EXHIBIT K 

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LABATON SUCHAROW LLP 

Thomas A. Dubbs 

Louis Gottlieb 

Carol C. Villegas 

Jeffrey A. Dubbin (SBN 287199) 

140 Broadway 

New York, New York 10005 

LOWENSTEIN SANDLER LLP 

Michael S. Etkin (pro hac vice)

Andrew Behlmann 

Scott Cargill 

Gabriel Olivera 

One Lowenstein Drive 

Roseland, New Jersey 07068

Lead Counsel to Lead Plaintiff and the 

Proposed Class 

Bankruptcy Counsel to Lead Plaintiff 

and the Proposed Class 

MICHELSON LAW GROUP 

Randy Michelson (SBN 114095) 

220 Montgomery Street, Suite 2100 

San Francisco, California 94104 (additional counsel on Exhibit A) 

Bankruptcy Counsel to Lead Plaintiff 

and the Proposed Class 

UNITED STATES BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA 

SAN FRANCISCO DIVISION 

In re: 

PG&E CORPORATION 

 - and – 

PACIFIC GAS AND ELECTRIC 

COMPANY, 

 Debtors. 

Case No. 19-30088 (DM) (Lead Case) 

Chapter 11 

(Jointly Administered) 

Adv. Pro. No. 19-03039 (DM) 

PG&E CORPORATION, PACIFIC GAS 

AND ELECTRIC COMPANY, 

 Plaintiffs, 

 v. 

PUBLIC EMPLOYEES RETIREMENT 

ASSOCIATION OF NEW MEXICO and 

YORK COUNTY, 

 Defendants. 

SECURITIES LEAD PLAINTIFF’S 

MEMORANDUM OF POINTS AND 

AUTHORITIES IN OPPOSITION TO 

DEBTORS’ MOTION FOR PRELIMINARY 

INJUNCTION AS TO IN RE PG&E CORP. 

SECURITIES LITIG., 18-CV-03509 (N.D. CAL.) 

[Adv. ECF No. 2]

Date: TBD 

Time: TBD 

Before: Hon. Dennis Montali, 

 United States Bankruptcy Court 

 Courtroom 17, 16th Floor 

 450 Golden Gate Avenue 

 San Francisco, California 94102 

Reply Deadline: August 1, 2019 

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TABLE OF CONTENTS 

TABLE OF AUTHORITIES ......................................................................................................... iii 

PRELIMINARY STATEMENT .....................................................................................................1

BACKGROUND .............................................................................................................................3

A. The Securities Litigation ................................................................................................3

B. The Chapter 11 Cases ....................................................................................................3

C. Consolidation with the York County action ...................................................................3

D. The Third Amended Complaint .....................................................................................4

1. Exchange Act Claims ............................................................................................4

2. Securities Act Claims ............................................................................................5

3. The Class ...............................................................................................................5

E. The Non-Debtor Defendants ..........................................................................................5

ARGUMENT ...................................................................................................................................6

I. THE COURT LACKS JURISDICTION TO ENJOIN THE SECURITIES 

LITIGATION. ..........................................................................................................................6

II. THERE IS NO BASIS TO ENJOIN THE SECURITIES LITIGATION. ...............................8

A. The Debtors have not demonstrated the likelihood of a successful 

reorganization. ...............................................................................................................8

B. The Debtors have not demonstrated any risk of imminent, irreparable harm. ..............9

1. The Securities Litigation will not impact the Debtors’ reorganization 

efforts. ...................................................................................................................9

2. The continued prosecution of the Securities Litigation against the NonDebtor Defendants does not “risk recovery against the Debtors’ estates 

outside the claims resolution process” or otherwise circumvent the 

Bankruptcy Code. ...............................................................................................10

(a) D&O Insurance .........................................................................................10

(b) Indemnification ........................................................................................15

3. The Debtors’ preclusion arguments are misplaced. ............................................20

4. Distraction ...........................................................................................................21

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C. Enjoining the continued prosecution of the Securities Litigation against the 

Non-Debtor Defendants would cause greater harm to Lead Plaintiff and the 

Class than the Debtors will face without an injunction. ..............................................22

D. The proposed injunction is inimical to the public interest because it threatens 

the integrity of public securities markets. ....................................................................23

1. The proposed injunction would not aid the Debtors’ reorganization. ................23

2. There is a strong public interest in the integrity of the securities markets. ........24

CONCLUSION ..............................................................................................................................25

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TABLE OF AUTHORITIES 

 Page(s) 

Cases 

A.H. Robins Co. v. Piccinin, 

788 F.2d 994 (4th Cir. 1986) ...................................................................................................19 

In re Adelphia Commc’ns Corp., 

298 B.R. 49 (S.D.N.Y. 2003) ...................................................................................................14 

In re All Seasons Resorts, Inc., 

79 B.R. 901 (Bankr. C.D. Cal. 1987) .......................................................................................17 

In re Allied Digital Techs. Corp., 

306 B.R. 505 (Bankr. D. Del. 2004) ........................................................................................14 

Am. Hardwoods, Inc. v. Deutsche Credit Corp. (In re Am. Hardwoods, Inc.), 

885 F.2d 621 (9th Cir. 1989) .....................................................................................................6 

In re Amfesco Indus., Inc., 

81 B.R. 777 (Bankr. E.D.N.Y. 1988) .................................................................................16, 17 

In re Atlantic Pipeline Corp., 

304 F.3d 135 (1st Cir. 2002) ....................................................................................................23 

Basic Inc. v. Levinson, 

485 U.S. 224 (1988) .................................................................................................................24 

Boucher v. Shaw, 

572 F.3d 1087 (9th Cir. 2009) .................................................................................................16 

Caribbean Marine Servs. Co. v. Baldridge, 

844 F.2d 668 (9th Cir. 1988) ...............................................................................................9, 22 

In re Chateaugay Corp., 

76 B.R. 945 (S.D.N.Y. 1987) ...................................................................................................21 

In re Codfish Corp., 

97 B.R. 132 (Bankr. D.P.R. 1988) ...........................................................................................16

In re Downey Fin. Corp., 

428 B.R. 595 (Bankr. D. Del. 2010) ............................................................................11, 14, 16 

Dura Pharms., Inc. v. Broudo, 

544 U.S. 336 (2005) .................................................................................................................24 

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Duval v. Gleason, 

No. 90-0242, 1990 WL 261364 (N.D. Cal. Oct. 19, 1990) .......................................................8 

In re Enron Corp. Sec., Deriv. & “ERISA” Litig., 

No. 01-3624, 2007 WL 789096 (S.D. Tex. Mar. 12, 2007) ....................................................23 

In re Fabtech Indus., Inc., 

No. 10-1144, 2010 WL 6452908 (B.A.P. 9th Cir. July 19, 2010) .............................................8 

In re Family Health Servs., Inc., 

105 B.R. 937 (Bankr. C.D. Cal. 1989) .....................................................................................19 

First Golden Bancorporation v. Weiszmann, 

942 F.2d 726 (10th Cir. 1991) .................................................................................................19 

Hansberry v. Lee, 

311 U.S. 32 (1940) ...................................................................................................................20 

Heizer Corp. v. Ross, 

601 F.2d 330 (7th Cir. 1979) ...................................................................................................19 

Hirsch v. Arthur Andersen & Co., 

72 F.3d 1085 (2d Cir. 1995).....................................................................................................24 

In re Laminate Kingdom LLC, 

No. 07-10279, 2008 WL 1766637 (Bankr. S.D. Fla. Mar. 13, 2008) ......................................14 

Laventhol, Krekstein, Horwath & Horwath v. Horwitch, 

637 F.2d 672 (9th Cir. 1980), cert. denied, 452 U.S. 963 (1981) ............................................19 

LSM Hotel, LLC v. Serhan (In re LSM Hotel, LLC), 

No. 10-13024, 2011 WL 588501 (Bankr. S.D. Cal. Feb. 9, 2011) ............................................8 

In re MF Global Holdings Ltd., 

515 B.R. 193 (Bankr. S.D.N.Y. 2014) .....................................................................................14 

In re Mid-American Waste Sys., Inc., 

228 B.R. 816 (Bankr. D. Del. 1999) ........................................................................................18 

Ochs v. Lipson (In re First Cent. Fin. Corp.), 

238 B.R. 9 (Bankr. E.D.N.Y. 1999) .........................................................................................13 

Pacor, Inc. v. Higgins, 

743 F.2d 984 (3d Cir. 1984).....................................................................................................20 

In re Provincetown Boston Airline Inc., 

52 B.R. 620 (Bankr. M.D. Fla. 1985) ........................................................................................8 

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In re Sizzler Restaurants Int’l, Inc., 

262 B.R. 811 (Bankr. C.D. Cal. 2001) .......................................................................................6 

Solidus Networks, Inc. v. Excel Innovations, Inc. (In re Excel Innovations, Inc.), 

502 F.3d 1086 (9th Cir. 2007) .........................................................................6, 8, 9, 16, 22, 23 

Steel Workers Pension Tr. v. Citigroup, Inc., 

295 B.R. 747 (E.D. Pa. 2003) ....................................................................................................7 

Taylor v. Sturgell, 

553 U.S. 880 (2008) .................................................................................................................20 

Teledyne Indus., Inc. v. Eon Corp., 

401 F. Supp. 729 (S.D.N.Y. 1975), aff’d sub nom Teledyne Indus., Inc. v. 

Podell, 546 F.2d 495 (2d Cir. 1976) ........................................................................................24 

The Official Comm. of Creditors Holding Unsecured Claims v. Painewebber Inc. 

(In re De Laurentiis Enter. Grp., Inc.), 

124 B.R. 305 (C.D. Cal. 1991) ................................................................................................18 

Tuller v. Tintri, Inc., 

No. 17-05714, 2018 WL 4385652 (N.D. Cal. Sept. 14, 2018) ................................................20 

In re W.R. Grace & Co., 

386 B.R. 17 (Bankr. D. Del. 2008) ..........................................................................................17

Wellness Int’l. Network, Ltd. v. Sharif, 

135 S. Ct. 1932 (2015) ...............................................................................................................6 

In re World Health Alternatives, Inc., 

369 B.R. 805 (Bankr. D. Del. 2007) ........................................................................................14 

Statutes 

11 U.S.C. § 105(a) ...........................................................................................................................1 

11 U.S.C. § 502(e)(1)(B) .....................................................................................................3, 18, 19 

11 U.S.C. § 510(b) .........................................................................................................................18 

15 U.S.C. § 77z-1 ...........................................................................................................................22 

15 U.S.C § 78u-4(b)(3)(B) .............................................................................................................22 

Other Authorities 

2 A. Bromberg & L. Lowenfels, Securities Fraud & Commodities Fraud (2d ed.) 

§ 5.7..........................................................................................................................................19 

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18A Charles Alan Wright, et al., Federal Practice & Procedure § 4460 (3d ed.) ........................21 

Restatement (Second) of Judgments § 59 (1982) ..........................................................................21 

 

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Public Employees Retirement Association of New Mexico (“Lead Plaintiff” or “PERA”), 

the court-appointed lead plaintiff in the securities class action captioned as In re PG&E 

Corporation Securities Litigation, Case No. 18-03509 (the “Securities Litigation”) pending in 

the U.S. District Court for the Northern District of California (the “District Court”) and a 

defendant in the above-captioned adversary proceeding, on behalf of itself and the proposed class 

it represents in the Securities Litigation (the “Class”), together with York County on behalf of 

the County of York Retirement Fund, City of Warren Police and Fire Retirement System, and 

Mid-Jersey Trucking Industry & Local No. 701 Pension Fund (collectively, the “Securities Act 

Plaintiffs”), hereby submit this memorandum in opposition (the “Opposition”)1 to the motion 

(the “Motion”) [Adv. ECF. No. 2]2 of the above-captioned debtors in possession (the “Debtors” 

or “PG&E”) for the extraordinary remedy of a preliminary injunction under Section 105(a) of the 

Bankruptcy Code to enjoin prosecution of the Securities Litigation against Non-Debtor 

Defendants (defined below). For the reasons below, the Motion should be denied. 

PRELIMINARY STATEMENT 

The Debtors seek extraordinary relief not given (or in some cases, even sought) in some 

of the largest and most complex Chapter 11 cases, such as Enron, WorldCom, Delphi, 

Washington Mutual, or Lehman Brothers. The Debtors request a broad injunction halting the 

Securities Litigation against forty-four Non-Debtor Defendants, only five of which are employed 

by the Debtors, for an unspecified period of time. In doing so, the Debtors bear the burden of 

demonstrating that they have a reasonable likelihood of successfully reorganizing, that they face 

imminent, irreparable harm, and that the balance of harms favors an injunction. The Debtors 

have fallen woefully short of carrying these burdens, relying on unsupported conjecture and 

faulty legal conclusions with no evidence that they face any harm, much less the imminent, 

irreparable harm necessary to justify enjoining litigation between non-debtors at this early stage 

of the Securities Litigation. 

 

1

 This Opposition is subject to the Reservation of Rights annexed hereto as Exhibit B. 

2

 As used herein, the following docket references refer to the following items: 

[Adv. ECF No. __]: Docket entries in this adversary proceeding;

[BK ECF No. __]: Docket entries in the Chapter 11 Cases; and 

[DC ECF. No. __]: Docket entries in the Securities Litigation. 

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The Court lacks jurisdiction to grant the proposed injunction, because the continued 

prosecution of the Securities Litigation will have no impact on the Debtors, their estates, or any 

creditors. The claims against the Non-Debtor Defendants do not implicate any Debtor property 

pursuant to the unambiguous language of the insurance policies at issue. And the only 

permissible activity in the Securities Litigation for at least the next six months is the briefing, 

argument, and adjudication of the Non-Debtor Defendants’ anticipated motions to dismiss – a 

purely lawyer-driven exercise. This is because federal law stays all discovery in the Securities 

Litigation until the District Court has denied all such motions, pursuant to the Private Securities 

Litigation Reform Act (“PSLRA”). Each of these reasons is sufficient to divest the Court of 

“related to” jurisdiction. 

The Individual Defendants’ defense costs will not have any impact on the Debtors or 

their estates because such costs are covered by the Side A D&O Coverage, which provides firstdollar coverage with no retention, contrary to the Debtors’ assertion that a retention applies. The 

2017 and 2018 D&O Policies, which the Debtors assert may provide coverage for the Securities 

Litigation claims against the Individual Defendants, provide total coverage limits of $250 million 

and $300 million, respectively. Crucially, both Policies contain clear “Priority of Payments” 

clauses whereby the Debtors have contractually relinquished any interest in the D&O Policies so 

long as any claims against their directors and officers remain outstanding: 

If DIRECTORS or OFFICERS incur ULTIMATE NET LOSS 

covered under [Side A], the INSURED ORGANIZATION, 

including any . . . debtor-in-possession . . . , shall have no interest 

in or claim for any payments under this POLICY until all such 

ULTIMATE NET LOSS is paid in full by the INSURER. 

See Decl. of Elizabeth Collier (the “Collier Decl.”) Exs. F and G [Adv. ECF Nos. 3-6 & 3-7] at 

5-6.3

 The Priority of Payment provisions render the Debtors’ claimed harm of insurance 

depletion illusory, not irreparable. 

The Debtors’ remaining economic arguments are similarly baseless. Any claims for 

indemnification asserted by the Non-Debtor Defendants against the Debtors are ordinary pre-

 

3

 Unless otherwise indicated, all emphasis and alterations are added, and all citations or 

quotations are omitted. All citations to the Collier Decl. are to ECF footer numbers. 

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petition claims subject to the bankruptcy claims filing and allowance process, statutorily 

subordinated to all other claims against the Debtors – including wildfire-related property damage 

and personal injury claims – and subject to disallowance under Section 502(e)(1)(B) of the 

Bankruptcy Code. 

