:23:55.979
Ms. Shoyer and I may need to depart in about

02:23:55.979 --> 02:23:58.639
an hour. I've run it by Mr. Morris. I don't think

02:23:58.639 --> 02:24:00.280
he has any reason why we need to stay. I just

02:24:00.280 --> 02:24:01.600
wanted to make sure Your Honor would be okay

02:24:01.600 --> 02:24:03.959
if we were to excuse ourselves. Certainly. Thank

02:24:03.959 --> 02:24:11.579
you for coming up today. Okay. Thank you. Joshua

02:24:11.579 --> 02:24:17.500
Morse for the debtors. I think based on our pre

02:24:17.500 --> 02:24:22.520
-break order of operations, we're gonna do the

02:24:22.520 --> 02:24:26.579
Milton Equitable Sport Nation objection and then

02:24:26.579 --> 02:24:29.719
see where that takes us. And then if we need

02:24:29.719 --> 02:24:33.360
to do the claim disallowance, we would do that

02:24:33.360 --> 02:24:36.200
secondarily, but we would focus now on the equitable

02:24:36.200 --> 02:24:41.899
sport nation. So that brings us to the equitable

02:24:41.899 --> 02:24:43.799
coordination objection, which appears at docket

02:24:43.799 --> 02:24:48.180
number 911, which takes issue with the debtor's

02:24:48.180 --> 02:24:50.399
proposed classification and treatment of the

02:24:50.399 --> 02:24:55.719
Milton claim into class number eight, as detailed

02:24:55.719 --> 02:24:59.239
in our Milton claim memo, which appears at docket

02:24:59.239 --> 02:25:02.360
number 808, which was filed back on July 29th.

02:25:02.430 --> 02:25:05.110
debtors seek to equitably subordinate the proof

02:25:05.110 --> 02:25:09.469
of claim number 54, which appears as exhibit

02:25:09.469 --> 02:25:12.809
number 38. Just for the record, it has not been

02:25:12.809 --> 02:25:17.489
admitted. It's just here today or in the alternative

02:25:17.489 --> 02:25:19.489
to disallow the Milton claim in its entirety,

02:25:19.510 --> 02:25:22.510
but we hope not to need to even get to that.

02:25:24.129 --> 02:25:27.010
The class eight of the plan consists of equitably

02:25:27.010 --> 02:25:29.530
subordinated claims. The only one that's at issue

02:25:29.530 --> 02:25:34.030
is Mr. Milton's claim. and the Milton claim is

02:25:34.030 --> 02:25:36.969
classified under the plan as Class 8 pursuant

02:25:36.969 --> 02:25:40.129
to Section 510C of the Bankruptcy Code and the

02:25:40.129 --> 02:25:42.989
principles of equitable subordination. There

02:25:42.989 --> 02:25:50.030
are three elements directionally to a request

02:25:50.030 --> 02:25:52.590
for equitable subordination. Number one, there

02:25:52.590 --> 02:25:55.510
has to be inequitable conduct. Number two, there

02:25:55.510 --> 02:25:58.290
has to be injury to the debtor or its creditors.

02:25:58.469 --> 02:26:01.690
And number three, Equitably subordinating claim

02:26:01.690 --> 02:26:05.069
can't be inconsistent with the bankruptcy code.

02:26:05.729 --> 02:26:10.010
As set forth in our confirmation, our brief and

02:26:10.010 --> 02:26:11.770
supported confirmation, we believe all three

02:26:11.770 --> 02:26:14.790
of those elements are more than satisfied here.

02:26:15.569 --> 02:26:18.049
Turning to the first element, which is the inequitable

02:26:18.049 --> 02:26:21.889
conduct, as the court is well aware, Milton was

02:26:21.889 --> 02:26:25.469
an insider of the debtors. He served as the debtor's

02:26:25.469 --> 02:26:28.329
CEO and executive chairman until September of

02:26:28.329 --> 02:26:32.540
2020. and he dominated the debtor's communications

02:26:32.540 --> 02:26:35.559
with the public. There's evidence of that in

02:26:35.559 --> 02:26:38.700
exhibit number 13, which is the indictment at

02:26:38.700 --> 02:26:43.120
page 12. Milton, quote, I wanted to be in control.

02:26:43.299 --> 02:26:46.020
I wanted to be in communication with the public

02:26:46.020 --> 02:26:50.260
about what we are. As an insider, Milton's conduct

02:26:50.260 --> 02:26:53.860
demands closer scrutiny under the case law, and

02:26:53.860 --> 02:26:56.340
Milton must rebut the debtor's material evidence

02:26:56.340 --> 02:26:59.819
of unfair conduct by proving the fairness of

02:26:59.819 --> 02:27:03.000
his transactions with the debtor. That's from

02:27:03.000 --> 02:27:06.120
the Mid -American Waste Systems case, which we're

02:27:06.120 --> 02:27:08.600
going to be referring to a lot during my argument

02:27:08.600 --> 02:27:14.059
today. That's at 284 BR 53, page 69, bankruptcy

02:27:14.059 --> 02:27:17.459
decision from the District of Delaware here in

02:27:17.459 --> 02:27:22.059
2002. Milton used his insider power to control

02:27:22.059 --> 02:27:24.739
the debtors and ultimately breached his fiduciary

02:27:24.739 --> 02:27:27.840
duties of loyalty and good faith to Nicola. and

02:27:27.840 --> 02:27:30.899
was ultimately convicted of securities and wire

02:27:30.899 --> 02:27:34.180
fraud. But as we've talked about earlier, we're

02:27:34.180 --> 02:27:39.079
not here to rehash or retry or do any of that

02:27:39.079 --> 02:27:41.440
with respect to that conduct because you have

02:27:41.440 --> 02:27:45.620
more than enough evidence in front of you about

02:27:45.620 --> 02:27:48.200
that. And let's just go through just very briefly

02:27:48.200 --> 02:27:52.280
what that evidence is. The contours of that behavior

02:27:52.280 --> 02:27:57.100
have been litigated ad nauseam. by both the Milton

02:27:57.100 --> 02:28:00.879
Award arbitration panel and SDNY. The parties

02:28:00.879 --> 02:28:02.959
to the breach of duty arbitration proceeding

02:28:02.959 --> 02:28:06.360
conducted months of extensive discovery before

02:28:06.360 --> 02:28:09.280
holding the eight -day hearing before the three

02:28:09.280 --> 02:28:11.700
-member arbitration panel that resulted in the

02:28:11.700 --> 02:28:15.360
Milton Award. The Milton Award conclusively found,

02:28:15.360 --> 02:28:18.760
as you've seen, that, quote, Milton violated

02:28:18.760 --> 02:28:20.979
his fiduciary duties of loyalty and good faith

02:28:20.979 --> 02:28:23.139
to Nikola through a pattern of false and misleading

02:28:23.139 --> 02:28:26.190
public statements. about Nikola's products and

02:28:26.190 --> 02:28:28.690
the state of their development and by subordinating

02:28:28.690 --> 02:28:31.090
the company's interest to his own by refusing

02:28:31.090 --> 02:28:35.170
to all efforts to review and approve his public

02:28:35.170 --> 02:28:38.770
statements in advance. That's at exhibit 25 of

02:28:38.770 --> 02:28:43.649
the redacted Milton Award at page 53. The Milton

02:28:43.649 --> 02:28:47.409
arbitration panel also held, quote, we could

02:28:47.409 --> 02:28:49.969
not conclude Milton acted in good faith and in

02:28:49.969 --> 02:28:51.989
a manner that Milton reasonably believed to be

02:28:52.239 --> 02:28:54.940
in or not opposed to the best interests of Nikola.

02:28:55.520 --> 02:28:57.920
Accordingly, there's no basis for Milton to receive

02:28:57.920 --> 02:29:01.319
indemnification. That's exhibit 25, the redacted

02:29:01.319 --> 02:29:05.159
Milton Award at 59, under this indemnification

02:29:05.159 --> 02:29:07.920
agreement. That forms the basis for his claim

02:29:07.920 --> 02:29:13.200
number 54. And Milton is precluded, as we've

02:29:13.200 --> 02:29:16.459
talked about, from re -litigating the Milton

02:29:16.459 --> 02:29:20.100
Award before this court. The fact that the Milton

02:29:20.100 --> 02:29:23.139
Award is on appeal in the Ninth Circuit, which

02:29:23.139 --> 02:29:25.159
is something that I would have expected them

02:29:25.159 --> 02:29:28.819
to argue, but they didn't, is of no consequence.

02:29:30.219 --> 02:29:33.600
And I just want to give you comfort of that.

02:29:34.280 --> 02:29:36.799
The pendency of an appeal does not mitigate the

02:29:36.799 --> 02:29:39.280
preclusive effect of an otherwise valid judgment.

02:29:39.840 --> 02:29:43.059
And this is from the U .S. versus five unlabeled

02:29:43.059 --> 02:29:48.540
boxes case. 572 F3rd 169 at page 175. That's

02:29:48.540 --> 02:29:52.500
a third circuit case from 2009. And then upon

02:29:52.500 --> 02:29:55.139
confirmation of the Milton Award by the District

02:29:55.139 --> 02:29:59.600
Court in Arizona, the Milton Award became a valid

02:29:59.600 --> 02:30:02.559
and final judgment entitled to the same force

02:30:02.559 --> 02:30:05.020
and effect as a judgment in any other action.

02:30:05.500 --> 02:30:09.040
That's from the Teamsters Local 177 versus UPS

02:30:09.040 --> 02:30:14.930
case, found at 966 F3rd 245. at page 251, also

02:30:14.930 --> 02:30:19.270
a third circuit case from 2020. Milton's revisionist

02:30:19.270 --> 02:30:24.870
history with respect to this Milton pardon also

02:30:24.870 --> 02:30:29.469
lacks merit. In the first instance, this statement

02:30:29.469 --> 02:30:33.389
by President Trump is inadmissible hearsay, not

02:30:33.389 --> 02:30:36.549
only under federal rule of evidence 801C, but

02:30:36.549 --> 02:30:41.700
under cases that include US versus Salins. that

02:30:41.700 --> 02:30:46.860
we cited, 993, F2nd, 344, at page 346, which

02:30:46.860 --> 02:30:50.520
is a Third Circuit case from 1993. There's also,

02:30:50.540 --> 02:30:52.760
as we indicated in our papers, no indication

02:30:52.760 --> 02:30:55.459
that Milton received a quote -unquote, innocence

02:30:55.459 --> 02:30:58.979
-based pardon. We explain that in our memo at

02:30:58.979 --> 02:31:04.059
pages 53 and 54. Now, a pardon for actual innocence

02:31:04.059 --> 02:31:08.799
must state on its face that it was based on actual

02:31:08.799 --> 02:31:15.069
innocence. as indicated in the, I'm gonna mess

02:31:15.069 --> 02:31:19.469
up the pronunciation, Bultby versus U .S. 2024

02:31:19.469 --> 02:31:26.690
Westlaw 322 -0261 at star eight, that's a federal

02:31:26.690 --> 02:31:34.629
CL June 27th, 2024 case. Like the Benton pardon

02:31:34.629 --> 02:31:37.270
that we cited in our papers, Milton's pardon

02:31:37.270 --> 02:31:40.479
is silent on its face. as to Milton's innocence

02:31:40.479 --> 02:31:43.819
or rehabilitation. Rendering their arguments,

02:31:44.340 --> 02:31:48.739
which Mr. Cousins appeared to move away from

02:31:48.739 --> 02:31:52.420
right before we left for lunch, totally moved.

02:31:52.899 --> 02:31:57.860
We attached a copy of that Benton pardon, or

02:31:57.860 --> 02:32:00.319
excuse me, it's admitted as exhibit number 34.

