| RICHARD L. WYNNE (SBN 120349) BENNETT L. SPIEGEL (SBN 129558) JACQUELINE H. SLOAN (SBN 179648) CHRISTOPHER L. FROST (SBN 200336) KIRKLAND & ELLIS 777 South Figueroa Street Los Angeles, California 90017 Telephone: (213) 680-8400 Facsimile: (213) 680-8500 Attorneys for Official Committee of Unsecured Creditors and Special Litigation Counsel for R. Todd Neilson, Trustee of the Chapter 11 Bankruptcy Estate of Reed E. Slatkin JOHN P. REITMAN (State Bar No. 80579)
Case No. ND 01-1 1549-RR Date: January 22, 2003 I. INTRODUCTION This Court is the intended victim of an elaborate ruse to defeat the Motion to approve the proposed Disclosure Statement, and demean the integrity of the bankruptcy system. Danning Gill, counsel of record for more than 70 net debtors, prepared, filed, and served "Creditor Brad Bernstein's Notice of Objection to Disclosure Statement to Accompany Chapter 11 Trustee and Creditors' Committee's Joint Plan of Reorganization Dated December 16, 2002" (the "Objection"). Danning Gill also covertly prepared, filed and served all joinders to the Objection (the "Joinders").1 Yet Danning Gill did not comply with Bankruptcy Rule 2019 before representing this group of creditors. More troubling, the arguments in the Objection are the exact same arguments made by the net debtors (Danning Gill's bread and butter) in the net debtor litigation. When the Trustee served a Notice of Deposition on Brad Bernstein to discover the factual basis for numerous unfounded factual assertions in the Objection, and to understand why a creditor would make net debtor-friendly arguments, Danning Gill informed counsel for the Trustee and Creditors' Committee in writing that Mr. Bernstein would not be available until well after the hearing on the Motion to approve the proposed Disclosure Statement. In that letter, Danning Gill let slip a startling piece of evidence regarding who is truly behind the "creditor" Objection and Joinders. Danning Gill blind copied to Joel Kreiner -- the single largest net debtor to the tune of nearly $6 million -- and another net debtor Michael Baum. Simply put, it appears that Danning Gill and some (if not all) of the net debtors it represents, have orchestrated and effected a plan to disguise net debtors' voices with a shill creditor mouthpiece. The Trustee and Creditor's Committee suspect net debtors even funded the Objection's and Joinders' preparation. And now Danning Gill and the net debtors it represents refuse to produce for deposition that one chosen mouthpiece, who could testify regarding, among other things, who provided the funding.2 This ploy is unfair, disingenuous, an inherent conflict of interest, and violative of the letter and spirit of the Bankruptcy Rules.3 Accordingly, the Trustee and Creditors' Committee respectfully submit that this Court, when ruling on the proposed Disclosure Statement, and on its own initiative, disregard the net debtor arguments articulated through the Bernstein Objection, and disqualify Danning Gill from representing any purported creditors. II. DISCUSSION A. THE BANKRUPTCY PROCESS IS BEING MANIPULATED. Net debtors in the Slatkin Chapter 11 case are not creditors. Accordingly, their rights cannot be impaired under the plan, and thus they lack standing to object to confirmation of the plan, or to approval of its related Disclosure Statement. See In re Wonder Corporation of America, 70 B.R. 1018, 1023 (Bankr. D. Conn. 1987) (only parties adversely affected by a reorganization plan may raise an objection at the confirmation hearing, and such objection should be limited to those provisions of the plan which directly, adversely and pecuniarily affect the party raising the objection); see also In re Fondiller, 707 F.2d 441 (9th Cir. 1983) (only aggrieved persons may appeal an order of the Bankruptcy Court); In re P.R.T.C., Inc., 177 F.3d 774 (9th Cir. 1999) (same). In order to circumvent this standing problem, the net debtors have attempted to manipulate the system so that everyone, including this Court, will believe that the arguments being forwarded by the net debtors are actually those of one or more creditors through the Objection and Joinders. In order to further obfuscate the truth of who stands behind the Objection, the net debtors' counsel has refused to produce for deposition the creditor on whose behalf the Objection was allegedly filed. The Objection has net debtor "fingerprints" all over it. Danning Gill is counsel of record for more than 70 net debtors in the net debtor litigation. Yet it is also counsel of record for Brad Bernstein with respect to the Objection Mr. Bernstein filed. Tellingly, Danning Gill has stated it is not going to represent