Closing Arguments

1:17-cv-07857-JMF-GWG Document 236 Filed 08/23/18 Page 1 of 109 658
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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 -----------------------------------------x
3 U.S. BANK NATIONAL

ASSOCIATION, solely in its
4 capacity as indenture trustee
of Windstream Services, LLC's
5 6 3/8% Senior Notes due 2023,
6 Plaintiff and
Counterclaim Defendant, New York, N.Y.
7
v. 17 Civ. 7857(JMF)
8
WINDSTREAM SERVICES, LLC,
9
Defendant, Counterclaim
10 Plaintiff, and
Counterclaim Defendant,
11
v.
12
AURELIUS CAPITAL MASTER, LTD.,
13
Counterclaim Defendant
14 and Counterclaim Plaintiff.
15
-----------------------------------------x
16
July 31, 2018
17 10:30 a.m.
18 Before:
19 HON. JESSE M. FURMAN,
20 District Judge
21 APPEARANCES
22 FRIEDMAN KAPLAN SEILER & ADELMAN LLP

Attorneys for U.S. Bank National Association
23 BY: EDWARD A. FRIEDMAN
DANIEL B. RAPPORT
24 JEFFREY FOURMAUX
CHRISTOPHER COLORADO
25
SOUTHERN DISTRICT REPORTERS, P.C.

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1 APPEARANCES CONTINUED
2 KIRKLAND & ELLIS LLP

Attorneys for Windstream Services, LLC
3 BY: RICHARD GODFREY
AARON MARKS
4 HARIKLIA KARIS
5 KRAMER LEVIN NAFTALIS & FRANKEL LLP

Attorneys for Aurelius Capital Master
6 BY: WILLIAM TRUNK
7 ROBBINS, RUSSELL, ENGLERT, ORSECK, UNTEREINER & SAUBER LLP

Attorneys for Aurelius Capital Master
8 BY: LAWRENCE ROBBINS
WILLIAM JAMES TRUNK
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1 oOo
2 (Trial resumed)
3 THE COURT: Good morning. Welcome back. I hope
4 everyone had a good and restful weekend.
5 Let's get to it. I did issue the order yesterday
6 spelling out in broad strokes the issues that I intend to or
7 want to address today. Hopefully that was helpful to you.
8 Sorry I didn't get it out on Friday. There are only so many
9 hours in the day.
10 So let's start with the trustee, the 2015
11 transactions, and then the trustee's piece of the case.
12 Mr. Friedman, let me start with you. If you want to
13 use the questions that I framed as a guide, that would be
14 helpful. But let me just confirm at the outset the first
15 question is in the event that I did conclude that the third
16 supplemental indenture was valid, that the 2017 transactions
17 were permissible.
18 Am I correct that that would moot your piece of the
19 case?
20 MR. FRIEDMAN: Yes, your Honor. A ruling in favor of
21 Services on the merits with respect to the 2017 transaction
22 does moot the trustee's claim.
23 THE COURT: Is that true whether I ruled on the merits
24 as well as on the no-action clause? That is say, if I
25 concluded that Aurelius could not proceed because it was barred

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1 by the no-action clause, would that moot your piece of the
2 case?
3 MR. FRIEDMAN: I think if your Honor rules on the
4 basis of the no-action clause exactly what the trustee's
5 position would be would depend on exactly what your Honor says
6 in the following sense: The trustee is asserting its claim in
7 the context of there being a dispute that a bondholder is
8 asserting regarding the validity of the third supplemental
9 indenture.
10 If your Honor is saying, for example, Aurelius has to
11 wait 60 days and then the case comes back, that could have
12 implications for the trustee. The real question is whether
13 there is a dispute in which a bondholder such as Aurelius is
14 asserting, either as a claim or as a defense, that the third
15 supplemental indenture and the waivers therein are not valid.
16 THE COURT: Let me ask --
17 MR. FRIEDMAN: Pending the Court's ruling on the
18 merits, then the trustee, in an appropriate procedural manner,
19 would be asserting its claim.
20 THE COURT: So let me ask you -- and I want to stress
21 at the outset that there is always a danger in reading into
22 judge's questions in oral argument. So everybody's phone
23 should be off. I don't want to have to tell anybody that. If
24 your phone rings, it's going to be confiscated. So please shut
25 it off.