02:32:00.780 --> 02:32:04.440
So you can compare that pardon with Mr. Milton's

02:32:04.440 --> 02:32:07.690
pardon and see they're exactly the same. And

02:32:07.690 --> 02:32:14.389
that case is US versus Benton, 98 F4 1119. It's

02:32:14.389 --> 02:32:19.469
a DC circuit case from 2024. With that, we believe

02:32:19.469 --> 02:32:22.569
that the inequitable conduct element has been

02:32:22.569 --> 02:32:29.309
established. Element two is injury to the debtor

02:32:29.309 --> 02:32:33.770
or its creditors. We've submitted a mountain

02:32:33.770 --> 02:32:38.500
of evidence on the injury. and also had Mr. Worthen

02:32:38.500 --> 02:32:41.659
supplement that evidence this morning during

02:32:41.659 --> 02:32:46.879
his supplemental testimony. Milton's inequitable

02:32:46.879 --> 02:32:50.659
conduct directly injured not only Nicola, but

02:32:50.659 --> 02:32:53.799
its creditors as well. Following the issuance

02:32:53.799 --> 02:32:56.840
of the Hindenburg Report, which publicized multiple

02:32:56.840 --> 02:33:00.000
false and misleading statements made by Milton,

02:33:00.680 --> 02:33:04.489
Nicola's stock price dropped approximately 43%,

02:33:04.489 --> 02:33:07.389
resulting in substantial losses to not only Nikola's

02:33:07.389 --> 02:33:10.290
investors, but substantial harm to the debtors

02:33:10.290 --> 02:33:13.610
as well. That's found at exhibit number 13, which

02:33:13.610 --> 02:33:19.870
is the indictment at page 43. Thousands of retail

02:33:19.870 --> 02:33:23.530
investors targeted by Milton's inequitable conduct

02:33:23.530 --> 02:33:27.149
suffered substantial losses, in some cases totaling

02:33:27.149 --> 02:33:29.809
tens of hundreds of thousands of dollars, compromising

02:33:29.809 --> 02:33:31.750
their financial security and retirement savings.

02:33:32.110 --> 02:33:36.510
same exhibit at the same page, 43. Milton's false

02:33:36.510 --> 02:33:38.790
and misleading statements caused an onslaught

02:33:38.790 --> 02:33:41.450
of litigation against the debtors. We heard about

02:33:41.450 --> 02:33:45.110
that this morning. Not only the SEC investigation

02:33:45.110 --> 02:33:48.829
that resulted in the $125 million civil penalty,

02:33:49.409 --> 02:33:52.049
of which approximately $45 million was paid as

02:33:52.049 --> 02:33:54.829
of the petition date, but there's another $4

02:33:54.829 --> 02:33:57.469
million that's going to be paid to the SEC under

02:33:57.469 --> 02:34:01.309
our plan. Nicola incurred substantial additional

02:34:01.309 --> 02:34:04.370
legal fees defending against the SEC investigation

02:34:04.370 --> 02:34:07.489
and various class actions stemming from Milton's

02:34:07.489 --> 02:34:13.530
conduct related to Mr. Milton's conduct. As Mr.

02:34:13.690 --> 02:34:17.309
Worthen testified this morning, certain of those

02:34:17.309 --> 02:34:19.729
costs were quantified in the arbitration in the

02:34:19.729 --> 02:34:23.450
amount of about $46 million, but those also did

02:34:23.450 --> 02:34:26.200
not include the $11 million. that were paid to

02:34:26.200 --> 02:34:30.979
casualists to conduct the arbitration. Mr. Worthen

02:34:30.979 --> 02:34:34.000
also testified this morning about increased cost

02:34:34.000 --> 02:34:36.620
of capital, increased cost of D &O insurance,

02:34:36.940 --> 02:34:39.899
loss of customer opportunities, including General

02:34:39.899 --> 02:34:42.780
Motors and others, as well as lost relationships,

02:34:43.059 --> 02:34:46.059
some with investment banks, Morgan Stanley, and

02:34:46.059 --> 02:34:49.059
things like that. The debtors were ultimately

02:34:49.059 --> 02:34:52.100
unable to ever recover from the reputational

02:34:52.100 --> 02:34:55.309
damage. civil penalties and amassing legal fees

02:34:55.309 --> 02:34:59.790
caused by Milton's misconduct, which is a substantial

02:34:59.790 --> 02:35:02.590
factor for why we stand here before Your Honor

02:35:02.590 --> 02:35:05.850
today. Under the Mid -American case that I mentioned

02:35:05.850 --> 02:35:08.670
in the beginning of my presentation, Milton's

02:35:08.670 --> 02:35:14.350
burden is to rebut all of this harm that we have

02:35:14.350 --> 02:35:17.290
brought before Your Honor, and that's found at

02:35:17.290 --> 02:35:23.350
284 BR, pages 76 and 77. there's no evidence

02:35:23.350 --> 02:35:26.889
that's been submitted to rebut any of that harm.

02:35:28.010 --> 02:35:30.629
As a result, we believe element number two has

02:35:30.629 --> 02:35:36.370
also been established. Element number three is

02:35:36.370 --> 02:35:38.129
that the equitable subordination that the debtors

02:35:38.129 --> 02:35:41.290
have requested is consistent with the goal of

02:35:41.290 --> 02:35:45.850
the bankruptcy code. We believe that Milton's

02:35:45.850 --> 02:35:49.469
conduct here skewed the prospect for distributions

02:35:49.469 --> 02:35:52.850
in this case on an equitable basis. and subordination

02:35:52.850 --> 02:35:56.450
of his claim corrects this. What do I mean by

02:35:56.450 --> 02:36:00.229
this? So if the court does not subordinate or

02:36:00.229 --> 02:36:03.389
disallow his claim, he's presumably going to

02:36:03.389 --> 02:36:06.409
be permitted to share pro rata in class three

02:36:06.409 --> 02:36:09.829
with the other general unsecured creditors. Part

02:36:09.829 --> 02:36:15.770
of the trust assets that are going to be used

02:36:15.770 --> 02:36:19.409
to satisfy general unsecured claims are going

02:36:19.409 --> 02:36:25.129
to be collections from the Milton Arbitration

02:36:25.129 --> 02:36:29.010
Award, which is currently $96 .8 million, plus

02:36:29.010 --> 02:36:31.870
we're going to lop on interest, plus the $4 million

02:36:31.870 --> 02:36:37.549
that's going to be paid to the SEC. This would

02:36:37.549 --> 02:36:40.670
obviously include proceeds under the Arbitration

02:36:40.670 --> 02:36:46.729
Award from 97 % or his 97 % share or fault from

02:36:46.729 --> 02:36:50.600
the SEC fine, among other things. He should not

02:36:50.600 --> 02:36:53.479
be able to share rateably with other general

02:36:53.479 --> 02:36:58.299
unsecured creditors on account of claims held

02:36:58.299 --> 02:37:01.219
by debtors against him because of his wrongful

02:37:01.219 --> 02:37:04.600
conduct. All other arguments and issues aside,

02:37:04.979 --> 02:37:09.100
that would in and of itself be an inequitable

02:37:09.100 --> 02:37:12.260
result here. And accordingly, subordinating his

02:37:12.260 --> 02:37:15.799
claim is not inconsistent with the bankruptcy

02:37:15.799 --> 02:37:20.409
code. It essentially writes the wrong. and we

02:37:20.409 --> 02:37:24.510
submit that subordinating his claim on an equitable

02:37:24.510 --> 02:37:27.510
basis under 510C as we've requested under the

02:37:27.510 --> 02:37:32.309
plan is more than appropriate. Okay, thank you

02:37:32.309 --> 02:37:35.149
Mr. Morse. I'll reserve for any comments. Okay,

02:37:35.270 --> 02:37:38.149
let me hear from Mr. Hiltonstein please. Mr.

02:37:38.309 --> 02:37:41.110
Cousins. Good afternoon, Your Honor. Good afternoon.

02:37:41.110 --> 02:37:43.709
Mr. Cousins on behalf of Trevor Hilton. We agree

02:37:43.709 --> 02:37:49.430
with Mr. Morse. Mr. Milton needs an opportunity

02:37:49.430 --> 02:37:55.489
to rebut, and he's here to testify. What we're

02:37:55.489 --> 02:37:59.850
seeing, Your Honor, is loosely nomenclature a

02:37:59.850 --> 02:38:03.229
double penalty. The 97 % and the 3 % that we've

02:38:03.229 --> 02:38:06.489
been talking about. But then an effort to wipe

02:38:06.489 --> 02:38:10.989
out, subordinate, whatever the term is, his claims.

02:38:11.090 --> 02:38:13.729
Now that wouldn't be an unsecured claim because...

02:38:13.870 --> 02:38:16.530
classical netting set -off recoupment scenario

02:38:16.530 --> 02:38:21.250
when A owes B and B owes A, that's netted, and

02:38:21.250 --> 02:38:24.329
he needs an opportunity to rebut the claims of

02:38:24.329 --> 02:38:26.469
inequitable conduct and ultimately prove up his

02:38:26.469 --> 02:38:29.469
claim. Otherwise, he's suffering effectively

02:38:29.469 --> 02:38:38.489
a double penalty, the 97 % and the vacation,

02:38:38.549 --> 02:38:42.209
for lack of a better verb, of his potential counterclaims.

02:38:42.459 --> 02:38:44.840
We're prepared to put him on the stand. We're

02:38:44.840 --> 02:38:48.159
prepared to talk about it. But we do need an

02:38:48.159 --> 02:38:50.479
opportunity. We would request the court an opportunity

02:38:50.479 --> 02:38:55.139
before the court just subordinates without the

02:38:55.139 --> 02:38:56.920
bifurcated process that we're talking about.

02:38:56.920 --> 02:39:03.120
Let me ask you this. What type of evidence could

02:39:03.120 --> 02:39:07.959
I consider by way of rebuttal when, you know,

02:39:07.979 --> 02:39:10.659
as I signaled earlier, I believe that just on

02:39:10.659 --> 02:39:15.239
the grounds of issue preclusion, there are facts

02:39:15.239 --> 02:39:18.479
that have been established judicially that are

02:39:18.479 --> 02:39:25.239
binding upon binding upon this court so how could

02:39:25.239 --> 02:39:28.659
we possibly rebut any of that when you know if

02:39:28.659 --> 02:39:34.059
you look at the the arbitration ruling you know

02:39:34.059 --> 02:39:39.159
I read it and I dozens of pages of findings regarding

02:39:41.229 --> 02:39:45.469
that the tribunal found to give rise to liability

02:39:45.469 --> 02:39:48.489
and the effects of that conduct. I think that's

02:39:48.489 --> 02:39:56.250
all been established in such a way that there's

02:39:56.250 --> 02:39:59.430
just there's no further evidence on that I can

02:39:59.430 --> 02:40:02.030
consider because it's already been done. Well

02:40:02.030 --> 02:40:06.969
what I'm talking about is his ability whether

02:40:06.969 --> 02:40:12.860
we cited the some cases on this front to assert

02:40:12.860 --> 02:40:18.440
recoupment netting set off. A claim that if the

02:40:18.440 --> 02:40:21.819
court equitably subordinates his claim, that

02:40:21.819 --> 02:40:24.440
set off, that recoupment is gone, it's vacated,

02:40:24.459 --> 02:40:31.860
and he has no ability to mitigate his 97 % responsibility,

02:40:32.399 --> 02:40:39.049
and it's effectively akin to a default. we certainly

02:40:39.049 --> 02:40:42.989
believe that under principles of equitable subordination,

