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Ehte Proposed Settlement

Ehte Proposed Settlement

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Published by ragnarisapirate
As the title suggests, this is the proposed settlement for the Ethanex lawsuit against McGuire Woods.
As the title suggests, this is the proposed settlement for the Ethanex lawsuit against McGuire Woods.

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Published by: ragnarisapirate on Mar 09, 2013
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04/02/2014

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IN THE UNITED STATES BANKRUPTCY COURTFOR THE DISTRICT OF KANSASIn Re:)ETHANEX ENERGY, INC.,) Case No. 08-20645-7 RDB)Debtor. )
 TRUSTEE’S MOTION FOR APPROVAL OF (1) COMPROMISE AND SETTLEMENT,AND (2) TRUSTEE’S SEVENTH INTERIM APPLICATION FOR COMPENSATIONAND REIMBURSEMENT OF EXPENSES OF SPECIAL COUNSEL FOR THEPERIOD OF JANUARY 1, 2013, THROUGH MARCH 7, 2013
COMES NOW the Trustee, Eric C. Rajala, and moves the Court for approval of the Trustee’s proposed compromise and settlement with McGuireWoods, LLP, and for approval ocompensation and reimbursement of litigation expenses incurred by the Trustee’s counsel, JohnM. Edgar and the Edgar Law Firm, LLC.In support of his motion, the Trustee states:1.This motion is made pursuant to 11 U.S.C. §§ 328, 330 and 331, and BankruptcyRules 2002, 2016 and 9019.2.The Debtor filed for protection under Chapter 7 of Title 11 of the United StatesBankruptcy Code on March 27, 2008.3. Eric C. Rajala is the duly appointed Chapter 7 Trustee in the above-captionedbankruptcy case.
Motion for Approval of Compromise Pursuant to Bankruptcy Rule 9019
4. As part of his duties as trustee of the estate, the Trustee conducted aninvestigation into the assets of the bankruptcy estate. Among the assets of the bankruptcy estatedisclosed to the Trustee by the Debtor were certain contingent and unliquidated claims identifiedas “Contingent securities claims: v. McGuire Woods, L.L.P.” and “v. Receivership of ZahillEstate”, with values listed as “unknown”.
Case 08-20645 Doc# 177 Filed 03/08/13 Page 1 of 21
 
I
N THE
U
NITED
S
 TATES
B
ANKRUPTCY
C
OURT FOR THE
D
ISTRICT OF
ANSAS
In Re: Ethanex Energy, Inc.
;
 
Case No. 08-20645-7 RDB T
RUSTEE
S
M
OTION FOR
A
PPROVAL OF
(1)
 
C
OMPROMISE AND
S
ETTLEMENT AND
(2)
 
 T
RUSTEE
S
S
EVENTH
I
NTERIM
A
PPLICATION FOR
C
OMPENSATION AND REIMBURSEMENT OF
E
XPENSES OF
S
PECIAL
C
OUNSELFOR THE
P
ERIOD OF
 J
ANUARY
1,
 
2013,
 
 T
HROUGH
M
ARCH
7,
 
2013Page 2
5.Further investigation revealed that these claims for damages arose from thesecurities fraud, embezzlement, and other criminal acts and omissions of Louis W. Zehil, who atthe time was a licensed attorney representing and advising the Debtor in connection with theDebtor’s attempts to raise equity capital to invest into the acquisition and construction of ethanolproduction facilities in the Midwest. At the time he committed his criminal acts, Zehil was apartner with the law firm of McGuire Woods, L.L.P.6.On July 31, 2008, the Court entered an order approving the Trustees employmentof John M. Edgar and the Edgar law Firm, LLC (“Edgar”) as special counsel to assist the Trusteein the prosecution of a claim on behalf of the estate against Louis W. Zehil and McGuire Woods,LLP.7.At the Trustees request, Edgar investigated the facts and circumstances of Zehilsactions, and on December 17, 2008, Edgar filed an civil action in the United States District Courtfor the District of Kansas, styled
Rajala, as Bankruptcy Trustee for Ethanex Energy, Inc., v.McGuireWoods, LLP,
Case No. 2:08-cv-2638 (the “Kansas Action”). The Kansas Action iscurrently scheduled for a six week trial in the Kansas City, Kansas Division of the District of Kansas, starting on May 9, 2013.8. In the Kansas Action, the Trustee seeks unliquidated damages againstMcGuireWoods, LLP, for (among other things) causing the failure of the Debtor’s businessoperation, for the loss of the capital that had been invested in the Debtor, and for the loss of the
Case 08-20645 Doc# 177 Filed 03/08/13 Page 2 of 21
 
I
N THE
U
NITED
S
 TATES
B
ANKRUPTCY
C
OURT FOR THE
D
ISTRICT OF
ANSAS
In Re: Ethanex Energy, Inc.
;
 
Case No. 08-20645-7 RDB T
RUSTEE
S
M
OTION FOR
A
PPROVAL OF
(1)
 
C
OMPROMISE AND
S
ETTLEMENT AND
(2)
 
 T
RUSTEE
S
S
EVENTH
I
NTERIM
A
PPLICATION FOR
C
OMPENSATION AND REIMBURSEMENT OF
E
XPENSES OF
S
PECIAL
C
OUNSELFOR THE
P
ERIOD OF
 J
ANUARY
1,
 
2013,
 
 T
HROUGH
M
ARCH
7,
 
2013Page 3
value of the business that the Debtor would have developed but for the actions of Zehil andMcGuireWoods, LLP.9. In its defense, McGuireWoods denies that it has any legal responsibility for thecriminal acts and omissions of Zehil; denies that it committed any acts or omissions that causedany damage to Ethanex; and denies that Ethanex suffered damages to the extent claimed by the Trustee in the Kansas Action.10.On February 26, 2013, the Trustee and McGuireWoods, LLP, mediated theirclaims and disputes before the mediator, John R. Phillips.11. As a result of the mediation, the Trustee reached a settlement agreement withMcGuireWoods, LLP, for a gross settlement amount of Six Million Seven Hundred ThousandDollars ($6,700,000.00) to be paid to the Trustee by McGuireWoods, as set forth in the parties’
Settlement Agreement and Mutual General Release
dated March 7, 2013 (the “SettlementAgreement”). A true, correct and genuine copy of the Settlement Agreement is attached hereto asExhibit “A”, and is incorporated by reference as though fully set out herein.12. The Settlement Agreement also provides for mutual releases by and between theparties, for themselves and on behalf of anyone who asserts a claim through or on behalf of them, as more fully described in Exhibit “A”.13. In reaching the settlement with McGuireWoods, the Trustee weighed the value of his claims, the strength of the defenses that have been asserted by McGuireWoods, and the costs,risks, and delays inherent in taking the Kansas Action to trial to recover on his claims. The
Case 08-20645 Doc# 177 Filed 03/08/13 Page 3 of 21

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