Page 1 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 B E F O R E: HON. JAMES M. PECK U.S. BANKRUPTCY JUDGE VERITEXT REPORTING COMPANY www.veritext.com June 16, 2010 10:02 AM v.

LEHMAN BROTHERS, INC. Defendant. - - - - - - - - - - - - - - - - - - - - -x United States Bankruptcy Court One Bowling Green New York, New York UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK Main Case No. 08-13555(JMP), Adv. Case No. 08-01420(JMP) - - - - - - - - - - - - - - - - - - - - -x In the Matter of: LEHMAN BROTHERS HOLDINGS, INC., Debtor. - - - - - - - - - - - - - - - - - - - - -x SECURITIES INVESTOR PROTECTION CORPORATION, ET AL., Plaintiff,

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Page 2 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 Transcribed by: Laurie Ann Sherby VERITEXT REPORTING COMPANY www.veritext.com Motion of Debtors and Debtors in Possession for Entry of an Order to Consolidate Certain Proceedings and Establish Related Procedures Motion of SunCal Debtors for Stay Pending Appeal Motion of Lehman Brothers Holdings Inc. for Authority to Make New Debt Investment in 237 Park Avenue Property Motion of the Debtors for the Establishment of Procedures to Dispose of Certain Real Estate Assets and Modification of the Order Establishing Procedures Notice of Presentment of Second Amended Order Implementing Certain Notice and Case Management Procedures Examiner's Motion for Order Discharging Examiner and Granting Related Relief Motion of Lehman Brothers Holdings Inc. and Lehman Commercial Paper Inc. for Authority to Transfer Funds to Rosslyn LB Syndication Partner LLC

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Page 3 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 BY: MICHELE C. MAMAN, ESQ.
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A P P E A R A N C E S : WEIL, GOTSHAL & MANGES LLP Attorneys for the Debtors 767 Fifth Avenue New York, NY 10153

BY:

HARVEY R. MILLER, ESQ. SUNNY SINGH, ESQ.

WEIL, GOTSHAL & MANGES LLP Attorneys for the Debtors 700 Louisiana, Suite 1600 Houston, TX 77002

BY:

ALFREDO R. PEREZ, ESQ.

CADWALADER, WICKERSHAM & TAFT LLP Attorneys for Lehman Re One World Financial Center New York, NY 10281

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JENNER & BLOCK Attorneys for the Examiner, Anton J. Valukas 330 North Wabash Avenue Chicago, IL 60611

BY:

ROBERT L. BYMAN, ESQ.

LOWENSTEIN SANDLER PC Attorneys for Lead Plaintiffs in the Consolidated Securities Litigation 65 Livingston Avenue Roseland, NJ 07068

BY:

MICHAEL S. ETKIN, ESQ.

MILBANK, TWEED, HADLEY & MCCLOY LLP Attorneys for the Committee One Chase Manhattan Plaza New York, NY 10005

BY:

DENNIS C. O'DONNELL, ESQ.

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Page 5 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 WILLIAM F. KUNTZ III, Party Pro Se
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JONES DAY Special Counsel to the Debtors 222 East 41st Street New York, NY 10017

BY:

JAYANT W. TAMBE, ESQ.

WACHTELL, LIPTON, ROSEN & KATZ Attorneys for JPMorgan Chase Bank, N.A. 51 West 52nd Street New York, NY 10019

BY:

AMY R. WOLF, ESQ.

WINTHROP COUCHOT, P.C. Attorneys for the SunCal Appellants 660 Newport Center Drive Newport Beach, CA 92660

BY:

SEAN A. O'KEEFE, ESQ.

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Page 6 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 THE COURT: MR. MILLER: THE COURT: MR. MILLER: P R O C E E D I N G S Be seated, please. Good morning.

Good morning, Your Honor. Good morning, Mr. Miller. Harvey Miller, at Weil, Gotshal & Manges, With Your Honor's permission, Your

on behalf of the debtors.

Honor, in deference to the examiner, may we go to item number 2, the examiner's motion for discharge? THE COURT: MR. MILLER: MR. VALUKAS: That's fine. Thank you, Your Honor. Your Honor, I'll be represented by my

counsel, Mr. Byman, this morning. MR. BYMAN: Good morning, Your Honor, Robert Byman on This, of course, is our motion for

behalf of the examiner. discharge.

We're only aware of one actual objection but,

frankly, we're not aware of the scope of it at this point. I've had an opportunity to look at the class plaintiffs' objections; it's clear that the document that was filed with you was written at a period in time when we were still negotiating things and some of the items to which they object have been resolved. So, it might make more sense for us to

hear from Mr. Etkin to find out what is on his mind before we tell you what our response is. THE COURT: Okay, Mr. Etkin, you're in the front row,

so you're well positioned for coming forward.

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Page 7 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 MR. ETKIN: Good morning, Your Honor. Michael Etkin,

Lowenstein Sandler, on behalf of the lead plaintiffs in the consolidated securities litigation. Your Honor, we did file an objection yesterday. The

timing of the filing may have crossed somewhat with Mr. Byman's letter. I know that there was another draft of the proposed

order with changes from the original order that was submitted with the motion which indeed, as Mr. Byman indicated, takes care of some of our concerns that we raised. THE COURT: MR. ETKIN: So what's left? Well, Your Honor, I think it would be best

to just cut to the chase and if I may, I'll just go through the order that's been submitted to you and indicate what's left. THE COURT: Okay, although another way to do this

would be to have you and counsel for the examiner meet and confer and see if you can narrow the scope of what's left rather than make a list. I'm really not anxious, in front of a

packed courtroom, to negotiate the form of an order that may be consensual. MR. ETKIN: Your Honor, I agree a hundred percent and

may I add that the examiner made an attempt to do that; circulated correspondence to those parties who had weighed in on the issue. hand. And asked for a meet and confer, I raised my That never happened

I was a chorus of one, I guess.

prior to today.

So I would be happy to meet and confer with

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Page 8 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 whoever's interested. I don't think the balance of my

concerns -- certainly they don't -- the examiner doesn't have a problem with them. So he's indicated that he is at worst,

agnostic with respect to them in his letter. THE COURT: I think if I read his letter correctly,

and counsel for the examiner can speak to this issue, it appeared to me that the principal issue between the parties involved the demand by your plaintiff class to receive essentially everything that has been turned over to governmental authorities. MR. ETKIN: Is that still one of the issues?

We've stepped away from that, Your Honor.

We've stepped away from that. THE COURT: been a problem. MR. ETKIN: I understand that. It also involved Oh, that's good, because that would have

dissemination to others, other than the government, but in the interests of the examiner's concerns, we've stepped away from that. That's no longer an issue. THE COURT: But I'm seeing other people standing up,

so maybe there are some other issues. MR. BYMAN: thing was clear: Your Honor, I just wanted to make sure one The other issues that

that's our only issue.

we understand Mr. Etkin has are between him and the debtors and the committee and the SIPA trustee. those; we don't care about them. We're ambivalent about

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LEHMAN BROTHERS HOLDINGS, INC., ET AL.
Page 9 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 heard. MS. WOLF: Thank you, Your Honor. Amy Wolf, Wachtell, THE COURT: MR. BYMAN: THE COURT: Is ambivalent different than agnostic? Less of a religious overtone. Okay, well, I think it probably has a

different meaning too. MR. ETKIN: up on your su -THE COURT: I think you should all talk. I have Your Honor, I would be happy to take you

another view on this, and that is that there's no urgency that this be decided today. But I understand the desire of the

examiner to obtain the benefit of an order discharging the examiner and granting releases and all kinds of protections. MR. ETKIN: with that. THE COURT: I understand. I think you should all talk And, of course, we've never had an issue

some more and the fact that this is the first item being called on on a calendar and it's just after 10 a.m. doesn't mean that you can't come back at 11:30, having this resolved. other day, having it resolved. Or some

So I think you should talk.

But let me -- there's someone else interested in being

Lipton, Rosen & Katz, on behalf of JPMorgan Chase Bank, N.A. We had no problem with the examiner's motion, Your Honor, which is why we did not file anything. We would -- to the extent the

order is going to be changed, however, in response to

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Page 10 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 objections that were filed yesterday, we would like an opportunity first to participate in the meet and confer and then, if necessary, be heard. work things out. Although I would suspect we can

But that's the reason why you're seeing me

here and we did not file anything. THE COURT: Okay. And as far as I'm concerned,

JPMorgan has obvious interests in the discovery aspects of this order and I have every reason to encourage the parties to invited you into the room. MS. WOLF: THE COURT: on your part. Thank you, Your Honor. So long as it's not an obstructionist will

I'm sure that it's simply designed to make sure

that the procedures are fair. MS. WOLF: THE COURT: That's correct. Thank you.

My suggestion is that I hear further from Is

counsel for the examiner on one issue, which is timing. there any urgency that this order be entered today? MR. BYMAN: THE COURT: No, Your Honor. I didn't think that there was.

I think

that it makes some sense, particularly if the SIPA trustee, the debtors, the committee, now JPMorgan Chase and counsel for the class action plaintiffs, and I don't mean to leave anybody out but that's a list that occurs to me as a relevant group, need to talk about the final form of the order. And if most of what we're concerned with here involves

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Page 11 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 the provision of reasonable access to the discovery that has been gathered by the examiner in the context of the thorough examination that was performed, I think that it makes sense to defer entry of this order until after there has been a further attempt at reaching consensus as to the form of order. Is that acceptable? MR. BYMAN: We have no problem with that, Your Honor.

