Lead Plaintiff's Objection To Dynegy Chapter 11 Plan

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LOWENSTEIN SANDLER PC 1251 Avenue of the Americas, 18th Floor New York, New York 10020 (212) 262-6700 (Telephone) (212) 262-7402 (Facsimile) Michael S. Etkin, Esq. (ME 0570) John K. Sherwood, Esq. (JS 2453) and 65 Livingston Avenue Roseland, New Jersey 07068 (973) 597-2500 (Telephone) (973) 597-2481 (Facsimile) Bankruptcy Counsel for Lead Plaintiff and the Putative Class LEVI & KORSINSKY LLP Nicholas I. Poritt, Esq. 1101 30th Street, N.W. Suite 115 Washington, DC 20007 (202) 524-4293 Lead Counsel for Lead Plaintiff and the Putative Class UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK
In re: DYNEGY HOLDINGS, LLC, et al., Debtor. In re: DYNEGY, Inc., Debtor.
Chapter 11 Case No. 11-38111 (CGM)
Chapter 11 Case No. 12-36728 (CGM)
LEAD PLAINTIFFS OBJECTION TO CONFIRMATION OF THE DEBTORS JOINT CHAPTER 11 PLAN OF REORGANIZATION UNDER THE BANKRUPTCY CODE
Stephen Lucas, Lead Plaintiff (the Lead Plaintiff) in the securities class action entitled Charles Silsby, individually and on behalf of all others similarly situated v. Carl C. Icahn,
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Dynegy Inc., Robert C. Flexon, and Clint Freeland, Case No. 12-cv-02307 (JGK) (the Securities Litigation), pending in the United States District Court for the Southern District of New York (the District Court), filed on behalf of all persons (the Putative Class) who purchased or otherwise acquired securities of Dynegy, Inc. (Dynegy or the Debtor)1 between September 2, 2011 and March 9, 2012, inclusive (the Class Period), alleging violations of Sections 10(b), and Rule 10b-5 promulgated thereunder, and 20(a) of the Securities Exchange Act (the Securities Laws), by the Debtor and certain current and former officers, directors and shareholders of the Debtor, hereby submits this objection (the Objection), on his own behalf and on behalf of the Putative Class, to Debtors Joint Chapter 11 Plan of Reorganization for Dynegy Holdings, LLC and Dynegy Inc. [Doc. No. 28, Exhibit 1] (the Plan) and states the following: PRELIMINARY STATEMENT 1. The non-debtor release and related injunctive provisions in the Plan are nothing
more than a backdoor attempt to sabotage the Securities Litigation now pending before Judge Koeltl in the District Court. Given the distribution scheme under the Plan, the Securities
Litigation is the only source available to the Putative Class to recover their losses based upon the conduct of Dynegy and the beneficiaries of these gratuitous non-debtor releases. A little more than a month ago, Lead Plaintiff was formally recognized by the District Court as the representative of the interests of the Putative Class. In this capacity, Lead Plaintiff will opt out of the release provisions contained in the Plan on behalf of himself and all members of the Putative Class. Such an opt-out will have no impact whatsoever on confirmation of the Plan and will preserve all of the claims of the Putative Class in the Securities Litigation.
1
Capitalized terms shall have the meanings ascribed to them in the Plan or Disclosure Statement unless defined otherwise herein.
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2.
Unfortunately, it may not be that simple (although it should be).
Based on
positions taken by the Debtor and certain defendants in the Securities Litigation (all represented by the same law firm), Lead Plaintiff expects that the Debtor will argue that unless a class member, who may or may not be a current shareholder, has filed an individual opt out election as part of the Plan solicitation process, he, she or it will be subject to the release and injunction provisions contained in the Plan. This is despite the fact that such class members are receiving nothing for their claims, are not entitled to vote, and likely are complete strangers to this chapter 11 proceeding. Because this position, if sustained, will have a serious negative impact on the claims of the Putative Class in the Securities Litigation, Lead Plaintiff must vehemently object to confirmation in an effort to protect the defrauded class members that he has been charged to represent. 3. Thus, Lead Plaintiff submits in the first instance that the Bankruptcy Court should
find that the opt out election filed by Lead Plaintiff as the official representative of the Putative Class is effective to preserve the claims of the class (as ultimately determined by the District Court) against all non-debtor parties, including Dynegys directors, officers and shareholders. Alternatively, Lead Plaintiff opposes the non-debtor release and injunction provisions of the Plan because they are fundamentally inappropriate and unlawful. As set forth in more detail below, the Plans non-debtor release provisions are perhaps the most aggressive and unjustified ever presented to a bankruptcy court for approval. Some of the most remarkable features of the release and injunctive provisions requested by Dynegy are set forth below. The Released Parties are providing no consideration in exchange for the releases. The granting of the releases is not a necessary condition to confirmation of the Plan or necessary for the reorganization generally. In other words, all of -3-
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Dynegys stakeholders could opt-out of the release provisions or the Court could strike the illegal release provisions and the Plan would still be confirmable. The parties granting the releases to non-debtors under the Plan are not receiving any distribution under the Plan. Thus, they are deemed to reject the Plan and have not been provided with ballots to vote to accept or reject the Plan. The granting of a third party release by a party who is not entitled to vote on the Plan is unprecedented. It is highly likely that many members of the Putative Class are former shareholders of Dynegy and did not receive any notice of the proposed releases and injunctions. Yet, those class members, if the Debtor has its way, would still be bound and enjoined by the Plans broad releases and injunction. There is no penalty or downside for any equity interest or claim holder that opts out of the release and no upside for a party that grants a release. 4. Based on the above factors, the question is obvious Why would any reasonable,
well-informed person knowingly grant the releases set forth in the Plan? There is no logical answer to this question because the reality is that the non-debtor release provisions under the Plan are a trap for the many passive investors in Dynegy who received the massive solicitation package (among other meaningless notices) and did not take the considerable time and effort, or spend money to hire counsel (in a case where they are getting no distribution), to figure out that by not sending an opt out election, they may be deemed to have released parties other than Dynegy. No bankruptcy court has ever found such a release to be consensual or even close to appropriate given the clear standards for such extraordinary relief in this Circuit. This Court should not be the first to do so.
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5.
Finally, Dynegy has obtained permission from this Court to pay for and preserve
numerous insurance policies, including over thirty (30) policies that are described as Directors & Officers insurance policies. [Docket No. 81]. There is no reason why the claims asserted in the Securities Litigation should not be permitted to proceed against Dynegy and the Non-Debtor Defendants given the extent of the available insurance coverage for the claims asserted in the Securities Litigation. The claims against Dynegy can be limited to that available insurance.
BACKGROUND The Securities Litigation 6. On March 28, 2012, the Securities Litigation was filed in the District Court,
alleging violations of the Securities Laws by the Debtor and certain current and former officers, directors and shareholders (the Non-Debtor Defendants). A copy of the Complaint in the Securities Litigation is attached hereto as Exhibit A. 7. The Securities Litigation is a class action lawsuit filed on behalf of purchasers of
Dynegy equity securities based upon their losses due to the actions of Dynegy, its officers, directors, and shareholders in violation of the Securities Laws. 8. On May 29, 2012, Lead Plaintiff and other plaintiffs filed motions for the
appointment of lead plaintiff and lead counsel and to consolidate the various related actions in the District Court. 9. On July 9, 2012, pursuant to the automatic stay, 11 U.S.C. 362(a), the District