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1 I caution everybody not to read into my comments too
2 much and questions too much. But that being said, let me pose
3 the following: Let's assume that I decide that Aurelius is
4 barred by the no-action clause.
5 Should I proceed to decide the merits conditionally on
6 the theory that the Circuit may disagree or on the theory that
7 the failure to comply with the no-action clause can be cured,
8 even post trial, in theory that we could be back here again and
9 have to re-do everything?
10 MR. FRIEDMAN: I would want to think about that
11 particular scenario, your Honor.
12 THE COURT: I'll let you think about it, and then I'd
13 like your thoughts about it.
14 MR. FRIEDMAN: Okay.
15 THE COURT: Carry on.
16 MR. FRIEDMAN: So the next couple of questions from
17 your Honor I think I can answer very briefly and directly.
18 Your Honor asked in question 2 whether there is any
19 independent significance to the trustee's argument that
20 Services breached Section 40.7(a)(A), and the answer is there
21 is no independent significance. The case rises and falls as
22 your Honor asked on the trustee's claim concerning 4.19 of the
23 indenture.
24 THE COURT: That's helpful.
25 MR. FRIEDMAN: The next question your Honor asked is:

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1 Does the question of whether the 2015 transactions constitutes
2 a sale and leaseback transaction, as defined in the indenture,
3 turn on anything other than whether the lease the --
4 THE COURT: You have to read a little more slowly for
5 the court reporter's benefit.
6 MR. FRIEDMAN: I apologize.
7 THE COURT: That's okay. I have the questions in
8 front of me. So you don't even need to read them.
9 MR. FRIEDMAN: The answer to that question is that
10 that is the question.
11 THE COURT: I think, in fairness, that question is
12 probably more directed at the folks at the back table. I
13 understood your argument in your briefs to basically be that
14 the same person argument that Kirkland & Ellis has made, that
15 Services has made, is really a red herring. Correct me if I'm
16 wrong.
17 If the transferor subsidiaries -- I think there is no
18 dispute the transferor subsidiaries transferred the transferred
19 assets ultimately to CS&L, to Uniti. Indeed, presumably that's
20 why they're called the transferor subsidiaries.
21 I take your position to be that so long as they lease
22 back those assets, whether that is through the master lease or
23 through some sort of unwritten separate less, then the
24 requirements for sale and leaseback transaction are met.
25 You don't dispute the proposition that to meet those

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1 conditions the same party has to be both the transferor and the
2 lessor.
3 MR. FRIEDMAN: That is correct, your Honor. Our
4 position is that the transferor subsidiaries who transferred
5 the assets are leasing the assets, and we do not contend that a
6 lease of the assets by Holdings, if it truly were a Holdings
7 lease and not the subsidiaries, we do not contend that a
8 Holdings lease would be a violation of the provision in the
9 indenture.
10 THE COURT: Very good. I take it your answer to the
11 next question is fairly straightforward. You argue in the
12 briefs that they are indeed judicially estopped from arguing
13 that transferor subsidiaries did not lease.
14 MR. FRIEDMAN: Yes.
15 THE COURT: There's a "not" missing in the question I
16 think.
17 MR. FRIEDMAN: I totally understood the question. If
18 your Honor would allow me, I'll explain a little bit about why
19 we believe judicial estoppel does bar the assertions by
20 Services in this case.
21 THE COURT: Please. Let me interrupt before I invite
22 you to do that.
23 Through their questioning, I took defense counsel's
24 argument to be that the regulatory submissions at various
25 places did disclose that Holdings was the sole lessee under the