02:40:43.430 --> 02:40:48.049
the court needs to look at all factors, including

02:40:48.049 --> 02:40:52.510
his potential claims, which he's prepared to

02:40:52.510 --> 02:40:59.290
talk about and testify about, and address, I

02:40:59.290 --> 02:41:04.229
do want to address the testimony that Mr. Worthen

02:41:04.229 --> 02:41:07.770
went into and asked the court. to take a look

02:41:07.770 --> 02:41:13.049
at the unsealed, or I'm sorry, the sealed version

02:41:13.049 --> 02:41:15.889
of the exhibit that we walked through, pages

02:41:15.889 --> 02:41:20.649
79 to 81, where we have an instance where the

02:41:20.649 --> 02:41:23.750
debtors are asserting that he has no right to

02:41:23.750 --> 02:41:28.489
indemnification and he has no right to advancement

02:41:28.489 --> 02:41:32.829
of fees. But that's not what, I want to be careful,

02:41:33.010 --> 02:41:36.270
that's not what the, that's what the, That's

02:41:36.270 --> 02:41:39.370
not what the sealed version of that says. And

02:41:39.370 --> 02:41:42.010
there's a separate arbitration panel, and I highlighted

02:41:42.010 --> 02:41:46.469
it this morning before lunch, excuse me, that

02:41:46.469 --> 02:41:50.329
is prepared to address that, the reasonableness

02:41:50.329 --> 02:41:52.149
of the fees, the rights to advancement, the right

02:41:52.149 --> 02:41:54.950
to indemnification, or this court could do it

02:41:54.950 --> 02:41:58.590
in a, I don't know, a mini trial, an estimation

02:41:58.590 --> 02:42:02.350
proceeding, and determine whether the fees that

02:42:02.350 --> 02:42:06.100
Mr. Worthen testified he reviewed and objected

02:42:06.100 --> 02:42:10.979
to the Cahill -Gordon fees are reasonable. And

02:42:10.979 --> 02:42:15.979
that's all I'm asking for is the court address

02:42:15.979 --> 02:42:18.840
the bifurcation issue. Don't subordinate now.

02:42:19.559 --> 02:42:24.559
Let us address the counterclaim, the recoupment,

02:42:24.559 --> 02:42:30.040
et cetera. And in particular, I think when you

02:42:30.040 --> 02:42:33.979
look at the solicitation, for example, that's...

02:42:36.130 --> 02:42:39.530
the liquidating plan talks about Milton's breach

02:42:39.530 --> 02:42:42.829
of fiduciary duties eliminated his entitlement

02:42:42.829 --> 02:42:44.870
to indemnification. Well, that's not true, Your

02:42:44.870 --> 02:42:48.489
Honor. They solicited based on that. And when

02:42:48.489 --> 02:42:52.170
the court looks at the sealed version of the

02:42:52.170 --> 02:42:55.450
award, you'll see they didn't even agree to that.

02:42:57.670 --> 02:43:01.899
Certainly the panel didn't. And again, this is

02:43:01.899 --> 02:43:04.280
a threshold matter, he's not entitled to a demarcation.

02:43:05.840 --> 02:43:08.379
His bold -faced attempt to further delay the

02:43:08.379 --> 02:43:11.879
administration, it's all over their pleadings,

02:43:12.860 --> 02:43:16.860
in particular the plan, the confirmation brief.

02:43:20.319 --> 02:43:23.700
And the committee even goes and adopts that and

02:43:23.700 --> 02:43:25.989
says... He was not entitled to indemnification

02:43:25.989 --> 02:43:27.930
for the failure to act in good faith in a manner.

02:43:28.069 --> 02:43:31.829
And they're not citing one of the two arbitration

02:43:31.829 --> 02:43:35.889
decisions, which is up on appeal in the Ninth

02:43:35.889 --> 02:43:39.409
Circuit. But it's ignoring the second one. And

02:43:39.409 --> 02:43:41.629
court order recall, we were here for the court

02:43:41.629 --> 02:43:43.670
seeking relief from the automatic stay in order

02:43:43.670 --> 02:43:48.629
to go back to what we're calling the second arbitration,

02:43:48.729 --> 02:43:52.489
but Mr. Milton commenced it first. And I would

02:43:52.489 --> 02:43:55.430
just encourage the court to see that, that this

02:43:55.430 --> 02:43:58.309
is so one -sided, it amounts to a double penalty.

02:43:58.350 --> 02:44:02.870
He doesn't get to liquidate his claims and set

02:44:02.870 --> 02:44:06.049
off those claims against the 97 % that we've

02:44:06.049 --> 02:44:12.750
been talking about. With respect to the pardon,

02:44:13.950 --> 02:44:16.110
yes, he was indicted. Yes, he was convicted.

02:44:16.209 --> 02:44:17.950
Yes, he was sentenced to four years. But yes,

02:44:18.770 --> 02:44:22.389
he was pardoned. But this isn't... the general

02:44:22.389 --> 02:44:25.229
pardon, for example, the Carter administration

02:44:25.229 --> 02:44:36.250
in the... I'll find it in a second. In the Noonan?

02:44:36.510 --> 02:44:40.409
Yeah, and that was just a general draft. I don't

02:44:40.409 --> 02:44:43.629
mean the pejorative, but it was essentially a

02:44:43.629 --> 02:44:45.850
pardon, a general pardon that wasn't specific,

02:44:46.290 --> 02:44:48.329
and there wasn't a specific finding of innocence.

02:44:49.380 --> 02:44:52.280
take it what it's worth, but you know, President

02:44:52.280 --> 02:44:55.059
Trump did say that Mr. Milton did nothing wrong.

02:44:55.780 --> 02:44:59.500
It's a specific pardon, and I'm willing to stipulate,

02:44:59.520 --> 02:45:04.600
Your Honor, that for purposes of the criminal

02:45:04.600 --> 02:45:07.799
piece, and we respect the pardon, and it's Hornbeck

02:45:07.799 --> 02:45:13.559
Law, that it doesn't address state law claims,

02:45:13.760 --> 02:45:16.879
it only addresses the federal law claims, and

02:45:16.879 --> 02:45:27.500
he specifically found that - Norton was found

02:45:27.500 --> 02:45:34.139
innocent. I read the pardon, he didn't say that.

02:45:35.440 --> 02:45:38.200
We know of instances where the President is reported

02:45:38.200 --> 02:45:43.280
to grant a pardon based upon his belief that

02:45:43.280 --> 02:45:47.500
the person convicted was innocent. So we know

02:45:47.500 --> 02:45:51.879
that that a president knows how to say that in

02:45:51.879 --> 02:46:01.459
a pardon. President Trump, he just didn't say

02:46:01.459 --> 02:46:07.639
it. It's been represented to me and I believe

02:46:07.639 --> 02:46:12.920
that I read the passage in your objection where

02:46:12.920 --> 02:46:17.719
he said he did nothing wrong. Aren't I in the

02:46:17.719 --> 02:46:19.760
first instance required to look at the pardon

02:46:19.760 --> 02:46:24.620
and Determine if it's clear on its face and only

02:46:24.620 --> 02:46:28.620
if I can't decipher it At that point might I

02:46:28.620 --> 02:46:31.299
look to extrinsic evidence to interpret it, but

02:46:31.299 --> 02:46:35.159
I do believe that our president Speaks with great

02:46:35.159 --> 02:46:37.579
clarity and and did so in this instance when

02:46:37.579 --> 02:46:43.360
he granted the pardon And I don't I don't know

02:46:44.829 --> 02:46:48.090
Why I would look beyond his own words in that

02:46:48.090 --> 02:46:50.629
part and to try to interpret its meaning well,

02:46:50.629 --> 02:46:56.250
I will Suggest politely your honor This to my

02:46:56.250 --> 02:46:58.469
knowledge is an issue of first impression where

02:46:58.469 --> 02:47:02.889
bankruptcy courts asked to weigh The impact of

02:47:02.889 --> 02:47:06.489
a pardon in connection with 510. I believe it

02:47:06.489 --> 02:47:16.420
is And and not to suggest that I understand the

02:47:16.420 --> 02:47:18.700
court, but I also understand that you don't have

02:47:18.700 --> 02:47:22.840
to address the criminal piece when, if you look

02:47:22.840 --> 02:47:26.459
at the civil piece, that gets back to the double

02:47:26.459 --> 02:47:28.739
penalty, as it were, is that he has to have a

02:47:28.739 --> 02:47:32.000
right to assert his claims to mitigate the 97

02:47:32.000 --> 02:47:37.200
% that we've been talking about. The Supreme

02:47:37.200 --> 02:47:39.760
Court cases, there's some very old cases, the

02:47:39.760 --> 02:47:42.530
Garland case, for example, talks about... blot

02:47:42.530 --> 02:47:46.790
out the existence of guilt. I think it's far

02:47:46.790 --> 02:47:49.370
simpler for the court to look just at the civil

02:47:49.370 --> 02:47:52.629
piece as opposed to the criminal piece. And I

02:47:52.629 --> 02:47:55.829
look for guidance from bankruptcy courts. It's

02:47:55.829 --> 02:48:00.530
not there. I understand the court's point about,

02:48:01.229 --> 02:48:04.370
it's not parole evidence, but secondary evidence

02:48:04.370 --> 02:48:09.209
to indicate what President Trump meant in connection

02:48:09.209 --> 02:48:15.030
with the pardon. But we certainly believe that

02:48:15.030 --> 02:48:20.430
You don't have to get there you can just look

02:48:20.430 --> 02:48:25.190
at the civil peace with respect to civil peace

02:48:25.190 --> 02:48:32.430
this is a court of equity and under 510 C and

02:48:32.430 --> 02:48:34.530
the court is required to weigh the principles

02:48:34.530 --> 02:48:41.010
of equity and We believe that Mr. Milton and

02:48:41.010 --> 02:48:44.590
Mr. Morse agrees that we must be able to rebut

02:48:44.590 --> 02:48:48.549
the claims of inequitable conduct, the injury

02:48:48.549 --> 02:48:53.110
to creditors and not being inconsistent with

02:48:53.110 --> 02:48:55.809
provisions of the bankruptcy code. Wasn't the

02:48:55.809 --> 02:48:59.729
opportunity to do that at the arbitration? And

02:48:59.729 --> 02:49:03.409
then in the subsequent proceedings in the district

02:49:03.409 --> 02:49:06.590
court in Arizona and then ultimately in the appeal.

02:49:09.270 --> 02:49:12.309
This isn't the place to determine the extent

02:49:12.309 --> 02:49:17.389
of this liability or to the extent to which it

02:49:17.389 --> 02:49:19.030
might have been mitigated by activities that

02:49:19.030 --> 02:49:20.670
would be imputed to the company because it's

02:49:20.670 --> 02:49:24.350
already been done. Other than there's a proof

02:49:24.350 --> 02:49:27.530
of claim that is in this court that the court

02:49:27.530 --> 02:49:31.620
seeking is being asked to subordinate. And I

02:49:31.620 --> 02:49:35.059
think that's an independent basis, I understand.