Court entered an order staying the litigation solely as it relates to Dynegy. The Securities Litigation is proceeding as against the Non-Debtor Defendants. (See Exhibit B). 10. Pursuant to the Private Securities Reform Litigation Act of 1995, 15 U.S.C.
78u-4(b)(3) (the PSLRA), discovery in the Securities Litigation is stayed until motions to -5-
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dismiss are decided. On July 13, 2012, the District Court entered an order appointing Stephen Lucas as Lead Plaintiff and Levi & Korsinsky LLP as Lead Counsel. A copy of the order is attached hereto as Exhibit C (the Lead Plaintiff Order). A consolidated and amended class action complaint is due to be filed within thirty (30) days from the Effective Date of the Plan. The Chapter 11 Case 11. On November 7, 2011, Dynegy Holdings, LLC (Dynegy Holdings), together
with other subsidiaries, filed voluntary petitions for relief under Chapter 11. Those cases are being jointly administered under Case No. 11-38111 (CGM). 12. On December 16, 2011, the Court entered an order authorizing the appointment of
an independent examiner to investigate allegations of fraud and fraudulent transfers between Dynegy Holdings, Dynegy and other subsidiaries. [Case No 11-38111, Docket No 276]. 13. On March 9, 2012, the Examiner issued a detailed report setting forth his findings,
including his determination related to fraudulent transfers between Dynegy and certain of its subsidiaries prior to the filing of the Dynegy Holdings petition. [Case No 11-38111, Docket No. 490]. 14. In an effort to resolve the allegations and the causes of actions set forth in the
Examiners report, several parties entered into a settlement agreement (the Settlement Agreement) on May 30, 2011. Of course, Lead Plaintiff and the Putative Class were not parties to the Settlement Agreement or any negotiations relating thereto. 15. On July 3, 2012 (the Petition Date), Dynegy filed a voluntary petition for relief
under Chapter 11 of the United States Code (the Bankruptcy Code). 16. Simultaneously therewith, the Debtor filed a motion seeking entry of an order
approving the Disclosure Statement related to the Joint Chapter 11 Plan of Reorganization for Dynegy Holdings, LLC and Dynegy, Inc. [Docket No. 28, Exhibit 2] (the Disclosure -6-
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Statement) and granting the authority to solicit votes in connection with the Plan that was filed in the Dynegy Holdings case as modified. [Docket No. 3]. 17. On July 10, 2012, the Court entered an order, inter alia, approving the Disclosure
Statement and scheduling a hearing on confirmation of the Plan for September 5, 2012 (the Confirmation Hearing). [Docket No. 21]. OBJECTION TO CONFIRMATION 18. As a threshold matter, section 1109(b) of the Bankruptcy Code grants Lead
Plaintiff, as a party in interest, the right to be heard in this chapter 11 case. See 11 U.S.C. 1109(b) (A party in interest, including the debtor, the trustee, a creditors committee, an equity security holders committee, a creditor, an equity security holder, or any indenture trustee, may raise and may appear and be heard on any issue in a case under this chapter). Section 1109 has been consistently read broadly in order to allow anyone who has a legally protected interest that could be affected by a bankruptcy proceeding to assert that interest with respect to any issue to which it pertains. In re Quigley Co., Inc., 391 B.R. 695, 703 (Bankr. S.D.N.Y. 2008). In addition to being a party in interest in this case, Lead Plaintiff is also the party that the [District] court determines to be the most capable of adequately representing the interest of class members pursuant to the PSLRA 78u-4(a)(3)(B)(i). 19. Accordingly, on behalf of itself and the Putative Class, Lead Plaintiff objects to
confirmation of the Plan on the following grounds: (a) Lead Plaintiffs and the Putative Class claims should be carved out of the Plans third-party release and injunction provisions because Lead Plaintiff and the Putative Class have elected to opt-out of the release and injunction provisions;
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(b)
the Plans third-party release and injunction provisions are overly broad, improper and unauthorized because they fail to come close to satisfying the necessary legal requirements mandated by the Second Circuit for such extraordinary relief; and
(c)
the Plan should preserve Lead Plaintiffs right to proceed with its claims against Dynegy to the extent of available insurance coverage, as well as the right to obtain discovery in the Securities Litigation.
20.
Lead Plaintiff believes that by virtue of the foregoing infirmities, unless the Plan
and/or the Confirmation Order are modified as set forth herein, the Plan should not be confirmed. A. The Plan Should Carve Out the Claims of Lead Plaintiff and the Putative Class From the Non-Debtor Release and Injunction Provisions Because Lead Plaintiff has Opted Out on Behalf of the Putative Class. Pursuant to the PSLRA 78u-4(a)(3)(B)(i), the District Court appointed Stephen
21.
Lucas as Lead Plaintiff because he was determined to be the most capable of adequately representing the interest of class members. Plaintiff Order. See PSLRA 78u-4(a)(3)(B)(i); see also Lead
Thus, the District Court designated Lead Plaintiff to be the official
representative and the spokesperson for all members of the Putative Class. See Lead Plaintiff Order 4 (listing duties of Lead Plaintiff including all other matters concerning the prosecution or resolution of the Action). Thus, because the release and injunction provisions directly impact the claims in the Action, electing to opt-out of these releases is a fundamental responsibility of Lead Plaintiff. Therefore, the Court should find that the opt-out election filed by Lead Plaintiff on behalf of all members of the Putative Class is effective to preserve the claims of the class (as ultimately determined by the District Court) against all non-debtor parties, including Dynegys directors, officers and shareholders. As a result, the claims of Lead Plaintiff and the Putative Class should not be subject to the Plan release and injunction provisions (notwithstanding that -8-
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such provisions are illegal and improper in any event (see section B infra)). The Court should carve out the claims of Lead Plaintiff and the Putative Class from the release and injunction provisions in the Plan. B. Regardless of the Opt-Out Election, the Plans Releases and Injunctions are Improper and Unlawful. (a) The proposed releases and injunctions are not authorized under the applicable legal standards and requirements.
22.
The Plan includes a broad spectrum of releases and related injunctions which
improperly release and enjoin claims by third-parties against non-debtors. Plan, Art. VIII, Section 8.20. If allowed to stand, these provisions could have the practical effect of severely diluting or putting an end to the Securities Litigation before Judge Koeltl even has a chance to rule on the merits of the claims or certify the class. Specifically, the Plan provides: Subject to the occurrence of the Effective Date, for good and valuable consideration, any holder of a Claim or Equity Interest that is impaired or unimpaired under the Plan shall be presumed conclusively to have released the Released Parties from any Cause of Action based on the same subject matter as such Claim against or Equity Interest in the Surviving Entity; provided, however, that nothing in this Section shall be construed to release any party from intentional fraud, willful misconduct, gross negligence, or criminal conduct as determined by a Final Order or to release any party from any Claim or Cause of Action which any Person who is a party to the GasCo Credit Facility or the CoalCo Credit Facility, or their successors and assigns, may have in respect of the GasCo Credit Facility or the CoalCo Credit Facility, or to release Dynegy Roseton, Dynegy Danskammer, DNE, or Hudson Power from any Claim or Cause of Action arising from or in connection with the Lease Documents; provided, further, however, that the releases provided in this Section 8.20 shall not apply to any holder of a Claim or Equity Interest (other than any party to the Plan Support Agreement, except as otherwise provided therein) that elects to opt out of such releases by making such election on its timely submitted ballot (to the extent it receives a ballot) or in a written notice submitted to the Solicitation Agent on or before the Plan Objection Deadline. Plan, Art. VIII, Section 8.20.
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23.