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1 master lease.
2 I take it your position and argument is that that's
3 not inconsistent with the transferor subsidiaries also being
4 lessees and that to the extent that the question is ultimately
5 whether they leased back the property, whether under the master
6 lease or otherwise, that representations that Holdings is the
7 sole signatory on the master lease is neither here nor there
8 for purposes of judicial estoppel.
9 MR. FRIEDMAN: That's part of it. What I would say,
10 your Honor, is: A, there are explicit representations in the
11 regulatory proceedings that the transferor subsidiaries are
12 leasing the property, and Services argues we are cherrypicking
13 those statements.
14 So the first point I would make is that we're not
15 cherrypicking those statements, and I'll explain that in a
16 little more detail.
17 The second point I would make is that when we think
18 about judicial estoppel and how it applies in this case, it's
19 not simply the statements by Windstream that the transferor
20 subsidiaries are leasing. Services argues look at the full
21 context of what was being represented to the regulators.
22 So we've done that. We look at what Services asserts
23 in its brief to your Honor. We look at the representations to
24 the regulators. And it really does go beyond the one
25 representation that was the focus of attention at trial. So

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1 I'm going to address that.
2 Finally, I'm not sure -- and I truly mean that. I'm
3 not sure if Windstream ever said to the regulators Holdings
4 will be the sole tenant. I'll assume for the sake of argument
5 that maybe it's in there somewhere. I just don't remember
6 that. I don't think it's going to matter in terms of the whole
7 picture.
8 So the first point I would make is that -- in fact,
9 Joe, let me ask you to bring up the first slide.
10 This relates to the representation to the regulators
11 that the transferor subsidiaries are going to be leasing the
12 property. And I would like to call your Honor's attention to
13 the bottom of the slide.
14 Windstream's description -- you don't have to pull
15 that out. Just leave it there, please.
16 Windstream's description of the transaction in seven
17 of nine state regulatory proceedings included the statement
18 that the transferor subsidiaries would be leasing the
19 transferred assets. And that was, as your Honor heard at
20 trial, repeatedly verified by John Fletcher.
21 Now, I would say, your Honor, that in one sense, this
22 is an easy case for application of judicial estoppel. What I
23 mean by that is you often have a situation where a party that
24 made representations in a prior proceeding is coming into court
25 with its executives, with its witnesses trying to say, well, we

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1 said that, but it didn't mean that, and that really wasn't
2 true.
3 Ironically, here this particular representation that
4 the transferor subsidiaries will be leasing back the assets is
5 discussed by Windstream's chief financial officer in his trial
6 testimony.
7 And he says that the statement to the regulators that
8 the transferred assets will be leased back by the transferor
9 subsidiaries was "an accurate summary or characterization of
10 the transaction that was occurring."
11 So that is directly an admission. You don't need an
12 admission to apply judicial estoppel. But in the context of
13 such an admission, that's why I say judicial estoppel in a
14 sense should be easier to apply here, because the prior
15 representation, while it may be inconsistent with what
16 Services' counsel is arguing in its briefs to your Honor, it's
17 actually consistent with what Services' senior executives
18 admitted on the witness stand in this court.
19 I'll just mention, because I had to go back over the
20 transcript, that even John Fletcher, who created the appearance
21 of trying to walk away from his sworn representations -- when
22 you look at his testimony, he never says it was inaccurate to
23 tell the regulators that the transferor subsidiaries would be
24 leasing.
25 He says those statements, often sworn statements by