I suspect that trying to do it now will be difficult because the people we would have to confer with will want to stay here for other matters before you, but we can convene that call or meeting as quickly as possible. THE COURT: with this. Fine. Here's how I would propose we deal

If the parties reach consensus concerning the form

of order, it can simply be submitted on notice as to the form of order, and I'll enter it and effect a consent order. To the

extent that there are open issues, we'll simply carry this as a holding item to the next omnibus calendar and resolve it then. MR. BYMAN: MR. ETKIN: THE COURT: IN UNISON: Your Honor. THE COURT: Okay. And, Mr. Valukas, if you would like All right. Thank you, Your Honor. Does that work for everybody? Thank you, Your Honor, that's fine. Yes,

to be excused, you may be excused. MR. VALUKAS: Just might. If it's continued, I'm

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Page 12 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 excused; I'm going to leave with my lawyer. THE COURT: discharged. MR. VALUKAS: thank you. MR. PEREZ: Good morning, Your Honor, Alfred Perez. Understand the difference, Your Honor, But don't confuse being excused with being

Your Honor, we have one uncontested matter regarding the request by LCPI to transfer funds to Rosslyn. It's a

substantial matter and in connection with that, I'd like to put in Mr. Fitts' proffer to justify our business judgment. Although there wasn't any objection, we felt that it was significant enough matter that we should put on a proffer. THE COURT: MR. PEREZ: I think that's fine. All right. Please proceed.

Your Honor, Mr. Fitts is in And if called to testify, it

the courtroom -- right there.

would state that he is a managing director of Alvarez & Marsal, that he is familiar with the motion -- styled motion of Lehman Brothers Holdings, Inc. and Lehman Commercial Paper, Inc. pursuant to 363 of the Bankruptcy Code to -- for authority to transfer funds for Rosslyn LB Syndication Partners LLC. With respect to Mr. Fitts' background, he would testify that he has approximately nineteen years experience assisting insolvent and troubled companies, focusing on operational and financial restructuring. Prior to joining A&M,

Mr. Fitts was a managing director with GE Commercial Finance

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Page 13 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 and led GE's distressed debt and alternative investment group; with that managed complex distressed credits. Before joining

GE, Mr. Fitts was with the workout group of Citicorp where he spent three years managing investment grade and middle market corporate workouts. Mr. Fitts began his career in 1990 as a workout officer and later as an asset manager in Citicorp Real Estate and has managed more than a billion dollars of office, retail and industrial projects. Mr. Fitts graduated with a bachelor's degree from the University of Delaware in 1988. He would testify that he was He

assigned to work on the Lehman matter in September of 2008. serves as co-head of the real estate group of certain Lehman entities, including LBHI and LPCI.

Mr. Fitts' primary responsibility includes the day-today management and oversight of the real estate group's real estate portfolio, including management and oversight for real estate, real estate finance and related activities that include the subject of this motion. Mr. Fitts would testify, as it relates to the Rosslyn properties, that LBHI is, through an indirect nondebtor subsidiary, LB -- I'm sorry, Rosslyn LB Syndication Partners LLC, which we refer to as Rosslyn, owns, legally or beneficially, an interest, 78.5 percent limited partnership interest, in the joint venture Rosslyn Syndication Partners JV,

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Page 14 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 which we'll refer to as the Rosslyn JV. The Rosslyn JV in turn

owns approximately three million square feet of real property which includes ten buildings, office space that is approximately ninety-eight percent leased. It's situated in the heart of Rosslyn, Virginia, which is one of DC's -- Washington DC's major submarkets. And this space represents approximately

thirty percent of all the office space in Rosslyn. Mr. Fitts would testify that in April of 2010, an independent third-party appraisal was completed on the portfolio on behalf of the lenders, not on behalf of the Lehman subsidiary, and that the appraise -- that the appraisal value of the entire portfolio of the ten properties at approximately 1,355,000,000 dollars, inclusive of approximately 105 million dollars of value that was attributed to an unimproved lot on the property, the 1812 Project. Mr. Fitts would testify that in the fiscal year ending April of 2011, the appraisal calculated that the venture's NOI, net operating income, would be approximately -- or was approximately 71.5 million, excluding the unimproved property, and that with respect to the so-called Class A properties, which are the three buildings located on Wilson Avenue (ph.), the NOI was 45.7 million and the Class B properties, which are the other six properties that are encumbered by the existing mortgages, it was about 25.8 million. Mr. Fitts would testify that the venture has multiple

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Page 15 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 tiers of debt and specifically that in connection with the acquisition of the portfolio, the venture assumed approximately 251 million dollars of secure ties fixed rate mortgages that currently encumber seven of the properties with a relatively low coupon for debt. In February of 2010, the venture

completed a short sale of one of the assets whereby the mortgage lender accepted the proceeds of the sale as a discounted payoff of the outstanding mortgage property. As

such, the existing mortgages that encumber the six properties are in the amount of approximately 239 million and that they mature in July of 2010, next month. Mr. Fitts would testify that in connection with the acquisition of the portfolio, LBHI provided a 567 million dollar ten-year loan that was cross-collateralized by the three properties that are not encumbered by the existing mortgages, that LBHI secured ties and syndicated those positions and that those mortgages mature in May of 2017. Would -- further testified that LCPI provided a 200 million dollar credit facility and secured by a pledge of the equity of the operating partnership in each of the subsidiaries. LCPI syndicated 191 million dollars of that

facility and retained approximately 9 million of the funded balance. He would testify that because the existing mortgages

are maturing in July, they either must be refinanced or repaid and that upon the real estate groups -- the debtors' real

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Page 16 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 estate groups' and investment committee's recommendation, and ultimately both the approval from Mr. Marsal and Lehman's board, that they determined, in their business judgment, that it would be a more prudent action to repay the existing mortgages rather than take other steps. Mr. Fitts would testify that there are significant legal impediments that would prevent LBHI directly, as an affiliate, from refinancing the loans with their own funds. And as a result of the tight credit market, refinancing the existing mortgages with third-party capital would be very expensive to the venture. As such, Mr. Fitts would testify that as a result of its larger up-front capital outlay, repaying the existing mortgages will enable the venture to retain the credit facility which currently provides funding for the venture at terms much more favorable than any refinanced property level mortgage that would carry today's market conditions. Mr. Fitts would testify that repaying the existing mortgage will greatly increase the marketability of the venture, thereby enabling the sale of the venture in a more robust real estate market and enable the venture to opportunistically refinance the six properties with mortgages at more favorable terms when the capital markets improved. And, Your Honor, that would conclude Mr. Fitts' testimony.

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Page 17 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 THE COURT: that proffer? Is there any objection to my accepting

It's accepted. Thank you, Your Honor. On that basis,

MR. PEREZ:

Your Honor, we would request that the Court approve the motion. THE COURT: I'm prepared to approve the motion. It's

listed as uncontested.

Is there anyone who wishes to be heard I hear no response; the

in connection with this motion? motion's approved. MR. PEREZ:

Thank you, Your Honor.

Your Honor, there

are -- the next two motions that follow are the motions with respect to case management procedures and the real estate protocol. Mr. Singh is going to be handling those two motions. MR. SINGH: THE COURT: MR. SINGH: Good morning, Your Honor. Good morning. Sunny Singh on behalf of the debtors.

Your Honor, the next item on the agenda is the amendment to the case management procedures. It was filed a docket number 9043.

Your Honor, I won't -- given the length of the agenda, I won't go through all of the changes, but I'll just generally note that we've made some changes to accommodate these cases and made the administration more manageable for all parties and the Court as well. Your Honor, the only response we received to the notice of presentment was an observation filed by Mr. Kuntz. He's in the court today; I'm not sure if he has anything to say

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Page 18 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 on this motion, but if so -- Your Honor, the only thing I'll note is just that with respect to Mr. Kuntz's comments about the debtors' service in these cases, it complies with the case management order and service on all parties if the debtors comply with the case management order. To the extent that his

observation can be construed as an objection, we would ask that it be overruled and the Court enter the order. THE COURT: Let me find out whether Mr. Kuntz wishes

to step forward and present anything further other than what is in the record. he has to say. MR. KUNTZ: THE COURT: MR. KUNTZ: Good morning, Your Honor. Good morning. Thank you. I was not very active in this I see him coming forward and so we'll hear what

case when the original case management orders -- first-day orders were put on. My observations are pretty fine-tuned to

the position of Weil Gotshal and sending out -- I mean, I have forty -- thirty -- twenty overnight express mail envelopes that come to me out of time of which this cost, you state, 600 dollars. Not much against half a billion dollars in fees, but

it's 600 dollars. Further, the case management order requires that an agenda be filed. Last night, the agenda didn't come on to the Had I been in Boston, I

Epiq system until 7 o'clock at night.

would probably not have been able to get here in time for

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Page 19 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 Honor. THE COURT: It's not practical because this is a very today's court had I not seen the order to show cause on the Park Avenue property. I'm simply that they move the agenda twenty-four -from the day before to forty-eight hours before. For instance,

that would have been 10 o'clock Monday morning; today is Wednesday. THE COURT: Mr. Kuntz, I appreciate your concerns And the --

about this, but it's just not practical. MR. KUNTZ:

I don't see how it's not practical, Your

dynamic and changing system in which things happen in the forty-eight hours before the hearing date. MR. KUNTZ: I understand, Your Honor. And every --

almost every case in that order's been amended. THE COURT: Mr. Kuntz, I appreciate -- I appreciate

your interest but if that's the principal are of your concern, you're going to get push back from me on that because I recognize what's going on. affected by this. I am the one who's most directly

I'm the one who has to read and prepare for I'm the one who's affected If

every matter which is being heard.

when matters are changed on the agenda at the last minute. I can tolerate it, you can. MR. KUNTZ: MR. SINGH: Thank you, Your Honor. Thank you, Your Honor.