Mr. Bernstein with respect to his upcoming 2004 examination, which is unrelated to the Objection. See Ex. 5 (e-mail from Danning Gill re Mr. Bernstein's 2004 examination). Could it be that the net debtors who seemingly bankrolled the shill Objection and Joinders are not willing to bankroll the defense of an unrelated 2004 examination? Certainly the net debtors had the motivation to fund the Objection and Joinders, where the arguments smell of theories only a net debtor would make. Indeed, the arguments (e.g, arguments regarding the statute of limitations and "good faith and reasonably equivalent value") are the exact same arguments the net debtors represented by Danning Gill have made in the net debtor fraudulent transfer litigation. If that were not enough, the letter sent by Danning Gill asserting that Mr. Bernstein would not be available for his deposition as noticed is blind copied to Joel Kreiner and Michael Baum, the first of whom is the single largest net debtor to the Slatkin estate. See Ex. 1 (Notice of Deposition); Ex. 2 (Danning Gill letter with bcc to Messrs. Kreiner and Baum). As of this time, Danning Gill has indicated that it will not make Mr. Bernstein available for a timely deposition, despite the fact that the Trustee's and Creditors' Committee's counsel has articulated that the examination will relate to the issues raised in the Objection. See Ex. 3, 4 (letter to Danning Gill and response letter). Moreover, every single Joinder to the Objection bears the same "fingerprints." Danning Gill also filed, served, and apparently drafted every single Joinder, even those signed by individuals purporting to be filing "in pro per." See Ex. 6 (Joinders). This is evidenced by the fact that all proofs of service are from Danning Gill's office, and the Joinders are all identical documents, sharing the same exact text, type face, footers, punctuation, and spacing in terms of paragraph breaks and signature blocks. Some even bear a blank in the text for the Objector to fill in his/her name. Additionally, the Joinders bear virtually identical footers/file numbers as "Mr. Bernstein's" Objection. B. THIS WRONGFUL CONDUCT HAS BEEN HIDDEN FROM THE COURT. Telling of the true individuals behind the Objection and Joinders are the lengths that Danning Gill and the net debtors they represent have gone to to disguise the extent of their involvement.- If it was not various net debtors at play behind the Objection (which is hard to believe), then Mr. Bernstein would be able to testify to that fact. But, perhaps conveniently, he will not appear for his deposition. In fact, Mr. Bernstein "authorized" the filing of the Objection at a time when he knew he would be in Florida, where he has decided to stay until well after the date of the hearing on the Motion to approve the proposed Disclosure Statement. See Ex. 2 (letter from Danning Gill). Additionally, each Joinder lists the Objector as "in pro per" (or in one case as represented by another), even though each, as explained above, was obviously prepared, filed, and served by Danning Gill. Each Joinder was also wiped clean of any explicit reference to the Danning Gill firm. Where proofs of service from Danning Gill ordinarily bear the name of the firm in the first paragraph (including the proof re the Objection, see Ex. 7), on the Joinders this information (and no other information) has been removed. See Ex. 6. And the footer/file numbers have been removed from some (but not all) of the Joinders. See id. The answer as to why lies with the obvious: because the Objection and Joinders were orchestrated and effected by net debtors and their counsel. And they cannot let that be known, lest they expose themselves as running afoul of Bankruptcy Rule 2019. C. DANNING GILL HAS VIOLATED BANKRUPTCY RULE 2019. In a chapter 11 reorganization case, every entity purporting to represent more than one creditor (except a court-appointed committee) must file a verified statement setting forth: (1) the name and address of each creditor represented; (2) the nature and amount of each creditor's claim and the time of acquisition thereof, unless it is alleged to have been acquired more than one year prior to the filing of the petition; (3) a recital of the pertinent facts and circumstances in connection with the employment of the entity; (4) with reference to the time of the employment of the entity, the amounts of claims or interests owned by the entity, the times when acquired, the amounts paid therefore, and any sales or other dispositions thereof; and (5) a copy of the instrument granting the entity the authority to act on behalf of creditors. See Fed. R. Bankr. P. 2019(a). On its own