The Debtors also have not demonstrated that the public interest favors their proposed 

injunction. There are strong public interests in enforcing the federal securities laws and ensuring 

the integrity of public securities markets through private litigation, such as the Securities 

Litigation. Because the proposed injunction would yield no cognizable benefit to the Debtors’ 

reorganization, no countervailing public interest warrants enjoining the Securities Litigation. 

In light of the Debtors’ across-the-board failure to present any legitimate justification for 

the extraordinary injunctive relief that they seek, the Court should deny the Motion. 

BACKGROUND 

A. The Securities Litigation 

The initial complaint in the Securities Litigation was filed on June 12, 2018 [DC ECF 

No. 1]. On September 10, 2018, the District Court consolidated the Securities Litigation and 

appointed PERA as Lead Plaintiff for the Class [DC ECF No. 62]. Pursuant to that order, Lead 

Plaintiff filed a second amended complaint [DC ECF No. 95] on December 14, 2018. 

B. The Chapter 11 Cases 

On January 29, 2019, the Debtors filed voluntary Chapter 11 bankruptcy cases (the 

“Chapter 11 Cases”). As a result, the Securities Litigation was (and remains) automatically 

stayed solely with respect to the Debtors pursuant to 11 U.S.C. § 362(a). On February 15, 2019, 

the Debtors filed an adversary proceeding, Adv. Pro. No. 19-03006, seeking to enjoin continued 

prosecution of the Securities Litigation and other lawsuits. The Court entered an agreed order on 

May 1, 2019 (the “May 1 Consent Order”), dismissing Lead Plaintiff and establishing a timeline 

for commencing this adversary proceeding, as well as briefing the Motion, after Lead Plaintiff 

filed a Third Amended Complaint (the “TAC”) in the Securities Litigation. 

C. Consolidation with the York County action 

On February 22, 2019, the Securities Act Plaintiffs filed a class action styled as York 

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County v. Rambo, Case No. 19-994 (N.D. Cal.) (the “York County Action”), asserting claims 

under the Securities Act of 1933 (the “Securities Act”) against certain of the Debtors’ current 

and former directors and officers, as well as the underwriters of certain of the Debtors’ notes 

offerings. On May 7, 2019, the District Court consolidated the York County Action with the 

Securities Litigation and authorized Lead Plaintiff to file the TAC [DC ECF No. 117]. 

D. The Third Amended Complaint 

On May 28, 2019, Lead Plaintiff, with the Securities Act Plaintiffs, filed the TAC [DC 

ECF No. 121]. Pursuant to the May 1 Consent Order, the TAC names the Debtors as Exchange 

Act Defendants, with the express understanding that the automatic stay applies with respect to 

the Debtors. The TAC does not name the Debtors as Securities Act Defendants. 

Contrary to the Debtors’ hollow assertion that the Securities Litigation claims “repackage 

the wildfire [personal injury and property damage] claims,” see Motion at 5, the TAC asserts 

direct, independent, cognizable claims against the Non-Debtor Defendants based on their own 

separate, false statements and omissions and other conduct between 2015 and 2018.4 

1. Exchange Act Claims 

The TAC asserts direct, independent claims against the Exchange Act Defendants under 

Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5 promulgated thereunder (the 

“Exchange Act Claims”). Among other things, the TAC alleges that the Exchange Act 

Individual Defendants misled investors from April 29, 2015 through November 15, 2018. 

Among the numerous false statements alleged in the TAC, each of which could be a 

separate basis for liability, are the following (moving chronologically through the Class Period): 

 Before the relevant fires erupted, Individual Defendant Christopher Johns falsely told the 

public on April 29, 2015 that PG&E was “stepping up our vegetation management 

activities to mitigate wildfire risk”; 

 Leading up to the 2017 fires, Individual Defendant Julie Kane issued three false reports 

(on October 16, 2015, October 6, 2016, and August 9, 2017) certifying that PG&E was 

“in compliance with relevant laws” or “complying with state and federal regulations and 

delivering safe, reliable and affordable electric service”; 

 

4

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 After the 2017 wildfires, but before California concluded its investigations into their 

causes, on November 2, 2017, Individual Defendant Geisha Williams assured investors 

the company had “doubl[ed] our typical vegetation management spending” when it did 

not, while Individual Defendant Nick Stavropoulos affirmed that PG&E had “inspect[ed] 

all of our overhead lines” when it had not; and 

 After news about the Debtors’ role in causing the 2017 fires emerged, Individual 

Defendant Julie Kane twice issued false press releases (on May 25, 2018 and June 8, 

2018) certifying that “PG&E meets or exceeds regulatory requirements for pole integrity 

management,” just months before the Camp Fire showed otherwise.

TAC ¶¶ 194, 197, 211, 222, 258, 264, 280, & 287 [DC ECF No. 121]. 

2. Securities Act Claims 

The TAC asserts direct, independent claims against the Securities Act Defendants under 

Sections 11 and 15 of the Securities Act (the “Securities Act Claims”), arising from the Debtors’ 

four public senior notes offerings on March 1, 2016, December 1, 2016, March 10, 2017, and 

April 2, 2018 (the “Notes Offerings”), in which the Debtors offered and sold approximately 

$4.35 billion of registered senior notes (the “Senior Notes”). The TAC alleges that the offering 

documents for the Notes Offerings contained thirty-four materially misleading statements. 

3. The Class 

The Class is comprised of investors who acquired the Debtors’ securities during the Class 

Period and suffered losses as a result of the alleged false statements and omissions, which 

inflated the price of the Debtors’ securities. As the true nature and extent of PG&E’s 

responsibility for these fires materialized, investors holding PG&E’s publicly traded securities 

suffered compensable losses under the federal securities laws. The Class is not defined as, or 

with any reference to, persons who were physically injured or whose property was destroyed. 

E. The Non-Debtor Defendants 

The TAC asserts claims against forty-four non-Debtors (the “Non-Debtor Defendants”): 

(i) fifteen of the Debtors’ former directors and officers (the “Individual Defendants”), (ii) three 

officers and two directors still employed by the Debtors, and (iii) twenty-four investment banks 

that underwrote the Notes Offerings (the “Underwriter Defendants”) and received tens of 

millions of dollars in fees in connection therewith. The TAC alleges that the Underwriter 

Defendants drafted and disseminated the offering documents for each of the Notes Offerings 

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they underwrote, and that their failure to conduct an adequate due diligence investigation was a 

substantial factor leading to the injuries alleged in the TAC. The Underwriter Defendants are not 

insiders or affiliates of the Debtors, and their liability arises solely from their own conduct and/or 

inaction. 

ARGUMENT 

I. THE COURT LACKS JURISDICTION TO ENJOIN THE SECURITIES 

LITIGATION.5

As a general rule, Bankruptcy Courts do not have subject matter jurisdiction to enjoin 

non-bankruptcy litigation between non-debtor parties because they “do[] not have jurisdiction in 

controversies between third parties not involving the debtor or property of the estate.” In re 

Sizzler Restaurants Int’l, Inc., 262 B.R. 811, 816 (Bankr. C.D. Cal. 2001). Bankruptcy Courts

only have related-to subject matter jurisdiction to issue such relief if the non-bankruptcy 

litigation “‘could conceivably have any effect on the administration of the bankruptcy estate.’” 

Solidus Networks, Inc. v. Excel Innovations, Inc. (In re Excel Innovations, Inc.), 502 F.3d 1086, 

1096 (9th Cir. 2007) (quoting Am. Hardwoods, Inc. v. Deutsche Credit Corp. (In re Am. 

Hardwoods, Inc.), 885 F.2d 621, 623-27 (9th Cir. 1989)). Here, the Court does not have subject 

matter jurisdiction to grant the Motion because the Securities Litigation will have no impact on 

the administration of the Chapter 11 Cases. 

First, the TAC asserts claims against the Non-Debtor Defendants for their own 

independent violations of the federal securities laws. See pp. 4-5 above. Unlike cases where 

jurisdiction has been found to exist by virtue of a debtor’s indemnification obligations, see, e.g., 

Sizzler Restaurants, 262 B.R. at 818-19, indemnification for federal securities claims is not 

automatic. Moreover, even if any of the Non-Debtor Defendants become entitled to 

 

5

 The Motion suggests that the Debtors may attempt to bring the Securities Litigation into this 

Court with respect to the Non-Debtor Defendants. See Motion at 3, 6. That issue is not 

before this Court, which, in any event, lacks jurisdiction and Constitutional authority to enter 

a final order or judgment on, or any other order having the effect of a final order or judgment 

with respect to, any claims asserted against any of the Non-Debtor Defendants in the 

Securities Litigation. See, e.g., Wellness Int’l. Network, Ltd. v. Sharif, 135 S. Ct. 1932, 1948-

49 (2015) (knowing and voluntary consent is required for a Bankruptcy Court to adjudicate 

non-bankruptcy claims between non-debtor parties). Lead Plaintiff does not consent to entry 

of any such order or judgment. See Reservation of Rights annexed hereto as Exhibit B. 

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indemnification, their claims would be pre-petition claims subject to the bankruptcy claims 

process, subordinated to all other claims against the Debtors, and to the extent they remain 

contingent, subject to potential disallowance. See pp. 16-20 below. 

Second, the claims asserted against the Non-Debtor Defendants in the TAC do not 

implicate any property of the Debtors. Through the Priority of Payments Clauses in the D&O 

Policies (defined below), the Individual Defendants are entitled to absolute priority in accessing 

insurance coverage, including defense costs. The D&O Policies expressly provide that until all 

of the Individual Defendants’ claims under the Side A D&O Coverage (defined below) are paid 

in full, the Debtors have “no interest in or claim to” any proceeds of the D&O Policies. As a 

matter of law, such proceeds are not property of the Debtors’ estates because the Debtors have 

only a contingent, subordinated right to seek coverage if and only if any coverage remains after 

all claims of the Individual Defendants have been paid in full. See pp. 12-15 below. Even if the 

Securities Litigation against the Individual Defendants completely exhausted the D&O coverage 

limits – a risk the Debtors expressly assumed by purchasing D&O Policies containing robust 

Priority of Payments Clauses – it would not impact the Debtors’ estates. 

Finally, the Securities Litigation will not impact the Debtors for at least the next six 

months because, as a matter of law, discovery in the Securities Litigation cannot commence until 

the District Court has denied all of the Non-Debtor Defendants’ unfiled motions to dismiss the 

TAC. See pp. 21-22 below. Discovery burdens that do not currently exist, and may never exist, 

do not confer jurisdiction on this Court to grant the extraordinary relief the Debtors seek.6

 

Because the continued prosecution of the Securities Litigation against the Non-Debtor 

Defendants, particularly at this early stage in the Securities Litigation, has no present effect on 

the Debtors or their estates, and may never have any effect on the Debtors or their estates, the 

Court does not have jurisdiction to grant the Motion. See Steel Workers Pension Tr. v. 

Citigroup, Inc., 295 B.R. 747, 750 (E.D. Pa. 2003) (“Mere potential impact upon the debtor’s 

estate is insufficient. Contingent liability will not suffice. The necessity of future action to fix 

 

6

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duty to preserve relevant documents and comply with discovery requests in their Chapter 11 

Cases and pending criminal probationary matter – with or without the requested stay. 

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the debtor’s liability after resolution of the pending lawsuit precludes the exercise of ‘related to’ 

jurisdiction.”). 

II. THERE IS NO BASIS TO ENJOIN THE SECURITIES LITIGATION. 

Bankruptcy courts may “enjoin an action against a non-debtor, effectively extending the 

automatic stay to actions . . . that ‘threaten the integrity of a bankrupt’s estate’” only under 

extraordinary and limited circumstances. In re Fabtech Indus., Inc., No. 10-1144, 2010 WL 

6452908 at *3 (B.A.P. 9th Cir. July 19, 2010). Where debtors do not meet their high burden of 

proof, as here, courts will not extend the automatic stay to other defendants in a securities action, 

such as its officers and directors. E.g., Duval v. Gleason, No. 90-0242, 1990 WL 261364, at *4 

(N.D. Cal. Oct. 19, 1990) (refusing to extend automatic stay to individual defendants as “the 

securities laws allow for [their] independent liability . . . without the participation of the 

corporation”); LSM Hotel, LLC v. Serhan (In re LSM Hotel, LLC), No. 10-13024, 2011 WL 

588501 at *3 (Bankr. S.D. Cal. Feb. 9, 2011) (denying request to enjoin lawsuit from continuing 

against non-debtor parties because debtor failed to carry its burden of proof, applying Excel). 

In the Ninth Circuit, “the usual preliminary injunction standard applies to stays of 

proceedings against non-debtors under § 105(a).” Excel, 502 F.3d at 1094-95. To obtain this 

extraordinary relief, a Chapter 11 debtor must demonstrate (1) a reasonable likelihood of a 

successful reorganization, (2) the threat of irreparable harm, (3) a balance of harms that favors 

the proposed injunction, and (4) that the proposed injunction will advance the public interest. 

See id at 1094-96. These requirements are “conjunctive and all of them must be established in 

order to obtain the relief sought.” In re Provincetown Boston Airline Inc., 52 B.R. 620, 625 

(Bankr. M.D. Fla. 1985); see also Excel, 502 F.3d at 1093. Here, the Debtors have failed to 

satisfy their burden on any, much less all, of these criteria. 

A. The Debtors have not demonstrated the likelihood of a successful reorganization. 

The Debtors first must demonstrate a “reasonable likelihood of a successful 

reorganization.” Excel, 502 F.3d at 1095; see id. at 1097 (a finding in the Debtors’ favor must be 

based on at least some evidence). 

The Debtors have offered no evidence demonstrating a reasonable likelihood of a 

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successful reorganization. See Motion at 5 (listing only routine tasks accomplished since the

Petition Date). On a similarly nonexistent record, the Excel court held that the Bankruptcy 

Appellate Panel’s finding of a reasonable likelihood of a successful reorganization was an abuse 

of discretion “because ‘the record contains no evidence on which [the BAP] rationally could 

have based that decision.’” Excel, 502 F.3d at 1097 (alteration original); see LSM Hotel, 2011 

WL 588501 at *3 (“Here, the record is virtually silent on the reasonable likelihood of a 

successful reorganization.”). 

B. The Debtors have not demonstrated any risk of imminent, irreparable harm. 

The Debtors “must do more than merely allege imminent harm sufficient to establish 

standing; [they] must demonstrate immediate threatened injury as a prerequisite to preliminary 

injunctive relief.” See Caribbean Marine Servs. Co. v. Baldridge, 844 F.2d 668, 674 (9th Cir. 

1988). “[C]onclusory allegations are insufficient to establish irreparable harm.” Excel, 502 F.3d 

at 1098-99. Rather, the Court “must ‘identify the harms which a preliminary injunction might 

cause to [Lead Plaintiff and the Class] and . . . weigh these against [the Debtors’] threatened 

injury.’” Id. at 1097 (quoting Caribbean Marine, 844 F.2d at 676). 

The Debtors have fallen well short of carrying their heavy burden on this prong, relying 

exclusively on conclusory assertions, faulty legal premises, and outright conjecture about what 

might occur if the Securities Litigation continues against the Non-Debtor Defendants. They do 

not identify or document any actual harm that they are experiencing or imminently will 

experience if the Securities Litigation proceeds against the Non-Debtor Defendants – much less 

any irreparable harm. The reality is that they face no such harm. 

1. The Securities Litigation will not impact the Debtors’ reorganization efforts. 

The Debtors first assert that the Securities Litigation “effectively seeks damages from the 

Debtors, for conduct allegedly undertaken by the Debtors . . . with consequences that directly 

impact the Debtors” and “threatens to undermine th[e] goal” of having all claims against the 

Debtors resolved by the Bankruptcy Court in the Chapter 11 Cases. Motion at 5-6. As discussed 

in detail below, all of the harms the Debtors claim could befall their estates if the Securities 

Litigation were to continue against the Non-Debtor Defendants – depletion of insurance 

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proceeds, indemnification claims, and distraction of personnel – are unsupported by the 

evidentiary record. Absent evidence of imminent, irreparable injury, there is no basis for the 

broad and extraordinary injunctive relief that the Debtors seek. 