We'll submit the

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Page 20 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 revised order at the end of the hearing. THE COURT: MR. SINGH: Okay. Your Honor, the next item on the agenda is

the debtors' motion for approval of certain real estate asset disposition procedures. It was filed at docket number 9281.

As Your Honor is aware, the debtors' real estate positions -the debtors had hundreds of billions of dollars invested in real estate throughout the world on a prepetition basis. As

these cases have progressed and the debtors have identified ways to maximize value, we've brought prior motions before Your Honor to establish protocols in these cases that we believe sufficient balance the need for transparency and efficiency in these cases. Your Honor, the procedures before the Court today focus on efforts on selling the debtors' properties and investments as a way to maximize value. Like the other

protocols that have been approved by the Court, this protocol was heavily negotiated with the creditors' committee both before and after the filing of the motion. Consistent with the

prior protocols, the procedures would allow the debtors to sell certain de minimis assets. Without notice they would allow the

debtors to notify the committee and have an opportunity for objection on assets valued between twenty-five and a hundred million dollars. And anything above a hundred million dollars

of the debtors', Your Honor, we would come and seek an order of

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Page 21 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 the Court by motion. Your Honor, the motion was filed on May 26th and only one response was received, again, by Mr. Kuntz. From what we

can tell, he would prefer that the debtors bring each and every motion for disposition to the Court. As the parties in these

cases have recognized and as the Court has previously recognized, that would be impractical and in the sound interest of the administration of these cases to maximize value for creditors, we would request that the Court approve the procedures. Your Honor, I have two changes that I just would like to go over with Your Honor to the order. blackline if that would be helpful. THE COURT: MR. SINGH: Please do. Thank you. I can hand up a

Your Honor, after conferring with

committee, we made two -- one generic change and one specific change. The general changes are just to clarify that these

procedures would apply to the debtors' direct and indirect investments for notice to the committee and an opportunity to object. And the other change, Your Honor, we added in

paragraph -- Your Honor in paragraph -- new paragraph 10 and 11 we added a sunset provision such that these procedures would no longer continue to apply unless the debtors filed a notice before December 16, 2010. The purpose of this, Your Honor, is to allow the

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Page 22 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 debtors, with the committee, to reassess, essentially, the procedures. Also given -- with the plan on file, we wanted to

have an opportunity, within six months, to come back to the Court, if necessary, or to see whether these procedures will still be necessary or any modifications would be appropriate. Unless Mr. Kuntz had something to say, I would request that Your Honor enter the order. THE COURT: the committee. MR. O'DONNELL: Your Honor, Dennis O'Donnell, Milbank Mr. Singh Before doing that, I'd like to hear from

Tweed, Hadley & McCloy, on behalf of the committee.

properly recounted that the committee has been heavily involved in the negotiation of this most recent protocol. As the Court

knows well, there are a number of other protocols in effect and this one mirrors those protocols, to a large extent. It's

somewhat different in terms of the thresholds and where committee consent and Court approval kicks in but based on the final version that was submitted to the Court yesterday, I believe, we're content that it -- we've accorded the burden of dealing with matters that can be dealt with between the committee and the debtors while preserving the Court's ability to deal with matters of a more significant nature. THE COURT: wish to be heard? MR. KUNTZ: Thank you, Your Honor. Again, I don't All right. Thank you. Mr. Kuntz, do you

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Page 23 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 think what was characterized as my position is correct. The debtors here, under its business judgment rule, is seeking to expand the circumference of its ability to sell, deal with property, make investments without the Court's direct involvement. I observed that in the New Century bankruptcy

case in Delaware -- it was my observation that parcel by parcel, every parcel came before the court in Delaware. This

Court has had no problems going through reams and reams of claims objections. The problem that I see is under the

business authority rule, Lehman Brothers is like a V8 engine operating on six cylinders. The stockholders have been pushed aside, hamstrung; the US Trustee has rejected their request for an equity committee even though out of 500 or 700 million dollars in fees the equity committee might run up 500,000 or a million in fees. So the normal controls that people see in the United States on an American corporation are gone. The stockholders have no

say, the efforts of the stockholders to even have a meeting in Delaware are being opposed which would, in essence, possibly put some limitation or change or direction in this case, including the order that bars stockholders from trading or amassing a position in the name of protection some tax loss. So -THE COURT: Mr. Kuntz, what does that have to do with

what's before me, which is procedures for dealing with

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Page 24 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 Perez. MR. PEREZ: Your Honor, the next matter is the motion disposition of real estate? MR. KUNTZ: It's the business -- it's their business

judgment that is handicapped. THE COURT: Well, shareholders would never be involved

in that and what we have here is a mechanism in which the creditors' committee, through its real estate disposition subcommittee, is taking an active role in monitoring transactions in a bankruptcy case such as this. That's a form

of governance that is quite appropriate, and to the extent that transactions exceed a threshold or to the extent that there's no consent, transactions will come here for approval. So I hear what you're saying about the shareholders, but I find that to be, with respect, not a relevant comment and I'm prepared to overrule the objection. MR. KUNTZ: MR. SINGH: Thank you, Your Honor. Thank you, Your Honor, we'll submit an

order at the end of the hearing. THE COURT: MR. SINGH: Fine. The next matter is to be handled by Mr.

of Lehman Brothers for authority to make a new debt investment in -- I mean a new investment in the 237 -- the Park Avenue property, docket number 9441. objection from Kuntz. Your Honor, we did receive one

I have Mr. Fitts here and I would like

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Page 25 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 to proffer his testimony in connection with the debtors' business judgment with respect to making of this investment. Additionally, Your Honor, we did file, last night, an amended order and I'll take the Court through the amended order at the conclusion of my presentation. And there is one further

couple of word tweak to that, and the purpose of that order is to make absolutely sure that we're maintaining the separateness of the estates. And to the extent that LCPI is ultimately

determined to be the beneficial owner of these assets or of the loans, that they're the ones that are making the investment, as opposed to LBHI. issue. And we have that issue -- it's a recurring

This asset is in one of the structures called SASCO

(ph.), Rosslyn was in one of the structures called RACERS. One day I hope to come and get rid of all those structures. Unfortunately, that hasn't happened yet and so we

have to constantly amend the orders to make sure that we're capturing the rights of all of the various debtor entities separately, as opposed to talking about Lehman. THE COURT: MR. PEREZ: Okay. All right. So if called to testify -- and

I'll skip Mr. Fitts' background and position since I just did that a minute ago. Mr. Fitts would testify that 237 Park is a twenty-one story 1,250,000 square foot high-rise building on Park Avenue in New York. He would testify that at the closing of the

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Page 26 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 acquisition, in May of 2007, LBHI originated loans totaling 1.23 billion dollars to finance the purchase by affiliates of Broadway Partners, which is referred to as "the borrower". The

1.23 billion loans included at 900 million of senior debt and 330 million of junior mezzanine debt. Mr. Fitts would testify that LBHI secured ties; the initial -- the top 419 million of the senior loan and sold the 255.4 million dollar B note, which is the subject of this motion, to PRII 237 Park LLC, which is referred to as the seller here. The remaining 225 million dollars of senior debt

was restructured as a senior mezzanine loan and never syndicated. Your Honor, that's the loan that's held in SASCO,

which is one of the structures. Mr. Fitts would testify that the junior mezzanine loan is structured in two tranches; one of which is approximately 212 million dollars that is currently held by LBHI and another tranche of approximately 117 million dollars that is currently owned by Lehman Re as a result of a repo transaction that was completed prior to the commencement. Counsel for Lehman Re contacted me yesterday; she's here in the courtroom and I know has some statements to make in connection with the motion. Mr. Fitts would testify that the senior debt matures in June of 20017 and that the junior mezz debt matures in May of 2012. In addition, Mr. Fitts would testify that there is a

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Page 27 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 current sixty million dollar future funding facility which was established to provide additional financing and service debt shortfalls, leasing costs and capital expenditures. This is an

executory commitment on behalf of the debtors and the debtors have not yet determined whether they will assume or reject that commitment. Mr. Fitts would testify that a hundred percent of the equity's held indirectly by the borrower. Beginning of July of

2009, the borrower requested 1,250,000 drawdown of the future funding facility. Given what was perceived to be an impairment

of the underlying assets and the high basis, Mr. Fitts would testify that the debtors determined that a larger restructuring of the asset was necessary before any new capital would be infused and began discussions with Broadway regarding a potential restructuring. Mr. Fitts would testify that in August of 2009, LBHI believed that the borrower was going to default and that -- in the B note and as a result, began discussions regarding -- with the seller, the holder of the B note, regarding a potential restructuring. He would testify that beginning in the second

quarter of 2010, the seller entered into discussions with several candidates to determine whether there was a market for the B note. And since that time the seller has engaged a

broker who has run a full marketing process and sale process for the B note.

