Time is 9.30 Central. Today is March the 3rd, 2023. This is the docket for Houston, Texas.
First on the docket this morning, we have the jointly administered cases under case number
22-90341, core scientific. Folks, please don't forget to record your electronic appearance.
That's a quick trip to my website, a couple mouse clicks. You can do that at any time prior to the
conclusion of the hearing, but that is how we record your appearance. First time that you speak,
if you would, please state your name and who you represent. That really does serve as a good point
of reference for the court reporters in the event that a transcript request is made. We are recording
this morning using court speak. We'll have the audio up on the docket available for your download
shortly after the conclusion of the hearing. There was some odd noise, so I went ahead and
activated the hand raising feature. If you know you're going to be speaking, if you go ahead and
give me a five star, let me get you unmuted now. Obviously, you can change or you can make that
decision at any time. All right, Ms. Berkowitz, good morning to you. You want to start us off
and give me an update as to where we are? Yes. Good morning, Your Honor. Can you hear me?
I'm clear. Thank you for asking. Great. Ramees Berkowitz from Wild Onshore for the record.
I understand, although they will confirm for themselves, that both of the ad hoc group of
equity holders and the ad hoc group of convertible note holders have agreed to the construct that the
court suggested on Wednesday in relation to the appointment of an equity committee. We've all
gone back and forth a few rounds on the proposed order and have made some progress. However,
there is still not agreement on the proposed terms. Primarily, the disagreement is between
the ad hoc equity group and the ad hoc convertible note holder group. We did just get a revised
version right before the hearing started that we're going through, but I will, if it makes sense to
the court, I will turn it over to Mr. Meisler to advise the court on what the open place are.
Certainly. Thank you. Mr. Meisler, good morning to you.
Mr. Meisler, do you perhaps have me muted from your side? I can see you talking, but we can't
hear you. And had you hit five star, I guess I should have started there.
And Your Honor, just for the record, Noel Reed is on as well for the ad hoc equity group.
I don't seem to be able to get the video. It's just spinning on joining sessions for me,
but I am on the audio. So I will tell you this. If you're seeing the spinning that tells you
that you don't have a sufficient internet connection, that it will pass the video.
What I've seen other folks do, and it tends to work, is that disconnect, try to reconnect.
Sometimes that fixes it. Sometimes it doesn't, but it's an internet connection issue.
Got it, Your Honor. And just very quickly, I was prepared to at least start for the ad hoc equity
group. Ms. Berkish stated it correctly. I think we're in agreement on the concept. I think we're
close on the order. And I think from our perspective, while Mr. Meisler can talk through
the details of the two remaining open items, I think the parties are trying to affect your intent.
And so it probably just makes sense for you to simply resolve what that intent is.
Certainly. First, let's see if we got Mr. Meisler unmuted. Mr. Meisler,
do you want to try that again? Just say something. Yes, Your Honor. Loud and clear.
Yes, sir. Thank you. Oh, perfect. Great. I did Val Skeddon's tech course several times.
So I'm glad this was working this morning. Your Honor, what Ms. Reed said is 100% correct.
You should hear also from Mr. Hanson, but at its core, we're in agreement on the proposed resolution
suggested by Your Honor. We did have a meeting with our client group yesterday, and we had
overwhelming support by the group to move forward on the terms that you suggested.
I think we just have some details on the margins where Mr. Hanson and I haven't yet resolved the
order. And I'm happy if Mr. Hanson's okay. I'm happy to go through what I think are the areas of
dispute, but I don't want to get ahead of Mr. Hanson. So if Mr. Hanson wants to jump in, he is
very welcome to do so. So let me, and again, I'm certainly going to hear from Mr. Hanson, but let
me propose a different way of proceeding. It just generally tends to work is that you take today,
weekend if you wish, see if you can hammer it out between yourselves. If you can't, and I'll pick a
deadline, if you can't get it done by 10 o'clock on Monday, upload competing forms of the order.
Just understand that you may get form A, you may get form B. More likely you get form C.