2. The continued prosecution of the Securities Litigation against the Non-Debtor 

Defendants does not “risk recovery against the Debtors’ estates outside the 

claims resolution process” or otherwise circumvent the Bankruptcy Code. 

The Debtors assert that “they also will ultimately bear, directly or indirectly, attorneys’ 

fees and other losses associated with the claims against the Non-Debtor Defendants due to the 

Debtors’ indemnification obligations” and that the Class Claims “may ultimately be paid from 

the estates’ assets, or from insurance coverage in which the Debtors have an interest.” See

Motion at 11. These speculative and unsupported concerns, which are contrary to applicable law 

(as discussed below), would exist in any Chapter 11 case where litigation is ongoing against nondebtors. As such, they do not constitute irreparable harm. 

(a) D&O Insurance 

According to the Debtors, two towers of directors’ and officers’ liability insurance 

policies issued in 2017 and 2018 (the “D&O Policies”) potentially provide coverage for the 

claims asserted against the Non-Debtor Defendants in the Securities Litigation.7 See Decl. of 

Elizabeth Collier (the “Collier Decl.”) [Adv. ECF. No. 3], ¶ 7. The D&O Policies provide three 

types of insurance coverage (“D&O Coverage”): (a) directly to the Individual Defendants, for 

losses that the Debtors do not indemnify (“Side A”); (b) to the Debtors, for losses they incur 

indemnifying the Individual Defendants (“Side B”); and (c) to the Debtors, for losses they incur 

on account of securities claims made directly against them (“Side C”). Id., Adv. ECF. No. 3-6 & 

3-7 (Exs. F and G, at 4). 

The D&O Policies explicitly provide Side A D&O Coverage to the Individual 

Defendants, not to or through the Debtors. Id., Ex. F and Ex. G, at 4 (“The INSURER shall pay 

on behalf of the DIRECTORS and OFFICERS all ULTIMATE NET LOSS for which the 

INSURED ORGANIZATION has not provided indemnification. . . .”). The D&O Policies 

 

7

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limited to any one tower of D&O Policies and reserves all rights with respect thereto. See

pp. 4-5 above (outlining separate wrongful acts occurring in 2015, 2016, 2017, and 2018). 

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further provide that, in the event the Debtors become subject to “FINANCIAL IMPAIRMENT” 

(a defined term that includes the Debtors’ bankruptcy filings), “the INSURER shall pay on 

behalf of the DIRECTORS AND OFFICERS, under [Side A], ULTIMATE NET LOSS which 

would have been indemnified by the INSURED ORGANIZATION but for such FINANCIAL 

IMPAIRMENT.” Id. at 16-17. 

Because any indemnification claims by the Individual Defendants are unsecured, 

subordinated, pre-petition claims, the Debtors cannot indemnify the Non-Debtor Defendants 

during the pendency of the Chapter 11 Cases. See pp. 16-17 below, see also, e.g., In re Downey 

Fin. Corp., 428 B.R. 595, 601 n.16 (Bankr. D. Del. 2010) (“Once an organization files for 

bankruptcy, the Bankruptcy Code prohibits the debtor from indemnifying the officers and 

directors on an ongoing basis. See 11 U.S.C. § 362(a)(3).”). Thus, the Individual Defendants’ 

claims in connection with the Securities Litigation are covered directly by the Side A D&O 

Coverage. 

The D&O Policies further provide that in the event of the Debtors’ bankruptcy, the 

Debtors “waive and release any automatic stay or injunction which may apply to this POLICY or 

its proceeds in such proceeding.” Adv. ECF No. 3-6 & 3-7, Collier Decl., Exs. F and G, at 16-

17. The fact that the Debtors expressly waived any right to assert that the automatic stay 

prevents the Individual Defendants from accessing Side A coverage directly contravenes their 

assertion that proceeds of the D&O Policies are property of the estate. 

Contrary to the Debtors’ assertions, any claims by the Individual Defendants under the 

D&O Policies do not threaten irreparable harm to the Debtors or their estates for at least four 

reasons, each of which is discussed below: (i) the D&O Policies have substantial coverage limits, 

including significant Side A-only excess and difference-in-conditions coverage; (ii) the D&O 

Policies expressly provide that the Debtors have “no interest in or claim for” any proceeds of the 

D&O Policies unless and until all of the Individual Defendants’ claims under Side A have been 

paid in full from policy proceeds, (iii) there is no retention applicable to Side A, and (iv) the 

proceeds of the D&O Policies are not property of the Debtors’ estate. Accordingly, the Debtors’ 

speculation about what might happen to the D&O Proceeds, however unlikely (e.g., Motion at 

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15), does not satisfy their burden of proof to demonstrate immediate, irreparable harm. 

(i) The D&O Policies have substantial coverage limits, including 

significant Side A-only excess and difference-in-conditions D&O 

Coverage. 

The 2017 and 2018 D&O Policies have aggregate coverage limits of $250 million and 

$300 million, respectively. See Decl. of Janaize Markland, [BK ECF No. 2472], ¶¶ 6, 8. Of 

those limits, $50 million (2017) and $100 million (2018) are Side A difference-in-conditions 

coverage that the Debtors admit is “D&O-dedicated insurance.” Id. ¶¶ 6, 8. The remainder of 

coverage under all of the D&O Policies is subject to Priority of Payments Clauses, which provide 

that the Debtors have “no interest in or claim to” any proceeds of the D&O Policies unless and 

until the Individual Defendants’ claims under Side A have been paid in full. 

(ii) Through the Priority of Payments Clauses, the Debtors have no 

interest in or claim to any proceeds of the D&O Policies until all of 

the Individual Defendants’ claims under Side A are paid in full. 

The Debtors ignore the most important feature of the D&O Polices: clauses that explicitly 

and fully subordinate all of the Debtors’ rights to seek any D&O Coverage under Side B or Side 

C to the Individual Defendants’ Side A D&O Coverage (the “Priority of Payments Clauses”). 

See Adv. ECF No. 3-6 & 3-7, Collier Decl., Exs. F and G, at 5-6 (section entitled “V. PRIORITY 

OF PAYMENTS” in 2017 and 2018 primary D&O Policies). The Priority of Payments Clauses 

explicitly provide that the D&O insurers must pay all claims under Side A before paying any 

claims under Side B or Side C, which may be paid “only if and to the extent payment under [Side 

A] does not exhaust the applicable Limit of Liability.” They also expressly anticipate Chapter 11 

proceedings, providing that where the Individual Defendants incur claims under Side A (as they 

have here), the Debtors, even if acting as a “debtor-in-possession,” “shall have no interest in or 

any claim for any payments under this POLICY until” all claims under Side A have been paid 

in full. Id., Exs. F and G, at 6.

Irrespective of which tower or towers of D&O Policies cover the Individual Defendants 

in connection with the Securities Litigation, the Priority of Payments Clauses provide that the 

Debtors have no interest in, or claim for, any D&O Policy proceeds whatsoever unless and until 

all of the Individual Defendants’ claims under Side A have been paid. Id. Only then, if any 

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coverage remains, could the Debtors seek Side B or Side C D&O Coverage. Id. As a result, the 

Debtors have nothing more than a contingent, subordinated right to potentially pursue coverage 

under the D&O Policies if and only if any coverage remains after all of the Non-Debtor 

Defendants’ claims under Side A have been paid in full. 

(iii) There is no self-insured retention under the Side A D&O Coverage. 

The Debtors assert that they must pay retention amounts before coverage is available to 

them under the Side B or Side C D&O Coverage. Motion at 14; Collier Decl., ¶ 8. However, the 

retention amounts applicable to those coverages are irrelevant to the Motion. Side A provides 

D&O Coverage directly to the Individual Defendants where, as here, the Debtors do not 

indemnify the Individual Defendants (whose indemnification claims, if any, are subordinated 

pre-petition claims and thus cannot be paid during the Chapter 11 Cases). See pp. 16-17 below. 

The Motion fails to mention that the Side A D&O Coverage does not have a retention amount. 

See Collier Decl., Exs. F and G, at 2. Thus, the Debtors’ purported concerns that they will be 

obligated to pay retention amounts are baseless. 

(iv) The D&O Policy proceeds are not property of the Debtors’ estates. 

In general, directors’ and officers’ liability insurance policies, such as the D&O Policies, 

are considered to be property of the bankruptcy estates of the companies that purchased them. 

See, e.g., Ochs v. Lipson (In re First Cent. Fin. Corp.), 238 B.R. 9, 15-16 (Bankr. E.D.N.Y. 

1999). However, “[i]n essence and at its core, a D&O Policy remains a safeguard of officer and 

director interests and not a vehicle for corporate protection.” Id. at 16. Consistent with this 

fundamental purpose of D&O insurance, courts distinguish between directors’ and officers’ 

insurance policies from the proceeds of those policies, routinely finding that the proceeds of 

insurance policies such as the D&O Policies are not property of the estate. See, e.g., id. 

(“[T]here is an increasing view that a distinction should be drawn when considering treatment of 

proceeds arising under” D&O insurance policies). “Courts generally closely examine the 

debtor’s rights under the terms of the liability insurance policy at issue in order to determine 

whether holding that the policy proceeds are property of the estate would improperly expand the 

debtor’s rights beyond what rights against others existed at the commencement of the case.” 

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Downey, 428 B.R. at 607. 

Where, as here, a debtor’s rights to coverage under a D&O insurance policy are expressly 

subordinated to the rights of individual insureds, courts consistently hold that the policy proceeds 

are not property of the debtor’s estate.8 See, e.g., In re MF Global Holdings Ltd., 515 B.R. 193, 

198-204 (Bankr. S.D.N.Y. 2014) (holding that “D&O Proceeds are not property of the . . . 

Debtors’ estates,” despite policy limit being exceeded by claimed damages in securities actions); 

In re World Health Alternatives, Inc., 369 B.R. 805, 809 (Bankr. D. Del. 2007) (proceeds of a 

policy are payable only to the directors and officers and are not property of the estate); In re 

Allied Digital Techs. Corp., 306 B.R. 505, 510 (Bankr. D. Del. 2004) (holding that where a D&O 

“policy provides the debtor with indemnification coverage but indemnification either has not 

occurred, is hypothetical, or speculative, the proceeds are not property of the bankruptcy estate”); 

In re Adelphia Commc’ns Corp., 298 B.R. 49, 54 (S.D.N.Y. 2003) (where no indemnification 

claims existed yet, the “estate cannot be ascribed to hold a property interest in those [D&O 

insurance] proceeds”).

Here, the Priority of Payments Clauses cement this distinction. See, e.g., In re Laminate 

Kingdom LLC, No. 07-10279, 2008 WL 1766637, at *3 (Bankr. S.D. Fla. Mar. 13, 2008) 

(holding that “payment of the [D&O] proceeds in accordance with the ‘Priority of Payments 

Endorsement’ does not diminish the protection the Policy affords the estate, as such protection 

is only available after the Costs of Defense are paid”); MF Global, 515 B.R. at 203, 207 (holding 

that “D&O Proceeds are not estate property” in part because any debtor “claim would be subject 

to the D&O Policies’ priority of payments provision”); Downey, 428 B.R. at 608 (holding that 

proceeds were not “property of the estate,” where, as here, the D&O insurance “[p]olicy provides 

a clear chain of priority among the three types of coverages” in priority of payments clauses, 

because to hold otherwise “would necessarily expand the [debtor]’s rights in the Policy 

 

8

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In re Lehman Brothers Holdings Inc., No. 08-13555 (Bankr. S.D.N.Y.), Motion, Doc. No. 

12369, annexed hereto as Exhibit C, at 11-13 (arguing that subordination due to priority of 

payments clauses meant that policy was not property of estate); In re Refco Inc., No. 05-

60006 (Bankr. S.D.N.Y.), Response, Doc. No. 1510, annexed hereto as Exhibit D, at 5-9 

(same). 

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proceeds” beyond the subordinated rights that existed prior to the petition date). Because the 

Priority of Payments Clauses unequivocally provide that the Debtors “have no interest in or 

claim for” any proceeds of the D&O Policies, and instead have only a contingent, subordinated 

right to pursue coverage once all of the Individual Defendants’ claims under Side A are paid in 

full, the proceeds of the D&O Policies cannot be property of the Debtors’ estates.

(b) Indemnification 

The Debtors also argue that they face irreparable harm because they must indemnify the 

Non-Debtor Defendants to the extent permissible by law, stating in conclusory fashion that “[t]he 

Non-Debtor Defendants’ indemnity claims have already begun to accrue, and . . . they will grow 

substantially” if the Securities Litigation is allowed to proceed. See Motion at 11-14. However, 

the Debtors produced no evidence that they are incurring or will incur any actual obligation to 

indemnify the Non-Debtor Defendants during the Chapter 11 Cases – because they cannot do so. 

As detailed below, the specter of indemnification is entirely theoretical. Any 

indemnification claims the Non-Debtor Defendants might assert would be ordinary pre-petition 

claims that the Debtors cannot pay during the Chapter 11 Cases. In addition, any such claims

are subject to the bankruptcy claims process, are subordinated to all other claims against the 

Debtors, and are potentially subject to disallowance under 11 U.S.C. § 502(e)(1)(B). Thus, any 

such claims would not impact the Debtors, their estates, or creditors – much less cause any 

imminent or irreparable harm. 

(i) Indemnification concerns are theoretical and premature. 

First, the Individual Defendants’ defense costs are funded directly by the Side A D&O 

Coverage. See Adv. ECF No. 3-7 & Collier Decl. ¶ 7 (agreeing that the D&O Policies first cover 

Individual Defendants for any “losses incurred in their capacity as officers or directors of the 

Debtors (the ‘Side A Coverage’)”). In light of the very substantial policy limits of the D&O

Policies, indemnity simply is not an issue at this stage, and any purported concerns related to a 

potential settlement or judgment are severely premature. Unsurprisingly, the Debtors have 

presented no evidence of any indemnification costs they are incurring now or reasonably expect 

to incur in the future. Raising the mere possibility of indemnification does not carry Debtors’ 

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burden because “[s]peculative injury cannot be the basis for a finding of irreparable harm.” 

Excel, 502 F.3d at 1098. 

More fundamentally, the mere possibility of a claim for indemnification is not grounds 

for imposition of a stay. See, e.g., In re Codfish Corp., 97 B.R. 132, 135 (Bankr. D.P.R. 1988) 

(noting that indemnification “is common . . . and is not by itself sufficient to warrant that [the] 

automatic stay . . . be extended under 11 U.S.C. § 105(a)”); see also In re Northwest Airlines 

Corp., Adv. Pro. No. 06-01219 (Bankr. S.D.N.Y.), Transcript of Hearing Held Mar. 7, 2006 

(“Northwest Tr.”), at 67:11-20 (declining to stay securities litigation and noting that if the 

possibility of indemnification was a prima facie justification for injunctive relief, “every gardenvariety class action would be subject to a stay against non-debtor defendants”).9

 The Debtors’ 

reliance on Excel (Motion at 5, 11, & 15) is misplaced; there, the Ninth Circuit reversed where a 

“bankruptcy court initially granted the injunction under the mistaken view that any proceeding 

with any conceivable effect on the debtor should be enjoined.” Excel, 502 F.3d at 1099; see also 

Boucher v. Shaw, 572 F.3d 1087, 1093 (9th Cir. 2009) (allowing case to proceed against nondebtor defendants where, as here, “managers are independently liable under the” federal claims 

asserted in the non-bankruptcy proceeding).10

(ii) The Debtors cannot indemnify the Non-Debtor Defendants during 

the pendency of the Chapter 11 Cases. 