The Plan further imposes a permanent injunction on all persons who have been,
are, or may be holders of Claims against or Equity Interests in the Surviving Entity. Such persons shall be permanently enjoined from taking any of the following actions including, commencing, conducting or continuing in any manner, directly or indirectly, any suit, action or other proceeding of any kind. Plan, Art. XV, Section 15.25 (emphasis added). 24. Certain Plan definitions reflect the broad scope of the Plan releases and
injunction. For example, Released Party includes (a) DH, Dynegy, the Surviving Entity, and each of their Affiliates, (b) the Consenting Senior Noteholders, (c) the Consenting Subordinated Noteholders, (d) the Consenting Lease Certificate Holders, (e) the Lease Trustee, (f) Franklin, (g) the PSEG Entities, (h) the Indenture Trustees; (i) the members of the Creditors Committee (solely in their capacity as such), [and their respective] (j) present and former directors, officers, managers, equity holders, agents, successors, assigns, attorneys, accountants, consultants, investment bankers, bankruptcy and restructuring advisors, financial advisors, and each of their affiliate [ ] and (k) any Person claimed to be liable derivatively through any of the foregoing. Plan, Page 64 (emphasis added). 25. By referencing any action, suit or proceeding occurring pre-petition without any
limitation, the Plan injunction would apply to Lead Plaintiffs claims and the claims of the Putative Class in the Securities Litigation and any discovery anticipated in the case. No
justification for such extraordinary relief and inappropriate protection in favor of the Non-Debtor Defendants is provided by the Debtor. Essentially, the Non-Debtor Defendants, who as a practical matter are orchestrating the confirmation of the Plan, are seeking to obtain the benefit
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of a bankruptcy discharge through a permanent injunction, without ever subjecting themselves to the requirements and obligations of bankruptcy supervision.2 26. The Bankruptcy Code only authorizes a release and injunction of claims against a
non-debtor in one very narrow circumstance, which is certainly not applicable here. See 11 U.S.C. 526(g) (establishing specific procedures and conditions for resolving asbestos ligation claims against a debtor, including creating a trust to satisfy potential future claims). Therefore, to the extent any of Lead Plaintiffs claims in the Securities Litigation may be subject to the Plans injunction and/or release provisions, those provisions are clearly not authorized by any provision of the Bankruptcy Code. As a result, certain courts refuse to grant non-debtor releases altogether. See Maxitile, Inc v. Sun (In re Maxitile, Inc.), 237 Fed.Appx 274, 276 (9th Cir. 2007); Resorts International, Inc. v. Lowenschuss (In re Lowenschuss), 67 F.3d 1394, 1401 (9th Cir. 1995); Feld v. Zale Corporation (In re Zale Corp.), 62 F.3d 746, 760 (5th Cir. 1995); and Landscaping Diversified Property II v. First National Bank and Trust CO. of Tulsa (In re Western Real Estate Fund, Inc.), 922 F.2d 592, 600 (10th Cir. 1990). Other courts only grant such releases in rare circumstances and are very reluctant to grant the benefits of a bankruptcy discharge to non-debtors. See SEC v. Drexel Burnham Lambert Group, Inc. (In re Drexel Burnham Lambert Group, Inc.), 960 F.2d 285, 293 (2d Cir. 1992); Class Five Nevada Claimants v. Dow Corning Corp. (In re Dow Corning Corp.), 280 F.3d 648, 657 (6th Cir. 2002); Gillman v. Continental Airlines (In re Continental Airlines), 203 F.3d 203, 211 (3d Cir. 2000). 27. The Second Circuit in Deutsche Bank AG London Branch v. Metromedia Fiber
Network, Inc. (In re Metromedia Fiber Network, Inc.), 416 F.3d 136, 141-42 (2d Cir. 2005), held that a non-debtor release should not be approved absent truly unusual circumstances which
2
It is worth noting that violations of federal securities laws are non-dischargeable in personal bankruptcy proceedings. See 11 U.S.C. 523(a)(19)(A). Thus, the Non-Debtor Defendants are seeking to obtain something that not even the Bankruptcy Code offers.
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render the release terms important to success of the plan. Metromedia, 416 F.3d at 143. The court in Metromedia explained the reluctance of courts to grant non-debtor releases based upon two considerations. First, the only explicit authorization in the Code for nondebtor releases is 11 U.S.C. 524(g), which authorizes releases in asbestos cases and the Second Circuit found that section 105(a) [of the Bankruptcy Code] does not allow the bankruptcy court to create substantive rights that are not otherwise available under applicable law. Id. at 142. Second, a nondebtor release is a device that lends itself to abuse because it essentially operate[s] as a bankruptcy discharge arranged without a filing and without safeguards of the Code. Id. 28. Metromedia held that in order to obtain approval of a non-debtor release, the
debtor must demonstrate and establish that the release, and accompanying injunction, play an important part in the debtors reorganization plan and stated it is clear that such a release is proper only in rare cases. Metromedia, 416 F.3d at 141. However, the mere fact of financial contribution by a non-debtor cannot be enough to trigger the right to a Metromedia/Drexel release of non-debtor claims. Cartalemi v. Karta Corp. (In re Karta Corp.), 342 B.R. 45, 55 (S.D.N.Y. 2006) (also explaining that every multi-debtor corporate bankruptcy can come up with some aspect of its situation that seems to it, and to its creditors, to be unique.); see also Continental Airlines, 203 F.3d at 211 (holding that a debtor must satisfy its burden of proof and establish through specific factual findings that non-debtor third-party releases are fair and necessary). Rather, a debtor must demonstrate and establish that the release was itself important to the plan which is what Drexel Burnham at a minimum requires. Metromedia, 416 F.3d at 143 (emphasis in original). 29. As a threshold question, the Court must determine whether or not it even has
jurisdiction to approve the Plan release and injunction provisions as they relate to claims against
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non-debtors by third parties. The Third Circuit in Continental Airlines, 203 F.3d at 214 n. 12, has expressed its concern that the Bankruptcy Court apparently never examined its jurisdiction to release and permanently enjoin [the third partys] claims against non-debtors. While certain matters between non-debtor third parties affecting the debtor and the bankruptcy case may be within the subject matter of the Court, it is not without limits and the Court cannot simply presume it has jurisdiction in a bankruptcy case to permanently enjoin [non-debtor claims]. Id. Similarly, the Second Circuit noted that it would be inappropriate for the bankruptcy court to enjoin claims brought against a third-party non-debtor solely on the basis of that third-partys financial contribution to a debtors estate. In re Johns-Manville Corp., 517 F.3d 52, 66 (2d Cir. 2008) (Manville 2008). If that were possible a debtor could create subject matter jurisdiction over any non-debtor third-party by structuring a plan in such a way that it depended upon third-party contributions. Id. See also, Johns-Manville Corp. v. Chubb Indemnity Ins. Co. (In re Johns-Manville Corp.), 600 F.3d 135, 152 (2d Cir. 2010) (Manville 2010) (A bankruptcy court only has jurisdiction to enjoin third-party non-debtor claims that directly affect the res of the bankruptcy estate); In re Dreier LLP, 429 B.R. 112, 132 (Bankr. S.D.N.Y. 2010) (before the bankruptcy court decides whether the proponent of a plan settlement injunction has demonstrated the unusual circumstances mandated by Metromedia, it must first decide whether it has subject matter jurisdiction under Manville.). 30. The Supreme Court made it clear in Stern v. Marshall, 131 S.Ct. 2594 (2011) that
bankruptcy courts have limited jurisdictional powers pursuant to 28 U.S.C. 157. A bankruptcy court may only hear and enter final judgments in all core proceedings arising under title 11, or arising in a case under title 11. Stern, 131 S.Ct. at 2603. The proposed non-debtor releases and injunctions contained in the Plan impact claims between non-debtors based upon federal
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securities law, not the Bankruptcy Code. Thus, the Court does not even possess the requisite jurisdiction to grant the proposed non-debtor releases and injunctions. 31. Here, the non-debtor releases should not be approved even if this Court finds that