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Page 28 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 Mr. Fitts would testify that the last date for the current bids is June 18, 2010 and that LBHI expects that an expedited sale process will follow for the sale of the note. And he would further testify that he believes that there is significant interest in acquiring the B note. Mr. Fitts would testify that purchasing the B note represents the best means of protecting LBHI's investment in 237 Park, including -- inclusive of any of the amounts that had been either pledged or participated to SASCO. Mr. Fitts would

testify that the acquisition of the B note would enable LBHI to influence a greater restructuring of the 237 Park capital structure and would give LBHI multiple options to maximize recovery. Mr. Fitts would further testify that if LBHI succeeds in acquiring the B note, that the estate anticipates, in addition, that it will still collect scheduled principal interest on the load and it's in a better position to protect its other interests. Your Honor, finally, Mr. Fitts would testify that this has been the subject of extensive discussion with the creditors' committee, with other creditors, including as late as yesterday, and in addition, this was approved by the internal investment committee, by Mr. Marsal as chief executive and chief restructuring officer for Lehman. That would conclude his testimony, Your Honor.

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Page 29 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 remark. THE COURT: that proffer? (No audible response) THE COURT: MR. PEREZ: I accept the proffer. Your Honor, we have nothing further and Is there any objection to my accepting

would request entry of the order. THE COURT: I'd like to hear from the creditors'

committed on this transaction as well. MR. O'DONNELL: Your Honor, Dennis O'Donnell, Milbank Your

Tweed, Hadley & McCloy on behalf of the committee, again. Honor, this transaction, like any transaction of this magnitude, has been the subject of extensive discussion and evaluation by the committee and its professionals.

We believe

that the transaction proposed to make sense economically for all the reasons that Mr. Perez set forth on the record. We do note that the authority sought here is authority up to par -- to pay par in consultation with the committee. It's our expectation that there will be an auction here and there will be a bidding and perhaps negotiation process in that we will be consulted as to what the final price will be and at that time either say yes or no. off on par at this point. THE COURT: I'm not sure I understand that last We don't -- we have not signed

Are you saying that the committee, notwithstanding

what this motion says and what the order presumably will say,

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Page 30 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 unless it's been modified, reserves its right to withhold consent to a transaction that is as pricey as a full par purchase? MR. O'DONNELL: I think the motions states that

they -- the debtors are seeking authority to pay up to par -THE COURT: Yes? -- in consultation with the committee.

MR. O'DONNELL: THE COURT: Yes?

MR. O'DONNELL: THE COURT:

And --

And the committee is reserving its rights Is that right? We had not consented

not to consent to a par transaction. MR. O'DONNELL:

Yes, Your Honor.

to par at this point, but we will work with the debtors and expect to be able to reach agreement on whatever the price winds up being. THE COURT: I understand what you've said. Okay.

MR. O'DONNELL: THE COURT:

Mr. Kuntz, you have -- it appears that

you've filed an objection, although I don't have the docket reference. MR. KUNTZ: Could we -- if Your Honor would hear from

Lehman Re, is there, like, the tail end of the financing structure first? I'm not a -- I don't believe my papers were

received by the clerk so under the order to show cause, I'm technic --

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Page 31 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 from you. MR. KUNTZ: In reading the papers, and I thought about this? THE COURT: Do you have anything you want to say on

I'll hear from Lehman Re in a minute -MR. KUNTZ: THE COURT: Yes. Yes, I do. But I was --

You're here -- you're here so let me hear

this and compared to the warehousing situation of the property in Stamford, Connecticut. It's unclear to me if the senior

mezzanine loan that Lehman Brothers Holding holds is on equal footing with the mortgage B note. And I went and I dug up some

material about the prior sale and if the purpose here is -- if the Lehman position and the mortgage B note are on equal footing, if there was a foreclosure, they would share equally -- and I think the word is pari passu, which I looked up, in any proceeds of the sale up to 600 million dollars or so. The thing that strikes me here is they're not getting the deed, as in the property in Stamford, Connecticut; they're simply putting themselves in a position to have to spend another 400 plus million dollars to satisfy the first mortgage. In other words, they're putting up 250 million to protect the junior mezzanine which basically may already be out of the money due to the valuation -- there is no valuation of this building. It was purchased six, seven years ago by a company

for 400 million, it was sold to Lehman for a billion-one; it

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Page 32 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 money. may be back down to 500 million. If it's 500 million, Lehman's already out of the So why would you spend 250 million to protect a junior

lien that's already out of the money except to make Prudential Insurance Company happy. It seems fairly -- I mean, without

evaluation as to what the building is worth now, and if -- I mean, it's a different -- if Broadway Partners were here saying here's the deed, you get to own the building, I would think that would be great for Lehman to own a Park Avenue property. THE COURT: Well, I take it that your objection is to

the business judgment in authorizing Lehman to purchase the B note in order to protect its position and improve its negotiating position with respect to an overall restructuring of the debt. Is that right? Well, there's no value as to what the

MR. KUNTZ: building is now. THE COURT:

I just want to make sure that I've

understood your objection. MR. KUNTZ: THE COURT: wishes to be heard? MS. MAMAN: That's basically correct, Your Honor. Okay, thank you. Okay, Lehman Re. Yes. Good morning, Your Honor. Michele Is there anyone else who

Maman from Cadwalader, Wickersham & Taft appearing on behalf of the joint provisional liquidators of Lehman Re. Your Honor, I'll be very brief. Although we do not

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Page 33 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 have any formal objections to the relief requested by LBHI in their motion, we simply wanted to note for the Court that Lehman Re is also a lender in the 237 Park capital structure, and that recently, on June 4th, we commenced an adversary proceeding against the guarantors of our loan. In brief, Your

Honor, the proceeding stems from allegations by the guarantors that Lehman Re's guarantees were terminated pursuant to a settlement between the guarantors and LBHI. Your Honor, I

understand that our issue is a matter for another day, and as I said, we have no formal objections to LBHI's requested relief. Simply wanted to note for the Court on the record that LBI -sorry, that Lehman Re is concurrently pursuing its interests in this property, and that will likely be before you on another day soon in that regard. THE COURT: Okay. Thank you.

I don't have a problem granting the approval that's sought for the purchase of the B note and accept the representations as supported by the proffered testimony that this is a transaction that is viewed at the highest levels of Lehman management, even at the level of Mr. Marsal's approval, as being in the best interests of the estate. However, there

is embedded in this transaction as proposed an element of uncertainty because as I understand it, all that I'm being asked to approve is the ability to participate in the auction for the purchase of the B note, is that right?

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Page 34 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 correct. MR. PEREZ: THE COURT: That's correct, Your Honor. And that there's a reservation of rights

as publicly expressed by counsel for the committee concerning pricing. One of my concerns, and I'll just state it, is that

we have a very public forum in which Lehman Brothers has stated unequivocally that it wants the B piece. That's not the best

way to go into an auction where you're trying to get it for less than par. MR. PEREZ: THE COURT: The Court's correct. So I observe that there is at least the

potential that the approval that I am being asked to give today, coupled with the reservation of rights to the committee, conceivably could lead to a further hearing if the committee objects. I just want to be sure that that's a correct

conclusion on my part, that this is not necessarily the end of the judicial process as it relates to the purchase of the B piece for 237 Park. MR. PEREZ: Your Honor, I believe the Court is

I would say that all of these real estate investments

that involve lots of money, the committee is literally involved at every step of the way. So regardless of whether the

committee had reserved its right or not reserved its right when we're going on to make the decision. And obviously, the

Court -- our request was to bid up to par -- we would have consulted with them regardless. So it's unfortunate that

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Page 35 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 someone could argue that our bidding strategy has been disclosed. But Your Honor, to the extent that we are the

successful bidder, the process will end and we will, in essence, be able to purchase the B note. THE COURT: All right, I assume that either the If

committee will consent or the committee will not consent. the committee doesn't consent, we may be hearing more about this on another hearing day. MR. PEREZ: THE COURT: with one comment. Yorker. That's correct.

And I am prepared to approve this proposal And I know you're from Houston and not a New

It is my understanding, if I'm correct, that 237 Park It's actually not on Park How it ended up with a But

Avenue is one of those curiosities. Avenue.

It has a Park Avenue address.

Park Avenue address is a subject for another discussion.

it's address is actually 237 Park but it fronts on Lexington Avenue, and the principal entrance to the atrium is on a side street. MR. PEREZ: I didn't know that. Your Honor, I thought

I was dealing with a Park Avenue building. THE COURT: get there. MR. PEREZ: Your Honor, if I could just give the Court That's what everybody thinks until they

a redline of the order? THE COURT: Thank you.

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Page 36 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 myself. remarks. MR. PEREZ: And Your Honor, just for the sake of

completeness, we took out at the top of page 2 who the -- the identity of the seller and just put seller. Additionally, Your

Honor, we inserted these two paragraphs which really deal with the -- it's a reservation of rights as among the debtors, whoever is ultimately determined to hold the note. I think

that's something that, as a result of these structures, is going to be a recurring theme. THE COURT: That's consistent with your earlier

That's fine. MR. PEREZ: THE COURT: MR. PEREZ: Yes, Your Honor. Okay, this is approved. Okay.