02:49:35.620 --> 02:49:41.059
And again, I'm not asking this court to revisit,

02:49:42.700 --> 02:49:45.579
I'm not sure if it's full faith and credit or

02:49:45.579 --> 02:49:47.719
racist. It's issued preclusion. Yeah, issued

02:49:47.719 --> 02:49:50.700
preclusion or whatever. Yeah, why would this

02:49:50.700 --> 02:49:53.700
court second guess a finding by a tribunal? Well,

02:49:53.700 --> 02:49:58.319
it's not why would I. I can't. I literally don't

02:49:58.319 --> 02:50:00.360
have that authority. There's nothing I can do

02:50:00.360 --> 02:50:04.879
with that. That's the concern that I want to

02:50:04.879 --> 02:50:08.420
tease out and get an opportunity to hear about,

02:50:08.540 --> 02:50:11.680
because I don't think that I quite literally

02:50:11.680 --> 02:50:18.139
have that authority. Fair enough. But Mr. Milton's

02:50:18.139 --> 02:50:21.739
here. He's entitled to rebut. What we'd ask is

02:50:21.739 --> 02:50:24.309
that he be allowed to take the stand. and talk

02:50:24.309 --> 02:50:32.829
about his conduct, the company's conduct, and

02:50:32.829 --> 02:50:38.549
the $69 million in attorney fees. For example,

02:50:39.690 --> 02:50:42.489
Well, the 69 million dollars in attorney's fees

02:50:42.489 --> 02:50:44.930
only becomes relevant if we make it past the

02:50:44.930 --> 02:50:49.510
five Tennessee Exactly the dating and we've been

02:50:49.510 --> 02:50:52.329
quiet. I agree without your honor I will note

02:50:52.329 --> 02:50:55.049
that mr. Milton did not get a chance in the arbitration

02:50:55.049 --> 02:50:58.309
to testify because he was Invoking his fifth

02:50:58.309 --> 02:51:00.850
amendment privilege. Well, it's not even you

02:51:00.850 --> 02:51:03.350
have a chance. He made he made probably the right

02:51:03.350 --> 02:51:06.719
decision But it was a decision that he was able

02:51:06.719 --> 02:51:08.920
to make for himself. Your Honor, you and I are

02:51:08.920 --> 02:51:11.520
in agreement. I might be using the wrong words,

02:51:11.840 --> 02:51:15.200
but yes, that's right. He invoked that privilege.

02:51:15.799 --> 02:51:19.739
Yes, he could have testified. He could have potentially

02:51:19.739 --> 02:51:22.100
risked that exposure. He doesn't have that exposure

02:51:22.100 --> 02:51:27.620
as a result of the pardon. And I believe it's

02:51:27.620 --> 02:51:32.989
important for the court to weigh both... The

02:51:32.989 --> 02:51:35.989
conduct that he's been accused of. That he's

02:51:35.989 --> 02:51:39.270
been found liable for. Well. It's different.

02:51:39.790 --> 02:51:41.909
It's different. Not in the SEC. For example,

02:51:42.030 --> 02:51:44.809
the SEC hasn't made a finding. Well, the arbitration.

02:51:44.829 --> 02:51:48.090
The arbitration. And in the criminal case. And

02:51:48.090 --> 02:51:52.329
an opportunity to either prove up his claims,

02:51:52.829 --> 02:51:55.469
rights on demification, advancement, and reimbursement.

02:51:55.770 --> 02:51:58.489
either here or before the second arbitration

02:51:58.489 --> 02:52:00.450
panel. And Your Honor, I'm trying to stay away

02:52:00.450 --> 02:52:02.510
from that because you already denied that and

02:52:02.510 --> 02:52:05.709
I'm not trying to re -litigate that. But I just,

02:52:06.110 --> 02:52:08.250
at some point that needs to be liquidated and

02:52:08.250 --> 02:52:14.409
what I suggest, respectfully, is save the subordination

02:52:14.409 --> 02:52:17.870
piece. Let's go to the bifurcation piece, address

02:52:17.870 --> 02:52:20.450
that claim. It's a secured claim, it's not a

02:52:20.450 --> 02:52:23.620
class three claim. and see if he can net off,

02:52:23.879 --> 02:52:26.659
net set what set off, et cetera, his claims.

02:52:26.860 --> 02:52:32.440
And he's certainly here to testify if the court

02:52:32.440 --> 02:52:34.959
would be willing to hear from him. Well, should

02:52:34.959 --> 02:52:36.739
we turn back to that issue about set off and

02:52:36.739 --> 02:52:39.159
recruitment? Because I thought that was an interesting

02:52:39.159 --> 02:52:44.440
issue. You cite one case. You cite the Kaiser

02:52:44.440 --> 02:52:47.680
case, which is a Judge Walrath case. and that

02:52:47.680 --> 02:52:51.000
in turn cited a Third Circuit case. I think Lee

02:52:51.000 --> 02:52:55.860
versus Schweiker? I did read those cases and

02:52:55.860 --> 02:53:01.719
in neither of those cases was subordination of

02:53:01.719 --> 02:53:10.200
a claim at issue. Look, I know your work well.

02:53:10.200 --> 02:53:12.719
If you had found that case that addressed it

02:53:12.719 --> 02:53:16.649
in the context of... equitable subordination,

02:53:17.049 --> 02:53:22.010
you would have cited it. But in reading the two

02:53:22.010 --> 02:53:24.370
opinions, Judge Walratt's opinion and the Third

02:53:24.370 --> 02:53:29.030
Circuit opinion, I kind of struggle to sync it

02:53:29.030 --> 02:53:34.709
up with the considerations when determining whether

02:53:34.709 --> 02:53:38.489
equitable subordination is warranted under Phi

02:53:38.489 --> 02:53:41.170
Tennessee. So maybe you could address that more

02:53:41.170 --> 02:53:43.770
directly. That's fair. The way I've been thinking

02:53:43.770 --> 02:53:45.829
about it, and we did not cite this case, it's

02:53:45.829 --> 02:53:49.510
Jersey Medical Third Circuit decision, is what

02:53:49.510 --> 02:53:51.889
it talks about as a recoupment is a common law

02:53:51.889 --> 02:53:56.329
right. It's not in 553, whatever the set off

02:53:56.329 --> 02:54:01.329
provision, it's not a back door way of calculating

02:54:01.329 --> 02:54:04.530
secured claim, but it's a common law right. So

02:54:04.530 --> 02:54:10.069
he has a right to prove up that claim. And if

02:54:10.069 --> 02:54:13.510
that right mitigates the 97, loosely saying the

02:54:13.510 --> 02:54:16.250
97%, he should have an opportunity to do that.

02:54:17.569 --> 02:54:19.750
And that's just consistent with due process.

02:54:20.989 --> 02:54:23.010
So Jersey Medical, if I recall, had to do with

02:54:23.010 --> 02:54:26.069
Medicare recoupments. But it talks about the

02:54:26.069 --> 02:54:29.690
common law right of recoupment that's not statutory.

02:54:30.389 --> 02:54:32.950
And that's the way I've always looked at it.

02:54:33.030 --> 02:54:36.149
And Your Honor, we did not cite that, but it's

02:54:36.149 --> 02:54:40.459
just... the way I viewed it now that this has

02:54:40.459 --> 02:54:46.280
developed. We are not trying to re -litigate

02:54:46.280 --> 02:54:49.420
the arbitration. I understand very clear we have

02:54:49.420 --> 02:54:52.079
an appellate right. The court is respectfully

02:54:52.079 --> 02:54:56.260
or as the court points out not allowed to collaterally

02:54:56.260 --> 02:54:58.979
attack that or address it. But what I'm talking

02:54:58.979 --> 02:55:01.819
about is the bifurcation process is that it would

02:55:01.819 --> 02:55:03.860
be inequitable. It would be a double penalty

02:55:03.860 --> 02:55:07.610
if the court today equitably subordinated his

02:55:07.610 --> 02:55:10.329
claim and didn't give him the opportunity to

02:55:10.329 --> 02:55:14.690
prove up the other pieces of his claim. I understand

02:55:14.690 --> 02:55:18.989
the argument, Mr. Cousins. Thank you. Mr. Morse,

02:55:19.030 --> 02:55:23.709
do you have any response? Just a few pieces to

02:55:23.709 --> 02:55:26.190
make you a little more comfortable with some

02:55:26.190 --> 02:55:30.950
things that Mr. Cousins said, perhaps. One thing

02:55:30.950 --> 02:55:39.739
he did indicate incorrectly. that we solicited

02:55:39.739 --> 02:55:43.120
on the basis of Mr. Milton's claim being fully

02:55:43.120 --> 02:55:48.879
subordinated. That's incorrect. If you look at

02:55:48.879 --> 02:55:50.799
one of my favorite documents in this case, as

02:55:50.799 --> 02:55:55.440
Mr. Cousins knows, is our liquidation analysis,

02:55:56.340 --> 02:56:00.920
which he did not read. No, I did review the liquidation

02:56:00.920 --> 02:56:04.940
analysis. I understand the point. No, but exhibit

02:56:04.940 --> 02:56:08.530
B to docket Number 774, that's the solicitation

02:56:08.530 --> 02:56:14.930
version. And if you look at page 113 of 115,

02:56:15.469 --> 02:56:18.149
these are the global notes. This talk about,

02:56:18.149 --> 02:56:29.110
you know, various, the notes to the liquidation

02:56:29.110 --> 02:56:33.350
analysis. So in note 14, the bottom of that page,

02:56:33.579 --> 02:56:35.399
It talks about the estimated general unsecured

02:56:35.399 --> 02:56:38.680
claims. The low case, and I'm quoting here, the

02:56:38.680 --> 02:56:40.799
low case assumes a scenario where claim number

02:56:40.799 --> 02:56:44.000
54 filed by Trevor Milton is equitably subordinated

02:56:44.000 --> 02:56:47.000
and or disallowed in full. The high case scenario

02:56:47.000 --> 02:56:49.680
assumes a scenario where claim number 54 filed

02:56:49.680 --> 02:56:52.040
by Trevor Milton is allowed as a general unsecured

02:56:52.040 --> 02:56:55.700
claim in the amount of 32 .91 million, which

02:56:55.700 --> 02:56:57.540
represents the difference between the filed claim

02:56:57.540 --> 02:56:59.979
amount, which is the 69 .8 million that we've

02:56:59.979 --> 02:57:01.860
been talking about, and the aggregate amount.

02:57:02.120 --> 02:57:05.940
aggregate amount of indemnity, I mean, going

02:57:05.940 --> 02:57:09.180
to the next page, expenses Nicola has already

02:57:09.180 --> 02:57:12.139
advanced and paid to Trevor Milton, the 36 .844

02:57:12.139 --> 02:57:14.879
million pursuant to orders entered in the Milton

02:57:14.879 --> 02:57:18.739
fee arbitration and otherwise. This ties back

02:57:18.739 --> 02:57:29.040
to in the Milton claim memo, this is the paragraph

02:57:29.040 --> 02:57:32.440
that Mr. Cousins partner, inadvertently started

02:57:32.440 --> 02:57:36.159
talking about with Mr. Worthen on the stand that

02:57:36.159 --> 02:57:39.540
confirmed that we've already advanced a substantial

02:57:39.540 --> 02:57:44.100
portion of this $69 .8 million, number one, and

02:57:44.100 --> 02:57:46.959
that we believe the fee arbitration panel has

02:57:46.959 --> 02:57:49.159
already found that another large portion, the

02:57:49.159 --> 02:57:52.020
17 .2 of Cahill's fees has already been found

02:57:52.020 --> 02:57:56.159
to be unreasonable. I believe this is why that

02:57:56.159 --> 02:58:01.059
they haven't responded to my request for confirmation

02:58:01.059 --> 02:58:05.180
of how much is still outstanding because 69 .8

02:58:05.180 --> 02:58:08.459
million isn't outstanding. It's more like 14

02:58:08.459 --> 02:58:11.319
or 15 or something like that because we've already

02:58:11.319 --> 02:58:14.879
paid 36. The arbitration panel, the fee arbitration

02:58:14.879 --> 02:58:17.139
panel has already found 17 to be unreasonable.