it has the power to grant the release and issue the accompanying injunction requested by Dynegy. Judge Koeltl in Kenton County Bondholders Committee v. Delta Air Lines, Inc. (In re Delta Air Liens Inc.), 374 B.R. 516 (S.D.N.Y. 2007), affirmed this Courts decision to grant non-debtor releases because it found the following factors to be dispositive under the Metromedia standard: the releases were extremely narrow in scope, the releases were necessary to prevent relitigation of the same issues that were already resolved by a settlement agreement amongst the parties; and in exchange for the releases, the released parties granted the debtors estate valuable consideration that was important to the restructuring. See Kenton County Bondholders
Committee v. Delta Air Lines, Inc. (In re Delta Air Liens Inc.), 374 B.R. 516, 526 (S.D.N.Y. 2007), affd sub nom. Ad Hoc Committee of Kenton County Bondholders v. Delta Air Lines, Inc., 309 F.Appx 455 (2nd Cir. 2009). 32. None of those factors are present here. The releases are certainly not narrowly
tailored. The underlying matters in the Securities Litigation have not been resolved or the subject of any settlement agreement. Also, there is no corresponding consideration being
provided in exchange for the releases. Indeed, holders of Securities Litigation claims are not even entitled to vote on the Plan. Any questionable value that the Released Parties afforded to the Debtor, if it even exists, was not in consideration for the proposed release of the claims in the Securities Litigation. The Debtor makes the sweeping statements, applicable in every chapter 11 case, that the Released Parties afforded value to the estates and aided in the reorganization process including playing an integral role in reaching the Settlement Agreement and
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formulating the Plan. See Disclosure Statement at 144. The Debtor provides no details with respect to the identity of these individuals, or the nature of their integral contributions. More importantly, any value and benefit provided by these unnamed individuals was part of their normal job functions for which they received their agreed upon compensation. That is
insufficient to justify and warrant the proposed third-party releases in the Plan. See In re Washington Mutual, 442 B.R. 314, 354 (Bankr. D. Del. 2011) (holding that value provided by officers and directors pursuant to their ordinary employment is not considered contribution and is insufficient to warrant releases). 33. The court in Metromedia also noted that some courts have approved non-debtor
releases where the enjoined claims were channeled to a settlement fund rather than being extinguished or where the plan otherwise provides for full payment of the enjoined claims. See Metromedia, 416 F.3d at 142, see also In re Chemtura, 439 B.R. 561, 611 (Bankr. S.D.N.Y. 2010). Here, neither of those factors is present. The Debtor is seeking to completely preclude and prevent any recovery by the Putative Class on account of the Securities Litigation; and the Putative Class is not receiving any distribution at all under the Plan on account of the claims in the Securities Litigation. 34. Specifically referencing the Second Circuits precedent, including Drexel
Burnham, the Third Circuit noted that the Court of Appeals for the Second Circuit upheld plans of reorganization containing releases and permanent injunction of widespread claims against coliable parties but those plans also provided consideration to parties who would be enjoined from suing non-debtors. Continental Airlines, 203 F.3d at 212. Here, no consideration is being provided to class members that are being enjoined from pursuing their claims against the Released Parties. The Debtor argues that creditors would benefit from the releases by virtue of
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their ability to share in the distributable value preserved by the Settlement Agreement. See Disclosure Statement at 144. However, the Debtor fails to disclose that many of the creditors who may be deemed to have granted the releases, including all class members, are not obtaining any distribution pursuant to the Settlement Agreement or the Plan. While the Settlement
Agreement potentially provides for some distribution to current shareholders of Dynegy, none of the distribution is earmarked for class members on account of their Securities Litigation claims. In other words, if by chance, certain members of the class would be obtaining some distribution by virtue of the Settlement Agreement, that distribution would be on account of their status as equity holders, not on account of their claims as defrauded investors. 35. The Debtor also argues that the non-debtor releases are important to the
reorganization, because it is possible that many of the Released Parties would have rights of indemnification against Reorganized Dynegy. Disclosure Statement at 144. However, the Debtor is making a gratuitous assumption regarding the potential indemnity claims. Any
indemnification claim by one of the Non-Debtor Defendants based upon the Securities Litigation would constitute a subordinated prepetition claim under 11 U.S.C 510(b), entitled to no distribution under the Plan. Thus, any potential indemnity claims by the Non-Debtor Defendants cannot serve as a basis to justify the necessity and importance of granting the Plans third-party releases. Moreover, the Debtor cannot bootstrap itself into that specious argument by apparently assuming these indemnification obligations under the Plan where there is no justification for such assumptions other than creating an obligation where none exists. How can the Debtor possibly square such an unnecessary gift to its directors and officers with the Debtors fiduciary obligations to its shareholders and/or creditors? Clearly, this is simply another example of the
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Non-Debtor Defendants control over the plan process for their own personal benefit and to the detriment of the Putative Class and other stakeholders. 36. It is also noteworthy that these indemnity claims would be substantially (if not
fully) covered by the Debtors more than thirty (30) Directors & Officers insurance policies available to provide coverage for precisely the claims asserted in the Securities Litigation. In addition, any such indemnification claims are subordinated general unsecured claims as set forth above, and, given the status of the Securities Litigation, are unliquidated and contingent claims subject to expungement pursuant to 11 U.S.C. 502(e)(1)(B). 37. The Debtor further notes that the overall Settlement Agreement requires releases This statement is
by and for the Settlement Parties. See Disclosure Statement at 144.
incomplete, misleading and wrong. First, the Settlement Parties do not include the Debtors officers, directors and shareholders. Moreover, pursuant to paragraph 2(a)(vi) of the Plan
Support Agreement, the non-debtor release provisions in the Plan are only requested to the extent permitted by applicable law. Thus, if this Court determines, as we believe it should, that the release and injunction provisions are unlawful, there will be no impact on the Settlement Agreement or the Plan. Also, because Lead Plaintiff and the Putative Class were not parties to the Settlement Agreement, it is absurd to suggest that their rights and claims can be bargained away by, among others, the Non-Debtor Defendants and their representatives. 38. The Plan can certainly be confirmed without the aforesaid offending Plan
provisions. The third-party releases are neither a condition to the Effective Date nor a condition to confirmation of the Plan. Whether 1% of creditors and interest holders opt-out or 100% of creditors and interest holders opt-out, the Plan can still be confirmed. If the Court strikes the
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improper non-debtor releases and injunctions, it would not have any negative impact at all on the Debtor, the Plan or the reorganization process. 39. Therefore, at the very least, Lead Plaintiff requests that the following language
should be included in the Plan or the Confirmation Order: Nothing in the Plan or in any order confirming the Plan shall or is intended to (i) affect, release, enjoin or impact in any way the prosecution of the claims asserted, or to be asserted, against any Non-Debtor Defendants or any non-Debtor in the Securities Litigation, or (ii) preclude the Lead Plaintiff and/or the Putative Class from seeking discovery from any party, the Debtor or the Reorganized Dynegy in the Securities Litigation. (b) The Opt-Out provision in the Plan is an illusory gimmick that does not equate to, or prove, consent to the release and injunctive provisions.
