IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS FORT WORTH DIVISION

Transcription

1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS FORT WORTH DIVISION In Re: ) Case No. -0-rfn- ) Jointly Administered Chapter LIFE PARTNERS HOLDINGS, ) INC., et al., ) Fort Worth, Texas ) June, Debtors. ) :00 a.m. ) ) EMERGENCY MOTION FOR AUTHORITY ) TO REPLACE RECORD POLICY ) BENEFICIARIES []; EMERGENCY ) MOTION TO EXTEND BAR DATE ) []; EMERGENCY MOTION TO ) APPROVE PLAN FOR PAYMENT OF ) LIFE INSURANCE PREMIUMS [0] ) Continued from 0// ) ) Excerpt: Ruling ) APPEARANCES: For H. Thomas Moran, II, Trustee: TRANSCRIPT OF PROCEEDINGS BEFORE THE HONORABLE RUSSELL F. NELMS, UNITED STATES BANKRUPTCY JUDGE. David Bennett Katharine Battaia Clark THOMPSON & KNIGHT, LLP Routh Street, Suite 00 Dallas, TX () - For Amicus Parties Holding Kevin S. Wiley, Jr. Fractional Beneficiary LAW OFFICES OF KEVIN S. WILEY, JR. Interests: 00 Fairmount Street, Suite Dallas, TX () - For the Official Committee of Unsecured Creditors: Dennis L. Roossien, Jr. MUNSCH HARDT KOPF & HARR, P.C. 00 N. Akard Street, Suite 00 Dallas, TX () -

2 APPEARANCES, cont'd.: For KLI Investments, LLC, and the Penumbra Entities: For Advance Trust & Life Escrow Services (ATLES): For Advance Trust & Life Escrow Services (ATLES): For the U.S. Trustee: For Certain IRA Investors: For Purchase Escrow Services, LLC: For Dean Vagnozzi, Frank Bice, and John Gissas: For Dean Vagnozzi, Frank Bice, and John Gissas: Eric J. Taube TAUBE SUMMERS 0 Congress Avenue, Suite 00 Austin, TX 0 () - Michael A. McConnell KELLY, HART & HALLMAN, LLP Main Street, Suite 00 Fort Worth, TX () - R. Mark Dietz DIETZ & JARRARD, P.C. Fannin Avenue E. Round Rock, TX () - Elizabeth Ziegler OFFICE OF THE UNITED STATES TRUSTEE 0 Commerce Street, Room Dallas, TX - () - Jeffrey R. Erler GRUBER, HURST, ELROD, JOHANSEN, HAIL, SHANK Ross Avenue, Suite 00 Dallas, TX () - Andy McSwain FULBRIGHT WINNIFORD P.O. Box Waco, TX 0 () -000 Jonathan Covin WICK, PHILLIPS, GOULD & MARTIN, LLP McKinney Avenue, Suite 0 Dallas, TX () -0 Sheldon Louis Solow KAYE SCHOLER, LLC 0 West Madison Street, Suite 0 Chicago, IL 00 () -

3 APPEARANCES, cont'd.: For Philip M. Garner: For Stallings Family Limited Partnership: John C. Leininger BRYAN CAVE, LLP 0 Ross Avenue, Suite 00 Dallas, TX () -00 David Swanson LOCKE LORD, LLP 0 Ross Avenue, Suite 0 Dallas, TX () 0- For Brian Pardo, Pro Se: Brian Pardo 0 Arlington Waco, TX () - For the Ad Hoc Committee David D. Ritter of Fractional Insurance RITTER LEGAL, PLLC Beneficiaries: W. th Street, Suite 0 Plano, TX 0 () - For Interested Party Andrew Scriven Greenbriar Asset GREENBRIAR ASSET MANAGEMENT, LP Management: One North Wacker Drive, Suite 0 Chicago, IL 00 () - For Donald A. Erickson: (Telephonic) Peter D'Apice STUTZMAN, BROMBERG, ESSERMAN, PLIFKA, P.C. Bryan Street, Suite 0 Dallas, TX () - For the Arnold Plaintiffs: (Telephonic) Monitoring: Keith L. Langston LANGSTON LAW FIRM W. Tyler Street Longview, TX 0 (0) - Colette Pieper Life Partners, Inc. Katherine Stech Wall Street Journal

4 Monitoring, cont'd.: Court Recorder: Transcription Service: Donna Horowitz The Life Settlements Report Gil DeShazo Interested Party Robert Hughes Interested Party Don Hutto Interested Party Karyn Rueter UNITED STATES BANKRUPTCY COURT 0 W. th Street Fort Worth, TX () -0 Kathy Rehling Paradise Cove Shady Shores, TX () -0 Proceedings recorded by digital sound recording; transcript produced by transcription service.