02:58:17.719 --> 02:58:21.579
And these other 18 or 19 firms, if you look at

02:58:21.579 --> 02:58:24.920
the indemnification award and his indemnification

02:58:24.920 --> 02:58:28.200
agreement, which is my next point, are probably...

02:58:28.489 --> 02:58:32.069
not going to be able to fall within the appropriate

02:58:32.069 --> 02:58:36.190
indemnifiable expenses under that agreement.

02:58:37.350 --> 02:58:40.030
Now going back to this whole point of under the

02:58:40.030 --> 02:58:42.409
indemnification agreement, indemnification award,

02:58:42.850 --> 02:58:45.409
and trying to trap Mr. Worthen into saying this,

02:58:45.530 --> 02:58:47.590
that, and the other, the whole point of that

02:58:47.590 --> 02:58:51.389
is two. And I'm going to just clarify this for

02:58:51.389 --> 02:58:53.729
your honor. So when you go back and read this,

02:58:53.729 --> 02:58:57.559
it's going to be very clear. On page 59, And

02:58:57.559 --> 02:59:01.379
I'm going to just use page numbers because some

02:59:01.379 --> 02:59:03.920
of these are redacted provisions. So on page

02:59:03.920 --> 02:59:08.500
59, the panel found, just directionally, that

02:59:08.500 --> 02:59:12.139
he was not entitled to indemnification because

02:59:12.139 --> 02:59:16.659
he breached his fiduciary duties. And this goes

02:59:16.659 --> 02:59:22.979
back to his indemnification agreement, which

02:59:22.979 --> 02:59:29.889
is exhibit A to his proof of claim. This is not

02:59:29.889 --> 02:59:33.989
admitted because there was an attempt last night

02:59:33.989 --> 02:59:36.969
to have us agree to admit this that we thought

02:59:36.969 --> 02:59:40.909
was perhaps for an improper reason and so that's

02:59:40.909 --> 02:59:44.709
why we didn't move to agree to admit this and

02:59:44.709 --> 02:59:46.110
we didn't want to get tricked into anything.

02:59:47.129 --> 02:59:50.090
But this indemnification agreement is talked

02:59:50.090 --> 02:59:53.770
about ad nauseam in the arbitration award. You

02:59:53.770 --> 02:59:57.819
can read it yourself. but it's paragraph 2c at

02:59:57.819 --> 03:00:01.280
the top of page three, and it talks about that

03:00:01.280 --> 03:00:05.379
essentially he's only entitled to indemnification

03:00:05.379 --> 03:00:09.600
if indemnity acted in good faith and in a manner

03:00:09.600 --> 03:00:12.979
indemnity reasonably believed to be in or not

03:00:12.979 --> 03:00:14.979
opposed to the best interest of the company.

03:00:16.180 --> 03:00:19.559
Under relevant case law, when you are convicted

03:00:19.559 --> 03:00:24.340
of fraud and wire, all the things that we're

03:00:24.340 --> 03:00:30.190
convicted of, that the pardon does not strip

03:00:30.190 --> 03:00:33.530
away. It strips away the penalty associated with

03:00:33.530 --> 03:00:36.430
that, but doesn't strip away the underlying conviction.

03:00:38.530 --> 03:00:43.170
You are not acting in the good faith, which is

03:00:43.170 --> 03:00:47.190
why the panel found, we believe, or we assert,

03:00:47.370 --> 03:00:50.450
that he's not entitled to indemnification. You

03:00:50.450 --> 03:00:53.110
can read for yourself why the panel thought that.

03:00:53.549 --> 03:01:01.409
This other reference on page 79 is talking about

03:01:01.409 --> 03:01:05.389
something wholly different altogether. It's talking

03:01:05.389 --> 03:01:11.329
about the $36 .8 million and whether the arbitration

03:01:11.329 --> 03:01:17.209
panel can award those damages to the company

03:01:17.209 --> 03:01:22.100
as part of the award. Those are the monies that

03:01:22.100 --> 03:01:25.440
we had already advanced to Mr. Milton by the

03:01:25.440 --> 03:01:30.000
separate fee arbitration panel. And this arbitration

03:01:30.000 --> 03:01:32.340
panel, it's more of like a jurisdictional issue.

03:01:32.520 --> 03:01:36.479
They are saying, again, our interpretation, that

03:01:36.479 --> 03:01:42.799
we don't want to mess with that panel. If you

03:01:42.799 --> 03:01:46.639
believe that you're entitled to go and do that

03:01:46.639 --> 03:01:51.270
clawback, then you go to that panel and you go

03:01:51.270 --> 03:01:54.510
force Mr. Melton to give that money back to you

03:01:54.510 --> 03:01:57.809
with that panel. That was our interpretation

03:01:57.809 --> 03:02:00.590
of this. That's that footnote that they tried,

03:02:00.770 --> 03:02:02.590
the gotcha footnote that they tried to have Mr.

03:02:03.430 --> 03:02:07.450
Worthen admit to earlier, and that's what this

03:02:07.450 --> 03:02:12.309
whole thing is about. But importantly, if you

03:02:12.309 --> 03:02:16.729
look at the district court decision, affirming

03:02:16.729 --> 03:02:19.680
the arbitration, panel award. That's exhibit

03:02:19.680 --> 03:02:25.620
50. If you look at page four, line 18 through

03:02:25.620 --> 03:02:32.360
21, and I'll quote, talking about what the panel

03:02:32.360 --> 03:02:37.760
found, it then settled that there was no basis

03:02:37.760 --> 03:02:40.120
for Milton to receive indemnification under the

03:02:40.120 --> 03:02:43.100
indemnification agreement, but that he was entitled

03:02:43.100 --> 03:02:45.879
to contribution from Nicola based on the contribution

03:02:45.879 --> 03:02:50.549
provision. Okay, so he may be entitled to something

03:02:50.549 --> 03:02:55.430
else, but he is not entitled to This indemnification

03:02:55.430 --> 03:02:59.510
and so if he's seeking indemnification That's

03:02:59.510 --> 03:03:02.969
what he's asserting under this claim. We've we've

03:03:02.969 --> 03:03:07.309
paid Most of it to him. We've asked for the documents

03:03:07.309 --> 03:03:11.010
him getting up on the stand and saying That we've

03:03:11.010 --> 03:03:14.069
paid it with this with that that is not going

03:03:14.069 --> 03:03:18.610
to do anything today other than cause more of

03:03:18.610 --> 03:03:20.690
a circus than we've already had before, Your

03:03:20.690 --> 03:03:24.870
Honor. The other thing... It's the world's most

03:03:24.870 --> 03:03:26.649
boring circus. Yeah, it's the world's most boring

03:03:26.649 --> 03:03:28.930
circus, to be sure. No, it hasn't been a circus.

03:03:29.610 --> 03:03:39.809
No, but also it's irrelevant. If you find that

03:03:39.809 --> 03:03:44.959
the claim is... whatever it is... which doesn't

03:03:44.959 --> 03:03:47.659
matter right now, is equitably subordinated.

03:03:48.000 --> 03:03:51.899
It may matter at some point down the road if

03:03:51.899 --> 03:03:56.219
the claim is $1, if it's $69, or if it's the

03:03:56.219 --> 03:03:59.700
$300 million that they asserted in two pleadings

03:03:59.700 --> 03:04:05.860
signed by their lawyers in previous situations.

03:04:06.440 --> 03:04:11.719
It doesn't matter because that only matters down

03:04:11.719 --> 03:04:15.620
the road. if we somehow collect millions and

03:04:15.620 --> 03:04:17.379
millions and millions and millions of dollars,

03:04:17.459 --> 03:04:23.200
as a litigation trustee does. But today, equitable

03:04:23.200 --> 03:04:28.020
subordination, we've proven it up. It was their

03:04:28.020 --> 03:04:34.100
time to come and at least make an attempt to

03:04:34.100 --> 03:04:37.260
show why it wasn't appropriate. And that time,

03:04:37.280 --> 03:04:40.479
and that... That process is not to have Mr. Milton

03:04:40.479 --> 03:04:44.579
get up on the stand and say that I paid those

03:04:44.579 --> 03:04:48.120
expenses, or let me explain who consulting for

03:04:48.120 --> 03:05:02.139
$983 ,000 .33 is. Okay. Mr. Cousins. Thank you,

03:05:02.299 --> 03:05:05.440
Your Honor. Mr. Worthing testified to the payment

03:05:05.440 --> 03:05:14.010
of Kirkland's fees. We should be entitled to

03:05:14.010 --> 03:05:17.489
the same testimony. Mr. Morris can cross Mr.

03:05:17.670 --> 03:05:20.170
Milton as to the basis for the claim and his

03:05:20.170 --> 03:05:21.750
theories and this and that and the other thing.

03:05:22.409 --> 03:05:25.290
We just request an opportunity for him to testify,

03:05:26.770 --> 03:05:30.690
not rule on the gating item, the gating issue,

03:05:30.870 --> 03:05:34.030
the equitable subordination, and then address,

03:05:34.610 --> 03:05:39.700
perhaps address that after Mr. Well think about

03:05:39.700 --> 03:05:46.659
gating issues so that they come first. I'm not

03:05:46.659 --> 03:05:49.479
being smart. That's kind of the definition of

03:05:49.479 --> 03:05:51.639
it. It has to come first. And I understand and

03:05:51.639 --> 03:05:54.420
that's why I'm saying that absent hearing from

03:05:54.420 --> 03:05:59.100
Mr. Milton, it's a double penalty. His claim

03:05:59.100 --> 03:06:02.440
is vacated and we all can agree that equity,

03:06:02.899 --> 03:06:05.319
a subordinated claim, is never going to receive

03:06:05.319 --> 03:06:08.989
a dime in this case. So to say that, oh, maybe

03:06:08.989 --> 03:06:12.610
one day under 502J I can reconsider and have

03:06:12.610 --> 03:06:17.729
his claim allowed, equity's not going to, or

03:06:17.729 --> 03:06:19.870
subordinate a claim, would not get a recovery.

03:06:20.590 --> 03:06:24.030
I understand. Thank you. Thank you, Mr. Cousins.

03:06:25.690 --> 03:06:29.450
Did anybody else wish to be heard before? Conclude.

03:06:31.270 --> 03:06:34.559
Your Honor. Doug Mantle Morrison for us on behalf

03:06:34.559 --> 03:06:36.180
of the official committee your honor We submitted

03:06:36.180 --> 03:06:38.979
a statement in support of confirmation the chapter

03:06:38.979 --> 03:06:41.079
11 plan and it's one of these rare instances

03:06:41.079 --> 03:06:42.899
where I couldn't agree more with my colleague,

03:06:42.940 --> 03:06:48.260
Mr. Morse Doesn't happen that often but I think

03:06:48.260 --> 03:06:51.819
he's identified all the key issues and I think

03:06:51.819 --> 03:06:54.879
we have a dating item Before us before we need

03:06:54.879 --> 03:06:58.159
to hear any further evidence. Thank you. Okay.

03:06:58.159 --> 03:07:09.280
Thank you Look, I've given this issue a great

03:07:09.280 --> 03:07:14.540
deal of consideration and I found the argument

03:07:14.540 --> 03:07:18.680
today to be very well presented. It doesn't change

03:07:18.680 --> 03:07:23.780
the analysis that I arrived at as of this morning.

03:07:23.840 --> 03:07:26.440
So I'm just going to give my ruling on the equitable

03:07:26.440 --> 03:07:32.959
subordination issue. I am going to overrule the

03:07:32.959 --> 03:07:36.520
objection. The debtors are seeking to subordinate

03:07:36.520 --> 03:07:42.120
Mr. Milton's claims under 510C1 and that section

03:07:42.120 --> 03:07:44.420
allows for subordination of a claim under principles

03:07:44.420 --> 03:07:51.100
of equitable subordination. This court has enumerated

03:07:51.100 --> 03:07:53.780
a number of times over the principles of equitable

03:07:53.780 --> 03:07:57.879
subordination and the proper method for determining

03:07:57.879 --> 03:08:01.479
whether a claim should be equitably subordinated.