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1 him, were abbreviated, shorthand, and imprecise. But even
2 Fletcher does not say -- and it wouldn't matter if he did for
3 the application for judicial estoppel, but even he doesn't say
4 those statements were inaccurate.
5 THE COURT: In fact, I think he specifically says he
6 wouldn't say they were inaccurate.
7 MR. FRIEDMAN: He calls them "imprecise." I think he
8 was in a difficult position. These were statements he made
9 under oath in writing.
10 Now, what I'd like to do is look at the full context
11 and the totality of the Windstream representations to the
12 regulators that are fundamentally inconsistent with the
13 position Windstream is taking in this action.
14 So Services tells this Court that the transferor
15 subsidiaries do not have any obligation to pay maintenance,
16 taxes, etc. No obligation.
17 Now, let's please take a look, Joe, at page 8 of the
18 slides.
19 Here's what Services was saying to the regulators. We
20 can look at the bottom again. Windstream stated to the
21 regulators that under the terms of the lease with CSL, the
22 transferor subsidiaries will be responsible for the operation
23 and maintenance of the transferred assets and fulfilling all
24 regulatory obligations. And that's what was represented in all
25 nine states where Windstream was filing applications.

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1 THE COURT: This bleeds into one of the later
2 questions, but I take the Services argument to be that not to
3 quarrel with that, namely, that they assumed responsibility for
4 those expenses and payments, but to argue that in doing so,
5 they didn't assume or acquire any legal obligation to make
6 those payments.
7 That is to say that if there was a breach of the
8 master lease, that CS&L couldn't come after the transferor
9 subsidiaries to fulfill that obligation. Their sole recourse
10 would be against Holdings itself.
11 MR. FRIEDMAN: Let's jump to that, your Honor. So,
12 again, two things: One is if there is a breach of the master
13 lease, whether it's a failure to pay rent or failure to
14 maintain the properties, Holdings or CSL would have legal
15 recourse against the transferor subsidiaries.
16 Second, it absolutely does not matter whether they
17 would or would not have legal recourse. First, the reason why
18 they would have legal recourse is that, as to Holdings, under
19 the authorities we have provided to the Court, where, as here,
20 there is a lease implied in fact, there are obligations on the
21 part of the tenant to comply.
22 And that's exactly what the cases hold in the case of
23 a lease implied, namely, the landlord under the implied lease
24 can sue the tenant for performance of obligations. Even though
25 there's nothing in writing and no oral agreement specifying, I

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1 promise to pay the rent. I promise to maintain it, the Court
2 in an implied situation looks at the substance and the
3 agreement implied by the actions.
4 THE COURT: Although presumably in that context, the
5 statute of frauds may have some application. I understand your
6 argument that it doesn't answer the question of whether there
7 is a contract or a lease.
8 MR. FRIEDMAN: The statute of frauds, your Honor, is
9 available as a defense for a party to the alleged contract. It
10 does not mean that the contract does not exist. It has
11 absolutely no bearing on the issues before this Court.
12 The fact is that in a dispute between Holdings and the
13 transferor subsidiaries relating to performance of the implied
14 lease, the fact or the possibility that one of those parties
15 could assert statute of frauds as a defense does not mean the
16 contract does not exist.
17 A nonparty to the agreement, such as Services in this
18 case, has no standing to raise the statute of frauds, and where
19 the lease exists, as it does here, then there is a lease within
20 the meaning of the indenture.
21 I don't think -- and we'll see what our friends at
22 Kirkland & Ellis have to say. I don't think there's any
23 credible argument that when you interpret the word "lease" in
24 the indenture and in the sale and leaseback covenant, that it
25 means lease that would be valid under the statute of frauds or

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1 lease that contained certain terms.
2 That brings me to my next point, your Honor, which is
3 even if you were to assume for the sake of argument that CSL or
4 Holdings could not sue the transferor subsidiaries for the
5 payment of rent or the payment of maintenance, Holdings and/or
6 CSL sure as heck could sue the transferor subsidiaries to evict
7 them if all the obligations were not fulfilled.
8 What I would say to your Honor is that even if the
9 lease was limited in that way in terms of remedial provisions,
10 it would still be a lease. You can have a lease that says here
11 is the rent that has to be paid. Here is the responsibility
12 for maintenance. You have to do the capital expenditures. And
13 if there's a breach by the tenant, the landlord's sole remedy
14 is to evict the tenant. That's a lease.
15 THE COURT: Well, fine. Let's take a hypothetical.
16 Let's say I sign a lease on behalf of my son and my son lives
17 in the apartment. He doesn't have much of a salary. So let's
18 assume that the landlord wouldn't rent to him. So I sign, not
19 as a guarantor but actually as the lessee, and then I stop
20 paying rent.
21 Obviously the landlord could seek to evict my son.
22 But would you say that my son is party to a lease?
23 MR. FRIEDMAN: No. And the difference here,
24 your Honor, is that we have a situation where Holdings does not
25 have the legal or regulatory authorization to use the property.