Your Honor, I believe that all the rest of the matters on the docket are SunCal matters. There was one other matter

that -- there was one other matter that was set for 2 o'clock, Your Honor, and I understand that that matter has now been passed so that there is no hearing in the LBHI-JPMorgan adversary proceeding. THE COURT: I was informed of that this morning,

So there'll be no 2 o'clock calendar. MR. PEREZ: Oh, I'm sorry, Your Honor, there is a

Nomura matter that's after the SunCal matter, but Mr. O'Keefe is here. THE COURT: It occurs to me, with no disrespect to

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Page 37 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 SunCal's counsel, that the SunCal matter may be a longer matter than the Nomura matter, and I would -- I think it would be appropriate to skip to Nomura, which I think will be brief. MR. TAMBE: Good morning, Your Honor, Jay Tambe for We were originally on the calendar Your

Jones Day for the debtors.

with respect to a motion to consolidate certain matters. Honor may recall, what the debtors are seeking is to consolidate two adversary proceedings as well as a claim

objection against Nomura International, Nomura Securities, and Nomura GFP. With respect to Nomura International and Nomura

Securities, we're in agreement, and we presented to Your Honor last month an order consolidating those matters for pretrial purposes. We are in discussions for GFB, and for that reason,

we have moved that part of the motion over to next month. THE COURT: MR. TAMBE: Okay. What we have done with respect to

International and Securities is come up with a schedule for conducting discovery. approach. THE COURT: Thank you. Yes, you may. All right, this stipulated scheduling I have a copy of the schedule, if I may

order that relates to the adversaries against Nomura International and Nomura Securities does not, unless something more happens, relate to whatever's going to happen in respect of Nomura Global Financial Products, is that right?

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Page 38 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 quick. MR. TAMBE: THE COURT: MR. TAMBE: THE COURT: MR. TAMBE: THE COURT: respect to this? No? That's right, Your Honor. And I'll hear more about that next month? That's correct, Your Honor. Okay. Thank you, Your Honor. Does anyone else wish to be heard with Okay. Thank you. I'm glad I called you because it was

MR. TAMBE: THE COURT:

I guess we can move on to SunCal now. MR. O'KEEFE: THE COURT: MR. O'KEEFE: Good morning, Your Honor. Good morning. Sean O'Keefe from Winthrop Couchot

appearing on behalf of the SunCal appellants. Your Honor, I note that you still have a substantially packed court and we have spent a considerable amount of time on the briefs that we filed with Your Honor. So what I'd like to

do is focus my comments and arguments on the issues from Your Honor's perspective on the papers that we filed. THE COURT: MR. O'KEEFE: I'm sorry, what do you want to do? What I'd like to do is Your Honor has

received our motion, you've received or opposition, and we filed a reply. What I'd like to do is focus my comments to the

extent that Your Honor wants to enunciate what you perceive to be the issues are relative to our motion. If not, I'll just go

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Page 39 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 directly into -THE COURT: Well, I think what you need to do,

consistent with statements that were quoted back to me in the debtors' papers from my Medavante (ph.) transcript, I think you need to highlight, as movant who has the burden, how you satisfy each of the four factors that must be satisfied in order to obtain a stay pending appeal, and those factors are the likelihood of success on the merits, whether the moving party will suffer irreparable injury, whether other parties will suffer substantial harm, and whether they will be harmed in the public interest. I believe those are the recognized

factors that a moving party seeking a stay pending appeal must satisfy in order to prevail. MR. O'KEEFE: That's your burden. The only

Very well, Your Honor.

clarification I would make is it's our interpretation of Second Circuit law that an alternative to the likelihood of success is serious questions going to the merits with the balance of the harms -THE COURT: I believe you mis-cite the Second Circuit

case that you heavily rely on in your reply papers, in particular. I am not governed by a preliminary injunction

standard, and that's not the standard I'm applying. MR. O'KEEFE: Very well, Your Honor. We did address

both standards in our papers. Your Honor, the -- insofar as irreparable harm is

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Page 40 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 Honor. concerned, the transaction upon closing will enjoin the debtors from resolving eighty percent of the claims against their estate. The resolution of those claims is critical to the That resolution process has

ongoing reorganization effort.

been going on for a year, and it would be very difficult, if not impossible, for the debtor or any Chapter 11 case to proceed when eighty percent of the claims are effectively frozen. THE COURT: MR. O'KEEFE: THE COURT: Why is that so? Well, Your Honor -The only thing that's affected is your Telephones

prosecution of equitable subordination litigation.

work, e-mails work, planes fly, people can meet, conversations can occur, and I was very explicit on May 12 in saying that the stay did not apply in negotiations. You can talk to the point

that you can actually reach a resolution or not, which is true in every case. And the fact that litigation is pending doesn't

necessarily mean that anything happens other than the threat of litigation. Settlements, which we talked about during the last You're not seeking a trial;

hearing, are what you're seeking.

you're simply seeking the sword of litigation. MR. O'KEEFE: Respectfully, I would disagree, Your

First, I would point on the issue of settlement, Your The parties have

Honor, these cases were filed in 2008. engaged in that process.

They have met, they have discussed,

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Page 41 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 they have negotiated. The reality is the settlement process is And the

at a point where the litigation must proceed.

resolution of these claims is critical to the reorganization process. Those claims are disputed. How they are going to be

paid pursuant to the plan of reorganization and what they will receive under that plan is the core of the plan. THE COURT: Well, let me understand something because

you're obviously spending quite a lot of time and effort to try to put as much pressure as you can on Lehman. The claims that

you talk about are secured claims, is that not right? MR. O'KEEFE: THE COURT: They are secured in part. But what you're trying to accomplish,

assuming the equitable subordination litigation were to proceed, is effectively equitable subordination of secured claims to free the collateral that secures those claims making that available for the payment of other creditors. correct? MR. O'KEEFE: THE COURT: In some measure, yes, Your Honor. Okay, so you're seeking very affirmative Is that not

relief against the property of Lehman Brothers estate. MR. O'KEEFE: Respectfully, Your Honor, it is not the It is the transaction that There

property of Lehman Brothers estate.

is before Your Honor that is making it their property. is an adjudicated finding, with all due respect, that is binding on everybody in this room that it is not their

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Page 42 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 property. So it is this transaction -THE COURT: What is the finding that you're talking

that's binding everybody in this room. MR. O'KEEFE: Your Honor, we have submitted in our

papers a finding which was derived from a contested matter, an evidentiary matter in California pursuant to which that Court determined that the loans, the seven loans at issue here, are owned by Fenway Capital. So they are owned by Fenway Capital.

That is the reason why this transaction is before you, so they can drag those loans back underneath the stay, which is what they attempted to use to thwart the litigation in the first place. And that's why this whole transaction was designed. LCPI, Your

But for that Fenway would be forced to proceed. Honor, is not a defendant. THE COURT:

I know that's your argument, and this is,

in a sense, as Yogi Berra once said, deja vu all over again. This is the same argument that you made on May 12th. But you

made this argument but you offered no proof, you've had no witnesses, and you declined to cross-examine, even though you were given the opportunity to do so, the witnesses that were proffered by the debtors. So while your papers make these

allegations, and you repeat the allegations again in the context of this argument, they're just arguments. proof. proof. There's no

You haven't done anything to fulfill your burden of And you lost. Why should anybody believe this is true,

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Page 43 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 particularly when the debtors submitted evidence demonstrating there were a host of legitimate business reasons for unwinding the Fenway structure? MR. O'KEEFE: Your Honor, we're talking about two

different things, here, and I think it's critical to clarify the record. We submitted findings of fact that were entered by Finding of

the California Bankruptcy Court on October 2, 2009.

fact 1.9 which was submitted in our papers states that the seven loans were sold -- were sold -- to Fenway Capital. THE COURT: MR. O'KEEFE: THE COURT: repo transaction. involved. That may be in error. That may be in error -That may be in error because this is a It wasn't a true sale. Linklaters wasn't

This wasn't a deal with a true sale opinion. MR. O'KEEFE: But Your Honor, this is a critical

issue, and it also bears directly upon our appellate record. If the Court is stating that it is not bound by that finding, it's not entitled to issue preclusion here. That fundamentally

changes the appellate record because it is our perception that they filed the claim in that court; they raised the issue. THE COURT: What went on in the bankruptcy court in

California may be absolutely critical to you and may bind you. It may be a record that the bankruptcy appellate panel needed to consider and that the Ninth Circuit now considering the pending appeal needs to consider. But I'm certainly not bound

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Page 44 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 by it. MR. O'KEEFE: I would fundamentally disagree, and

that's why we cited Second Circuit authority that said if an issue is decided in another court of jurisdiction -- and certainly that court had jurisdiction of a claim that was filed before it in the same way had we filed the claim before Your Honor and Your Honor determined SunCal, I've looked at this claim, and you don't own that property, and I'm making a finding at after -THE COURT: The facts are changing. The facts are

changing as a result of the unwinding of the repo transaction and the reinvesting of the assets in the Lehman estate pursuant to the transaction that was approved on May 12th. here when that happened. You were

I said, and you seemed to be pleased

by what I said at the time, that I was not making a determination that would impact characterization of the transaction in the California court. You took no action

whatsoever to make a record at the time of the 9019 approval of the unwind of the Fenway transaction. You chose not to cross-examination. Instead, you sat down. There is nothing in the

record before me from you that I consider competent evidence of any of the allegations that you're now making in connection with your request for a stay pending appeal. argument. You simply made

You're still simply making argument. MR. O'KEEFE: Your Honor, let me, then, state the

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Page 45 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 facts. Based on our understanding of issue preclusion, since

the transaction hasn't closed, it was an adjudicated finding that title (ph.) is another party, a nondebtor. is the primary defendant in our action. That nondebtor

We can agree, and Your

Honor has stated, that after that transaction closes, title will pass to the debtor. was the effect of that. What we disputed in the 9019 hearing It was the effect, the injunctive

effect on another estate that deprived that estate of core jurisdiction over assets as to which that court currently has exclusive jurisdiction. So it is the transaction that Your So those are facts. The

Honor approved that has that effect.

issue here that you're talking about is we did not know Your Honor's interpretation of that effect until the immediately following hearing. We explained to Your Honor that to the

extent that transaction had the effect of enjoining the determination of those claims and effectively enjoining seventeen Chapter 11s, that effect would irreparably harm our estate. What Your Honor said is I'm not determining that The next hearing, two minutes later, Your Honor You are stayed. So that

effect now.

said I am determining the effect.

transaction that Your Honor approved enjoins our cases, deprives us of the ability to deal with eighty percent of the claims of our estate. effect of your order. not making arguments. It is that transaction and that's the All of those are facts, Your Honor. That's a fact. I'm

Your Honor just told me.