03:08:03.719 --> 03:08:08.100
in rating mid -American waste systems is a significant

03:08:08.100 --> 03:08:12.299
case on this point. And in that case, this court

03:08:12.299 --> 03:08:15.620
explained that the essential purpose of equitable

03:08:15.620 --> 03:08:21.180
subordination is to undo any inequality in the

03:08:21.180 --> 03:08:23.360
claim position of a creditor that will produce

03:08:23.360 --> 03:08:26.620
injustice or unfairness to other creditors in

03:08:26.620 --> 03:08:33.190
terms of distribution of the estate. we identified

03:08:33.190 --> 03:08:38.809
the three -pronged test that Mr. Morse pointed

03:08:38.809 --> 03:08:42.049
to, which are that the claimant must have been

03:08:42.049 --> 03:08:44.129
engaged in some type of inequitable conduct,

03:08:44.790 --> 03:08:47.850
that the misconduct must have resulted in injury

03:08:47.850 --> 03:08:51.149
to other creditors, or conferred an unfair advantage

03:08:51.149 --> 03:08:53.729
on the claimant, and that equitable subordination

03:08:53.729 --> 03:08:56.430
of the claim must not be inconsistent with the

03:08:56.430 --> 03:09:03.719
bankruptcy code. We know that from Mid -American

03:09:03.719 --> 03:09:07.479
and a number of other opinions, including my

03:09:07.479 --> 03:09:11.200
own opinion in AmeriFirst Financial, that claims,

03:09:11.620 --> 03:09:16.459
when asserted by an insider or a fiduciary, require

03:09:16.459 --> 03:09:21.940
a higher level of scrutiny. And when a claimant

03:09:21.940 --> 03:09:24.840
is an insider, there are three categories in

03:09:24.840 --> 03:09:27.719
misconduct that constitute inequitable conduct.

03:09:27.979 --> 03:09:30.540
which goes to the first prong of the test. And

03:09:30.540 --> 03:09:33.760
those are fraud, illegality, and breach of fiduciary

03:09:33.760 --> 03:09:36.159
duties, under -capitalization, or the claimant's

03:09:36.159 --> 03:09:39.739
use of the creditor as an alter ego or mere instrumentality.

03:09:41.579 --> 03:09:45.040
In support of the request for equitable subordination,

03:09:45.840 --> 03:09:49.680
the debtors first assert that Mr. Milton is an

03:09:49.680 --> 03:09:52.979
insider. I think we can all agree that he was

03:09:52.979 --> 03:09:58.000
an insider. He was the founder, CEO, at the time

03:09:58.000 --> 03:10:02.840
of the misconduct, and plainly, he was an insider

03:10:02.840 --> 03:10:06.219
for purposes of the first prong of that three

03:10:06.219 --> 03:10:09.940
prong test. And when we get to that first prong,

03:10:10.020 --> 03:10:14.860
to look at inequitable conduct, as I've signaled

03:10:14.860 --> 03:10:18.139
throughout today's hearing, I do find that it's

03:10:18.139 --> 03:10:21.139
already been established in other proceedings

03:10:21.139 --> 03:10:25.479
that... Mr. Milton committed misconduct in the

03:10:25.479 --> 03:10:27.760
form of fraud, illegality, and breach of fiduciary

03:10:27.760 --> 03:10:32.819
duties. And his criminal conviction and the arbitration

03:10:32.819 --> 03:10:37.739
finding evidence this. And it's not something

03:10:37.739 --> 03:10:43.200
that is subject to challenge. I find the principle

03:10:43.200 --> 03:10:48.940
of collateral estoppel applies here or issue

03:10:48.940 --> 03:10:55.129
preclusion. for that reason, there is no evidence

03:10:55.129 --> 03:11:01.750
that I could hear that would anyway tend to mitigate

03:11:01.750 --> 03:11:07.670
the damage or otherwise affect the analysis on

03:11:07.670 --> 03:11:12.110
equitable subordination. And that's why I don't

03:11:12.110 --> 03:11:14.670
need nor do I think it's appropriate to hear

03:11:14.670 --> 03:11:18.129
any other evidence in support of the equitable

03:11:18.129 --> 03:11:22.520
subordination issue. In the, what's been referred

03:11:22.520 --> 03:11:24.479
to as the Milton Award, the arbitral finding,

03:11:25.020 --> 03:11:27.799
the panel found that Mr. Milton violated his

03:11:27.799 --> 03:11:30.200
fiduciary duties of loyalty and good faith through

03:11:30.200 --> 03:11:32.379
a pattern of false and misleading public statements

03:11:32.379 --> 03:11:34.899
about Nicholas' products and the state of their

03:11:34.899 --> 03:11:37.540
development, and by subordinating the company's

03:11:37.540 --> 03:11:41.459
interest to his own by refusing all efforts to

03:11:41.459 --> 03:11:43.899
review and approve his public statements in advance,

03:11:43.940 --> 03:11:46.559
which goes to some of the testimony that we heard

03:11:46.559 --> 03:11:51.020
this morning. Thus, it was established in the

03:11:51.020 --> 03:11:55.360
arbitration that Mr. Milton at an minimum breached

03:11:55.360 --> 03:12:01.340
his fiduciary duties, which is inequitable conduct

03:12:01.340 --> 03:12:05.139
as we understand it when assessing whether equitable

03:12:05.139 --> 03:12:10.260
subordination is appropriate. The criminal conviction

03:12:10.260 --> 03:12:15.899
also evidences the commission of fraud and other

03:12:15.899 --> 03:12:22.840
illegality. And the argument that Mr. Milton

03:12:22.840 --> 03:12:26.459
has made is that his criminal conduct can't constitute

03:12:26.459 --> 03:12:29.819
evidence to support equitable subordination because

03:12:29.819 --> 03:12:32.879
his contention is that the president made a determination

03:12:32.879 --> 03:12:36.180
of innocence and pardoned Mr. Milton on the basis

03:12:36.180 --> 03:12:40.979
of that innocence. And I disagree with this argument

03:12:40.979 --> 03:12:45.559
for several reasons. First, the pardon power.

03:12:46.000 --> 03:12:49.659
does not extend to the authority to determine

03:12:49.659 --> 03:12:54.299
innocence. And the Supreme Court and the Third

03:12:54.299 --> 03:12:56.819
Circuit have reviewed the President's pardon

03:12:56.819 --> 03:13:00.899
power multiple times. We talked about Inray Garland

03:13:00.899 --> 03:13:04.180
from 159 years ago. There's been a lot of case

03:13:04.180 --> 03:13:09.659
law in the interim which shows how the Supreme

03:13:09.659 --> 03:13:15.110
Court has evolved in its thinking on what it

03:13:15.110 --> 03:13:19.690
means to receive a pardon. And the third circuit

03:13:19.690 --> 03:13:25.649
in the Noonan opinion engaged in a really deep

03:13:25.649 --> 03:13:30.750
dive of what a pardon is. Where does the power

03:13:30.750 --> 03:13:34.190
come from? I mean, it's a great discussion of

03:13:34.190 --> 03:13:36.229
how the founders would have understood the pardon

03:13:36.229 --> 03:13:39.370
power based upon the English common law and goes

03:13:39.370 --> 03:13:43.790
back hundreds of years in its analysis. So we

03:13:43.790 --> 03:13:49.450
have guidance. The ex parte Garland case did

03:13:49.450 --> 03:13:53.829
say that a presidential pardon blots out of existence

03:13:53.829 --> 03:13:57.129
the guilt of the convicted. However, there is

03:13:57.129 --> 03:14:03.209
that subsequent jurisprudence. One could look

03:14:03.209 --> 03:14:07.809
at the Nixon versus United States opinion from

03:14:07.809 --> 03:14:09.590
the Supreme Court where they said that the granting

03:14:09.590 --> 03:14:12.819
of a pardon is in no sense an overturning of

03:14:12.819 --> 03:14:15.959
a judgmental conviction by some other tribunal.

03:14:17.959 --> 03:14:24.520
And the Supreme Court in Noonan and there were,

03:14:24.899 --> 03:14:27.559
I spent Leroy Dayweek in reading pardon cases.

03:14:28.200 --> 03:14:30.260
My fault is very interesting, but I really wanted

03:14:30.260 --> 03:14:32.920
to understand this because I think it's a very,

03:14:33.620 --> 03:14:38.659
you know, it's an important issue. And the courts

03:14:38.659 --> 03:14:42.510
have very widely recognized that Garland, the

03:14:42.510 --> 03:14:46.409
dictum in Garland is not, it's not good law.

03:14:46.850 --> 03:14:50.930
It's not the standard that the Supreme Court

03:14:50.930 --> 03:14:57.850
applies. And the Nixon opinion is pretty explicit

03:14:57.850 --> 03:15:01.190
in that regard as well as in earlier cases, in

03:15:01.190 --> 03:15:05.889
a bunch of cases since. The Noonan opinion, which

03:15:05.889 --> 03:15:07.989
of course is a Third Circuit opinion and therefore

03:15:07.989 --> 03:15:11.860
binds me, offers particularly helpful guidance

03:15:11.860 --> 03:15:15.059
for this matter, I thought. And although that

03:15:15.059 --> 03:15:17.520
case is about whether a pardon can cause a court

03:15:17.520 --> 03:15:22.479
to expunge the pardoned person's criminal record,

03:15:23.079 --> 03:15:27.399
as I noted, it offers a fulsome detailing of

03:15:27.399 --> 03:15:30.079
pardon law, an analysis of the pardon's effects

03:15:30.079 --> 03:15:32.260
and the extent of a president's power when issuing

03:15:32.260 --> 03:15:36.920
a pardon. And one of the things about the Newtonian

03:15:36.920 --> 03:15:40.260
opinion that is most interesting and it... it

03:15:40.260 --> 03:15:43.440
again, their analysis I do believe to be binding

03:15:43.440 --> 03:15:46.079
on me, is that they looked at the interaction

03:15:46.079 --> 03:15:50.079
between the presidential pardon power and the

03:15:50.079 --> 03:15:54.219
judicial power. So it emphasized that there's

03:15:54.219 --> 03:15:57.360
a separation of powers and under Article 2, Section

03:15:57.360 --> 03:15:59.739
2 of the Constitution, the president has the

03:15:59.739 --> 03:16:02.879
power to grant recieves and pardons for offenses

03:16:02.879 --> 03:16:05.219
against the United States. That power is unquestioned.

03:16:05.739 --> 03:16:08.600
And it's certainly not an issue here. Mr. Milton

03:16:08.600 --> 03:16:13.360
received a pardon. But Article 3 of the Constitution

03:16:13.360 --> 03:16:17.000
establishes that the judicial power of the United

03:16:17.000 --> 03:16:21.260
States is vested in one Supreme Court and in

03:16:21.260 --> 03:16:24.639
such inferior courts as the Congress may from

03:16:24.639 --> 03:16:30.559
time to time ordain and establish. And based

03:16:30.559 --> 03:16:35.649
on the Third Circuit's analysis, of those sections

03:16:35.649 --> 03:16:38.610
of the Constitution, the Third Circuit concluded

03:16:38.610 --> 03:16:42.069
that the authority to maintain judicial records,

03:16:42.389 --> 03:16:44.770
in the case of expungement, was an inherent judicial

03:16:44.770 --> 03:16:47.909
power that the Constitution delegated to the

03:16:47.909 --> 03:16:51.469
judicial branch. And because of that delegation

03:16:51.469 --> 03:16:55.350
to the judicial branch, the pardon power, which

03:16:55.350 --> 03:16:57.549
was delegated to the President in Article 2,

03:16:57.750 --> 03:17:03.010
couldn't interfere with the judicial power. So...

