Professional Documents
Culture Documents
Susheel Kirpalani
Andrew J. Rossman
Peter Martino
QUINN EMANUEL URQUHART
OLIVER & HEDGES, LLP
51 Madison Avenue, 22nd Floor
New York, NY 10010
(212) 849-7000
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Access Industries, Inc., Access Industries Holdings LLC ("Access"), AI International,
S.à.r.l., Nell Limited, Len Blavatnik, Lincoln Benet, and Philip Kassin (collectively, the "Access
Respondents"), parties in interest in these cases, hereby respond to the motion of the Official
PRELIMINARY STATEMENT
1. While the Access Respondents believe that the Proposed Complaint is meritless
for a host of reasons and that the Committee should not be given standing to pursue it, given the
relatively low hurdle applied to standing motions, this limited objection seeks more modest
relief. What the Access Respondents propose here is a way for the Court to sensibly structure
proceedings on the Proposed Complaint in order to quickly and efficiently determine whether
further proceedings are warranted on the Committee's most substantial and far-reaching claims.
As a condition to conferring standing, the Committee should be put to its proof, and quickly, on a
threshold issue that undergirds the Proposed Complaint, the resolution of which could save the
2. The Proposed Complaint hinges on one overarching issue: whether the combined
businesses of Basell AF S.C.A. ("Basell") and Lyondell Chemical Company ("Lyondell") were
insolvent or left with unreasonably small capital at the time of the December 20, 2007 merger of
Basell and Lyondell (the "Merger"). The Committee wrongly contends that the combined
company was then insolvent or undercapitalized, a contention that was contradicted by every
Rule 2004 deposition they took, the results of which were omitted for the obvious reason that
they were inconsistent with the Committee's thesis. The Access Respondents genuinely believed
at the time of the Merger that the merged company was both solvent and adequately capitalized,
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otherwise they certainly would not have parted with billions of dollars of value in the equity of
Basell to facilitate the transaction. So did the financial advisors who analyzed the Merger and
the banks who financed it. And with good reason. The merged entity had billions of dollars in
equity value upon closing and more than enough access to liquidity to pay its debts for over a
year until the unforeseeable twin calamities of an historic economic crisis and an unprecedented
commodities price volatility brought the company down. Because the Committee takes a
different view of history with the benefit of 20/20 hindsight, the Court should promptly tee up
this single critical issue as a threshold matter for determination – before years of protracted
litigation and tens of millions of dollars are wasted, further hindering the restructuring process
3. The Debtors' estates (which have been funding all professional fees and expenses
except those of Access) should not become a feeding trough for lawyers, forensic financial
advisors, and other retained consultants who want to litigate in kitchen-sink style simply because
this is a "big chapter 11 case." With each passing month at the current burn rate, the prospects
for a successful reorganization for the benefit of the hard-working employees and other
stakeholders are pushed farther from sight, and the Court should impose some rationality on the
process.1
only one constituency (in contrast to a debtor in possession), the Committee should be required
to satisfy the threshold issue that is a prerequisite to any of their challenges to the Merger first,
1
Unlike many cases where litigation of this sort is commenced (e.g., Adelphia), this is not a liquidating
case where litigants can "have at it" and fight for years over a finite knowable pool of assets. The Debtors, over
which several of the Access Respondents serve as board members, have a viable business that has the ability to
rehabilitate in this changing economic environment for the benefit of their thousands of employees and other
stakeholders whose interests are not being advanced at all by professionals who are the only winners in protracted
litigation.
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before embarking on a lengthy and expensive witch hunt against people and entities all over the
globe, several of which are governed by foreign law. If the Court is inclined to grant the
Committee's motion, the Access Respondents respectfully urge the Court to (a) bifurcate the
issue of the relevant entities' solvency and adequacy of capitalization as of December 20, 2007
(the "Financial Condition Issue")2 from all other issues in the case; and (b) to set an expedited
discovery and trial schedule on the Financial Condition Issue. The Financial Condition Issue is a
predicate for, and a "gating issue" with respect to, at least 14 of the 21 counts of the Committee's
Proposed Complaint, and the Access Respondents believe that this approach is in the best
interests of the Debtors and their estates and is most consistent with the interests of efficient
judicial administration.
FACTUAL BACKGROUND
5. On June 15, 2009, the Committee filed a 137-page Proposed Complaint together
with its motion for standing. In its Proposed Complaint, the Committee disparages the intentions
of the Access Respondents by making unfounded attacks that are contradicted by the results of
their own fact finding mission. In a sign of desperation, the Committee tries to insinuate that
careful corporate and tax planning reviewed by some of the country's top legal, tax and financial
advisors somehow makes a $32 billion public M&A transaction suspect. At bottom, however,
the Committee's case turns on a few negative inferences its lawyers try to draw as to the
against 57 named defendants and two proposed defendant classes. It follows an enormously
2
This issue permeates the Proposed Complaint. See, e.g., Proposed Complaint, ¶¶ 267, 275, 284, 290,
297, 302, 309, 315, 327, 332, 337, 371, 395, 403.