40.
The Plan provides that the Released Parties shall be conclusively presumed to
have been released of any and all claims, unless stakeholders, like Lead Plaintiff, do not affirmatively opt-out of the release provision. Even creditors who are not entitled to vote on the Plan, and receive no distribution under the Plan, must independently and affirmatively optout to preserve their rights against non-debtor third-parties. See Plan, Art. VIII, Section 8.20. 41. As mentioned earlier, the Plan proposes improper and illegal non-debtor releases
and injunctions. The burden should not be on the Debtors creditors or other stakeholders to optout of a provision that is illegal and not authorized by the Bankruptcy Code. Rather, leaving aside the issue whether the third-party releases are permissible at all, the burden is on the Debtor to affirmatively obtain informed consent from the impacted creditors and interest holders (such as through a ballot filed in support of the Plan) to authorize the releases of claims against the Non-Debtor Defendants. While obtaining informed consent and approval may be a permissible
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method to obtain third-party releases, the traps and gimmicks employed by the Debtor here do not equate to knowing and voluntary releases. 42. The Seventh Circuit in In re Specialty Equipment Companies, Inc., 3 F.3d 1043,
1047 (7th Cir 1993), found that courts would only permit releases that are consensual and noncoercive to be in accord with the strictures of the Bankruptcy Code. Unlike the injunction created by the discharge of a debt, a consensual release does not inevitably bind individual creditors. It binds only those creditors voting in favor of the plan of reorganization. See also Metromedia, 416 F.3d at 142 (noting that nondebtor releases may also be tolerated if the affected creditors consent.); Washington Mutual, 442 B.R at 352 (any such release must be based on consent of the releasing party (by contract or the mechanism of voting in favor of the plan)). Here, the releases are not memorialized in a ballot expressing approval of the Plan and accepting the terms therein. Rather, the Putative Class is deemed to reject the Plan because they are not receiving any distribution and are not even being provided the opportunity to vote. Creditors cannot be bound by a Plan that they did not vote to accept because silence is not sufficient to constitute consent to the releases. See Specialty Equipment, 3 F.3d at 1047; In re Spansion, Inc., 426 B.R. 114 (Bankr. D. Del. 2010) (holding that a third-party release against objecting shareholders who are not receiving any distribution is invalid); In re Adelphia Communications Corp., 368 B.R. 140, 268 (Bankr. S.D.N.Y. 2007) (upholding the releases and exculpation with respect to anyone who voted in favor of the plan but not beyond those creditors); In re Coram Healthcare Corp., 315 B.R. 321, 336 (Bankr. D. Del. 2004); In re Zenith Electronics Corp., 241 B.R. 92, 111 (Bankr. D. Del. 1999); In re Arrowmill Developments Corp., 211 B.R. 497, 505 (Bankr. D. N.J. 1997) (citing a line of cases that hold non-debtor releases are only binding on those creditors who actually provide their consent).
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43.
In the context of confirmation, the bankruptcy court in Washington Mutual
explicitly discussed an opt-out mechanism utilized by the Debtors regarding non-debtor releases. See Washington Mutual, 442 B.R. at 355. The court in Washington Mutual held that the opt out mechanism is not sufficient to support the third party releases anyway, particularly with respect to parties who do not return a ballot (or are not entitled to vote in the first place). Failing to return a ballot is not a sufficient manifestation of consent to a third party release Id. (relying on In re Zenith Electronics Corp., 241 B.R. 92, 111 (Bankr. D. Del. 1999)). Thus, the opt-out provision in the Plan is inadequate to deem the non-debtor releases as consensual. Judge Walraths analysis in Washington Mutual is on all fours with the circumstances here and is equally compelling. 44. Additionally, because there is no penalty for any creditor who decides to opt-out
(See Transcript of July 9, 2012 hearing at page 57) (excerpts from the transcript are attached hereto as Exhibit D), a creditor who elects to opt-out of the release provision and one who elects not to opt-out are treated exactly the same under the Plan. There is no logical reason for any rational, well-informed creditor not to opt-out and preserve any potential recovery from pending litigation against non-debtor parties. The only explanation is that the Debtor structured the Plan with the opt-out clause as a ploy to sabotage pending litigation and to protect the NonDebtor Defendants from claims by victims of their violations of the Securities Laws, such as the Putative Class. This is especially true when one considers the burden on a non-voting creditor receiving no distribution to even locate the opt-out provision in the Disclosure Statement and the massive solicitation package (like finding a needle in a haystack). What makes the opt-out provision even more egregious is that neither the shareholders of Dynegy, and therefore potential members of the Putative Class, nor Securities Litigation claimants, are even receiving a ballot to
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cast their vote on the proposed Plan. Indeed, class members who arent current shareholders did not, upon information and belief, even receive a solicitation package. Rather, the Debtor places the burden on the stakeholders, to review the entire solicitation package (if they received one) and then create their own document to opt-out of the release, a process that is unprecedented, unreasonable and draconian. The opt-out mechanism is no more than a trap for the unwary, not a basis to find informed consent on the part of stakeholders. 45. The only creditor who would elect not to opt-out is a creditor who did not see or
understand the opt-out provision. Such a release can not constitute an informed, voluntary and knowing release of the Non-Debtor Defendants. To constitute a valid and enforceable release under New York law, the release must be clear and unambiguous on its face and must be made knowingly and voluntarily. Pampillonia v. RJR Nabisco, Inc., 138 F.3d 459, 463 (2d Cir. 1998). Here, there is no proof that any creditor who did not opt-out, did so knowingly or voluntarily with regard to their rights against non-debtor third-parties. 46. Furthermore, any possible reliance by the Debtor and the Creditors Committee at
the July 9, 2012 hearing on Metromedia for the proposition that an opt-out provision is a proper mechanism to grant a non-debtor release, see Transcript of July 9, 2012 hearing at page 62 (Exhibit D), is completely misplaced. Metromedia does not discuss whether an opt-out provision is sufficient to deem a third-party release consensual and to bind those creditors who failed to opt-out. Rather, Metromedia focuses solely on whether non-debtor releases are
authorized under the Bankruptcy Code. See Metromedia, 416 F.3d at 141 (the only argument we consider is that these releases were unauthorized by the Bankruptcy Code). Similarly, none of the cases relied on by the Debtor in the Disclosure Statement in the Standards Applicable to Releases section address an opt-out provision. See Disclosure Statement at 144. The Debtor
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has provided no case law that stands for the proposition that granting creditors an opt-out right under the circumstances of this case is an appropriate method to obtain non-debtor releases and would be sufficient to deem these releases consensual, especially where, as here, the impacted stakeholder does not even have the right to vote on the Plan. Rather, Judge Walrath was right in Washington Mutual when she unequivocally invalidated, as a confirmation matter, the opt-out mechanism for approval of non-debtor releases. See Washington Mutual, 442 B.R. at 355. 47. The Debtors failure to provide adequate notice to all creditors and stakeholders