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1 Holdings does not have the operational, legal, or financial
2 ability to use the property. And the plan from the very
3 beginning was that the transferor subsidiaries would be
4 enjoying all the rights and fulfilling all the obligations of
5 the lease.
6 So under the legal authorities, which interpret
7 indentures as we've set forth in our papers, your Honor, the
8 Court looks at the substance of the arrangement, not merely the
9 form.
10 And this goes -- this is not a case where, oh,
11 Holdings signed the lease because the transferor subsidiaries
12 couldn't pay the rent. It's just the opposite. Holdings has
13 no ability to pay. It's got to get the funds from the
14 transferor subsidiaries. Holdings has no ability to perform
15 any of the obligations. It's only the transferor subsidiaries.
16 That was part of the plan from the very beginning.
17 And whether or not there is an obligation, written or
18 orally agreed to, to pay rent or pay maintenance, the courts
19 look at the arrangement. And one of the aspects that we
20 pointed out in our papers is that the transferor subsidiaries
21 have been paying all of the capital expenditures that are
22 required to be paid in connection with the use of the property
23 under the master lease.
24 And we cited numerous cases where courts look at an
25 arrangement like that and find long-term leases implied on the

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1 basis of it makes no sense to say that these parties would be
2 spending hundreds of millions of dollars for capital
3 improvements that automatically become the property of the
4 landlord but they're not in a lease. They have no rights.
5 So the situation we have here -- and I realize we've
6 now strayed quite a bit from judicial estoppel. But the
7 situation we have here is in every substantive respect a lease,
8 and that's why the admissions by the Windstream executives to
9 the regulators are so significant and so reasonable, because
10 anybody looking at the arrangement would say the subsidiaries
11 are leasing.
12 If your Honor had a question, obviously I'm going to
13 pause.
14 THE COURT: My question is what you were going to say
15 after "maybe."
16 MR. FRIEDMAN: I just wanted to go back to judicial
17 estoppel and the representations that are being made in the
18 regulatory proceedings and how that relates to the assertions
19 by Windstream in this case.
20 So Services tells this Court that Holdings is allowed
21 to grant the transferor subsidiaries authority to enter into
22 agreements with third parties on behalf of Holdings concerning
23 the transferred assets.
24 And Services says that in these third-party
25 agreements, the transferor subsidiaries can grant a license,

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1 not a lease. And that's because Services argues a license
2 allows use and access to the leased property, but transferor
3 subsidiaries cannot lease because a lease is a grant of
4 exclusive rights in the lease property. That's what we hear
5 Services arguing in this case.
6 In the regulatory proceedings --
7 Let's, Joe, please, take a look at page 9. It's
8 III(C). It may be a couple pages back.
9 We have an excerpt at the top of the slide from
10 Windstream's application to the regulators in Kentucky saying
11 that the transferor subsidiaries' exclusive usage rights will
12 include the right to sublease access to the system.
13 As indicated at the bottom of the slide, that's what
14 Windstream was saying in written applications to regulators in
15 eight of the nine states where applications were filed. And
16 Windstream's CFO and general counsel both acknowledged at trial
17 that it was understood that the transferor subsidiaries would
18 have the right to enter into subleases.
19 Nonetheless, we have Windstream trying to persuade the
20 Court the transferor subsidiaries can't sublease. They can't
21 grant exclusive rights because to grant exclusive rights via
22 sublease, you have to have those exclusive rights yourself.
23 Well, not only are we looking at a situation where
24 what Services is arguing in this court is fundamentally at odds
25 with an important representation to the regulators, but the