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minimize fact finding. The Committee's professional fees in these chapter 11 cases are, it
appears, upwards of $10,000,000 in just the first four or five months before any litigation has
even commenced. Indeed, the lawyers for the Committee have already run up in excess of
$1,500,000 (plus financial advisory and expert fees) just preparing the Proposed Complaint
before taking even a single deposition, unabashedly blowing through the $250,000 cap on
investigating the Merger imposed by the cash collateral order. And they did this without ever
coming back to this Court even to provide a status update on their fees run amok. In further
wasteful maneuvers, consistent with its pre-conceived "investigation," the lawyers for the
Committee repeatedly sought to prevent witnesses from explaining the facts surrounding the
Merger, and canceled a number of scheduled depositions when it appeared that the testimony
was providing too much evidence that contradicted their pre-determined thesis. Unless a
structured approach is imposed on the professionals, the costs to the Debtors' estates (and
Access, which has already lost billions) will continue to weigh down this reorganization effort
7. It is perhaps not surprising that the Proposed Complaint addresses only a small
fraction of the voluminous evidence that the Committee gathered in its investigation. What is
notable, however, is the extent to which the Proposed Complaint is built largely upon snippets of
documents that have been knowingly taken out of context and that, in many instances, have been
thoroughly and consistently explained in the eight depositions that the Committee chose to take
before terminating its deposition program. In the Proposed Complaint, much of which was
drafted well before the Committee completed its "investigation," the Committee simply ignored
massive amounts of evidence contradicting its pre-determined thesis, including compelling and
uncontradicted testimony from a representative of the financial advisor to Access and Basell and
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from the Debtors' former CEO concerning the financial analysis supporting the Merger and the
8. Contrary to the inferences the Committee hopes to have drawn from its Proposed
Complaint, Access had no incentive to participate in a transaction that was doomed to fail. As
the owner of Basell before the Merger, having succeeded in substantially deleveraging the
business, Access put at risk its very valuable asset by contributing it to the Merger. It did so
after carefully vetting the proposed transaction with the assistance of expert financial advisors.
The notion that Access would risk an asset worth billions of dollars in order to obtain millions of
dollars of fees and legitimate profits from publicly disclosed shareholdings defies common sense
and, more importantly, a monolithic evidentiary record. No quantity of pithy internal emails
deliberately taken out of context can disguise the basic inescapable fact that the conduct that the
9. Similarly, while the financial institutions named as defendants are certainly more
than capable of speaking for themselves, the notion that they provided billions of dollars of
financing to a deal they knew would fail seems patently absurd. The Committee asserts that the
banks agreed to fund an obviously flawed deal without proper supporting financial analysis
because they stood to earn substantial fees on the Merger and did not plan to retain the debt they
agreed to issue on their books. This assertion is directly contradicted by deposition testimony
that the Committee obtained in its Rule 2004 investigation but omitted because it blurred the
10. The internal concerns raised by Access personnel concerning the Merger are
typical of due diligence processes which accompany major M&A deals. As carefully and
thoughtfully explained by every witness whom the Committee chose to question on the subject
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(at least when the Committee's lawyers let the witness give complete answers as opposed to
instructions to "Just answer yes or no – did you send that e-mail" (scolding the witness for trying
to provide the context)), any internal questions surrounding the transaction were related to price
relative to potential upside as an equity investor, and not to the ability of the combined company
to service its debt. All of the financial analyses performed by Access and its financial advisors,
as well as the financial analyses performed by the financing banks of which Access is presently
aware, indicated that, on foreseeable economic and business scenarios, the combined company
would be able to service its debt even under drastic stress-test conditions.
11. The undisputed fact, already confirmed in discovery but obvious even without a
discovery process to pretty much everyone, is that 2008 was a disastrous year for the global
economy generally and a catastrophic one for the chemicals industry in particular. The year
2008 was fairly described as a "perfect storm squared" for reasons that have already been
explained to this Court in other proceedings in these chapter 11 cases and undoubtedly will be
further explained as this case progress. The prevailing economic conditions affecting the merged
company in 2008 – and especially in the second half of the year – were neither foreseen nor
foreseeable.
ARGUMENT
12. Bifurcation to try the Financial Condition Issue under an expedited discovery and
13. Under the prevailing Second Circuit test, the Committee may acquire standing to
pursue claims asserted in the Proposed Complaint "if (1) the Committee has the consent of the
debtor in possession or trustee, and (2) the court finds that suit by the committee is (a) in the best
interest of the bankruptcy estate, and (b) is necessary to the fair and efficient resolution of the
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bankruptcy proceedings." Commodore Int'l Ltd. v. Gould, 262 F.3d 96, 100 (2d Cir. 2001). See
also Banque Nationale de Paris (Canada) v. Murad (In re Housecraft Indus. USA, Inc.), 310
14. Most of the Committee's claims turn in the first instance on the Financial
Condition Issue. If the Committee cannot satisfy its burden of showing that the merged company
was insolvent or inadequately capitalized at the time of the Merger (without the benefit of 20/20
hindsight), most of its claims fail without further inquiry, and the Court can determine whether
the remaining actions should continue to be pursued in light of the failed overarching thesis.
15. The Financial Condition Issue turns, the Access Respondents believe, on a
relatively discrete set of documents (most or all of which have already been produced in the Rule
2004 testimony), the testimony of a limited group of fact witnesses (a number of whom have
already been deposed), and expert testimony. The Access Respondents therefore believe that the
Court should, in the interest of the efficient administration and cost control of these chapter 11
cases and the sound administration of its docket, condition any grant of standing to the
Committee on a scheduling order that (a) bifurcates the Financial Condition Issue from other
issues in the case; and (b) sets an expedited discovery and trial schedule on the Financial
Condition Issue.
RESERVATION OF RIGHTS
16. The Access Respondents expressly reserve their right to amend or supplement this
limited objection and to introduce evidence supporting this objection at any hearing relating to
the Committee's motion. The Access Respondents further reserve their rights to assert any and
all available defenses to the Proposed Complaint, as and when authorized and served, including
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numerous defenses that exist even if the Committee were to prevail on the Financial Condition
Issue.
CONCLUSION
17. For the foregoing reasons, in the interests of equity, prudence, and in light of the
Court's experience in numerous other cases, the Access Respondents respectfully request that the
Court condition the Committee's standing on the basis of its satisfying its burden of proof on the
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