Second, as a matter of law, the Debtors cannot indemnify the Non-Debtor Defendants 

during the Chapter 11 Cases because any indemnification claims the Non-Debtor Defendants 

might assert are ordinary pre-petition claims subject to the automatic stay. See, e.g., Downey, 

428 B.R. at 601 n.16 (“Once an organization files for bankruptcy, the Bankruptcy Code prohibits 

the debtor from indemnifying the officers and directors on an ongoing basis. See 11 U.S.C. § 

362(a)(3).”); In re Amfesco Indus., Inc., 81 B.R. 777, 784-86 (Bankr. E.D.N.Y. 1988) (holding 

that current and former directors’ claims for indemnification were pre-petition claims, not 

 

9

 A true and correct excerpt of the Northwest Transcript is attached hereto as Exhibit E. 10 Thus, the Debtors’ citation to Boucher for the proposition that a different result might be 

reached “[i]f the liability of the non-debtor were to affect the property of the bankruptcy 

estate” (Motion at 11) quotes dicta that, under the facts at issue here, weighs against issuance 

of the Debtors’ requested injunction. 

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administrative expense claims). The Amfesco court found that 

[a]ll of the operative facts, legal relationships, and conduct of the 

Applicants upon which is based the threatened litigation occurred prepetition. The indemnification agreement entered into between the 

Applicants and the Debtors occurred pre-petition. Any duty of the Debtors 

to indemnify the Applicants arises from services provided to the prepetition Corporation not for services rendered post-petition to the Debtorsin-Possession. As such, the Applicants’ legal fees claim arises from their 

pre-petition services rather than any post-petition services. 

81 B.R. at 784. 

The circumstances here are identical. All of the operative facts, legal relationships, and 

conduct underlying the Securities Litigation occurred prior to the Petition Date. The 

indemnification agreements and charter provisions allegedly providing rights of indemnity to the 

Non-Debtor Defendants were all entered into prior to the Petition Date. Any duty the Debtors 

may have to indemnify the Non-Debtor Defendants arises from the Non-Debtor Defendants’ 

services as officers, directors, and underwriters for the Debtors prior to the Petition Date. As a 

result, any indemnification claims the Non-Debtor Defendants might assert are ordinary prepetition claims that the Debtors cannot pay during the course of the Chapter 11 Cases. 

(iii) Any indemnification claims of the Non-Debtor Defendants are 

subordinated pre-petition claims subject to the bankruptcy claims 

process. 

Third, the Debtors propose that their “indemnification obligations here are real” (Motion 

at 12) because the Securities Litigation “risks further losses by the Non-Debtor Defendants that 

would ultimately be borne by the Debtors’ estates” by creating “‘fixed and liquidated indemnity 

claims’” (Motion at 13 (quoting In re W.R. Grace & Co., 386 B.R. 17, 34 (Bankr. D. Del. 

2008)). But unlike W.R. Grace, the Non-Debtor Defendants here would only be entitled to assert 

their claims by filing proofs of claim before the general bar date, subject to the claims 

reconciliation process – just like any other pre-petition creditor. See, e.g., In re All Seasons 

Resorts, Inc., 79 B.R. 901, 904 (Bankr. C.D. Cal. 1987) (the debtor’s officers could “seek 

indemnification from [the] debtor, but their claim will be treated like any pre-petition, unsecured 

claim”). Such claims may not be allowed, but even if they are, the Non-Debtor Defendants 

would not receive any payment on account thereof except through distributions under a 

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confirmed Chapter 11 plan – just like any other pre-petition creditor. Thus, the Non-Debtor 

Defendants’ indemnification claims, if ever asserted, do not threaten imminent, irreparable harm 

to the Debtors. They would be ordinary pre-petition claims that would proceed through the 

bankruptcy claims process irrespective of whether the Court grants the Motion. 

(iv) Any indemnification claims arising from the Securities Litigation 

are subordinated and subject to disallowance under the Bankruptcy 

Code. 

Fourth, even if the Non-Debtor Defendants file indemnification claims that ultimately are 

allowed, those claims are subordinated to all other claims against the Debtors and thus cannot 

impact the Debtors’ estates or other creditors. The claims asserted in the TAC all arise from 

purchases and sales of securities of the Debtors. Any claims the Non-Debtor Defendants might 

assert against the Debtors for indemnification in connection with the Securities Litigation would 

be statutorily subordinated to all unsecured claims against the Debtors pursuant to 11 U.S.C. 

§ 510(b), which provides: 

For the purpose of distribution under this title, a claim arising from 

rescission of a purchase or sale of a security of the debtor or of an affiliate 

of the debtor, for damages arising from the purchase or sale of such a 

security, or for reimbursement or contribution allowed under Section 

502 on account of such a claim, shall be subordinated to all claims or 

interests that are senior to or equal the claim or interest represented by 

such security, except that if such security is common stock, such claim has 

the same priority as common stock. 

11 U.S.C. § 510(b); The Official Comm. of Creditors Holding Unsecured Claims v. Painewebber 

Inc. (In re De Laurentiis Enter. Grp., Inc.), 124 B.R. 305, 310 (C.D. Cal. 1991) (subordinating 

underwriter’s claim for reimbursement of attorneys’ fees incurred in defense of a securities 

action); see also In re Mid-American Waste Sys., Inc., 228 B.R. 816, 829 (Bankr. D. Del. 1999) 

(subordinating claims of debtor’s officers, directors, and underwriters for indemnification of both 

liability and expenses resulting from securities action by purchasers and sellers of the debtor’s 

securities). 

Under Section 510(b), any indemnification claims the Non-Debtor Defendants might 

assert against the Debtors would be subordinated to all of PG&E’s secured and unsecured funded 

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debt, all administrative expenses and priority unsecured claims, all unsecured trade debt, and all 

wildfire-related personal injury and property damage claims. In other words, any 

indemnification claims asserted by the Non-Debtor Defendants, even if allowed, can have no 

impact on the Debtors’ estates or any unsecured creditors. 

Any potential indemnification claims are also subject to disallowance under Section 

502(e)(1)(B) of the Bankruptcy Code, whereby “the court shall disallow any claim for 

reimbursement or contribution of an entity that is liable with the debtor . . . to the extent that . . . 

such claim for reimbursement or contribution is contingent as of the time of allowance or 

disallowance.” 11 U.S.C. § 502(e)(1) & (B). Therefore, if any Non-Debtor Defendants assert 

indemnification claims, such claims are likely to remain contingent and thus be subject to 

mandatory disallowance. 

(v) Indemnification for certain securities law violations is legally 

impermissible. 

Finally, complete indemnification for violating the federal securities laws has been held 

to be contrary to public policy and potentially impermissible. See, e.g., Laventhol, Krekstein, 

Horwath & Horwath v. Horwitch, 637 F.2d 672, 676 (9th Cir. 1980), cert. denied, 452 U.S. 963 

(1981); First Golden Bancorporation v. Weiszmann, 942 F.2d 726, 728 (10th Cir. 1991) (“Courts 

have rejected indemnity for a variety of securities violations because indemnity contravened ‘the 

public policy enunciated by the federal securities laws.’”) (quoting 2 A. Bromberg & L. 

Lowenfels, Securities Fraud & Commodities Fraud (2d ed.) § 5.7 (277), at 5:82:78); Heizer 

Corp. v. Ross, 601 F.2d 330, 334 (7th Cir. 1979) (“A securities wrongdoer should not be 

permitted to escape loss by shifting his entire responsibility to another party.”). The Debtors 

here are likely prohibited from indemnifying some or all of the Non-Debtor Defendants’ liability 

in connection with the Securities Litigation, thereby distinguishing A.H. Robins, Family Health 

Services, and the other non-securities cases on which the Debtors rely. See Motion at 12-13 

(citing, inter alia, A.H. Robins Co. v. Piccinin, 788 F.2d 994, 1000 (4th Cir. 1986) and In re 

Family Health Servs., Inc., 105 B.R. 937, 942 (Bankr. C.D. Cal. 1989)). 

Accordingly, the Debtors’ supposed indemnification obligations do not provide a basis 

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for injunctive relief. 

3. The Debtors’ preclusion arguments are misplaced. 

The Debtors also speculate that they could face collateral estoppel, adverse rulings, and 

“record taint” if the Securities Litigation were to proceed. See Motion at 16-18. These concerns 

are not even remotely ripe given the present stage of the Securities Litigation, where the only 

activity for at least the next six months is briefing and arguing the Non-Debtor Defendants’ 

motions to dismiss the TAC.11 

In addition, the Debtors’ long-term fears are not warranted: They cannot be precluded 

by findings in a proceeding in which they are not participating due to the automatic stay. See 

Hansberry v. Lee, 311 U.S. 32, 41 (1940) (“[J]udicial action . . . against the person or property 

of the absent party is not that due process which the Fifth and Fourteenth Amendments 

requires.”); accord Northwest Tr. at 66:10-12 (“Plaintiffs concede, as they must, that the debtors 

will not be bound . . . by a result in the litigation adverse to the [non-debtor] defendants.”); 

Pacor, Inc. v. Higgins, 743 F.2d 984, 995 (3d Cir. 1984) (“Since [debtor] Manville is not a party 

to the Higgins-Pacor action, it could not be bound by res judicata or collateral estoppel.”). 

The Debtors also express concern that the Non-Debtor Defendants will be deemed their 

“virtual representative” and thus “risk the possibility of binding PG&E itself.” Motion at 16. 

But in 2008, the Supreme Court struck down that exact theory of preclusion. Taylor v. Sturgell, 

553 U.S. 880, 904 (2008) (“[W]e disapprove the theory of virtual representation”). 

Unsurprisingly, the only federal preclusion cases that the Debtors cite predate Taylor. Motion at 

16-17. After Taylor, the automatic stay simply does not compel the Debtors to forfeit their right 

to defend themselves.12

 

11 In fact, such limited activity in the Securities Litigation may span a considerably longer time 

period if the District Court grants any part of a motion to dismiss with leave to amend, or if 

an appeal is taken from any final judgment of dismissal. 12 The Debtors repeatedly cite Tuller v. Tintri to support their preclusion argument. Motion at 7, 

17, & 18 (citing Tuller v. Tintri, Inc., No. 17-05714, 2018 WL 4385652 (N.D. Cal. Sept. 14, 

2018)). In Tuller, the district court’s view that a judgment against non-debtor parties might 

preclude the debtor (Id. at *2) was dicta and inconsistent with the above Supreme Court

authority. The Tuller court also found that the operative complaint failed to plead “much, if 

any, particularization,” a fact that the court acknowledged “present[ed] a special 

circumstance” to extend the stay. Id. That circumstance does not exist here. 

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The Debtors’ fears of being bound by adverse developments against the Individual 

Defendants are similarly unfounded, given that the litigation they seek to enjoin is a securities 

action. Although officers’ actions may be imputed to their corporation, the Debtors confound 

this basic agency principle with collateral estoppel, whereby “corporations are treated as entities 

separate from their officers, directors and shareholders for purposes of preclusion,” and “a 

judgment entered in an action against any one of them is not binding on any other.” 18A Charles 

Alan Wright, et al., Federal Practice & Procedure § 4460 (3d ed.); see also Restatement 

(Second) of Judgments § 59 (1982) (“nor does a judgment in an action involving a party who is 

an officer [or] director . . . have preclusive effects on the corporation itself” except in limited 

circumstances not present here). 

Further, as noted above, discovery in the Securities Litigation is stayed by the PSLRA, 

and will remain stayed until the Non-Debtor Defendants file motions to dismiss and the District 

Court denies them. Accordingly, no facts will be unearthed and the District Court will make no 

factual findings – much less any that risk precluding the Debtors – for the foreseeable future. 

4. Distraction 

To demonstrate irreparable harm based on distraction of management, the Debtors “must 

submit more than conclusory proof that lawsuits against management will divert management’s 

time and resources away from the reorganization.” See In re Chateaugay Corp., 76 B.R. 945, 

948-49 (S.D.N.Y. 1987). The Debtors hypothesize that the continued prosecution of the 

Securities Litigation against the Non-Debtor Defendants “will draw the Debtors’ employees, at 

all levels of the company, away from the administration of the Chapter 11 Cases and related 

issues[,]” Motion at 19, without providing any evidence that any distraction has occurred during 

the nearly six months that the Chapter 11 Cases have been pending. Continuing to speculate, the 

Debtors assert that “there is a very real risk that its prosecution and attendant discovery would 

ultimately divert the debtor’s resources and attention from the bankruptcy process, and possibly 

deprive this Court of control over issues central to its administration of the estates.” Id. at 20. 

These concerns are baseless. 

As an initial matter, this supposed burden and distraction is irrelevant with respect to the 

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thirty-nine Non-Debtor Defendants who are no longer affiliated with the Debtors. And the 

Debtors have again presented nothing more than conjecture, unsupported by any evidence, with 

respect to the handful of Individual Defendants who remain affiliated with the Debtors. The 

Debtors have failed to demonstrate that the Securities Litigation has imposed any burden on the 

five Individual Defendants who are affiliated with the Debtors, or that it will impose any burden 

on them in the foreseeable future. 

Moreover, the Securities Litigation is subject to the PSLRA discovery stay, pursuant to 

which all discovery in that case is automatically stayed during the pendency of any motion to 

dismiss. See 15 U.S.C. §§ 77z-1(b)(1), 78u-4(b)(3)(B). And even if the PSLRA discovery stay 

ultimately terminates (i.e., if the District Court denies the Non-Debtor Defendants’ anticipated 

motions to dismiss the TAC) while the Chapter 11 Cases remain pending, the Debtors would 

likely be in a very different position at that point, as will the Chapter 11 Cases. 

If Lead Plaintiff or any other party seeks to take discovery from the Debtors at some 

future time while the Chapter 11 Cases remain pending, this Court would have an opportunity to 

consider the potential burden that discovery could impose upon the estates if and when that 

issue becomes ripe for adjudication, rather than prematurely imposing a blanket stay based upon 

unsupported conjecture about theoretical litigation burdens that don’t yet, and may never, exist. 

C. Enjoining the continued prosecution of the Securities Litigation against the NonDebtor Defendants would cause greater harm to Lead Plaintiff and the Class 

than the Debtors will face without an injunction. 

Under the injunction standard, the Court “balance[s] the [Debtors’] likelihood of 

successfully reorganizing with the relative hardship of the parties.” Excel, 502 F.3d. at 1100. 

The “relative hardship” element of this analysis considers both the prospective harm faced by the 

Debtors absent an injunction and the harm an injunction would cause Lead Plaintiff and the 

Class. Both are crucial. See Caribbean Marine, 844 F.2d at 677 (holding that “failure to 

identify, evaluate, and weigh the potential harm alleged by” the non-debtor party against whom a 

debtor seeks injunctive relief constitutes reversible error). Here, whereas the Debtors have not 

demonstrated any risk of cognizable harm to their estates, enjoining the continued prosecution of 

the Securities Litigation against the Non-Debtor Defendants for an indeterminate period of time 

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would cause substantial harm to Lead Plaintiff and the Class. Just as in Excel, an open-ended 

stay of the Securities Litigation would preclude Lead Plaintiff from bringing claims against the 

Non-Debtor Defendants on behalf of itself and the Class “at a time of its choosing.” See 502 

F.3d at 1097. It would be fundamentally unjust to stymie the continued prosecution of the 

Securities Litigation where no party other than the Non-Debtor Defendants themselves and the 

insurers under the D&O Policies would benefit from the delay. Cf. In re Atlantic Pipeline Corp., 

304 F.3d 135, 147 (1st Cir. 2002) (“[I]t is trite but often true that justice delayed is justice 

denied”). 

Moreover, the proposed injunction would inflict irreparable harm on Lead Plaintiff and 

the Class. The passage of time and fading of memories would impact the Securities Litigation 

more surely than any of the theoretical risks to the Debtors’ estates. See In re Enron Corp. Sec., 

Deriv. & “ERISA” Litig., No. 01-3624, 2007 WL 789096, at *1 (S.D. Tex. Mar. 12, 2007) 

(declining to stay securities class action because “delay will only increase financial hardship to 

plaintiffs and add to the prejudice” because “[w]ith the passage of time, inevitably witnesses 

become unavailable, memories fade, and the risk of documents being lost rises.”). 