that would be impacted and whose claims would be enjoined by the Plans release and injunctive provisions, is another reason to ignore the opt-out mechanism. While the Debtor acknowledged in its schedules that the Putative Class is a contingent creditor, the Debtor failed, upon information and belief, to provide notice of any of its pleadings, including the Bar Date motion and Disclosure Statement, to all parties who would be impacted by the Plans proposed (improper) releases and injunctions. In the Securities Litigation, anyone who purchased Dynegy stock during the Class Period is a potential member of the Putative Class, whether or not they still hold the Dynegy stock. However, the Debtors provided notice only to those shareholders who held stock as of the Petition Date, five months after the Class Period closed. Thus, not all of the Putative Class members were provided with notice of their right to opt-out of the release provision, because many purchased stock during the Class Period but sold the stock prior to the Petition Date. By way of limited example, Litespeed Management, LLC currently owns 26% of the common shares of Dynegy. See Docket No. 65. However, all of those shares were
purchased, upon information and belief, after the close of the Class Period. See Docket No. 91, Page 2. Thus, at least 26% of the shares potentially purchased by class members during the class period are no longer owned by class members who thus received no notice of the bankruptcy
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proceedings. It would be inequitable and unjust to hold creditors accountable for failing to take action that they did not know about due to the Debtors failure to provide proper notice. This blatantly violates due process and would certainly not constitute a knowing, voluntary and consensual release. 48. The Debtor may attempt to argue that this opt-out mechanism was resolved for all
purposes prior to the Confirmation Hearing, and that Lead Plaintiff is foreclosed from objecting to the opt-out provision. That argument is a non-starter. At the July 9, 2012 hearing, counsel for Dynegy repeatedly declared and confirmed that objections to the opt-out provisions are appropriate and preserved for the confirmation hearing. See Transcript of July 9, 2012 hearing at 56-58 (Exhibit D) (whether or not non-debtor releases can be granted under applicable law is a confirmation objection); (whether or not [the opt-out mechanism] works as a confirmation matter is a preserved objection); (if they disagree they can object to [to the opt-out mechanism] at confirmation); (that non-debtor releases are not appropriate or that opt-outs arent appropriate [is] really a confirmation objection). Therefore, similar to Washington Mutual, the Confirmation Hearing is the appropriate time for the Court to decide whether the opt-out provision forms a basis for the approval of the patently illegal third-party releases. C. Lead Plaintiff and the Putative Class Must be Entitled to Proceed with Their Claims Against the Debtors to the Extent of Available Insurance Coverage, Irrespective of any Injunctions or Distribution under the Plan. The Debtors maintain liability insurance policies in favor of their directors and
49.
officers (the D&O Policies) for claims asserted in the Securities Litigation, as well as, upon information and belief, for claims against the Debtors directly for violations of federal securities laws. See Order Authorizing Continuation of Prepetition Insurance Policies in the Ordinary Course of Business [Docket No. 81] (listing over thirty (30) Director & Officer insurance
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policies that the Debtor has been authorized to keep intact).3 Lead Plaintiff maintains that the Putative Class is entitled to look to the proceeds of such insurance for payment in connection with the claims of Lead Plaintiff and the Putative Class and may, at the very least, pursue any claims against the Debtors to the extent of such available insurance post-confirmation. Because Lead Plaintiff likely does not have a direct action against the D&O insurance carriers under the D&O Policies and applicable law, the proceeds of the D&O Policies may only be accessed through the pursuit of the claims asserted in the Securities Litigation. Accordingly, the Plan should not impact the rights of Lead Plaintiff or the Putative Class to pursue their claims against the Debtors (outside of this chapter 11 case) to the extent of available proceeds of the D&O Policies. Allowing the Securities Litigation to proceed against the Debtor solely to the extent of available coverage under the D&O Policies would not have any negative impact or consequence on the Debtor or Reorganized Dynegy. 50. It should be noted that by granting broad third party releases in the Plan, or by
preventing Lead Plaintiff from proceeding against Dynegy to the extent of the D&O Policies, the Debtor would be providing the insurance carriers a windfall at the expense of the Putative Class. The insurance carriers and the Debtor entered into the D&O Policies as arms-length agreements. The D&O Policies were intended to provide the Debtor and the Non-Debtor Defendants with protection in precisely this type of scenario. The Debtor likely paid a substantial sum of money in premiums in order to have insurance coverage of this type for the claims asserted in the Securities Litigation and even requested explicit Court authority to maintain these policies. There is no justification provided as to why the insurance carriers should receive a windfall and unexpected bonus at the expense of the Putative Class.
3
Lead Plaintiff has served a very narrow and tailored document request on the Debtor, seeking, in part, copies of all of the D&O Policies. Lead Plaintiff reserves the right to supplement this objection based upon any information contained in any such documents when produced.
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51.
Therefore, the Plan and any Order confirming the Plan should provide that: Nothing in the Plan, or in any Order confirming the Plan, shall preclude the Lead Plaintiff and the Putative Class from pursuing their claims in the Securities Litigation against the Debtor to the extent of available insurance coverage and proceeds. The Claims of the Lead Plaintiff and the Putative Class against the Debtor, to the extent of available insurance, are preserved and not discharged or enjoined by the Plan.
CONCLUSION 52. Based upon the foregoing, Lead Plaintiff respectfully requests that unless the Plan
is modified as set forth herein and/or the Confirmation Order includes the foregoing suggested language, or language substantially similar thereto, an Order should be entered (i) denying confirmation of the Plan and (ii) granting such other and further relief as the court deems just and proper. Dated: August 24, 2012 New York, New York. LOWENSTEIN SANDLER PC /s/ Michael S. Etkin LOWENSTEIN SANDLER PC Michael S. Etkin, Esq. (ME 0570) John K. Sherwood, Esq. (JS 2453) 1251 Avenue of the Americas, 18th Floor New York, New York 10020 (212) 262-6700 (Telephone) (212) 262-7402 (Facsimile) and 65 Livingston Avenue Roseland, New Jersey 07068 (973) 597-2500 (Telephone) (973) 597-2481 (Facsimile)
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Bankruptcy Counsel to Lead Plaintiff and the Putative Class and LEVI & KORSINSKY LLP Nicholas I. Poritt, Esq. 1101 30th Street, N.W. Suite 115 Washington, DC 20007 (202) 524-4293 Lead Counsel for Lead Plaintiff and the Putative Class
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Exhibit A
Exhibit A
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11-38111-cgm Doc 955-1 FiledDocument 1Entered 03/28/12 16:15:52 ofExhibit A Case 1:12-cv-02307-JGK 08/24/12 Filed 08/24/12 Page 10 20 Pg 11 of 21
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Exhibit B
Exhibit B
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.usDe SONY DOCUMENT ELECTRONICALLY FILED DOC# . bATE
united States District Court Southern District of New York
-"::;7"ZT'tt:=:Z7?:--,?;--
CHARLES SILSBY, Plaintiff, 12 Civ. 2307 (JGK) - against ORDER CARL ICAHN, ET AL., Defendants.
JOHN G. KOELTL, District Judge: Because the defendant, Dynegy, Inc., has filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code, this case is stayed as to Dynegy, Inc. The Court will proceed with the argument of the current motions as they relate to the remaining defendants at the conference scheduled for July 13, 2012 at 4:30 p.m. SO ORDERED. Dated: New York, New York July 7, 2012 John G. KoeltlDistrict Judge
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Exhibit C
Exhibit C
11-38111-cgm Doc 955-3 Filed Document 26 Filed 07/13/12 Page 1 of 3 Case 1:12-cv-02307-JGK 08/24/12 Entered 08/24/12 16:15:52 Exhibit C Pg 2 of 4
Case 1:12-cv-02307-JGK Document 11-1 Filed 05/29/12 Page 1 of 3
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