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1 evidence, your Honor, shows three dozen agreements in which,
2 after the signing of the master lease, transferor subsidiaries
3 granted exclusive rights, dedicated space in the lease property
4 long term.
5 And these are not agreements on behalf of Holdings,
6 which is one of the things Services argues that the transferor
7 subsidiaries could do, and they're not license agreements
8 allowing access. They're grants of exclusive, exclusive access
9 and dedicated space.
10 Let's, Joe, please -- I hope I have the numbers right.
11 Take a look at slide 15, please.
12 So we have 17 agreements in which transferor
13 subsidiaries grant third parties an exclusive and indefeasible
14 right to use fiberoptic cables that are leased property. And
15 each of these agreements referred to the IRU as an indefeasible
16 right to use an exclusive and irrevocable right to use certain
17 dark fibers that are part of the leased property.
18 Courts recognize IRUs to be leases, and your Honor may
19 remember we asked John Fletcher at trial whether he considered
20 an IRU to be a lease. And he said it's actually a higher
21 category of property right in between a fee simple and a lease.
22 The point here, your Honor, is, again, it's not only
23 judicial estoppel, but it also relates to all the other
24 questions your Honor is asking about is there leasing by the
25 transferor subsidiaries.

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1 Services admits you can't have transferor subsidiaries
2 granting exclusive rights in the leased property unless they
3 themselves are leasing and have those rights. And that's why
4 this evidence is not only relevant to judicial estoppel, but it
5 shows in a very fundamental way that in fact the rights that
6 the transferor subsidiaries have and exercised are lease
7 rights.
8 THE COURT: I want to keep things moving because we
9 have a lot to cover.
10 Before you sit down, number one, if you want to just
11 conclude, you're welcome to. I don't want to put you in a
12 difficult position because I know this is sort of a complicated
13 or peculiar posture, vis-à-vis your position and Aurelius'
14 position in the two transactions.
15 I am trying to puzzle through what legal significance
16 there is to the trustee's position with respect to the 2017
17 transaction, that is to say, what effect its authentication of
18 the notes and the third supplemental indenture should have,
19 what significance I should impart to that.
20 Aurelius makes arguments with respect to the no-action
21 clause essentially saying that the trustee is conflicted and
22 therefore the no-action clause shouldn't apply.
23 Do you agree with that position or believe that you
24 could have brought essentially the lawsuit that Aurelius is
25 pursuing with respect to the 2017 actions?

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1 Lastly, I don't know if it matters, but I am curious
2 what to make of Aurelius' second notice of breach letter that
3 was rescinded, namely, the notice of breach letter that was
4 specific to the 2017 transactions, what to make of that. I'm
5 trying to understand why it may have been rescinded and what
6 effect that should have here.
7 So there are a lot of questions in there. I
8 apologize. If you can tie them all up neatly, that would be
9 great.
10 MR. FRIEDMAN: Let me try.
11 So first of all, in the third supplemental indenture,
12 both the trustee and Services expressly contemplated and
13 preserved the ability of any non-consenting noteholder to
14 challenge whether the consents and waivers had been validly
15 obtained.
16 This is not a standard indenture. This was an
17 indenture drafted in the context and with the expectation of
18 disputes. Both Services and the trustee agreed that if the
19 Court determines the consents were not validly obtained, then
20 the waivers and amendments in the third supplemental indenture
21 will be deemed not to have occurred.
22 In signing the third supplemental indenture, the
23 trustee was very clear, because it's written in the indenture,
24 that the trustee is making no representation as to the validity
25 of the supplemental indenture or the consequences of any