D. The proposed injunction is inimical to the public interest because it threatens the 

integrity of public securities markets. 

The final factor the Debtors must demonstrate is that the proposed injunction advances 

the public interest. See Excel, 502 F.3d at 1096. The Debtors assert that “[t]he public interest in 

a successful reorganization is particularly prevalent here,” and then state several reasons why 

they view their reorganization as important. See Motion at 22. However, as detailed below, the 

Debtors’ conclusory assertions completely miss the mark. 

1. The proposed injunction would not aid the Debtors’ reorganization. 

The Debtors have not even attempted to explain how the broad, open-ended injunction 

they seek would serve the public’s interest in their reorganization. As discussed above, the 

continued prosecution of the Securities Litigation against the Non-Debtor Defendants will not 

impact the Debtors’ reorganization efforts. Because the proposed injunction would not aid the 

Debtors’ reorganization efforts, the public interest cannot weigh in favor of issuing it. 

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2. There is a strong public interest in the integrity of the securities markets. 

In stark contrast to the absence of any cognizable benefit to the public interest, the 

Debtors’ proposed injunction would severely harm the public interest in ensuring the integrity of 

the U.S. equity and capital markets as well as the public trust and investor confidence that result 

from maintaining that integrity. The United States Supreme Court has long held that there is a 

public interest in the integrity of the securities markets. See, e.g., Basic Inc. v. Levinson, 485 

U.S. 224, 230 (1988). A fundamental purpose of the federal securities laws is “to maintain 

public confidence in the marketplace . . . by deterring fraud, in part, through the availability of 

private securities fraud actions.” See Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 345 (2005). 

This purpose does not shift even though the issuer of securities has filed bankruptcy. Hirsch v. 

Arthur Andersen & Co., 72 F.3d 1085, 1094 (2d Cir. 1995) (noting that securities fraud claims 

brought by private investors were “being vigorously litigated” outside of the Bankruptcy Court). 

Indeed, securities fraud claims can only be prosecuted by investors, not by a Chapter 11 debtor or 

trustee. Id. at 1093-1095; see also Teledyne Indus., Inc. v. Eon Corp., 401 F. Supp. 729, 734–36 

(S.D.N.Y. 1975), aff’d sub nom Teledyne Indus., Inc. v. Podell, 546 F.2d 495 (2d Cir. 1976). 

Prohibiting the Securities Litigation from proceeding against the Non-Debtor Defendants 

would diminish the safeguards of the federal securities laws. Securities class actions involving 

the debtors in some of the largest and most complicated Chapter 11 bankruptcy proceedings 

continued notwithstanding the debtors’ bankruptcy proceedings, including Enron, WorldCom, 

Delphi, Washington Mutual, and Lehman Brothers, and plans of reorganization or liquidation 

were confirmed in those cases. The proposed injunction sought here not only would ignore these 

lessons of past experience, but also would set a dangerous precedent. See, e.g., Northwest Tr. at 

35:3-6 (“[I]f I stay their action, I think the result would be that any class action brought against 

any large company in bankruptcy would be stayed.”). 

Quite simply, a stay of the Securities Litigation with respect to the Non-Debtor 

Defendants violates the public interest, and sound public policy requires that the Motion be 

denied. 

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CONCLUSION 

For all of the foregoing reasons, the Motion should be denied. 

Dated: July 18, 2019 LOWENSTEIN SANDLER LLP 

MICHELSON LAW GROUP 

By: /s/ Randy Michelson 

Randy Michelson (SBN 114095) 

Bankruptcy Counsel to Lead Plaintiff and the Class 

- and - 

LABATON SUCHAROW LLP

Lead Counsel to Lead Plaintiff and the Class 

- and - 

WAGSTAFFE, VON LOEWENFELDT, BUSCH 

& RADWICK, LLP 

Liaison Counsel for the Class

- and - 

ROBBINS GELLER RUDMAN & DOWD LLP 

Counsel for the Securities Act Plaintiffs 

- and - 

VANOVERBEKE, MICHAUD & TIMMONY, 

P.C.

Additional Counsel for the Securities Act Plaintiffs

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EXHIBIT A 

COUNSEL 

LOWENSTEIN SANDLER LLP 

Michael S. Etkin (Pro Hac Vice)

Andrew Behlmann 

Scott Cargill 

Gabriel Olivera 

One Lowenstein Drive 

Roseland, New Jersey 07068 

Telephone 973-597-2500 

Facsimile 973-597-2333 

metkin@lowenstein.com 

abehlmann@lowenstein.com 

MICHELSON LAW GROUP 

Randy Michelson, Esq. (SBN 114095) 

220 Montgomery Street, Suite 2100 

San Francisco, CA 94104 

Telephone 415-512-8600 

Facsimile 415-512-8601 

randy.michelson@michelsonlawgroup.com 

Bankruptcy Counsel to Lead Plaintiff and the Proposed Class 

LABATON SUCHAROW LLP

Thomas A. Dubbs 

Louis Gottlieb 

Carol C. Villegas 

Jeffrey A. Dubbin (SBN 287199) 

Aram Boghosian 

140 Broadway 

New York, New York 10005 

Telephone 212-907-0700 

tdubbs@labaton.com 

lgottlieb@labaton.com 

cvillegas@labaton.com 

jdubbin@labaton.com 

aboghosian@labaton.com 

Lead Counsel to Lead Plaintiff and the 

Proposed Class 

WAGSTAFFE, VON LOEWENFELDT, 

BUSCH & RADWICK, LLP 

James M. Wagstaffe (SBN 95535) 

Frank Busch (SBN 258288) 

100 Pine Street, Suite 725 

San Francisco, California 94111 

Telephone 415-357-8900 

wagstaffe@wvbrlaw.com 

busch@wvbrlaw.com 

Liaison Counsel for the Proposed Class

ROBBINS GELLER RUDMAN & DOWD LLP 

Darren J. Robbins (SBN 168593) 

Brian E. Cochran (SBN 286202) 

655 West Broadway, Suite 1900 

San Diego, California 92101 

Telephone 619-231-1058 

darrenr@rgrdlaw.com 

bcochran@rgrdlaw.com 

ROBBINS GELLER RUDMAN & DOWD LLP 

Willow E. Radcliffe (SBN 200089) 

Kenneth J. Black (SBN 291871) 

Post Montgomery Center 

One Montgomery Street, Suite 1800 

San Francisco, California 94104 

Telephone 415-288-4545 

willowr@rgrdlaw.com 

kennyb@rgrdlaw.com 

VANOVERBEKE, MICHAUD & 

TIMMONY, P.C.

Thomas C. Michaud 

79 Alfred Street 

Detroit, Michigan 48201 

Telephone 313-578-1200 

tmichaud@vmtlaw.com 

Additional Counsel for the Securities Act Plaintiffs 

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EXHIBIT B 

RESERVATION OF RIGHTS 

This Opposition and any subsequent pleading, appearance, argument, claim, or suit 

made or filed by Lead Plaintiff, either individually or for the Class or any member thereof, 

do not, shall not, and shall not be deemed to: 

a. constitute a submission by Lead Plaintiff, either individually or for the Class 

or any member thereof, to the jurisdiction of the Bankruptcy Court; 

b. constitute consent by Lead Plaintiff, either individually or for the Class or 

any member thereof, to entry by the Bankruptcy Court of any final order or 

judgment, or any other order having the effect of a final order or judgment, 

in any non-core proceeding, which consent is hereby withheld unless, and 

solely to the extent, expressly granted in the future with respect to a specific 

matter or proceeding; or 

c. waive any substantive or procedural rights of Lead Plaintiff or the Class or 

any member thereof, including but not limited to (a) the right to challenge 

the constitutional authority of the Bankruptcy Court to enter a final order or 

judgment, or any other order having the effect of a final order or judgment, 

on any matter; (b) the right to have final orders and judgments, and any 

other order having the effect of a final order or judgment, in non-core 

matters entered only after de novo review by a United States District Court 

judge; (c) the right to trial by jury in any proceedings so triable herein, in the 

Chapter 11 Cases, including all adversary proceedings and other related 

cases and proceedings (collectively, “Related Proceedings”), in the Securities 

Litigation, or in any other case, controversy, or proceeding related to or 

arising from the Debtors, the Chapter 11 Cases, any Related Proceedings, or 

the Securities Litigation; (d) the right to seek withdrawal of the bankruptcy 

reference by a United States District Court in any matter subject to 

mandatory or discretionary withdrawal; or (e) all other rights, claims, 

actions, arguments, counterarguments, defenses, setoffs, or recoupments to 

which Lead Plaintiff or the Class or any member thereof are or may be 

entitled under agreements, at law, in equity, or otherwise, all of which rights, 

claims, actions, arguments, counterarguments, defenses, setoffs, and 

recoupments are expressly reserved. 

 For the avoidance of doubt, Lead Plaintiff, on behalf of itself and the Class, (a) 

reserves all rights with respect to any attempt by the Debtors and/or the Non-Debtor 

Defendants to (i) transfer venue of the Securities Litigation to this Court or (ii) otherwise 

seek any order of this Court adjudicating, releasing, waiving, enjoining, or otherwise 

impacting the claims of Lead Plaintiff and the Class or any member thereof against any 

Non-Debtor Defendants now or hereafter named in the Securities Litigation, and (b) does 

not, and will not impliedly, consent to this Court’s adjudication of the claims asserted 

against any Non-Debtor Defendants now or hereafter named in the Securities Litigation. 

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EXHIBIT C 

In re Lehman Brothers Holdings Inc., No. 08-13555 (Bankr. S.D.N.Y.) 

Motion, Doc. No. 12369 

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Hearing Date and Time: November 17, 2010 at 10:00 a.m. (Prevailing Eastern Time) 

Objection Date and Time: November 10, 2010 at 4:00 p.m. (Prevailing Eastern Time) 

WEIL, GOTSHAL & MANGES LLP 

767 Fifth Avenue 

New York, New York 10153 

Telephone: (212) 310-8000 

Facsimile: (212) 310-8007 

Richard P. Krasnow 

Attorneys for Debtors 

and Debtors in Possession 

UNITED STATES BANKRUPTCY COURT 

SOUTHERN DISTRICT OF NEW YORK 

-------------------------------------------------------------------x 

 : 

In re : Chapter 11 Case No. 

 : 

LEHMAN BROTHERS HOLDINGS INC., et al., : 08-13555 (JMP) 

 : 

 Debtors. : (Jointly Administered) 

 : 

-------------------------------------------------------------------x 

DEBTORS’ MOTION, PURSUANT TO SECTION 362 OF THE BANKRUPTCY 

CODE, FOR AN ORDER MODIFYING THE AUTOMATIC STAY TO ALLOW 

ADVANCEMENT UNDER (I) 2007-2008 DIRECTORS AND OFFICERS INSURANCE 

POLICIES BY ZURICH AMERCIAN INSURANCE COMPANY, ACE BERMUDA 

INSURANCE LTD. AND ST. PAUL MERCURY INSURANCE COMPANY, AND (II) 

2008-2009 DIRECTORS AND OFFICERS INSURANCE POLICIES BY XL SPECIALTY 

INSURANCE COMPANY AND FEDERAL INSURANCE COMPANY

TO THE HONORABLE JAMES M. PECK 

UNITED STATES BANKRUPTCY JUDGE: 

Lehman Brothers Holdings Inc. (“LBHI”) and its affiliated debtors in the abovereferenced chapter 11 cases, as debtors and debtors in possession (together, the “Debtors” and, 

collectively with their non-debtor affiliates, “Lehman”), file this Motion and respectfully 

represent: 

Preliminary Statement

1. On three prior occasions, the Debtors have sought and obtained orders 

modifying the automatic stay provided for under section 362(a) of title 11 of the United States 

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Code (the “Bankruptcy Code”), to the extent applicable, to remove any impediments to payment 

by certain of the Debtors’ primary and excess insurers of directors’ and officers’ liability of 

defense costs and fees that current or former directors, officers and employees of the Debtors 

were incurring as defendants in ongoing federal securities lawsuits and regulatory and other 

actions and investigations.1 By this Motion, the Debtors seek the entry of a similar form of order 

granting relief from the automatic stay with respect to (i) Zurich American Insurance Company 

(“Zurich”), ACE Bermuda Insurance Ltd. (“ACE”) and St. Paul Mercury Insurance Co. (“St. 

Paul”), the fifth, sixth and seventh excess insurers, respectively, under the Debtors’ 2007-2008 

directors and officers liability insurance program (the “2007-2008 D&O Policies”), and (ii) XL 

Specialty Insurance Company (“XL”) and Federal Insurance Company (“Chubb”), the primary 

and first excess insurers under the Debtors’ 2008-2009 directors and officers liability insurance 

program (the “2008-2009 D&O Policies,” together with the 2007-2008 D&O Policies, the “D&O 

Policies”).2

2. For Claims3 made against the Individual Defendants (defined below) 

during the period from May 16, 2007 to May 16, 2008 (the “2007-2008 D&O Policy Period”), 

 

1

See Orders dated March 25, 2009 [Docket No. 3220] (modifying automatic stay to allow advancement 

of defense costs with respect to XL Specialty Insurance Co. with respect to the 2007-2008 Policy Period); 

November 23, 2009 [Docket No. 5906] (modifying the automatic stay to allow advancement of defense 

costs with respect to Federal Insurance Co. with respect to the 2007-2008 D&O Policy Period); and 

August 20, 2010 [Docket No. 10945] (modifying the automatic stay to allow advancement of defense 

costs with respect to Continental Casualty Co., Certain Underwriters at Lloyd’s London, and U.S. 

Specialty Insurance Co. with respect to the 2007-2008 D&O Policy Period) (collectively, the “Prior Stay 

Orders”). Concurrently herewith, the Debtors are filing a motion for relief from the automatic stay, to the

extent applicable, to permit Certain Underwriters at Lloyd’s, London to advance $10 million of insurance 

proceeds for the payment of settlement costs in accordance with a settlement agreement among Alex E. 

Booth, the Booth Foundation, Inc. and Richard S. Fuld (the “Settlement Advancement Motion”). 

2

 A copy of the 2007-2008 primary D&O Policy and the Zurich, ACE and St. Paul excess Policies are 

attached hereto as Exhibits A, B, C and D, respectively. A copy of the 2008-2009 primary D&O Policy 

and the Chubb excess Policy are attached hereto as Exhibits E and F, respectively. 

3

 Capitalized terms not defined herein shall have the meanings ascribed to them in the applicable Policies. 

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the Debtors purchased the primary 2007-2008 D&O Policy from XL plus additional excess 

coverage for this period from a number of other carriers of up to $250 million in the aggregate. 

The excess policies are all “follow form” policies subject to additional independent terms and 

conditions. That is, the terms and conditions of the primary 2007-2008 D&O Policy govern the 

terms and conditions of each of the excess 2007-2008 D&O Policies, except that each excess 

insurer’s obligations are subject to certain additional terms, such as limits of liability, and attach

only after all Loss within the respective Limits of Liability of the underlying Policies has been 

paid. 

3. Similarly, for Claims made against Individual Defendants during the 

period from May 16, 2008 to May 16, 2011 (the “2008-2009 D&O Policy Period”),4

 the Debtors 

purchased the primary 2008-2009 D&O Policy from XL plus additional excess coverage for this 

period from a number of other carriers also of up to $250 million in the aggregate. Similar to the 

excess 2007-2008 D&O Policies, the excess 2008-2009 D&O Policies generally “follow form” 

to the primary 2008-2009 D&O Policy subject to certain additional terms, such as limits of 

liabilities, and are triggered only after all Loss within the underlying layers of coverage has been 

paid. 