initiative or on motion of a party, the Court may examine whether one has failed to comply with Rule 2019(a). See Fed. R. Bankr. P. 2019(b). If the Court determines that an entity has failed to comply with these requirements, it may "refuse to permit that entity, committee, or indenture trustee to be heard further or to intervene in this case, (2) examine any representation provision . . .; and (3) hold invalid any authority, acceptance, rejection, or objection given, procured, or received by an entity or committee who has not complied with this rule ...." Id.; City of Lafayette v. Oklahoma P.A.C. First Ltd. Partnership (In re Oklahoma P.A.C. First Ltd. Partnership), 122 B.R. 387, 392-93 (Bankr. D. Ariz. 1990) (holding that counsel for five unsecured creditors was disqualified from representing one of them, where law firm had failed to comply with Rule 2019(b) and interests of the creditors were not aligned.); In re Ionosphere Clubs, Inc., 101 B.R. 844, 852-53 (Bankr. S.D.N.Y. 1989) (refusing to reach merits of Consumers Union's arguments, and reasoning that "[s]ince CU has not complied with the substantive requirements of Bankruptcy Rule 2019, it is dubious that CU has the power to act on behalf of these eight ticketholders, let alone the entire class of unnamed Ticketholders."). This is consistent with the fact that Rule 2019 was designed "to further the Bankruptcy Code's goal of complete disclosure during the business reorganization process, and was designed to cover entities which, during the bankruptcy case, act in a fiduciary capacity to those they represent, but are not otherwise subject to control of the court." In re CF Holding Corp., 145 B.R. 124, 126 (Bankr. D. Conn. 1992). It also allows the court to "play a role in ensuring that lawyers adhere to certain ethical standards." In re Oklahoma P.A.C. First Ltd., 122 B.R. at 393 By creating, filing, and serving the Objection and Joinders allegedly filed by creditors acting "in pro per" in this case, Danning Gill has effectively become the legal representative for those net creditors whose names appear on the Joinders. However, it has not filed a statement pursuant to Rule 2019(a). The most minimal sanction available to this Court is to strike the offending pleadings from the record, and bar Danning Gill from appearing as counsel in this matter for any creditors. Given the inherent and incurable conflicts between representing both net debtors and creditors simultaneously, as is evident by the arguments that "creditors" are making in the Objection, such action is both necessary and appropriate. See In re Oklahoma P.A.C. First Ltd. Partnership, 122 B.R. at 392-93; see also Reply of Chapter 11 Trustee and Creditors' Committee to Objections to Disclosure Statement at 25-29 (addressing how arguments made in the Objection are net debtor arguments, inconsistent with a maximum and just resolution for creditors). This Court need not tolerate net debtor shenanigans aimed at improperly manipulating the bankruptcy statutes. III. CONCLUSION In light of all of the foregoing, the Trustee and Creditors' Committee respectfully request that this Court, in addition to approving the Disclosure Statement, on its own initiative pursuant to Bankruptcy Rule 2019(b), strike from the record all pleadings and papers filed by Brad Bernstein through the Danning Gill law firm in connection with the Objection, as well as all Joinders therein, and disqualify Danning Gill from appearing as counsel for any purported creditor, including but not limited to Brad Bernstein, in connection with the Objection, the Joinders therein, or any other matter or proceeding in this Chapter 11 case. 1 The Trustee is currently aware of the following individuals joining "Mr. Bernstein's" Objections: Alastair N. Wood, Nancy Roby Wise, David Morse, Charles and Lanna Borom, Edward E. Marsh, Harold Gerlis, Paul J. Hedlund, Marta L. Brewer, Charles N. Ohl, Chelsea and Jack Murgatroyd, Theodore A. Wells, Janet Gildersleve, Marlin Anderson, Joyce Anderson, Marsha Fox, Lisa G. Downey, David Minkoff, Forrest Dockery, Isadore M. Chait, Norm Novitsky, and Randall C. Wise. 2 This Court may wish to disregard the Objection solely on the basis that Mr. Bernstein refused to timely appear for his deposition. 3 Evidence obtained after the Trustees' and Creditors' Committees' Reply papers were already on file (most notably: (1) final confirmation that Brad Bernstein would not be appearing for a timely deposition, and (2) the bcc to Joel Kreiner and Michael Baum) necessitated the filing of this Supplemental Reply. DATED: January 21, 2003 Respectfully submitted, OFFICIAL COMMITTEE OF UNSECURED By: Richard L. Wynne |