Your Honor, that would be fine with us, although I would ask,
especially in light of previous comments that you've made,
I would ask you submit an order by close of business today.
I'll find by May. I was just trying to recognize that you folks have other things to do other than
work on this order. I was just trying to give folks flexibility. Mr. Hanson
didn't mean to not give you an opportunity.
No, thank you, Your Honor. So can you hear me okay?
Loud and clear. Thank you.
Chris Hanson with Paul Hastings on behalf of the Ad Hoc Secure No Holder Committee.
Your Honor, we're fine to try to upload either an agreed upon order or two forms of orders.
That's by the end of today. That's fine.
I do think it would benefit us in the process of trying to get an agreed order if Mr. Miser and I
can explain just a couple of the things that we're struggling with so that you can give us
a little guidance on that. More than happy to do that.
I was just trying to keep my finger off the scale, but happy to do that.
Yeah, so I would defer to Mr. Miser. I always want the mic and I'd like to go with
what he started. So from a court perspective, I'll let him start his motion and then I'll respond.
All right. Mr. Miser.
Thank you, Your Honor. There's really two areas of dispute.
One is, Your Honor, we have put in the assumptions that were the factors that got us to arrive at our
$4.75 million budget. And to be sure, our original budget was higher than that. The debtors could
negotiate negotiating with us led to a lower budget, but those factors are what led to the budget.
If we were to bust those assumptions, it doesn't give us automatic answers.
It doesn't give us automatic license to increase the budget. So we would want all parties to be
aware that it's those assumptions that led to the budget. Why? If a party propounds needless
discovery upon us, then, Your Honor, we're going to bust the budget. Now, I think that goes into
some of the factors that you were thinking about, that if someone launches discovery,
it's really aimed at us. If we're launching tactics that are really meant to be, using my own words,
extortionist tactics rather than value accretive tactics, then we wouldn't get compensated.
But I think that that litmus test in some way would also apply if the shoes on the other foot
and some other party in interest were to launch needless value destructive discovery upon us.
Discovery is labor intensive and it could lead us to bust the budget. So the factors are out there
in a sense to educate all the parties in interest how we arrived at the budget, but not meant to be
a test for, Your Honor, on the question of whether the budget can be increased. And we'll pause there
just for one moment in case, Your Honor, has any questions to that principle.
So, obviously, I haven't seen anything. And Mr. Hanson, what does your client see?
Well, Your Honor, so our clients are still not happy with the appointment of an equity
committee, but they appreciated the way that you described things at the hearing the other day.
So we're going to, as Ms. Berkman-Betch noted, we're going to try to proceed to get an order settled.
With respect to the assumptions, our only point was in the form of order that we've been working on,
the misdemeanor had included a schedule which had assumptions in it. And I don't think that's bad.
I don't think that's appropriate. And B, the point on the assumptions is that, you know,
and this really translates to the bigger question, which is, is this a budget or is this a cap?
And our view is it's a fee cap. That cap is only subject to increase by total order of the court.
And as the court noted at the hearing the other day, the court might not even agree that they can
go through the cap based upon your analysis later if people keep the check. And so my point that I
was debating with Mr. Meisler was, you know, we don't, whatever basis upon which you agreed to cap
yourself at $4.75 million for all the professionals for the equity committee, these expenses and
expenses of the members themselves, that's your business. We don't need to have an order that
notes what the assumptions were that went into that because that would give some information that
if those assumptions were no longer valid, for some reason, there's a better reason to increase
the cap. That's something that you can consider at a later time.
So this is really, this one's really easy for me, if it's helpful, is that the equity committee
and the debtor agreed to a cap of $4.75 million. And that cap can't be exceeded absent further
order from me. And I'm not going to be constrained by any consideration because I don't know,
I don't know what I don't know. And so if there's a request that's filed to exceed the cap,
I'll take it up based upon what I know at the time that the request is made. Hopefully that helps
move that issue along.
Yes.