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Page 46 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 They have represented in California that we are enjoined by Your Honor's orders, so that is irreparable harm, Your Honor. THE COURT: MR. O'KEEFE: against our estate. against our estate. THE COURT: Why is that irreparable harm? Because we cannot determine the claims That's eighty percent of the claims Right now, Your Honor -You're currently prosecuting an appeal to

the Ninth Circuit in which you're taking a legal position, as I understand it, that the actions which you are seeking by virtue of the equitable subordination litigation in the California Bankruptcy Court are not, in fact, barred by the automatic stay because it represents some kind of proper exercise of defensive rights in California. that your argument? MR. O'KEEFE: THE COURT: MR. O'KEEFE: THE COURT: Do I understand that to be correct? Is that your argument? Yes, Your Honor. Okay. Yes, that is our argument. So you're not irreparably harmed. You can Is

pursue those rights and remedies at the appellate level at the Ninth Circuit. And indeed, last month, I was fairly clear in

saying that I didn't like being part of a cross-country gaming of the bankruptcy system by you. remedies in the Ninth Circuit. You have your rights and And I was quite clear in saying

that my rulings with respect to the stay were not prejudicial to you and not preclusive in any way, and you could come back

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Page 47 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 after fully pursuing your rights and remedies in the Ninth Circuit. You picked your poison. MR. O'KEEFE: You chose to litigate there.

Your Honor, let me just back up to the Right now, pursuant to our And if

first point Your Honor made.

agreement with the Lehman debtors, there is no stay.

the Court has a different perspective on that, I would most respectfully ask that you place that on the record because that is material to our irreparable harm issue. THE COURT: My understanding is that upon the closing

of the Fenway transaction which has been delayed by virtue of your actions, notwithstanding the fact that last month you made very clear statements on the record that you had no intention to interfere in that transaction, that once that transaction closes, the loans would be property of the debtors' estates and that the stay will apply. understanding? MR. O'KEEFE: absolutely do. I absolutely do, Your Honor. I Do you have a different

At that hearing, what I stated was the

economics of the transaction, since we had not filed a claim against this estate, were not our concern. effect of that transaction is our concern. relative to the exchange as to standing. The injunctive And that was As Your Honor just

stated, that transaction, that transaction, as soon as it close (sic), will enjoin our ability to resolve those claims, which are eighty percent of the claims against our estate.

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Page 48 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 It had nothing to do with the Ninth Circuit. Ninth Circuit relates to something they filed. it. The

They initiated

In the Second Circuit, whoever starts the fight is the So they filed the motion for relief from When they insisted that

assailant throughout.

stay; they didn't like that finding.

that court make a determination with respect to their stay -they filed that motion, Your Honor. We didn't do that. Then

when they didn't like that finding, they appealed it to the BAP. And then they got the finding that they felt as though Well, in the Second Circuit, we get the They remain the appellant; they remain the So we didn't make

fitted their case. right to appeal. assailant.

It starts from the beginning.

that choice; they did. THE COURT: Am I correct that you appealed to the

Ninth Circuit the BAP determination in favor of the debtors? MR. O'KEEFE: THE COURT: Circuit, correct? MR. O'KEEFE: We are the appellant, but the analysis We did, Your Honor. Okay, so you're the appellant in the Ninth

begins with who filed the first motion. THE COURT: The analysis for today is why are you We are spending too

entitled to a stay given the four factors.

much time rearguing matters that you lost last time in connection with a record where you presented no evidence. me why you're entitled to a stay pending appeal. Tell

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Page 49 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 MR. O'KEEFE: Your Honor, as the Court just stated,

this transaction -- this transaction will create a circumstance where before the transaction closes, we are not stayed; after the transaction closes, we are stayed. That stay bars our

ability to resolve eighty percent of the claims against our estate. That stay puts our Chapter 11 process in a potential

freeze because we can't resolve where those claims will be paid, pursuant to the plan of reorganization. THE COURT: Let me ask you this very basic and, I Assume you prevail today and What does that

think borderline naïve question.

I were to grant you a stay pending appeal. mean?

What does it mean to grant you a stay pending appeal?

Does that stay the closing of the Fenway transaction, or does it stay anything in connection with my ruling that you are not entitled to stay relief in connection with the Fenway transaction, or both? MR. O'KEEFE: What is it you are seeking? We are seeking, in the first instance, a

stay of the closing for the duration of the appeal. Alternatively, we are asking Your Honor to give us that window of time to seek a stay from the district court. Any aspect of

that transaction that would enjoin our ability to continue to pursue the resolution of those claims in California. And I'd

like a minute to go through the likelihood of success, but Your Honor, what I'm really asking you today -- I don't expect you to agree with me, and it's very clear that Your Honor doesn't

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Page 50 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 used. MR. O'KEEFE: THE COURT: Your Honor -Because when you say "we stipulated to a agree with me. But what we did in California is we stipulated

to a sixty-day stay, no matter what happens with this transaction. So they're not affected by that litigation.

We're not doing -THE COURT: I don't understand the words you just

stay", we're using stay in a lot of different contexts, here. What are you talking about? MR. O'KEEFE: I'm talking about a litigation stay.

There was a status conference in California last Thursday. They represented to Judge Smith that Your Honor's order would stay that, and we stated they did and that we quoted that in our reply. THE COURT: I saw your papers. I just don't -- again,

try not to use pronouns. you're talking about. MR. O'KEEFE:

Use names so that I understand what

The Lehman entities represented that

Your Honor's orders would stay the equitable subordination action. What we did was, we agreed with the Lehman entities

that for the next sixty days, that litigation would be, as between the parties, stayed. THE COURT: That means -- that means, if I'm

understanding you correctly, that by agreement, there can't be

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Page 51 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 any irreparable harm today. litigation. MR. O'KEEFE: No, Your Honor, I respectfully disagree You've already agreed to stay the

it eliminates any possible irreparable harm or any harm on their part. On our part, it's fundamentally different because

the reality is, once those loans are parked in Lehman Commercial Paper, there is an indefinite stay -- there is an indefinite stay of our case. THE COURT: MR. O'KEEFE: THE COURT: But you've agreed -This Court is not placing -But you have agreed already, as of

Thursday of last week, and put it on the record in California in front of Judge Smith that the litigation which you're telling me is a source of irreparable harm to you is being stayed. MR. O'KEEFE: THE COURT: MR. O'KEEFE: No, absolutely not, Your Honor. Then I don't understand you. Okay, and I apologize for that. We are

irreparably harmed by the imposition of what we consider to be a transaction injunction that will occur when this transaction closes. That injunction is perpetual. It has no term. It

goes until it's lifted. THE COURT: That's true of every automatic stay in

every bankruptcy case in the United States. MR. O'KEEFE: I agree, Your Honor.

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Page 52 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 THE COURT: MR. O'KEEFE: Your Honor. It exists until it's lifted. We don't think it is the automatic stay, And

We fundamentally disagree with the Court.

we've laid that out in our papers. THE COURT: So you can argue that here and you can You're free to do that.

argue that in California. MR. O'KEEFE:

But what I want to do, Your Honor, and

what I think the Court should be inclined to allow me to do is to allow me, during that period of time, the next sixty days, to seek a stay from the district court -- and we're doing that now -- and immediately thereafter, assuming -THE COURT: MR. O'KEEFE: What do you mean you're doing that now? Your Honor, we are prepared to file our

appellate brief in the record in the Second Circuit tomorrow morning. THE COURT: MR. O'KEEFE: In the Second Circuit? I'm sorry, in the Southern District, the The only reason why we need

district court tomorrow morning.

more time is because the process is they have to assign us a number, and they haven't done that yet. So we are working with

the clerk there to get a number so we can immediately file for a stay pending appeal in that court. So what I'd like the

Court to do is to just give us that opportunity to give that court the opportunity to pass on the stay pending appeal. It's

entirely possible they'll say Your Honor's correct, in which

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Page 53 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 case, we will immediately go to the Second Circuit. But I'm

asking the Court to give me that window of time to do that, and since during that period of time they won't be affected because we stipulated that we're not going to proceed in California, there is no harm to them. To us, there is absolutely harm. If

that transaction closes, on the sixty-first day, we're stayed. We can't go forward. THE COURT: You can't go forward without relief from

stay or without some adjudication in the Ninth Circuit. MR. O'KEEFE: indefinite -THE COURT: MR. O'KEEFE: THE COURT: That's not irreparable harm. Your Honor, that's -That's the same harm that exists in every That's exactly right, and that's an

bankruptcy court where there is litigation that is stayed by virtue of a bankruptcy filing. And in virtually every

bankruptcy case that I'm familiar with and I suspect that you are, as well, parties to pending litigation are unsuccessful in their efforts to obtain relief from stay unless they have consent from the debtor or the claims involved are fully insured. MR. O'KEEFE: Well, I agree, Your Honor, but we're

talking about a totally different equation, here. THE COURT: MR. O'KEEFE: No, we're not. Your Honor, the cases that we cited say

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Page 54 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 Honor. irreparable harm in the context of a Chapter 11 is something that impairs that progress, and we've cited all those cases, and they're all cases in this district. And in the Calpine It basically says

decision they cite, it's to the same effect.

if they interfere with the case, that is a category of irreparable harm. Well, here, it's more than interference.