4. As noted above, the Court has entered three Prior Stay Orders modifying 

the automatic stay to allow for the payment of defense costs and fees by the Debtors’ primary 

and first through fourth excess insurers for the 2007-2008 D&O Policy Period providing 

coverage of $70 million in the aggregate. In addition, on December 17, 2009, the Court entered 

an order modifying the automatic stay to permit the payment of settlement amounts by XL and 

 

4

 On June 17, 2010, the Court entered an order granting the Debtors’ motion for authority to purchase an 

additional “tail” (or “run-off” period) for the 2008-2009 D&O Policies to extend the period during which 

notice of Claims may be made under the 2008-2009 D&O Policies through May 16, 2011. See Docket 

No. 9643. 

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Chubb under the 2007-2008 D&O Policy totaling $1,675,000. See Docket No. 6297. Due to the 

continued state of ongoing legal proceedings as well as the settlement payment that will be made 

if the Court approves the Settlement Advancement Motion, it is anticipated that the proceeds 

available under those levels of the 2007-2008 D&O Policies for which relief from the automatic 

stay, to the extent applicable, has been authorized will be exhausted by approximately the end of 

November 2010. Accordingly, the individual Insureds will need to look to the fifth, sixth and 

seventh excess insurers for the 2007-2008 D&O Policy Period for coverage, which was procured 

pre-petition by the Debtors for the benefit of their directors, officers, and employees. 

Collectively, Zurich, ACE and St. Paul provide $55 million in coverage in excess of $70 million 

for the 2007-2008 D&O Policy Period.5

 

5. The insurers for the 2008-2009 D&O Policy Period have recognized 

coverage for certain of the Legal Proceedings (defined below). Accordingly, the individual 

Insureds will look to XL and Chubb, the primary and first excess insurers, respectively, for the 

2008-2009 D&O Policy Period, for payment of legal bills and costs that have been accruing 

since approximately May 12, 2009. Collectively, XL and Chubb provide $35 million in 

coverage for the 2008-2009 D&O Policy Period.6

 

6. As with the Prior Stay Orders, the Debtors seek to assure the insurers that 

are the subject of this Motion that they can make payment of directors and officers coverage of 

defense costs and fees without concern that, if the automatic stay is otherwise applicable, they 

are violating the automatic stay. Granting the relief requested by this Motion is unlikely to have 

 

5

 Specifically, Zurich provides coverage of $15 million in excess of $70 million, ACE provides coverage

of $25 million in excess of $85 million and St. Paul provides coverage of $15 million in excess of $110 

million. 

6

 Specifically, XL provides coverage of an initial $20 million and Chubb provides coverage of $15 

million in excess of $20 million. 

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any adverse effect on the Debtors’ estates and creditors because the interests of the Debtors, if 

any, in the proceeds of the D&O Policies is expressly subordinate to the interest of the individual 

Insureds. Specifically, the applicable insurance policies provide that the Debtors have rights to 

the insurance proceeds only after the insured individuals are fully reimbursed for any “Loss,” 

including defense costs. In addition, confirming the insurers’ ability to pay such defense costs 

and fees is in the best interests of the Debtors because it will avoid the possible collateral 

estoppel effect on the Debtors that could result if the individual Insureds’ inability to defend 

themselves were to give rise to judgments and findings that impacted direct claims against the 

Debtors or to indemnification claims against the Debtors. 

Background

7. Commencing on September 15, 2008 and periodically thereafter (as 

applicable, the “Commencement Date”), LBHI and certain of its subsidiaries commenced with 

this Court voluntary cases under the Bankruptcy Code. The Debtors’ chapter 11 cases have been 

consolidated for procedural purposes only and are being jointly administered pursuant to Rule 

1015(b) of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”). The Debtors 

are authorized to operate their businesses and manage their properties as debtors in possession 

pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 

8. On September 17, 2008, the United States Trustee for the Southern 

District of New York (the “U.S. Trustee”) appointed the statutory committee of unsecured 

creditors pursuant to section 1102 of the Bankruptcy Code. 

9. On September 19, 2008, a proceeding was commenced under the 

Securities Investor Protection Act of 1970 (“SIPA”) with respect to Lehman Brothers Inc. 

(“LBI”). A trustee appointed under SIPA is administering LBI’s estate. 

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10. On January 19, 2009, the U.S. Trustee appointed Anton R. Valukas as 

examiner in the above-captioned chapter 11 cases (the “Examiner”) and by order, dated January 

20, 2009 [Docket No. 2583] the Court approved the U.S. Trustee’s appointment of the Examiner. 

On March 11, 2010, the Examiner filed its report with the Court (the “Examiner’s Report”) 

[Docket No. 7531]. 

11. On April 14, 2010, the Debtors filed their revised joint chapter 11 plan 

[Docket No. 8330] and disclosure statement for their revised joint chapter 11 plan pursuant to 

section 1125 of the Bankruptcy Code [Docket No. 8332]. 

Jurisdiction

12. This Court has subject matter jurisdiction to consider and determine this 

matter pursuant to 28 U.S.C. § 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b). 

Lehman’s Business

13. Additional information regarding the Debtors’ businesses, capital 

structures, and the circumstances leading to the commencement of these chapter 11 cases is 

contained in the Affidavit of Ian T. Lowitt Pursuant to Rule 1007-2 of the Local Bankruptcy 

Rules for the Southern District of New York in Support of First-Day Motions and Applications, 

filed on September 15, 2008 [Docket No. 2]. 

Relief Requested

14. The Debtors request the entry of an order granting relief from the 

automatic stay provided for in section 362(a) of the Bankruptcy Code, to the extent that it 

applies, to allow payments and/or advancements by (i) Zurich, ACE and St. Paul for the 2007-

2008 D&O Policy Period, and (ii) XL and Chubb for the 2008-2009 D&O Policy Period of 

Defense Expenses that are, or will become, owing to the Individual Defendants pursuant to the 

terms of their respective policies. The Debtors further request that the Court waive the 

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requirements of Bankruptcy Rule 4001(a)(3) and direct that the order granting the requested 

relief be effective immediately. 

The Debtors’ Directors and Officers Liability Insurance Policies

15. Pursuant to their advancement and indemnification obligations expressed 

in their by-laws and certificate of incorporation, the Debtors purchased primary and excess 

directors and officers liability (“D&O”) insurance, which provides coverage for the Debtors’ 

current and former officers, directors, and employees in connection with civil, criminal, 

regulatory and other actions and investigations. As noted above, for Claims made against the 

Individual Defendants during the 2007-2008 D&O Policy Period, the Debtors purchased the 

primary 2007-2008 D&O Policy and sixteen excess D&O Policies providing, in the aggregate, 

$250 million in D&O coverage. Similarly, for Claims made against the Individual Defendants 

during the 2008-2009 D&O Policy Periods, the Debtors purchased the primary 2008-2009 D&O 

Policy and seventeen excess D&O Policies providing, in the aggregate, $250 million in D&O 

Coverage. Additionally, the Debtors have received authority to purchase a one-year “tail” or 

“run-off” extension of the 2008-2009 D&O Policies, extending the period during which notice of 

claims may be made under 2008-2009 D&O Policies from May 16, 2010 through and including 

May 16, 2011. See Docket No. 9643. 

16. Subject to their terms, conditions, limitations and exclusions, the 2007-

2008 D&O Policies and the 2008-2009 D&O Policies cover Loss (including Defense Expenses, 

settlements and judgments, among other things) incurred as a result of Claims made during the 

Policy Period for Wrongful Acts allegedly committed by the Individual Defendants in their 

capacity as directors, officers or employees of LBHI and its subsidiaries. Coverage under 

Insuring Agreement (A) for non-indemnifiable loss (“Side A”) of the D&O Policies is 

immediately available to Insured Persons, which includes certain of the Debtors’ present and 

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former officers, directors, and employees, for any Loss resulting from Claims made under the 

D&O Policies that is not otherwise advanced or indemnified by the Debtors by reason of their 

financial insolvency. 

17. Furthermore, both the 2007-2008 D&O Policies and the 2008-2009 D&O 

Policies contain “Priority of Payments” provisions, which provide that when competing claims 

for coverage under both Side A, as described above, and Insuring Agreement (B) (covering 

indemnifiable Claims made against present and former officers, directors and employees) are 

made, “the Insurer shall pay that Loss, if any, which the Insurer may be liable to pay on behalf of 

the Insured Persons under Insuring Agreement (A)... .” See 2007-2008 D&O Policies, 

Endorsement 22; 2008-2009 D&O Policies, Endorsement 11. Thus, each of the D&O Policies, 

by virtue of Insuring Agreement A and the Priority of Payments clauses, provides for the 

immediate payment of the Individual Defendants’ Defense Expenses ahead of any payment that 

may be made to the Debtors. 

The Legal Proceedings

18. Certain former and current directors, officers, and employees of the 

Debtors (collectively, the “Individual Defendants”) are defendants in one or more of multiple 

civil actions brought on behalf of purported classes and individuals and/or are within the scope 

of certain arbitrations or criminal, regulatory or other investigations (collectively, the “Legal 

Proceedings”) described below. Though Debtors were named as defendants in some of the Legal 

Proceedings, they are not participating in those proceedings pursuant to the automatic stay. 

19. Both prior to and after the collapse of the Lehman enterprise in September 

2008, various securities actions were commenced against certain officers and directors in both 

federal and state court. Many of these actions assert, among other claims, violations of sections 

10(b) and 20(a) of the Securities Exchange Act of 1934, and sections 11, 12 and 15 of the 

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Securities Act of 1933 (the “Securities Act”), and arise from various alleged wrongful actions of 

certain Individual Defendants in connection with securities issued by LBHI. Most of these 

actions have been consolidated at least for pre-trial purposes before the Honorable Lewis Kaplan 

in the United States District Court for the Southern District of New York. A second set of 

actions alleging violations of sections 11, 12, and 15 of the Securities Act arise from alleged 

wrongful actions of certain of the Individual Defendants in connection with the plaintiffs’ 

purchase of mortgage-backed securities. These actions have been consolidated and are also 

before Judge Kaplan. There are additional actions, investigations and arbitrations against certain 

Individual Defendants arising out of Lehman-issued securities, auction-rate securities, issues 

common to the class actions and other alleged conduct of the Individual Defendants, asserting 

claims under the federal securities laws, various state laws and/or common law, and arising from 

various allegedly wrongful actions of certain of the Individual Defendants. 

20. Additionally, both the United States Department of Justice (by and 

through the United States Attorney’s Offices for the Southern and Eastern Districts of New 

York, and for the District of New Jersey) as well as the United States Securities and Exchange 

Commission and the New Jersey Bureau of Securities, have commenced formal grand jury and 

regulatory investigations concerning the circumstances surrounding the collapse of the Lehman 

enterprise and have issued various requests and subpoenas to both the Debtors and various 

Individual Defendants. 

21. In connection with the Legal Proceedings, the Individual Defendants have 

incurred and will continue to incur Defense Expenses. Prior to the Commencement Date, in the 

ordinary course of business and pursuant to the terms of their by-laws, the Debtors indemnified 

and covered their officers and directors for defense costs incurred in legal proceedings. 

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Subsequent to the Commencement Date, however, the Debtors have been unable to continue to 

advance defense costs to the Individual Defendants. That is why the Debtors sought the Prior 

Stay Orders and why they have filed the Settlement Advancement Motion. As noted above, 

however, the existing layers of D&O coverage for which stay relief has been authorized under 

the 2007-2008 D&O Policies have been, or will shortly become, exhausted. Thus, the 

obligations of Zurich, ACE and St. Paul for the 2007-2008 D&O Policy Period will soon be 

triggered. Similarly, because XL and Chubb have recognized coverage for certain of the Legal 

Proceedings for the 2008-2009 D&O Policy Period, the Individual Defendants will be looking to 

XL and Chubb for payment of their outstanding defenses costs and fees under the 2008-2009 

D&O Policies. Accordingly, the Debtors are seeking the relief requested herein to ensure that 

the Individual Defendants will continue to have access to funding of additional defense costs 

under, and consistent with, the terms of the respective policies of these insurers. 

Cause Exists to Grant the Relief Requested

22. Pursuant to the Prior Stay Orders, this Court has granted relief that is 

identical to the relief sought in this Motion, based on rights and obligations vis-à-vis the Debtors 

and Individual Defendants that are governed by the same terms and conditions. Accordingly, 

because cause to modify the automatic stay to allow for the advancement of insurance proceeds 

to pay defense costs was found to exist in the Prior Stay Orders, a fortiori, such cause exists here 

as well. If, however, the Debtors must independently demonstrate that such cause exists, as 

described below, it is beyond peradventure that such a modification of the automatic stay is 

warranted. 

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A. The Policy Proceeds Are Not Property of the Estate

23. Section 362(a)(3) of the Bankruptcy Code provides for an automatic stay 

of any action seeking to obtain possession or exercise control over property of the bankruptcy 

estate. It is well settled that insurance policies are property of the estate and covered by the 

automatic stay provisions of the Bankruptcy Code. See MacArthur Co. v. Johns-Manville Corp., 

837 F.2d 89 (2d Cir 1988). However, courts have distinguished between ownership of a policy

and ownership of the proceeds of a policy. While courts have not been uniform in their analysis, 

where a policy provides for payment only to a third party – such as payments to officers and 

directors under an executive insurance policy – or where the debtor has a right of coverage or 

indemnification, but such right is hypothetical or speculative, courts have held that the proceeds 

of such policy are not property of the bankruptcy estate. See, e.g., In re Adelphia Commc’ns 

Corp., 298 B.R. 49, 53 (S.D.N.Y. 2003) (holding that insurance proceeds were not property of 

the estate where it had not been suggested that debtors had made any payment for which they 

may be entitled to indemnification under policy or that any such payments were then 

contemplated); In re Allied Digital Techs., Corp., 306 B.R. 505, 510 (Bankr. D. Del. 2004) 

(holding that proceeds of D&O insurance policy were not property of the estate where debtor’s 

indemnification right under the policy was speculative and direct coverage of debtor under 

policy was hypothetical); In re La. World Exposition, Inc., 832 F.2d 1391, 1401 (5th Cir. 1987) 

(holding that proceeds of a D&O policy belonged only to the officers and directors and, 

therefore, were not property of the estate); In re World Health Alternatives, Inc., 369 B.R. 805, 

809 (Bankr. D. Del. 2007) (when proceeds of a policy are payable to the directors and officers 

and not the estate, the proceeds are not property of the estate); see In re First Cent. Fin. Corp., 

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238 B.R. 9, 18 (Bankr. E.D.N.Y. 1999) (holding that circumstances that may give rise to entity 

coverage were highly remote and therefore proceeds were not property of estate). 

24. In determining whether proceeds are property of the estate, courts review 

the “language and scope of the policy at issue.” Allied Digital, 306 B.R. at 509. See also In re 

CyberMedica, Inc., 280 B.R. 12, 16 (Bankr. D. Mass. 2002); In re Jones, 179 B.R. 450, 455 

(Bankr. E.D. Pa. 1995) (respective rights of debtors and non-debtors to insurance proceeds “must 

be ascertained by reference to the parties’ contractual rights pursuant to the interpretation of the 

pertinent contractual provisions under applicable state law”). 

25. Here, the 2007-2008 D&O Policies and the 2008-2009 D&O Policies 

contain unambiguous priority of payment provisions that expressly subordinate any potential 

rights of the Debtors to proceeds payable under the policies to the rights of the Individual 

Defendants. The priority of payment endorsements are enforceable contractual provisions and 

should be upheld for the benefit of the Individual Defendants as intended. See In re Enron

Corp., Case No. 01-16034 (Bankr. S.D.N.Y. Apr. 11, 2002) [Docket No. 3278] (holding that 

priority of payment provision was an enforceable contractual right).7

 

26. Consistent with the purpose of such policies, the Debtors purchased the 

2007-2008 D&O Policies and 2008-2009 D&O Policies primarily to provide insurance coverage 

to their officers and directors, including the Individual Defendants. See In re First Cent. Fin. 