After Ron Meisler, on the fee cap, what we understand is that if we exceed the $4.75 million,
$4.75 million, we being the equity committee for advisor expenses, then we can't get paid
by the estate unless you're on our borders otherwise. The reason why, and maybe just
semantics, the reason why we use the word but as opposed to cap is our concern is that it could
limit the pool of advisors that are willing to be hired by the equity committee.
Absolutely.
We would of course make it.
Absolutely.
Right. We would of course make it.
We could.
Exactly. We want to enable the best advisors to pitch and be retained by the equity committee,
understanding that they will not get paid if the budget is exceeded and your honor doesn't
order otherwise that they could get paid. But that semantic difference could be the reason why a
senior management team of a law firm or a financial advisor may choose simply not to pitch.
And again, our principal motivation here is we would like the best advisors to be able to
represent this group, understanding the risk.
Totally agree. And I can't imagine that you're going to talk to someone and ask them to make
a pitch of a group that doesn't know me. And I would think that alone would give them a degree
of comfort. If not, then they're just going to have to make a business decision. It's just easy
for me. So what's next?
Your honor, I think that's it. Although I don't have so clearly the word cap will be in that
order. But I don't have clarity on the assumption that that builds up that number, which we'd like
because we, again, it doesn't bind the court in any way.
So take the decision-making process out of it. It's an agreement between the ad hoc equity
committee and the debtors. It's 4.75. I'm not going to look behind it. And again, if there's a
request to increase it, I'm going to base it on what is important to me and what I know at the time.
Not today. I'm not going to consider anything on a list that exists today. Or I'm going to say I'm
not going to be bound by anything on a list today. I'm going to hear what the arguments are at the
time. So let's get rid of the list. Let's move on. Thank you, your honor. Unless Mr. Hanson has
something else, I think those are the principal areas of dispute. Okay. Mr. Hanson, anything else?
Yeah, your honor, I had one other point on the order and then just the general comment before we
part that I wanted to make. So with respect to the order, I think where the parties are going to land
is that we are going to rely on your honor's comment as the standard by which the fees get
analyzed as opposed to trying to come up with language between us, which we may have a
disagreement on and which we may have to ask you to resolve. So for example, instead of having a
decreedal paragraph that says, the fees for the equity committee shall be viewed in hindsight
based upon, you know, instead of getting really choppy with the words, I think you gave us a bunch
of examples. You went through it at the hearing the other day. But we wanted to just make sure
if we all align in that language that we have this discussion with you today so that we have a little
bit of a supplement to the record the other day. And, you know, you were clear that you want to be
able to have the discretion to view the fees that are generated by the equity committee in hindsight.
And what we understand hindsight means is at whatever period you're looking back, sure,
you're going to assess whether the fees are reasonable at the time that they were incurred,
but you're also going to assess them having the benefit of the result that was produced
as a result of the act that was taken, as well as the factors that are existing in the case
at the time that you were looking at them. And you're not going to be constrained by saying you
had to go back in time to look at it then. So we're, in our mind, while you didn't go all the way
to say, I'm going to look at it on substantial contribution type standards, effectively what
you're saying is you always have the discretion to look back across these fees whenever it is
based upon where you are. And you're really guided by the six factors that you added to the
film from Pride analysis, which is what difference did they make. And so we wanted to just make sure
that we were all clear there so that when we say we're relying on whatever you had told us
we're going to be the standard rather than try to describe your words ourselves, that we were clear
on what that standard is. I think that's right. And I think if you look back, I've been entirely
consistent when I added that additional requirement to Pilgrims. I think that's actually
in another case and in another order, but that shouldn't be a mystery to anybody. I mean, look,
you're just going to have to accept a little bit this on faith. I spent 20 plus years as a
professional. I understand that you like to be paid for the services that you provide. I am certainly
not out to make a point with any professional, but we're in a unique situation here. And my focus
is exactly as I said at the hearing, it's on the debtor and the business and the employees
and whether or not there is a path forward here. And just to be entirely transparent,
I'm simply reserving the right to exert leverage on everybody to move this forward. Everybody does
their job. I can't imagine there's a problem. People don't do their job. And for instance,
if I ever have to revisit the snippiness issue that I raised at the prior hearing, okay. I mean,
everybody had fair warning at that point, but this is not an I got you. This is not a, I want to make
a point about rates. I'm not. I think I've said a thousand times, you know, rates are driven by the
market. I'm a big believer in the market. Just do what you all, do what you know you're supposed to
be doing. And I can't imagine there's an issue, but I am reserving the right to come back and
revisit this if in fact my assumptions about any or all of you turn out not to be correct.