They're doing exactly what they designed this to do, exactly what they admit they designed it to do, which is to stay us. We can't process eighty percent of the claims against the estate, and that is an indefinite stay, Your Honor. THE COURT: Well, actually, you can. You can

recognize and respect the security interests that were granted in favor of the Lehman entities. What you're trying to do is

to take action detrimental to the interests of the Lehman entities. This reference, this constant theme of, well, we

can't deal with eighty percent of our claims is, frankly, completely false. It's simply an advocate's argument. You are

seeking to take action in California to the detriment of Lehman. MR. O'KEEFE: Well, let me just deal with that, Your

Let's assume tomorrow, because Your Honor has said an

equitable subordination action is stayed, but we can all agree the case law in this circuit and California, recoupment is not stayed. So the simple fact is what we need is a resolution What if we're right, Your Honor.

with respect to those claims.

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Page 55 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 What -- and right now, they don't own those claims, so the impact is going to be on Fenway. where the impact is going to be. That's the owner; that's They're buying the claim; They know it's there. But they're buying into They know it's been And

they're buying into that litigation. And we think 362(a)(1) does not apply.

that; they know that litigation is there. there for a year.

They're volunteering to participate.

what if we're right, Your Honor.

What if, in fact, they should

be subordinated in the same way that Lehman might pursue an equitable subordination claim against a JPMorgan lien? stay, in our mind, does not apply. we know that, Your Honor. The

We understand you disagree;

But all I'm asking Your Honor is a And

brief period of time to seek relief in another court.

during that period of time, they will not suffer any harm whatsoever because we have agreed to stop during that period of time. And certainly -- let's assume Your Honor says, you know what, I totally disagree with your case. Well, we've

cited a case from a court in the same district, the Meniam (ph.) case, where an equitable subordination action was deemed not in violation of the stay. THE COURT: And that's in the same district.

You have mis-cited that case, and it's

another example of your citing to cases in a misleading fashion. I've read that case. It's not an equitable It's a claim objection.

subordination action at all.

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Page 56 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 MR. O'KEEFE: THE COURT: an unsecured claim. Your Honor -And it's a claim objection that relates to It's not an equitable subordination You're completely wrong.

action; it's seeking to strip liens. MR. O'KEEFE: THE COURT: Your Honor --

Don't cite to me cases that I have read,

and then tell me that they somehow support your position when they plainly don't. MR. O'KEEFE: Your Honor, the Court has made a

decision, and certainly the Court's perspective, until I obtain review in another court, controls the day. All I'm asking you

is to give me the opportunity to see the next court. THE COURT: What I'm asking you, and what you have not

done despite all the time you've spent in this argument, is to provide me with authority for why you're entitled to a stay. You've asked me for it, but you have yet to satisfy any of the four prongs that must be satisfied to obtain a stay pending appeal. MR. O'KEEFE: THE COURT: reference to harm. Your Honor -You have resorted to a generalized Harm because you're not going to be able to But you haven't

deal with eighty percent of your claims. proven that.

You haven't demonstrated it, and you certainly

haven't shown that it's irreparable. MR. O'KEEFE: Your Honor, the -- we've admitted into

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Page 57 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 evidence. THE COURT: MR. O'KEEFE: THE COURT: You did not. Well, Your Honor -If you can show me where in the record you But I have evidence their document which -THE COURT: MR. O'KEEFE: There's nothing in evidence. Your Honor, there was no objection to

our admission of their status report. THE COURT: There's nothing in evidence in this record

except for the proffer in support of the motion filed by the debtor to approve the unwind of the Fenway repo. MR. O'KEEFE: THE COURT: Well, Your Honor, we -There is nothing else in the record.

There is no other admitted evidence. MR. O'KEEFE: THE COURT: Your Honor -If you attach documents to a pleading,

they're not in evidence. MR. O'KEEFE: Well, Your Honor, we moved those into

moved anything into evidence, I'll stand corrected.

a pretty clear recollection that you moved nothing into evidence in connection with the May 12 hearing. MR. O'KEEFE: Your Honor, the simple fact is, they They stipulate

stipulate in their papers to all the facts. that the stay will apply to that action. these --

They stipulate that

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Page 58 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 factors. THE COURT: Are you talking about the California

action or the action before me? MR. O'KEEFE: THE COURT: The California action, Your Honor. The only matter before me is the matter

that is the subject of your motion for a stay pending appeal. MR. O'KEEFE: THE COURT: I agree with you -And that matter is a matter as to which

you have no evidence in the record. MR. O'KEEFE: Well, Your Honor, what I'm telling you

is that the evidence of harm, assuming Your Honor's perspective, the evidence of harm in their papers, their reply to our opposition to compromise motion is that we will be stayed. The evidence of harm is Your Honor saying you are The evidence of harm is that those are

stayed if this closes. our loans.

They are liens against our estate, as in they're

claims against our estate, they're liens against our properties. be enjoined. What I would ask the Court is we have addressed the I understand you don't agree with our position, but All of that's admitted. All of that is going to

what I would ask the Court is for a brief period of time to have that reviewed by the district court so that the district court can make a determination as to whether Your Honor is correct. One of the cases we've cited in our papers is there

is the benefit to the appellate process which we're entitled to

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Page 59 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 pursue. They shouldn't be allowed to interrupt and vitiate

that process when they are not impaired whatsoever during the next sixty days. And it's entirely possible that Your Honor is correct, but it's equally true that Your Honor could be absolutely wrong and you have done a grave injustice to my clients. have an interest in having that resolved. We both

I certainly believe

that if it goes up and Your Honor's reversed and Your Honor looks at it and says, you know what, I made a mistake, I believe that Your Honor's going to say, you know what, that was the right result because the law has been clarified as to the SunCal appellants. So we do have a common agreement, I think, I'm just

in that if it is in error, it should be set aside.

asking the opportunity to pursue our rights with the appellate court. THE COURT: MR. PEREZ: I understand what you're requesting. Thank you, Your Honor. Alfredo Perez on

behalf of the debtors. Your Honor, with respect -- movant is seeking to stay both orders. With the order on the motion to lift stay, I I'm not even sure

really haven't heard any argument on that.

how, theoretically, staying a motion -- denial of a motion to lift stay would work, so I'm not going to address that. don't -- I think -THE COURT: That was one of the reasons for my earlier I just

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Page 60 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 question. I didn't understand how it would work logically. MR. PEREZ: It didn't make any sense to us. So I'm

not going to address that, just rest on the papers. Your Honor, let me go back to the four-part test, and I'm going to focus on, I guess, the two principal ones, likelihood of success on the merits and irreparable harm. Honor, as it relates to likelihood of success on the merit, what we have is a 9019. There was evidence presented as to the Counsel stated that they didn't Your

debtors' business judgment.

have standing, that they weren't questioning the business judgment. The only allegation was that somehow, the They refused -- they

transaction was being done in bad faith.

declined, is probably a better to put it, to cross-examine Mr. Fitts. Mr. Fitts testified that getting rid of the structures

has an economic benefit for them, that a large number of the loans have absolutely nothing to do with SunCal, and that this is something that they've been trying to do since before the bankruptcy. So it's really hard to talk about them having met

their burden or even putting on any evidence as to their burden when in fact there was an articulated business reason -several. This is something that they had been -- the records

show that this is something that we had been trying to do since before the bankruptcy. So it can't be that we did it before,

that we did it to spite them, if you will, or whatever that application.

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Page 61 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 Second, Your Honor, the thing that troubles me the most about what Mr. O'Keefe said is that if there's a stay, we're not impaired whatsoever. Well, that completely ignores

the fact that there are a bunch of other loans in Fenway that Fenway has been wanting to get out from out in the middle of this, that we have business reasons to do it. I mean, there So

are a whole host of facts on the record which support that. assuming that they didn't really waive their argument because

frankly, when I reread the transcript and I reread it again, it pretty much seemed to me that they basically withdrew their objection at the time. But assuming they didn't, there's just

been no showing that there is going to be -- that there's any likelihood on the merits on the question of did we meet our business judgment on a 9019. Honor. As it relates to irreparable harm, I guess the main argument is that there is -- that somehow, the operation of the automatic stay is irreparable harm. Your Honor, it's hard to There's just simply nothing, Your

respond to that because, I mean, the automatic stay is the automatic stay. process. That's the main tenet of our Chapter 11

That's what a lot of countries overseas don't have.