03:17:03.040 --> 03:17:10.760
In other words, as I understand Noonan, the teaching

03:17:10.760 --> 03:17:13.700
of that case is that the president is without

03:17:13.700 --> 03:17:19.239
power to adjudicate a person to be innocent,

03:17:20.459 --> 03:17:24.700
such that records could be expunged, or that

03:17:24.700 --> 03:17:29.479
I think would apply in this case, that I could

03:17:29.479 --> 03:17:33.540
find that there was a finding of innocence such

03:17:33.540 --> 03:17:39.360
as to erase the existence of the criminal case

03:17:39.360 --> 03:17:43.159
and the findings and the verdict in that case.

03:17:44.799 --> 03:17:47.639
Because just as the authority to maintain judicial

03:17:47.639 --> 03:17:51.540
records is an inherent judicial power, the authority

03:17:51.540 --> 03:17:55.159
to determine criminal liability is an inherent

03:17:55.159 --> 03:17:58.420
judicial power. And it's one of the most important

03:17:58.420 --> 03:18:05.100
powers that judiciary has. So it's when we're

03:18:05.100 --> 03:18:08.680
determining if somebody is criminally liable

03:18:08.680 --> 03:18:12.620
or innocent, the judiciary has to make that determination.

03:18:14.579 --> 03:18:17.379
The presidential power has been described in

03:18:17.379 --> 03:18:22.200
various ways as a prerogative of mercy or an

03:18:22.200 --> 03:18:25.360
act that the president can make to serve the

03:18:25.360 --> 03:18:30.379
public good. But the Supreme Court, you know,

03:18:30.540 --> 03:18:34.799
stated A pardon is an act of grace and it's proceeding

03:18:34.799 --> 03:18:37.159
from the power entrusted with the execution of

03:18:37.159 --> 03:18:39.959
laws which exempts the individual by whom it

03:18:39.959 --> 03:18:42.819
is bestowed from the punishment the law inflicts

03:18:42.819 --> 03:18:47.540
for a crime he has committed. So the president

03:18:47.540 --> 03:18:50.459
did bestow this act of grace on Mr. Milton, but

03:18:50.459 --> 03:18:53.719
it doesn't rewrite history or erase the facts

03:18:53.719 --> 03:19:01.979
that were determined at his criminal trial. Even

03:19:01.979 --> 03:19:05.340
if the pardon power did extend to determine innocence,

03:19:07.959 --> 03:19:09.239
you know, I'm left with the point that I made

03:19:09.239 --> 03:19:13.920
repeatedly that the pardon is clear on its face

03:19:13.920 --> 03:19:17.600
and there was no finding of innocence. And I

03:19:17.600 --> 03:19:22.180
assume that the president speaks with complete

03:19:22.180 --> 03:19:24.719
clarity and he did so when issuing an official

03:19:24.719 --> 03:19:28.079
grant of clemency pursuant to that constitutional

03:19:28.079 --> 03:19:31.379
pardon power. And because the pardon is unambiguous

03:19:31.379 --> 03:19:34.639
and clear in its face, I don't need to look to,

03:19:34.739 --> 03:19:38.600
nor can I look to extrinsic evidence or the president's

03:19:38.600 --> 03:19:43.360
other statements to interpret or supplement the

03:19:43.360 --> 03:19:50.559
official pardon. So I'm not going to consider

03:19:50.559 --> 03:19:53.500
any out of court statements that the president

03:19:53.500 --> 03:19:58.409
made when his words were perfectly direct. and

03:19:58.409 --> 03:20:01.450
clear and stated exactly what his intentions

03:20:01.450 --> 03:20:11.049
were when issuing the pardon. And even if I couldn't

03:20:11.049 --> 03:20:13.930
consider the criminal conviction, I do have the

03:20:13.930 --> 03:20:17.270
arbitration panel's findings of the misconduct.

03:20:18.389 --> 03:20:22.790
And they provide more than adequate evidence,

03:20:23.530 --> 03:20:26.049
an overwhelming amount of evidence. to fulfill

03:20:26.049 --> 03:20:28.049
the first prong of the equitable subordination

03:20:28.049 --> 03:20:37.729
test. In this forum, we can't relitigate the

03:20:37.729 --> 03:20:42.530
issues in the arbitration. We can't relitigate

03:20:42.530 --> 03:20:45.090
whether he preached his fiduciary duties. Those

03:20:45.090 --> 03:20:47.969
findings were made, and the award was upheld

03:20:47.969 --> 03:20:50.129
by the District Court in the District of Arizona.

03:20:53.170 --> 03:20:55.850
the re -litigating would be contrary to the principle

03:20:55.850 --> 03:20:57.590
of issue -proclusion, which I've raised a number

03:20:57.590 --> 03:21:01.549
of times, and it applies when there's been a

03:21:01.549 --> 03:21:03.229
final determination on the merits, and that's

03:21:03.229 --> 03:21:10.129
what you have in the arbitration. So, because

03:21:10.129 --> 03:21:12.350
there has been a final determination on the merits

03:21:12.350 --> 03:21:17.909
in that arbitration, and as affirmed by the,

03:21:17.950 --> 03:21:22.379
and ordered by the district court, Mr. Milton

03:21:22.379 --> 03:21:26.159
would be precluded from denying that there was

03:21:26.159 --> 03:21:33.600
any breach of his fiduciary duties. So, settled

03:21:33.600 --> 03:21:36.260
on that first prong. But I'll go over the other

03:21:36.260 --> 03:21:40.700
prongs. The second prong requires that the claimant's

03:21:40.700 --> 03:21:43.680
misconduct result in an injury to other creditors

03:21:43.680 --> 03:21:46.379
or conferred an unfair advantage on the claimant.

03:21:48.540 --> 03:21:53.069
There's certainly overwhelming evidence of that

03:21:53.069 --> 03:21:56.829
first prompt, the injury to other creditors,

03:21:57.309 --> 03:22:00.049
have extensive unrebutted evidence on that fact.

03:22:02.370 --> 03:22:05.430
The evidence before me is that the fraudulent

03:22:05.430 --> 03:22:08.649
statements and breaches of fiduciary duty resulted

03:22:08.649 --> 03:22:13.649
in an injury to creditors, to shareholders, and

03:22:13.649 --> 03:22:19.969
to the company itself. And that damage caused...

03:22:20.270 --> 03:22:23.530
millions and millions and millions, hundreds

03:22:23.530 --> 03:22:28.090
of millions of dollars in losses. These actions

03:22:28.090 --> 03:22:31.329
largely led to Nicola's inability to pay a lot

03:22:31.329 --> 03:22:35.010
of its debt, the fall of its stock price, and

03:22:35.010 --> 03:22:39.569
ultimately its insolvency. So there's ample evidence

03:22:39.569 --> 03:22:43.190
in the record about the harm to the debtors that

03:22:43.190 --> 03:22:49.909
was caused by the misconduct. Finally, that third

03:22:49.909 --> 03:22:54.629
prong examines whether equitable subordination

03:22:54.629 --> 03:22:57.129
or requires that it not be inconsistent with

03:22:57.129 --> 03:22:59.969
other provisions of the bankruptcy code. And

03:22:59.969 --> 03:23:02.750
there are no other provisions of the bankruptcy

03:23:02.750 --> 03:23:05.069
code that anybody has pointed to or that I could

03:23:05.069 --> 03:23:10.110
find that would make a finding of equitable subordination

03:23:10.110 --> 03:23:14.590
inconsistent with the code. And on the set off

03:23:14.590 --> 03:23:19.110
issue, I've looked at the cases that that Mr.

03:23:19.290 --> 03:23:23.090
Milton cites and I simply don't find them applicable

03:23:23.090 --> 03:23:28.190
to the analysis of equitable subordination. So

03:23:28.190 --> 03:23:36.389
I didn't find them of an awful lot of help in

03:23:36.389 --> 03:23:40.250
determining these issues. So because the debtor

03:23:40.250 --> 03:23:42.569
has met all three prongs for equitable subordination

03:23:42.569 --> 03:23:47.899
and because the pardon argument of innocence

03:23:47.899 --> 03:23:52.280
fails. I'm overruling the objection to equitable

03:23:52.280 --> 03:23:57.120
subordination of Mr. Milton's claim number 54.

03:23:58.520 --> 03:24:01.860
I have a few other objections that I need to

03:24:01.860 --> 03:24:06.739
address. And the first one that I heard was the

03:24:06.739 --> 03:24:10.719
United States Trustee's objection. And again,

03:24:10.840 --> 03:24:16.739
I thank Mr. Fox and his office for... a very

03:24:16.739 --> 03:24:19.399
thoughtful argument in the thoroughness of the

03:24:19.399 --> 03:24:27.940
briefs. As Mr. Fox knows, and as others in the

03:24:27.940 --> 03:24:31.040
courtroom are aware, on other instances, I've

03:24:31.040 --> 03:24:37.059
found that in opt -out, post -purdue can be an

03:24:37.059 --> 03:24:41.479
appropriate mechanism of determining that consent

03:24:41.479 --> 03:24:47.020
was given. the United States Trustee's argument

03:24:47.020 --> 03:24:52.139
addresses in part sort of a philosophical view

03:24:52.139 --> 03:24:55.100
or a doctrinal difference in how this should

03:24:55.100 --> 03:24:57.799
be approached with one being a sort of a due

03:24:57.799 --> 03:25:00.459
process argument, which is what I've adopted

03:25:00.459 --> 03:25:03.000
on other occasions. And on the other hand, this

03:25:03.000 --> 03:25:07.959
contract theory that my colleague and friend

03:25:07.959 --> 03:25:10.920
Judge Goldblatt applied in the Smallhold case.

03:25:11.159 --> 03:25:14.459
I think the due process argument is an appropriate

03:25:14.459 --> 03:25:22.040
argument. And in this case, the third party releases

03:25:22.040 --> 03:25:24.979
or the opt -out had applied to one class of creditors.

03:25:25.479 --> 03:25:28.180
This is not an instance where I've seen in other

03:25:28.180 --> 03:25:31.340
places where, for instance, shareholders are

03:25:31.340 --> 03:25:34.920
being required to execute an opt -out. This only

03:25:34.920 --> 03:25:40.280
went to a fairly small class of creditors. And

03:25:40.280 --> 03:25:46.479
it's hard to attach much weight to how many creditors

03:25:46.479 --> 03:25:50.059
opted out because there is a creditor apathy

03:25:50.059 --> 03:25:54.940
problem. We're all familiar with that. The math

03:25:54.940 --> 03:25:57.260
that was recited to me was that we had about

03:25:57.260 --> 03:26:01.479
16 % response rate on votes. In my experience,

03:26:01.500 --> 03:26:03.299
that's not a bad number. It's actually a pretty

03:26:03.299 --> 03:26:05.579
good response. But ultimately, I don't know if

03:26:05.579 --> 03:26:09.620
that's... All that germane to the analysis because

03:26:09.620 --> 03:26:14.120
my determination is based on that due process

03:26:14.120 --> 03:26:17.959
analysis that I think the majority of courts

03:26:17.959 --> 03:26:22.020
have employed over a period of many, many years.