Corp., 238 B.R. 9, 16 (Bankr. E.D.N.Y. 1999) (“In essence and at its core, a D&O Policy 

remains a safeguard of officer and director interests and not a vehicle for corporate protection.”). 

The Debtors’ speculative rights to any residual proceeds, which would be payable only in the 

event that the Debtors indemnified the Individual Defendants and which are subject to an express 

 

7

 A copy of the Court’s bench ruling in Enron is attached hereto at Exhibit G. 

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contractual subordination provision, should not alter the conclusion that the proceeds should not 

constitute property of the Debtors’ estates. 

B. Cause Exists to Modify the Automatic Stay, to the Extent 

 That it Applies, to Allow Payment of Defense Costs Under the Policies.

27. Even if the proceeds of the policies are determined to be property of the 

estate, “cause” exists under section 362(d)(1) of the Bankruptcy Code to modify the automatic 

stay to allow the payment of defense costs under the applicable policies. It is not uncommon for 

courts to grant stay relief to allow payment of defense costs or settlement costs to directors and 

officers, especially when there is no evidence that direct coverage of the debtor will be 

necessary. See Allied Digital, 306 B.R. at 513. 

28. Allowing the insurers to advance defense costs and fees to the Individual 

Defendants will, in fact, benefit the Debtors’ estates. The Legal Proceedings are highly complex. 

If the Individual Defendants are not adequately represented, it is foreseeable that a finding of 

wrongdoing or liability against the Individual Defendants may be used, or attempted to be used, 

to judicially prejudice or prosecute claims against the Debtors. Granting the requested relief will 

also alleviate the Individual Defendants’ concern that they will personally be liable for their own 

defense costs. 

29. Additionally, the Debtors believe that they have an obligation under their 

by-laws to advance the defense costs and fees incurred by the Individual Defendants. In 

connection with the Legal Proceedings, the Individual Defendants have and will continue to 

incur significant defense costs, which, if unsatisfied, may potentially be asserted by some or all 

of the Individual Defendants against the Debtors’ estates.8

 Consequently, coverage of the 

 

8

 Certain of the Individual Defendants have filed protective proofs of claim against the Debtors. 

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Individual Defendants under the Policies will reduce or eliminate the claims that the Individual 

Defendants could assert against the Debtors. 

30. Modifying the automatic stay will not harm the Debtors’ estates. As 

explained above, any rights the Debtors have to the proceeds of the D&O Policies are 

contractually subordinated to the rights of the Individual Defendants pursuant to the priority of 

payments clauses. In addition, at this time, the Debtors’ need for coverage is speculative given 

that the Debtors are not making advancements to the Individual Defendants during the chapter 11 

cases for their defense costs. 

31. Accordingly, the Debtors respectfully submit that there are no legal 

impediments to the direct payment or advancement by the Insurers under their respective D&O 

Policies to the Individual Defendants for their costs of defense. Alternatively, if this Court finds 

that the Debtors have some interest in the proceeds of the D&O Policies, the Debtors submit that 

any such interest is nominal and in any event cannot be determined until the Individual 

Defendants’ losses have been quantified and paid. Advancing the Individual Defendants’ 

defense costs pursuant to the D&O Policies is necessary to minimize those losses. Accordingly, 

cause exists to modify the automatic stay pursuant to section 362(d) of the Bankruptcy Code, to 

the extent it applies, to allow the Zurich, ACE, St. Paul, XL and Chubb to immediately 

commence payment of outstanding and ongoing defense costs incurred by the Individual 

Defendants pursuant to the terms and conditions of their respective D&O Policies. 

32. In making this motion, the Debtors, the Individual Defendants and the 

Insurers are not waiving any of their respective rights under the D&O Policies. In addition, the 

Debtors are not seeking an advance determination of the insurers’ obligations to pay any 

particular expense or claim of the Individual Defendants. Rather, the Debtors seek only the entry 

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of an order modifying the automatic stay, to the extent applicable, to allow these insurers to 

fulfill their obligations, whatever they may be, to pay Defense Expenses of the Individual 

Defendants under the terms of the respective D&O Policies, including amounts incurred both pre 

and post-petition, if and when they arise. 

Waiver of Bankruptcy Rule 4001(a)(3)

33. To facilitate a smooth transition and avoid any interruption in coverage, 

the Debtors request that the order granting the Motion be effective immediately. 

Notice

34. No trustee has been appointed in these cases. The Debtors have served 

notice of this Motion in accordance with the procedures set forth in the second amended order 

entered on June 17, 2010 governing case management and administrative procedures for these 

cases [Docket No. 9635] on (i) the U.S. Trustee; (ii) the attorneys for the Creditors’ Committee; 

(iii) the Securities and Exchange Commission; (iv) the Internal Revenue Service; (v) the United 

States Attorney for the Southern District of New York; (vi) all parties who have requested notice 

in these chapter 11 cases; and (vii) attorneys for each of Zurich, Ace, St. Paul, XL and Chubb. 

The Debtors submit that no other or further notice need be provided. 

 

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 WHEREFORE the Debtors respectfully request that the Court grant the relief 

requested herein and such other and further relief as is just. 

Dated: October 27, 2010 

 New York, New York 

/s/ Richard P. Krasnow 

Richard P. Krasnow 

WEIL, GOTSHAL & MANGES LLP 

767 Fifth Avenue 

New York, New York 10153 

Telephone: (212) 310-8000 

Facsimile: (212) 310-8007 

Attorneys for Debtors 

and Debtors in Possession

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EXHIBIT D 

In re Refco Inc., No. 05-60006 (Bankr. S.D.N.Y.) 

Response, Doc. No. 1510 

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Greg A. Danilow, Esq. (GD 1621) 

Marcia L. Goldstein, Esq. (MG 2606) 

Paul M. Basta, Esq. (PB 4434) 

WEIL, GOTSHAL & MANGES LLP 

767 Fifth Avenue 

New York, New York 10153-0119 

Phone: (212) 310-8000 

Facsimile: (212) 310-8007 

Counsel for Thomas H. Lee Partners, L.P., 

Thomas H. Lee, David V. Harkins, 

Scott L. Jaekel, Scott A. Schoen, 

Ronald O’Kelley, Nathan Gantcher and 

Leo A. Breitman 

UNITED STATES BANKRUPTCY COURT 

SOUTHERN DISTRICT OF NEW YORK 

--------------------------------------------------------X 

 : 

In re: : 

 : 

Refco Inc., et al., : 

 : 

 Debtors. : 

 : 

 -------------------------------------------------------X 

Chapter 11 

Case No. 05-60006 (RDD) 

(Jointly Administered) 

RESPONSE OF THOMAS H. LEE, DAVID V. HARKINS, SCOTT L. 

JAEKEL, SCOTT A. SCHOEN, RONALD O’KELLEY, NATHAN 

GANTCHER AND LEO A. BREITMAN TO THE OBJECTION OF OFFICIAL 

COMMITTEE OF UNSECURED CREDITORS TO THE MOTION OF 

U.S. SPECIALTY INSURANCE CO. FOR RELIEF FROM STAY, TO 

THE EXTENT APPLICABLE, TO ADVANCE AND/OR PAY CERTAIN 

DEFENSE COSTS UNDER DIRECTORS AND OFFICERS LIABILITY POLICY

 Thomas H. Lee, David V. Harkins, Scott L. Jaekel, Scott A. Schoen, Ronald 

O’Kelley, Nathan Gantcher and Leo A. Breitman (collectively, the “Respondents”), by and 

through their undersigned counsel, Weil, Gotshal & Manges LLP, hereby respectfully respond 

to the Objection of the Official Committee Of Unsecured Creditors to the Motion of U.S. 

Specialty Insurance Co. for Relief from Stay, to the Extent Applicable, to Advance and/or Pay 

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Certain Defense Costs Under Directors and Officers Liability Policy (“Committee 

Objection”) as follows: 

1. There is no basis whatsoever to deny the Respondents access to the insurance 

that was put in place for the exact purpose of covering the Respondents’ Defense Costs (as 

defined below). Accordingly, the Committee Objection should be overruled. 

2. The facts are straight forward. Prior to the commencement of these chapter 11 

cases by Refco Inc. (“Refco”) and certain of its subsidiaries and affiliates (collectively with 

Refco, the “Debtors”), U.S. Specialty issued “Directors, Officers and Corporate Liability 

Insurance Policy” No. 24-MGU-05-A10821 (the “Policy”) to Refco for the claims-made 

period of August 11, 2005 to August 11, 2006, providing coverage up to a maximum 

aggregate limit of liability of $10 million, including Defense Costs.1 Specifically, the Policy 

contains five insuring agreements as follows: 

Policy Insuring Agreement A, insuring directors and officers 

of the Company for Loss (which, by definition, includes 

Defense Costs), incurred by such parties for claims if such Loss 

is not indemnified by the Company (the “D&O Coverage”); 

Policy Insuring Agreement B(1), insuring the Company to the 

extent it indemnifies the officers and directors for any covered 

Loss; 

Policy Insuring Agreement B(2), insuring the Company for 

Loss incurred in connection with Securities Claims asserted 

against the Company; 

Policy Endorsement No. 11, insuring the Company, up to 

$250,000, for all Derivative Demand Investigative Costs;2 and

 

1

Capitalized terms used, but not otherwise defined herein, shall have the meanings ascribed to them in the 

Policy. Because a detailed description of the Policy is set forth in the U.S. Specialty Motion, such description is 

not repeated herein, but is incorporated herein by reference. 

2

 Policy Insuring Agreement B(1), Policy Insuring Agreement B(2), and Policy Endorsement No. 11 are 

hereinafter collectively referred to as the “Subordinated Company Coverage.”

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Policy Endorsement No. 15, insuring Philip R. Bennett 

(“Bennett”) for Loss incurred in connection with Securities 

Claims asserted against him, provided one or more Insured 

Persons and/or the Company are and remain co-defendant(s) in 

such Securities Claim. 

3. Furthermore, the Policy contains a “priority of payments” provision whereby 

covered Loss payable under one or more of the foregoing agreements and/or endorsements, in 

apparent excess of the policy limit of liability, shall be provided first under the D&O 

Coverage, followed by payments under the Subordinated Company Coverage and Policy 

Endorsement No. 15 (the “Priority of Payments Provision”). See Policy Conditions D(4). 

4. After certain disclosures were made by the Debtors, on or about October 10, 

2005 and thereafter, concerning a large receivable allegedly owed by Bennett or a Bennettcontrolled entity to the Debtors, approximately 14 securities class actions (which have since 

been consolidated) and other related actions (collectively, the “Pending Actions”) were filed 

against the Respondents, among others, arising out of the events in question. Respondents 

and other insureds have engaged counsel to defend them in the Pending Actions. All Pending 

Actions were immediately and timely submitted to U.S. Specialty and Refco’s excess 

directors and officers insurance carriers for coverage under the Policy. To date, the 

Respondents, Bennett and others have submitted claims for payment of Defense Costs 

incurred in connection with the Pending Actions under Policy Insuring Agreement A. The 

Priority of Payments provision requires that such costs be paid first, ahead of other insureds, 

under the Policy. 

5. On January 26, 2006, U.S. Specialty filed the Motion of U.S. Specialty 

Insurance Co. for Relief from Stay, to the Extent Applicable, to Advance and/or Pay Certain 

Defense Costs Under Directors and Officers Liability Policy (the “U.S. Specialty Motion”) 

seeking, inter alia, an order modifying the automatic stay pursuant to section 362 of the 

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Bankruptcy Code to permit U.S. Specialty to make payments and/or advancements of Defense 

Costs to insured directors and officers in various pending lawsuits and proceedings filed 

against them, as well as other proceedings that may be filed in the future. The hearing to 

consider the U.S. Specialty Motion has been adjourned to March 23, 2006. 

6. On March 7, 2006, the Committee filed the Committee Objection, asserting, 

inter alia, that U.S. Specialty cannot establish the requisite “cause” to modify the automatic 

stay required pursuant to section 362(d) of the Bankruptcy Code or, alternatively, this Court 

should invoke its equitable power pursuant to section 105(a) of the Bankruptcy Code to 

prevent the payment of the Defense Costs to Bennett. The Committee Objection reserved its 

right to attack any payment of the Defense Costs to the Respondents, noting “each such 

request would raise unique issues that the Committee would have to assess on a case-by-case 

basis.” See Committee Objection at 2 n.1. 

Relief Requested

7. Notwithstanding the fact that the Committee Objection is directed against 

payment of Defense Costs to Bennett, the relief requested therein implicitly and improperly 

seeks to limit Respondents’ right to the D&O Coverage under the Policy. Although the

Respondents agree that the allegations against Bennett are egregious, they do not constitute a 

basis for denying him D&O Coverage, let alone denying coverage to Refco’s other directors 

and officers who have already suffered from Bennett’s actions. The law, summarily 

dismissed in a footnote in the Committee Objection, is clear. The automatic stay does not 

prohibit the advancement and/or payment of the Defense Costs to the Respondents. 

8. Accordingly, the Respondents respectfully request that this Court overrule the 

Committee Objection and grant relief sought by the U.S. Specialty Motion because the 

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proceeds of the Policy, including the Defense Costs at issue, are not property of the Debtors’ 

estates. Assuming, arguendo, such proceeds were property of the Debtors’ estates, “cause” 

clearly exists pursuant to section 362(d) of the Bankruptcy Code to modify the automatic stay 

to permit the advancement of reasonable and necessary Defense Costs incurred by the 

Respondents, among others, in the various pending legal proceedings and those which may be 

filed in the future. 

Argument

A. The Policy Proceeds, Including the Defense Costs, Are Not 

 Property of the Estate and, Therefore, the Automatic Stay Does Not Apply. 

9. When a debtor has no legally recognizable claim to the proceeds of an 

insurance policy, the proceeds are not considered property of the estate. See Houston v. 

Edgeworth (In re Edgeworth), 993 F.2d 51, 53 (5th Cir. 1993) (noting that if debtor does not 

have the right to keep proceeds when paid by the insurer, proceeds are not property of the

estate and cannot otherwise enhance the estate for the benefit of other creditors). 

10. Indeed, several courts, including those in this district, have held that the 

proceeds of a liability insurance policy are not property of a debtor’s estate if, under the terms 

of the policy, the directors and officers are entitled to those proceeds. In re Adelphia 

Communications Corp., 298 B.R. 49, 53-54 (S.D.N.Y. 2003) (finding debtors did not have 

property interest in proceeds of director and officer policies, despite indemnification coverage 

and entity coverage for securities claims for the debtors, particularly where no 

indemnification payments had been made by the debtors); In re First Cent. Fin. Corp., 238 

B.R. 9, 21 (Bankr. E.D.N.Y. 1999) (finding proceeds not property of the estate despite 

coverage of both the directors and officers and the debtors, noting that no claims were filed 

against the debtors); Louisiana World Exposition, 832 F.2d 1391, 1400 (5th Cir. 1987) 

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(creditors of a bankrupt corporation were unsuccessful in seeking to prevent use of director 

and officer policy proceeds to pay for legal expenses as proceeds were not part of the 

bankruptcy estate); In re Youngstown Osteopathic Ass’n, 271 B.R. 544 (Bankr. N.D. Ohio 

2002) (same); In re CHS Elecs., Inc., 261 B.R. 538 (Bankr. S.D. Fla. 2001) (same); In re 

Daisy Sys. Sec. Litig., 132 B.R. 752, 755 (N.D. Cal. 1991) (proceeds of director and officer 

policies not assets of the bankruptcy estate); Duval v. Gleason, 1990 WL 261364 at *5 (N.D. 