I don't understand how you can say the irreparable harm is the operation of the principle tenet of why we're here. don't understand how to respond to that. So Your Honor, for those reasons, we would request -I just

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Page 62 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 and they submitted -- I was surprised when I got their appellate documents. I was surprised when I got their motion I called and said, let's put this on We'll brief it; you'll brief it. We agreed to it. It

for stay pending appeal. a more normal schedule. was over Memorial Day.

We're now almost a Ms.

month -- or, not quite but almost a month after it.

Goldstein calls me everyday and says, come on, let's go, let's go because Fenway wants to get out of it. So Your Honor, we

would request that the Court deny the motion. THE COURT: If we're hearing further from you, I want

to know if the committee has anything to say on this. MR. O'DONNELL: Your Honor, we filed a very brief We agree

joinder in support of the debtors' position on this.

entirely that both on the merits -- both on the -- on both prongs that Mr. Perez addressed. In terms of likelihood of

success on the merits, there were definitely other business reasons here to do this transaction; it was not bad faith. the committee spent months with this transaction looking at those other business reasons and still think that they are good reasons to get this transaction done. And we heard from Mr. And

O'Keefe today nothing about the real irreparable harm could be here, so we see no reason for the relief to be granted. THE COURT: MR. O'KEEFE: Okay. Mr. O'Keefe?

Your Honor, very briefly, the effect --

that aspect of the relief from stay order where Your Honor says

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Page 63 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 motive. this is the effect of the transaction, we consider that a part of the prior order. orders. Our motion seeks to consolidate those

We considered that Your Honor had to determine, when

you approved the 9019 order, as we've cited the standard, that you had to consider the effect upon a third party who is being enjoined, and Your Honor did not do that, because at that particular point in time, Your Honor hadn't enunciated that effect. So we think that they are one order insofar as that

respect is concerned. As far as the operation of the stay, we quite frankly find it inconceivable that the appellate court is going to say that it's the same thing as when you file a case. If they file

a case, we understand the stay springs up on their filing. This is not what is happening. Your Honor is approving a

transaction that is dragging postpetition nonestate assets within the stay with an ulterior motive. talking about -THE COURT: You really can't say that. You keep And we're only

saying that, and I've admonished you before. proven it. Stop saying it to me. Very well --

You haven't

MR. O'KEEFE: THE COURT:

You have done nothing to prove an ulterior

Don't reference it again, please. MR. O'KEEFE: Very well, Your Honor. The contract

comes first, the stay comes second.

It is the contract order

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Page 64 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 anybody? All right, I'm denying the motion for a stay pending that we're appealing. The effect of that contract is the

second order, and that is why we're appealing it, because we believe it is interrelated with the first. The economic impact, Your Honor, in the underlying documentation, there was nothing that quantified what they perceive to be the economic benefit relative to the SunCal loans. They can certainly close the transaction as to all the

other loans; it's only the SunCal loans that are of relevance to us and that we're seeking a stay on. So this reference to

other loans and instruments, they can do whatever they're going to do. It's only those loans. I would conclude, Your Honor, I understand Your Honor fundamentally disagrees with us, and I understand Your Honor fundamentally disagrees with our interpretation of the law. But it is entirely possible that we are right. stranger things have happened. Certainly,

During the period of time that

we are seeking, the brief period of time that we are seeking another court to review that, nobody will be harmed, and the appellate process would be sustained. So I would simply ask

the Court to grant us a brief window of time to seek a stay pending appeal from the district court. Court's time and consideration. THE COURT: Okay. Is there anything more from And we appreciate the

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Page 65 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 appeal. The record does not support a finding that SunCal is

likely to succeed on its appeal or that either the imposition of the automatic stay or the continuation of the automatic stay can be a source of meaningful hardship to the SunCal debtors. One of the main reasons for reaching this conclusion is that SunCal called no witnesses and offered no evidence on May 12 and declined the Court's repeated invitations to cross-examine the one witness whose testimony was proffered by the debtors. Thus, except for arguments about Lehman's allegedly improper motives in seeking to unwind the master repurchasement agreement and related structures with Fenway, SunCal has done absolutely nothing to prove those allegations. Its present

motion for a stay pending appeal repeats those unsupported arguments again, and Mr. O'Keefe has done so throughout this argument today. SunCal's standing to complain here is also doubtful. During the hearing on May 12, SunCal confirmed through counsel that it has no claims against any of the Lehman entities in these bankruptcy cases, acknowledged that it has not filed any proofs of claim, and asserted that it did not want to interfere with the Fenway transactions that it has so vigorously opposed. Despite these statements indicating lack of any intent to interfere, SunCal has done everything in its power to do just the opposite and has achieved a voluntary delay in closing of the unwinding of the Fenway repo through today's hearing.

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LEHMAN BROTHERS HOLDINGS, INC., ET AL.
Page 66 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 The Court is also troubled to note that in advocating its request for emergency relief, SunCal has referenced case law in a misleading manner. There is no split between the

decisions of Judge Drain in Meniam, Inc. and Judge Gonzalez in Enron. And even if there were such a split, that would not Judge Drain's case involved a motion to

impact my ruling.

dismiss in a context of a claim objection in which equitable subordination was but one element of the objection, not an adversary proceeding frontally challenging Lehman's rights as a secured creditor. SunCal claims to be hampered by application of the automatic stay that the bankruptcy appellate panel in the Ninth Circuit found to be applicable and has come to this Court to obtain relief that is available from the Ninth Circuit in connection with the pending appeal of the BAP decision. I

referenced with concern last month that SunCal seemed to be gaming the system, and that still appears to be the case today. The underlying equitable subordination litigation, essentially, is lender liability litigation seeking to deprive the holders of secured claims of their rights as secured creditors in the SunCal bankruptcy. If successful, SunCal It

would strip Lehman of its contractual and property rights. wants to pursue that litigation as a means to exert leverage and, presumably, achieve a settlement in which Lehman, as secured creditor, would make concessions for the benefit of

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LEHMAN BROTHERS HOLDINGS, INC., ET AL.
Page 67 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 junior creditors. The question of whether this litigation

activity is or is not subject to the automatic stay is at least in part before the Ninth Circuit already. I have concluded

that the litigation is offensive, not defensive in nature, and that it quite clearly is subject to the automatic stay. Nonetheless, I have decided to defer to the Ninth Circuit and permit the appeal to run its course rather than take action here that might moot that appeal. Therefore, arguments made by

SunCal in its papers that I am somehow denying comity to the California courts are entirely untrue and misplaced. bottom, SunCal seeks a stay pending appeal that is not supported by the facts or the law, and that, even if granted, would be largely meaningless. It seeks a stay of a decision At

denying it relief from a stay; such stay of the denial of SunCal's motion for stay relief would not amount to granting of relief from stay, and I am certainly not inclined to stay the closing of the Fenway transaction, a transaction that has been amply supported by the record made on May 12. In effect, this motion for a stay pending appeal seeks to do through the back door what amounts to stay relief to permit litigation whose very purpose is to take property from the Lehman estates. This is really no different from a garden

variety motion for stay relief that might be sought in other cases where litigation is pending against an estate or its property. Such motions are rarely granted, and this case is no

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LEHMAN BROTHERS HOLDINGS, INC., ET AL.
Page 68 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 order. THE COURT: Okay. The 2 o'clock exception. For the reasons noted, the likelihood of successfully appealing this Court's approval of the unwinding of the Fenway repo and the denial of SunCal's motion for relief from stay is remote. I think it's highly remote. There's no appreciable

harm to SunCal in prosecuting the appeal already pending in the Ninth Circuit and, indeed, SunCal's statement today that it has voluntarily agreed to a sixty-day stay of the pending litigation in California is further evidence that there is simply no harm to SunCal in denying its present motion for a stay pending appeal. The motion is denied. MR. O'KEEFE: Thank you, Your Honor. We appreciate

the Court's time and consideration. MR. PEREZ: Your Honor, we'll submit a motion -- an

Is there anything more for today?

hearing is no longer necessary, and so I'll see you next time, whenever that is. MR. PEREZ: Thank you, Your Honor.

(Proceedings concluded at 11:40 AM)

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I N D E X

RULINGS Page Uncontested Motion Authorizing Transfer of Funds to Rosslyn LB Syndication Partner Approved 17 Line 7

Order on the Presentment

20

2

Regarding the Revised Notice and Case Management Procedures will be Submitted

Order will be Submitted Approving Motion of Debtors Regarding Real Estate Assets

24

18

Park Avenue Investment Motion Approved

36

12

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Motion for Stay Pending Appeal Denied

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Page 71 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: June 17, 2010 Veritext 200 Old Country Road Suite 580 Mineola, NY 11501 I, Laurie Ann Sherby, certify that the foregoing transcript is a true and accurate record of the proceedings.
Digitally signed by Laurie Ann Sherby Laurie Ann DN: cn=Laurie Ann Sherby, o, ou, email=digital1@veritext.com, c=US Date: 2010.06.17 16:00:27 -04'00' Sherby ___________________________________

C E R T I F I C A T I O N

LAURIE ANN SHERBY

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