03:26:22.940 --> 03:26:28.540
There was an opportunity for creditors in class

03:26:28.540 --> 03:26:34.120
three to tell us whether they've consented or

03:26:34.120 --> 03:26:38.639
not by opting out. It was the ballot and the

03:26:38.639 --> 03:26:40.420
papers were clear on their face that if they

03:26:40.420 --> 03:26:42.879
wish to opt out of the third -party releases

03:26:42.879 --> 03:26:46.760
that they could simply return a ballot and strike

03:26:46.760 --> 03:26:51.700
the opt -out box and stake their ground out.

03:26:52.979 --> 03:26:57.379
And a number of creditors did it, a number, a

03:26:57.379 --> 03:27:00.360
significant number I thought who didn't vote

03:27:00.360 --> 03:27:07.250
opted out. So... I do find that the opt -out

03:27:07.250 --> 03:27:11.969
mechanism used here was appropriate. On the injunction

03:27:11.969 --> 03:27:15.149
issue, I'll suffice it to say that I agree with

03:27:15.149 --> 03:27:19.450
the analysis of my colleague, Judge Stickles,

03:27:19.809 --> 03:27:24.790
and do find that the injunction here is appropriately

03:27:24.790 --> 03:27:28.290
tailored and drafted and similar to what we've

03:27:28.290 --> 03:27:30.090
seen in a number of other cases where it's been

03:27:30.090 --> 03:27:34.899
approved. And of course, the rule... 30 -20 issue

03:27:34.899 --> 03:27:38.659
is no longer in play. But based on all that,

03:27:38.780 --> 03:27:41.000
I'm going to overrule the objection by the Office

03:27:41.000 --> 03:27:43.360
of the United States Trustee and again, express

03:27:43.360 --> 03:27:46.879
my thanks to Mr. Fox and the attorneys of that

03:27:46.879 --> 03:27:49.139
program for their excellent work in connection

03:27:49.139 --> 03:27:50.739
with this issue that I know is very important

03:27:50.739 --> 03:27:57.000
to them. The lead class play is also objected

03:27:57.000 --> 03:28:03.459
to the plan. Again, I've given the arguments

03:28:03.459 --> 03:28:10.200
a great deal of consideration, and 510B requires

03:28:10.200 --> 03:28:15.399
subordination of claims that arise from damages,

03:28:16.260 --> 03:28:18.319
arising from the purchase or sale of securities,

03:28:18.700 --> 03:28:24.600
and that's precisely what we have here. I don't

03:28:24.600 --> 03:28:27.819
agree that subordination must be pursued through

03:28:27.819 --> 03:28:34.530
a claim objection under rule 3007, I could find

03:28:34.530 --> 03:28:37.870
no authority that, to my satisfaction, would

03:28:37.870 --> 03:28:41.889
support that that's the rule. It would be, in

03:28:41.889 --> 03:28:45.270
my view, inconsistent with the structure of the

03:28:45.270 --> 03:28:49.729
bankruptcy code and also with implicitly rule

03:28:49.729 --> 03:28:57.649
7001 -8, which implicitly provides that you can

03:28:57.649 --> 03:29:00.799
do it through a contested matter. And again,

03:29:00.840 --> 03:29:03.659
as I've described with the structure of the code

03:29:03.659 --> 03:29:06.639
that could be done in connection with plan confirmation.

03:29:09.860 --> 03:29:14.639
The lead class plaintiffs certainly received

03:29:14.639 --> 03:29:17.700
notice and opportunity for a hearing that that

03:29:17.700 --> 03:29:20.899
hearing has happened. I've considered the arguments

03:29:20.899 --> 03:29:24.139
very carefully, but I am going to overrule them.

03:29:24.299 --> 03:29:27.219
I do frankly just view it as a fairly garden

03:29:27.219 --> 03:29:32.329
variety if I can be... subordination arising

03:29:32.329 --> 03:29:34.290
out of the damages from the purchase or claim

03:29:34.290 --> 03:29:38.149
of securities. So that objection is also overruled.

03:29:39.090 --> 03:29:43.069
As for the equity holder objections, we had two

03:29:43.069 --> 03:29:47.510
written objections and we had several informal

03:29:47.510 --> 03:29:56.409
objections. I read the formal objections and

03:29:56.969 --> 03:30:00.530
Today was the date that all parties had noticed

03:30:00.530 --> 03:30:03.170
of as a date where we would have a hearing on

03:30:03.170 --> 03:30:10.110
confirmation of the plan. I invited each of the

03:30:10.110 --> 03:30:15.930
formal objectors to be heard today and neither

03:30:15.930 --> 03:30:19.989
one of them appeared to have attended the hearing

03:30:19.989 --> 03:30:23.709
by Zoom, which was the opportunity that they

03:30:23.709 --> 03:30:28.829
had. And similarly, there were no people who

03:30:28.829 --> 03:30:31.270
spoke up when I asked for any informal objectors

03:30:31.270 --> 03:30:37.450
to be heard. So I would view those objections

03:30:37.450 --> 03:30:42.290
as abandoned, but I will address in substance

03:30:42.290 --> 03:30:47.649
the arguments that they made. There is an objection

03:30:47.649 --> 03:30:53.540
based upon disclosure, and I... I don't find

03:30:53.540 --> 03:30:58.360
that argument to be credible. There was a liquidation

03:30:58.360 --> 03:31:02.079
analysis that came accompanied with a great deal

03:31:02.079 --> 03:31:05.680
of explanation as to how the liquidation analysis

03:31:05.680 --> 03:31:11.920
operated the assumptions and how it worked. And

03:31:11.920 --> 03:31:15.520
there is Mr. Rowan's declaration that gets into

03:31:15.520 --> 03:31:20.120
detail on that. Mr. Rowan was subject to cross

03:31:20.120 --> 03:31:25.270
-examination today. and nobody took the opportunity

03:31:25.270 --> 03:31:31.030
to cross -examine him and test his testimony

03:31:31.030 --> 03:31:36.969
regarding the liquidation analysis. There was

03:31:36.969 --> 03:31:39.270
also a contention that there had been no meaningful

03:31:39.270 --> 03:31:43.489
investigation. I think to say the least, the

03:31:43.489 --> 03:31:47.430
notion that Nicola hasn't been adequately investigated

03:31:47.430 --> 03:31:52.420
is a difficult one to support. We know that the

03:31:52.420 --> 03:31:54.200
Department of Justice and the Securities and

03:31:54.200 --> 03:31:57.899
Exchange Commission expended an enormous amount

03:31:57.899 --> 03:32:00.100
of time and resources in their investigations.

03:32:04.579 --> 03:32:08.420
The evidence before me is also that there was

03:32:08.420 --> 03:32:13.500
an internal investigation and the committee has

03:32:13.500 --> 03:32:15.500
reported that it's done its own investigation.

03:32:16.079 --> 03:32:23.620
So I think it's fair to say that The bushes have

03:32:23.620 --> 03:32:27.180
been more than soundly thrashed and beaten in

03:32:27.180 --> 03:32:32.840
pursuit of causes of action that might be pursued

03:32:32.840 --> 03:32:36.899
on behalf of the estate. There is also an objection

03:32:36.899 --> 03:32:39.020
common to the two written objections that there's

03:32:39.020 --> 03:32:42.620
been a lack of opportunity for meaningful participation.

03:32:47.540 --> 03:32:52.120
The fact that... they receive notice and have

03:32:52.120 --> 03:32:55.940
the opportunity to respond. We tend to undermine

03:32:55.940 --> 03:33:01.379
that argument in my view and in addition I noted

03:33:01.379 --> 03:33:06.260
that today was the day to speak directly to me

03:33:06.260 --> 03:33:11.219
and nobody took that opportunity. Class five

03:33:11.219 --> 03:33:16.040
is a class that was deemed to reject and for

03:33:16.040 --> 03:33:20.360
that reason as is universally the case. doesn't

03:33:20.360 --> 03:33:22.719
get to vote. That's what the bankruptcy code

03:33:22.719 --> 03:33:26.559
requires. So there is no requirement here that

03:33:26.559 --> 03:33:28.819
equity holders be given the opportunity to vote

03:33:28.819 --> 03:33:31.780
on the plan because they are presumed to reject

03:33:31.780 --> 03:33:35.340
because equity is being canceled under this plan.

03:33:36.459 --> 03:33:39.459
And then finally, there is the argument that

03:33:39.459 --> 03:33:44.139
they're being unfairly treated, but under section

03:33:44.139 --> 03:33:47.879
1129 B2B, we have the absolute priority rule

03:33:47.879 --> 03:33:53.500
and it dictates the result that I'm proving today

03:33:53.500 --> 03:33:59.280
because there is frankly no prospect of recovery

03:33:59.280 --> 03:34:05.959
to equity and there is simply there's just no

03:34:05.959 --> 03:34:11.299
path to recovery unfortunately. It's always sad

03:34:11.299 --> 03:34:16.100
when retail investors lose in these cases and

03:34:16.100 --> 03:34:19.389
it's particularly regrettable when the losses

03:34:19.389 --> 03:34:22.309
may have been attributable or were found to be

03:34:22.309 --> 03:34:30.309
attributable to bad acts. But this is the result

03:34:30.309 --> 03:34:36.909
that the Bankruptcy Code mandates. So with all

03:34:36.909 --> 03:34:42.829
that I'm overruling the objections to the plan

03:34:42.829 --> 03:34:47.909
and I also find on a final basis that the disclosure

03:34:47.909 --> 03:34:51.969
statement satisfies the requirements of Section

03:34:51.969 --> 03:34:55.450
1125, so it's approved on a final basis. And

03:34:55.450 --> 03:34:58.170
the plan likewise meets all the requirements

03:34:58.170 --> 03:35:02.649
for confirmation under 1129 and the related provisions

03:35:02.649 --> 03:35:08.909
of the bankruptcy code that Section 1129 incorporates.

03:35:10.010 --> 03:35:12.790
So for those reasons, I am confirming the plan

03:35:12.790 --> 03:35:21.159
today. Thank you very much, Your Honor. Very

03:35:21.159 --> 03:35:28.059
much appreciate the well -reasoned words. I think

03:35:28.059 --> 03:35:33.340
you've seen the revised form of confirmation

03:35:33.340 --> 03:35:35.379
order. Yes, I reviewed it this morning. Perfect.

03:35:35.860 --> 03:35:40.090
I think what we'd like to do... We have a couple,

03:35:40.090 --> 03:35:45.170
you know, sort of conforming nits to the plan

03:35:45.170 --> 03:35:48.209
that will be submitted as exhibit to that confirmation

03:35:48.209 --> 03:35:50.129
order. What we'd like to do is just submit that

03:35:50.129 --> 03:35:52.350
under certification of council following hearing.

03:35:52.510 --> 03:35:56.590
Yes. So that everything is buttoned up. And we'll

03:35:56.590 --> 03:35:59.209
do that. And I don't think we have anything else

03:35:59.209 --> 03:36:03.329
for your honor. Thank you and your chambers for

03:36:03.329 --> 03:36:07.069
all the help and assistance today. Thank you,

03:36:07.110 --> 03:36:10.090
and I want to express my gratitude for the really,

03:36:10.090 --> 03:36:13.370
really fine work that all the attorneys who appeared

03:36:13.370 --> 03:36:16.709
before me today rendered in furtherance of this

03:36:16.709 --> 03:36:20.450
case. It was outstanding work all around, and

03:36:20.450 --> 03:36:25.170
you have my gratitude for that. There were really

03:36:25.170 --> 03:36:27.649
important issues, and it was very well presented.

03:36:28.590 --> 03:36:31.670
It makes it a pleasure to do my job when I have

03:36:31.670 --> 03:36:35.190
the aid of such an effective counsel. Thank you.

03:36:36.130 --> 03:36:38.590
Okay. All right. Well, I wish everybody a good.