llSDCSDNV DOCUMENT D rTRONICAL LY FILE ELE" DOC# """""----::;fLo.{ I j. 'VI' 3. DATE FILED. - -=-t"
CHARLES SILSBY, Individually and On Behalf of All Others Similarly Situated, Plaintiff,
----=-=-
v.
CARL C. ICAHN, DYNEGY INC., ROBERT C. FLEXON, and CLINT FREELAND, Defendants.
Case No. 1:12-cv-02307-JGK
ORDER APPOINTING STEPHEN LUCAS AS LEAD PLAINTIFF AND APPROVING HIS SELECTION OF COUNSEL Having considered the papers filed in support of the Motion of class member Stephen Lucas ("Movant" or "Lucas") for Appointment as Lead Plaintiff and Approval of His Selection of Counsel pursuant to the Private Securities Litigation Reform Act of 1995 (the "PSLRA"), 15 U.S.C. 78u-4(a)(3)(B) and 15 U.S.C. 77z-1(a)(3)(B), and for good cause shown, the Court hereby enters the following Order: I. APPOINTMENT OF LEAD PLAINTIFF AND LEAD COUNSEL 1. Lucas has moved this Court to be appointed as Lead Plaintiff in the above-
captioned action (the "Action") and to approve the counsel he retained to be Lead Counsel. 2. Having considered the provisions of Section 21D(a)(3)(B) of the PSLRA,
15 U.S.C. 78u-4(a)(3)(B), the Court hereby determines that Lucas is the most adequate plaintiff and satisfies the requirements of the PSLRA. The Court hereby appoints Lucas as Lead Plaintiff to represent the interests of the class in the Action.
11-38111-cgm Doc 955-3 Filed Document 26 Filed 07/13/12 Page 2 of 3 Case 1:12-cv-02307-JGK 08/24/12 Entered 08/24/12 16:15:52 Exhibit C Pg 3 of 4
Case 1:12-cv-02307-JGK Document 11-1 Filed 05/29/12 Page 2 of 3
3.
Pursuant to Section 21D(a)(3)(B)(v) of the PSLRA, 15 U.S.C. 78u-
4(a)(3)(B)(v), Lucas has selected and retained the law firm Levi & Korsinsky LLP to serve as Lead Counsel. The Court approves Lucas's selection of Lead Counsel for the Action. 4. Lead Counsel shall have the following responsibilities and duties, to be
carried out either personally or through counsel whom Lead Counsel shall designate: a. b. c. depositions; d. pretrial conferences; e. to call meetings of the plaintiffs' counsel as they deem necessary to coordinate the selection of counsel to act as spokesperson at all to coordinate the briefing and argument of any and all motions; to coordinate the conduct of any and all discovery proceedings; to coordinate the examination of any and all witnesses in
and appropriate from time to time; f. defendants; g. to coordinate and direct the pretrial discovery proceedings and the to coordinate all settlement negotiations with counsel for
preparation for trial and the trial of this matter, and to delegate work responsibilities to selected counsel as may be required; h. i. to coordinate the preparation and filings of all pleadings; and to supervise all other matters concerning the prosecution or
resolution of the Action.
11-38111-cgm Doc 955-3 Filed Document 26 Filed 07/13/12 Page 3 of 3 Case 1:12-cv-02307-JGK 08/24/12 Entered 08/24/12 16:15:52 Exhibit C Pg 4 of 4 Case 1:12-cv-02307-JGK Document 11-1 Filed 05/29/12 Page 3 of 3
5.
No motion, discovery request, or other pretrial proceedings shall be
initiated or filed by any plaintiffs without the approval of Lead Counsel, so as to prevent duplicative pleadings or discovery by plaintiffs. No settlement negotiations shall be conducted without the approval of the Lead CounseL 6. Service upon any plaintiff of all pleadings in the Action, except those
specifically addressed to a plaintiff other than Lead Plaintiff, shall be completed upon service of Lead CounseL 7. Lead Counsel shall be the contact between plaintiffs' counsel and
defendants' counsel, as well as the spokespersons for all plaintiffs' counsel, and shall direct and coordinate the activities of plaintiffs' counsel. Lead Counsel shall be the contact between the Court and plaintiffs and their counsel.
IT IS SO ORDERED. DATED:
7/
ill
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Exhibit D
Exhibit D
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UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK Case No. 11-38111(CGM) Adv. Case No. 12-36728(CGM) - - - - - - - - - - - - - - - - - - - - - - - - - - - - x In the Matter of:
DYNEGY HOLDINGS, LLC,
Debtors.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - x
United States Bankruptcy Court One Bowling Green New York, NY 10004
July 9, 2012 1:02 p.m.
B E F O R E : HON CECELIA G. MORRIS U.S. BANKRUPTCY JUDGE
212-267-6868
VERITEXT REPORTING COMPANY www.veritext.com
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trying to set us up to a consent or a waiver argument at confirmation we don't want -- we want to keep the playing field level, you know, and not have this order or the prior order for that matter sort of be sort of like a gotcha argument against us where because we didn't submit this or object at this point in time -THE COURT: Okay. -- we're somehow prejudiced. Thank you.
MR. SHERWOOD: THE COURT:
I'm hearing you.
Mr. Shore, would you address those, please. MR. SHORE: Honor -THE COURT: MR. SHORE: Right. -- is H. This is an order we're In the order you have in front of Your
trying to get done in the DI case. THE COURT: MR. SHORE: solicitation. Whether or not non-debtor releases can be granted under applicable law is a confirmation objection. THE COURT: MR. SHORE: Right. And to the extent that the -- there's Right, that's correct. We're talking about right now for
any DI shareholder who doesn't want to opt out but nonetheless doesn't want to give a release -- it's an odd mechanism. Right. What we're trying to do is make it as
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easy as possible for people to opt out.
We give them a
package and say opt out of the release, for no penalty, this is not a coercive release or anything else, but they do actually have to come forward and say we want a release, that is consistent with applicable law. What we need to do now is get approved by the Court just the mechanism we're going to send it out to them and they are going to have to respond. Whether or not that
works as a confirmation matter is a preserved objection. We fully recognize that under Second Circuit law there is a lot of learning on non-debtor releases now -THE COURT: MR. SHORE: Right. Right.
-- and debtor releases and consensual We believe from a plan mechanic
and non-consensual one.
standpoint that's fine, if they disagree they can object to it at confirmation, but from a solicitation perspective you have to do something in order to tell people that this is a opt-out provision. All we're saying is what is here under applicable law is sufficient to let people know that if they want out of a release they need to let the company know. Now if they want it in bold we can do it in bold. That's the kind of objection that can be heard now to this provision, but not that non-debtor releases are not appropriate or that opt outs aren't appropriate, because
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that's really a confirmation objection. We just need to establish that when we get to confirmation that we did what we were supposed to do to let you know that your claims are at risk and if you didn't opt out you were going to be having a release imposed. THE COURT: Do you have anything you would wish to I would like You
-- I mean, I'll even give you a preliminary.
some law, but I'm leaning toward the negative notice. have the ability that Mr. Shore put out.
What would you like to change on this if I do do that in such a way as you think it's a better notice of disclosure? Disclosure, not plan, disclosure. Well, I think at this stage of the
MR. SHERWOOD:
game I'd ask the Court to consider not negative notice but an actual opt into the release. This is a plan where the shareholders of DI are not getting any consideration. They've going to get a large
pile of paper, at least under the plan they're not getting under consideration -- any consideration, although under the settlement agreement that they're getting one percent plus warrants, but it is a -- it's a lot of analysis. There are between 11- and 12,000 current shareholders, and I don't know how many former shareholders who was also be in the class. So we're talking tens of
thousand of -- some people hold in street name and they have
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DH? And secondly is the issue about mechanically is the opt in or the opt out what -- can that -- which one of those should you approve as part of the disclosure statement order? I think it's -- if we can do the second one first. THE COURT: MR. PREIS: correct. Okay. On the mechanic I think Mr. Shore was
I mean there's precedent for allowing the opt out
in this circuit, but I think it's actually more interesting -THE COURT: know. MR. PREIS: I'll leave it to -It's Metro Media. Can you name one? I just want to
UNIDENTIFIED SPEAKER: THE COURT: MR. PREIS: Okay. Yeah.
But I think it's more actually
interesting that what you're hearing is the shareholder saying, well, we need more -- people are going to need more time with the disclosure statement once they get it and once they can vote or decide to opt out they need more time to figure that out whether they want to opt out or not. that's exactly the mechanic we built in, right? Instead of shortening the period of solicitation to 28 days, which is the statutory requirement, we've made And
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THE COURT:
And we will allow you to be heard on
those merits if you find them. MR. SHERWOOD: MR. SHORE: THE COURT: Thank you.
All right -After you talk to Mr. Case --
Mr. Whatever you name is. MR. SHERWOOD: THE COURT: MR. SHORE: Shore.
Shore. All right. We have three things left.
I can go through the administrative -- the case management order if you want now, Your Honor. THE COURT: MR. SHORE: (Pause) THE COURT: I -- there's a part of me that would Okay, good, thank you. Okay.
like to give you a quick written decision, but I don't have enough information to give you a written decision on the opt-out clause. I mean I am relying on what you said about
what Judge Carey had said in that Delta case. MR. SHERWOOD: THE COURT: your cause, right? That wasn't in opt out.
That wasn't your opt out, that was Okay. Metro Media. Thank you. So this is going to be a
UNIDENTIFIED SPEAKER: THE COURT: MR. SHORE:
Metro Media. All right.
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Date: Veritext
C E R T I F I C A T I O N
I, Dawn South, certify that the foregoing transcript is a true and accurate record of the proceedings.
Dawn South
Digitally signed by Dawn South DN: cn=Dawn South, o=Veritext, ou, email=digital@veritext.com, c=US Date: 2012.07.11 16:22:35 -04'00'
AAERT Certified Electronic Transcriber CET**D-408
200 Old Country Road Suite 580 Mineola, NY 11501
July 11, 2012
212-267-6868
516-608-2400