I don't know how it could be any more transparent than that.
And your honor, this is Noel Reed. We thought you were perfectly transparent and that was the
basis on which we advise our client and secure their support. And we're very comfortable with
the guidance that the court gave previously. Mr. Hanson, did I say something that was any
different than what I said the other day or that I've previously said in other cases?
No, your honor. I think we're again, we're good with what you said the other day as far as to make
sure that we were all clear because again, I think that's a better stance that I again suggested if
we agree with it that it's better to do that than it is to try to describe, you know, our own words.
And to your point about moving this case forward, there's just, I want to touch on this, right?
Ms. Portovich gave you an update the other day, you know, they're now two months into the case.
I made the point that perhaps we should wait to see what happens here until we have a business
plan. But clearly the exclusivity clock is ticking and we currently have no progress towards the plan
of reorganization at all. We had an RSA that's been torn up, right? And so one of the major
standards here, and we've highlighted it a few times, is we don't want to hang out in bankruptcy.
We want to move this case as quickly as possible and get out and move fast and of course keep
seed down. But it also helps us get an entity out of bankruptcy where it shouldn't be hiding.
And so we want to just point out to the court that clearly there may be an exclusivity extension
coming. We hope to see significant progress on plan by that point in time, but we can't do that
without the debtors having a business plan and the debtors getting around and trying to negotiate
with everybody. So we look forward to that happening and we hope it happens soon. And I'd
also just note for the record judge, to your point about the fragileness of this business,
part of the Bitcoin drops almost 5% overnight, last night. And so it is... For whatever reason,
I now look at it every day. Welcome to the club. Your honor, I agree with what Mr. Hanson said in
terms of the, as I mentioned the other day, our finalizing our business plan. And then we intend
to sit down with all of our major stakeholders, including Mr. Hanson's large client group,
and negotiate a plan of reorganization. And again, if it's helpful, and I mean this sincerely,
if anyone... It doesn't take a lot to get a status conference if there's an issue that
you believe I can be helpful on. I want to be helpful to the process. I'm here to resolve
disputes, but I also want to be helpful to the process. And again, I want to get you all focused
on the next part of this, which is why I've kind of been a little pushy with respect to this
issue. If it turns out that Isger can help, I had to go eat the most god-awful cheeseburger
in my life yesterday, so he now owes me another one. I'm more than happy to get him involved,
if that's helpful. If Judge Lopez can be helpful, I think he owes me a couple. I'm happy to use
all of those favors to help move this along, because I really do want to... I'm looking at
this a whole lot like I would a retail case. This really has to move quickly if it's going
to have a chance of succeeding. So again, I trust you all. I'm going to sit here and expect
everyone to do what I know you can do so well. But if it turns out that we need a nudge in one
direction or another, all of you know how to ask. It's not going to bother me one bit.
That is very helpful, Your Honor. Thank you. All right. So ordered by the end of the day,
somebody will shoot Mr. Alonzo an email once it's been uploaded, and I'll turn it promptly around.
If it turns out that there is just a logjam... Number one, I'm going to be here all day. If
folks think it would be helpful to jump back on, I'm happy to do it. Also, if you want to just
submit, again, version A, version B, I'm happy for you to do that, just always with the caveat
that you could get order C. Okay? Thank you, Your Honor. Thank you, Your Honor.
Trey, everyone have a wonderful weekend. I don't know what the weather is like your way,
but it's just beautiful here today. But have a wonderful weekend and see everybody soon.