5 FORT WORTH, TEXAS - JUNE, - : A.M. (Transcript excerpt begins at : p.m.) THE COURT: Counsel, thank you for your presentations over the last couple of days. Both sides were incredibly persuasive on a very difficult issue, so thank you for framing the issue for the Court in such a compelling fashion. I cannot grant the motion at this time. I cannot do so because I don't think it can be justified merely as a matter of policy administration, expedience, or equity. In order to grant the motion, I do believe that I would have to determine that the cash value is property of the estate, and I'm not in a position to do that. So I will deny the motion without prejudice. The question, then, is where we go from here. As of last Thursday, everyone seemed to favor early resolution of the ownership issue. Today, Mr. Solow suggested that the Court should not decide it, or at least not decide it too quickly. So I don't know where the parties stand on that, but if there is a consensus to do so, I am certainly willing to resolve the ownership issue as quickly as the parties want to tee it up. The Supreme Court has held that bankruptcy courts can hear matters over which they have no constitutional authority as long as the parties agree. If that's the case, it strikes me that this Court can hear matters over which it has clear jurisdiction and clear constitutional authority but where the

6 parties affirmatively waive some of the procedural protections that might otherwise be available in an adversary proceeding. And I will tell everybody that I have no predisposition about that issue. I'm not pushing for an early resolution because I already know how I want to decide it. I don't. Now, it is the province of judges to encourage settlement, especially in bankruptcy cases, because its checks and balances are there to encourage consensual resolution, not necessarily litigation to the end of the earth. In that regard, I will say a few things about ownership. I think that everyone, especially those who have attended these hearings, have a pretty good grasp of what it would mean for this Court to conclude that the policies were owned by LPI and, as such, are assets that could be fully administered by Mr. Moran. So I don't really think I need to spend very much time on that. But I do want to address those who urge me to conclude that fractional interest owners own the polices and so have the right to chart their own course when it comes to their administration. First, if fractional interest owners own the policies, then I question whether there is any authority to allow unencumbered assets of these estates to be used to sustain those policies. First, assuming fractional interest holders are creditors at all, they are most likely creditors of LPI and not LPHI. Indeed, at the hearing on the motion to appoint the Trustee,

7 the Debtor, who I note many fractional interest holders supported even before the appointment of the Trustee, took the position that fractional interest holders were not creditors at all, much less creditors of LPHI. I think that's significant because most of the unencumbered assets are at the LPHI level. So, not only do I question whether unencumbered assets of the Debtors could be used to pay prepetition claims absent a plan, but I particularly question whether the assets of one estate could be used to pay the prepetition claims of another estate. And in that regard, I note that those who support direct ownership of the policies also seem to oppose substantive consolidation. Some would say that the Trustee could just loan the money to the policy holders. But if it is fair to question when and if one policy could ever truly and fairly compensate a loan from one policy to another, then it's just as fair to question the economics of that transaction if it's the DIP that's being requested to make that loan. Next, it was intimated that the Debtors have plenty of money to meet premium shortfalls if we just don't pay professionals, or delay the payment. As I'm sure the lawyers in the court know, the Fifth Circuit finally set aside years of bad law and it's now clear that professionals who come into a bankruptcy case to make the best of a bad situation are entitled to be paid for their services. And Mr. Moran and

8 other professionals in this case will be paid to the extent that their fees are reasonable and necessary, to the extent that there is money to pay those fees, and to the extent that it would not be imprudent at that time to do so. I don't know when that would be. I don't know what the amount of that would be. But I do know this: I will not, absent an agreement of the Trustee, require the Trustee to place his fees and the fees of other professionals at risk to sustain policies for the benefit of parties who contend that the estate doesn't own the policies. Now, I don't want my comments to be construed as a predisposition for pooling. I have no such predisposition. I say these things because it's pretty easy to assess the faults with the position that you oppose but not so easy to assess the risks presented by the position that you advocate. So, in case anybody hadn't thought about these, and I'm assuming that most of the lawyers in the case have, I just wanted you to know that these are some of the risks that I see with a successful position today. I just think the parties need to be aware of that. The motion is denied without prejudice. Thank you, parties. ALL COUNSEL: Thank you, Your Honor. THE CLERK: All rise. (Proceedings concluded at : p.m.)

9 --ooo-- CERTIFICATE I certify that the foregoing is a correct transcript from the digital sound recording available of the proceedings in the above-entitled matter. /s/ Kathy Rehling 0/0/ Kathy Rehling, CET**D- Certified Electronic Court Transcriber Date

10 INDEX Excerpt of Proceedings Ruling: : p.m. to : p.m. PROCEEDINGS WITNESSES -none- EXHIBITS -none- RULINGS END OF PROCEEDINGS INDEX