Lead Plaintiff's Objection To Dynegy Chapter 11 Plan

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11-38111-cgm

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Chapter 11 Case No. 11-38111 (CGM)

Chapter 11 Case No. 12-36728 (CGM)

27164/2 08/24/2012 21341717.5

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Unfortunately, it may not be that simple (although it should be).

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Thus, the District Court designated Lead Plaintiff to be the official

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by and for the Settlement Parties. See Disclosure Statement at 144.

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In the context of confirmation, the bankruptcy court in Washington Mutual

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united States District Court Southern District of New York

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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

Case No. 1:12-cv-02307-JGK

Pursuant to Section 21D(a)(3)(B)(v) of the PSLRA, 15 U.S.C. 78u-

resolution of the Action.

No motion, discovery request, or other pretrial proceedings shall be

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DYNEGY HOLDINGS, LLC,

July 9, 2012 1:02 p.m.

B E F O R E : HON CECELIA G. MORRIS U.S. BANKRUPTCY JUDGE

VERITEXT REPORTING COMPANY www.veritext.com

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MR. SHERWOOD: THE COURT:

I'm hearing you.

VERITEXT REPORTING COMPANY www.veritext.com

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easy as possible for people to opt out.

-- and debtor releases and consensual We believe from a plan mechanic

and non-consensual one.

VERITEXT REPORTING COMPANY www.veritext.com

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-- I mean, I'll even give you a preliminary.

thousand of -- some people hold in street name and they have

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