Cal. Oct. 19, 1990) (in distinguishing between policy and its proceeds, court held proceeds 

were not property of the estate even though policies were property of the estate; automatic 

stay did not apply since litigation against the nonbankrupt parties would affect only the 

proceeds, not the policy). 

11. Under the express terms of the Policy, the right to receive the D&O Coverage

belongs, in the first instance, to the Company’s directors and officers. Specifically, the Policy 

states the “Insurer will pay to or on behalf of Insured Persons Loss . . . except when and to the 

extent that the Company has paid such Loss on behalf of the Insured Persons as 

indemnification or advancement. . . .” See Policy, annexed to the U.S. Specialty Motion as 

Exhibit A. Since the Debtors have no right to such D&O Coverage, it is not part of their 

estate and, therefore, the Committee cannot dictate which insured are entitled to receive 

Defense Costs or when such Defense Costs can be distributed. 

12. Furthermore, any right of the Debtors to receive payment of the proceeds is 

subordinated to the rights of the Company’s directors and officers pursuant to the Priority of 

Payments Provision. This provision expressly subordinates the Subordinated Company 

Coverage to the rights of the directors and officers to receive payment of proceeds under the 

Policy. Notably, any alleged right of the Debtors to the Subordinated Company Coverage 

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assumes that they have made payments or incurred Loss entitling them to such Subordinated 

Company Coverage, which is not the case. 

13. Specifically, no claims have been made that would invoke the coverage 

provided to the Debtors under Policy Insuring Agreement B(1). The Debtors have not 

indemnified Respondents for any Loss, indeed the Respondents have not even requested 

indemnification and may be precluded from doing so by the commencement of the Debtors’

bankruptcy proceedings if the indemnification claims arise from prepetition acts or actions. 

14. The lack of any such claims is significant. Courts, including those in this 

district, consider the proceeds of a director and officer insurance policy property of a debtor’s 

estate only when there is an actual claim for indemnification. See Adelphia, 298 B.R. at 53-

54 (where none of the debtors ever made payments for which they would be entitled to 

indemnification coverage, or committed themselves to payments using their entity coverage, 

claiming debtors had a property interest in proceeds was nonsensical; prospective possibility 

of payments for which they would be entitled to indemnification coverage was insufficient to 

grant debtors a cognizable equitable and legal interest in the proceeds); cf. In re Allied 

Digital Techs., Corp., 306 B.R. 505, 512 (Bankr. D. Del. 2004) (finding the proceeds are not 

property of the estate when indemnification claims are hypothetical or speculative) (citing In 

re Imperial Corp. of Am., 144 B.R. 115, 118-119 (Bankr. S.D. Cal. 1992) for proposition that 

although indemnification coverage was provided in policy, proceeds were not property of the 

estate). 

15. In the case of the Debtors, the Policy requires actual payment of indemnified 

costs before the coverage will either be denied to the Respondents under the D&O Coverage 

or given to the Debtors under Policy Insuring Agreement B(1). Neither has occurred, and the 

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possibility that any such payments would be made is speculative at best. Therefore, as in 

Adelphia, any claim that the Debtors have a property interest in the proceeds is without merit 

because the Debtors have not actually paid indemnification costs. See Adelphia, 298 B.R. at 

53-54. 

16. In addition, notwithstanding the lawsuits pending against the Debtors that may 

invoke the coverage for Loss relating to Securities Claims pursuant to Insuring Agreement 

B(2), it is equally theoretical and speculative that any Securities Claims would result in Loss 

to the Debtors for which coverage could be invoked, given that no judgment has been 

rendered in any such suit. If, however, such claims were ultimately successful, the payment 

of any damages in connection therewith is likewise theoretical because any Securities Claim 

would be statutorily subordinated to the payment of general unsecured claims pursuant to 

section 510(b) of the Bankruptcy Code. As a result, no plaintiff would receive payment on 

account of its Securities Claim (thereby triggering the Debtors’ right to coverage) unless each 

unsecured claim were paid in full. As the bankruptcy court in Adelphia noted: 

[Securities claim coverage] is rarely meaningful in bankruptcy 

cases (even in chapter 11 cases), because under section 510(b) 

of the Code, claims for securities fraud – claims “arising from 

rescission of a purchase or sale” of a security, or for damages 

arising from such – are subordinated to claims that are senior or 

equal in priority, and since there are rarely enough assets to pay 

all creditors in full, debtors rarely are in a position (and do not 

have a need) to make distributions on more junior claims. 

In Adelphia Communications Corp, 285 B.R. 580, 592 n. 13 (Bankr. S.D.N.Y. 2002). 

17. Therefore, any property interest the Debtors have in the proceeds would be 

limited to possible claims for Defense Costs incurred in connection with any Securities 

Claims and any coverage pursuant to Policy Endorsement No. 11. As with Policy Insuring 

Agreement B(1), none of the Debtors have made payments invoking their entity coverage or 

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otherwise taken action to invoke coverage under Policy Endorsement No. 11. Thus, 

“[c]laiming the debtors now have a property interest in those proceeds makes no sense at this 

juncture.” Adelphia, 298 B.R. at 53 (holding in such a circumstance “[n]o cognizable 

equitable and legal interest in the proceeds from the D&O policies has arisen here. Without 

legal and equitable interest in the proceeds, Adelphia’s estate cannot be ascribed to hold a 

property interest in those proceeds”). 

18. In addition, any interest of the Debtors in coverage under the Policy is 

contractually subordinated to the payment rights of the Respondents, due to express and 

unequivocal terms of the Priority of Payments Provision which deprives the Debtors of any 

rights to payment under the Policy ahead of Respondents. 

19. Accordingly, unlike other policies, where a debtor’s entity coverage competes 

for proceeds with the directors and officers liability portion of the policy, such competition 

has been eliminated via the contractually negotiated subordination of the Debtors’ interests in 

the proceeds of the Policy. 

20. For the foregoing reasons, the Debtors are not be entitled to the proceeds of the 

Policy. Such proceeds should not be considered property of the Debtors’ estate and the 

automatic stay should not bar the Respondents from receiving payment and/or advancement 

of Defense Costs from U.S. Specialty. 

B. Notwithstanding the Foregoing, Sufficient “Cause” Exists 

Pursuant to Section 362(d) of the Bankruptcy Code to 

Modify the Automatic Stay as Requested in the U.S. Specialty Motion.

21. Alternatively, Respondents respectfully request this Court grant the U.S. 

Specialty Motion modifying the automatic stay to the extent necessary to permit the 

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reimbursement of Defense Costs subject to the terms and conditions of the Policy because 

“cause” clearly exists. 

22. Section 362(d) of the Bankruptcy Code provides that a bankruptcy court shall 

grant relief from the automatic stay “for cause.” 11 U.S.C. § 362(d)(1). In determining 

whether cause exists for granting relief from the automatic stay, courts balance the harm to 

the debtor if the stay is modified with the harm to parties prevented from exercising their 

rights under an insurance policy. See In re CyberMedica, Inc., 280 B.R. 12, 19-20 (Bankr. D. 

Mass. 2002) (although D&O proceeds are considered property of estate, directors and officers 

were entitled to relief from stay in order to seek payment of defense costs under policy). 

Similarly, it is common for a bankruptcy court to grant relief from the automatic stay to allow 

payment of defense costs or settlement costs to the directors and officers. See id.; see also In 

re CHS Elecs., Inc., 261 B.R. 538, 544 (Bankr. S.D. Fla. 2001) (relief from stay granted to 

settle claims from directors and officers policy, reasoning that there was no actual possibility 

of a claim based on entity coverage). 

23. This Court has held under similar facts that notwithstanding the presence of 

entity coverage for a debtor, the presence of the Priority of Payments Provision, provides the 

requisite “cause” to modify the automatic stay. See In re Enron, No. 01-16034, 2002 Bankr. 

LEXIS 544 (Bankr. S.D.N.Y. May 17, 2002) (permitting advancement of defense costs under 

a directors and officers insurance policy based on the presence of a priority of payments 

provision, notwithstanding direct coverage for the debtors); Adelphia, 285 B.R. at 586-87 

(noting that “priority of payments” endorsements provide that payments on account of 

defense costs of directors and officers come ahead of payments for indemnification coverage 

and/or entity coverage and such provisions made Judge Gonzalez’s decision to modify the 

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stay in Enron “an even easier case”); see also In re Lernout & Hauspie Speech Products, N.V., 

Case No. 00-4397 – 00-4399 (Wizmur, J.), pp. 44, 47-49 (Bankr. D. Del. May 8, 2001) 

(granting motion by movant for payment of defense costs and holding that order of payments 

endorsement barred the debtor from preventing payment of director and officer defense costs 

with policy proceeds ruling “I am convinced that [movant’s argument] that the directors and 

officers have an independent right to assert their present interest in the proceeds on the face of 

the policy must be recognized, and that [movant] is under a contractual obligation to act in 

conformance with that contract . . . that the outcome of that action will be to reduce the pool 

available to [the debtor] is understood, is inevitable, is the reality of this kind coverage, and 

cannot bar the relief that is requested.”); In re Jones, 179 B.R. 450, 455 (Bankr. E.D. Pa. 

1995) (in hazard insurance policy context, parties’ right to proceeds must be ascertained by 

reference to the parties’ contractual rights pursuant to the interpretation of pertinent 

contractual provisions under applicable state law). 

24. This case presents similar facts as In re Enron, where the directors and officers 

insurance policy at issue contained: (a) coverage for officers and directors; and 

(b) indemnification and entity coverage for the debtor. See Tr. of Hrg. of April 11, 2002 at 

13-14, lns 2-5, a copy of which is annexed to the U.S. Specialty Motion as Exhibit B. The 

policy at issue in Enron also provided that “directors have a right to advancement of defense 

costs under a priority of payments endorsement.” Id. at 13, lns. 6-9. Under similar facts, this 

Court recognized the express subordination of the debtors’ claims under the policy and held 

“any directors and officers currently due defense costs covered by the policy must be paid 

from the proceeds of the policy first. The [d]ebtors are then entitled to have their own claims 

for defense costs paid.” Id. at 13, lns. 14-20. In so holding, this Court recognized that 

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payments to the directors and officers would negatively impact the debtors’ interest in the 

insurance proceeds because “that result is dictated by the negotiated terms of the policy.” Id. 

at 14, lns. 7-9. The same reasoning applies here. 

25. Furthermore, as is customary with respect to directors and officers insurance 

policies, such policies are intended primarily for the protection of directors and officers and, 

as such, should not be subject to the automatic stay. See Adelphia, 285 B.R. at 593 (“[I]n 

essence and at its core, a D&O policy remains a safeguard of officer and director interest and 

not a vehicle for corporate protection.”) (quoting In re First Cent. Fin. Corp., 238 B.R. at 16). 

“[I]f officers and directors are to serve, they need to have comfort in knowing that bankruptcy 

courts will be slow in depriving them of contractual rights under the D&O policies upon 

which they may have relief in agreeing to serve.” Adelphia, 285 B.R. at 598. 

26. Prohibiting the advancement of the Defense Costs to the Respondents by 

sustaining the Committee Objection would be in contravention to the historical purpose of 

directors and officers insurance policies and deprive Respondents of their express and 

unequivocal contractual right to the proceeds of the Policy, all at a time when such proceeds 

are being sought for the purpose for which they exist. 

27. Accordingly, “cause” exists to modify the automatic stay to permit U.S. 

Specialty to make payment of the Defense Costs under the Policy. 

C. Contrary to Committee’s Position, it Would Be Inequitable to 

 Prevent Respondents From Exercising Their Contracted-For Entitlement 

 to the Insurance Proceeds Based Solely Upon Allegations Against Bennett.

28. The Committees’ alternative argument is if this Court finds “cause” to modify

the automatic stay, it should nonetheless invoke its broad equitable power under section 

105(a) of the Bankruptcy Code to “prevent further dubious benefit of Bennett” and because 

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“U.S. Specialty has not demonstrated any benefit to the Debtors’ estates in paying out 

millions of dollars under the Policy for the benefit of a former officer and director who, based 

upon all that is currently known to the Committee, may very well be guilty of wrongdoing of 

which he is accused.” See Committee Objection at 7-8. The Committee Objection posits that 

based upon the foregoing, “common sense and basic equitable principles dictate” that the U.S. 

Specialty Motion be denied. 

29. The Committee’s basis for this Court to invoke section 105(a) of the 

Bankruptcy Code fails to recognize that other insureds who are vigorously defending 

themselves in lawsuits, namely the Respondents, are also beneficiaries under the Insurance 

Policies. The Committee does not, and cannot, allege the same inequity exists with respect to 

the Respondents, who are suffering the same ill effects of the circumstances surrounding the 

Debtors’ commencement of these chapter 11 cases as other parties in interest and are being 

forced to defend themselves based on allegations of wrongdoing attributable to other parties. 

Accordingly, the Committee’s argument is wholly inapplicable to the advancement of the 

Defense Costs to the Respondents and this Court should not eviscerate the Respondents’ 

contractual rights under the Policy. See Adelphia, 285 B.R. at 598 (“bankruptcy courts 

should be wary of impairing the contractual rights of directors and officers even in cases 

where the policies provide entity coverage”). 

Waiver of Memorandum of Law

30. This response does not raise any novel issues of law and includes citations to 

authorities applicable hereto. Accordingly, Respondents respectfully request that this Court 

waive the requirement contained in Rule 9013-1(b) of the Local Bankruptcy Rules for the 

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Southern District of New York that they file a separate memorandum of law in support of this 

response. 

Notice

31. Notice of this response has been provided to: (a) the Debtors, One World 

Financial Center, 200 Liberty Street, Tower A, New York, New York 10281, Attention: 

General Counsel; (b) Skadden, Arps, Slate, Meager & Flom LLP, counsel to the Debtors, 

Four Time Square, New York, New York 10036, Attention: J. Gregory Milmoe, Esq.; 

(c) Milbank, Tweed, Hadley & McCloy LLP, counsel to the Committee, One Chase

Manhattan Plaza, New York, New York 10005, Attention: Luc A. Despins, Esq.; (d) Davis 

Polk & Wardell, counsel for the administrative agent for the Debtors’ prepetition bank lender, 

450 Lexington Avenue, New York, New York 10017, Attention: Thomas A. Tormey; (e) the 

Office of the United States Trustee, 33 Whitehall Street, 21st Floor, New York, New York 

10004, Attention: Andrew Velez-Rivera, Esq.; (f) Farrell Fritz, P.C., co-counsel for U.S. 

Specialty, 1320 Reckson Plaza, Uniondale, New York 11556, Attention: Louis A. Scarcella;

and (g) Ross, Dixon & Bell, LLP, co-counsel for U.S. Specialty, 2001 K Street, N.W., 

Washington, D.C. 20006, Attention: Leslie S. Ahari. Respondents submit that no other or 

further notice need be provided. 

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 WHEREFORE the Respondents respectfully request entry of an order 

(a) overruling the Committee Objection; (b) granting the relief requested in the U.S. Specialty 

Motion; and (c) granting such other and further relief as this Court may deem just and 

appropriate. 

Dated: New York, New York 

 March 20, 2006 

/s/ Paul Basta 

Greg A. Danilow, Esq. (GD 1621) 

Marcia L. Goldstein, Esq. (MG 2606) 

Paul M. Basta, Esq. (PB 4434) 

WEIL, GOTSHAL & MANGES LLP 

767 Fifth Avenue 

New York, New York 10153-0119 

Phone: (212) 310-8000 

Facsimile: (212) 310-8007 

Counsel for Thomas H. Lee Partners, L.P., 

Thomas H. Lee, David V. Harkins, 

Scott L. Jaekel, Scott A. Schoen, 

Ronald O’Kelley, Nathan Gantcher and 

Leo A. Breitman 

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EXHIBIT E 

TRANSCRIPT PAGES 

In re Northwest Airlines Corp., Adv. Pro. No. 06-01219 (Bankr. S.D.N.Y.), 

Transcript of Hearing Held Mar. 7, 2006 

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