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1 amendments contained in the indenture.
2 THE COURT: Does it not follow from the trustee's
3 obligations under the indenture itself that in authenticating
4 the new notes, the additional notes, that the trustee made a
5 determination that the issuance of those notes was not
6 inconsistent with Article 4 of the indenture?
7 MR. FRIEDMAN: Absolutely not, your Honor. Under the
8 terms of the indenture, the trustee did not have to determine
9 that the new notes were permitted by Article 4 in order to
10 authenticate them.
11 The company was required to and did provide an officer
12 certificate and opinion of counsel regarding compliance with
13 Article 4. The trustee was entitled to conclusively rely on
14 those documents to satisfy the requirement that Kirkland argues
15 about and that your Honor is referring to that the notes can be
16 authenticated so long as such issuance is permitted under
17 Article 4. That's what clause 2.02 says.
18 That does not mean the trustee does or is required to
19 make an independent determination. If we look at sections
20 702(a), 12.04, and 9.06 of the indenture, it's very clear that
21 when the trustee is presented with officer certificates,
22 opinions of counsel, the trustee is entitled to conclusively
23 rely on them.
24 And as we heard Mr. Gunderman testify, on the basis of
25 those submissions to the trustee, Services instructed the

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1 trustee to authenticate the notes and sign the indenture, and
2 the trustee did so. And Services' understanding was that the
3 trustee was obligated to comply with that instruction.
4 And certainly under the terms of the indenture, there
5 is no basis for saying the trustee had an obligation to or
6 should be presumed to have made an independent determination as
7 to whether the new notes complied with Article 4.
8 The trustee was acting in accord with the indenture in
9 that regard, against the background, well preserved in the
10 indenture, of a dispute between non-consenting noteholders and
11 the issuer.
12 THE COURT: But in signing off on the third
13 supplemental indenture, does it preclude you from essentially
14 advancing the arguments that Aurelius is making with respect to
15 the 2017 transactions?
16 MR. FRIEDMAN: The trustee, having signed the third
17 supplemental indenture, is not standing up in court and in any
18 way challenging the validity of that indenture.
19 THE COURT: I understand you are not.
20 MR. FRIEDMAN: Right.
21 THE COURT: My question is can you.
22 MR. FRIEDMAN: Could we bring the claim that Aurelius
23 is bringing to challenge the indenture?
24 THE COURT: Yes.
25 MR. FRIEDMAN: I don't think so, your Honor.

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1 THE COURT: Because, having signed off on the
2 indenture, you would be precluded from doing so? You can think
3 about that one too.
4 MR. FRIEDMAN: Maybe there's an argument that we could
5 challenge the indenture, but it's certainly not what the
6 trustee has ever contemplated doing. The trustee signed the
7 indenture.
8 We're here because the claim being asserted by the
9 trustee is very much intertwined with the question of validity,
10 but the trustee has not taken any position in this case on the
11 validity of the waivers and does not intend to.
12 THE COURT: The last question before I hear from
13 Services, and then I'll give you a brief opportunity to speak
14 again, in part to answer my question from before: Assuming --
15 again, don't read into it -- I conclude the no-action clause
16 does bar Aurelius' claims, whether I should nonetheless proceed
17 beyond that to reach the merits of any of the disputes.
18 With respect to the second notice of default, if you
19 will, with respect to the 2017 transaction that was rescinded,
20 what should I make of that? Do you know why it was rescinded?
21 I don't know if this is relevant at all, but I'm puzzling over
22 it.
23 MR. FRIEDMAN: I guess I'm not going to be able to
24 shed light on that question. There is a dispute between
25 Aurelius and Services regarding --

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1 THE COURT: I am exploiting the fact that you are not
2 party to that dispute.
3 MR. FRIEDMAN: I was going to say I don't have a
4 position or instructions on how the trustee looks at the
5 no-action clause with reference to this issue. I appreciate
6 that I'm here before your Honor. So of course you can ask me
7 anything.
8 But in the usual case where a noteholder is suing an
9 issuer and there's an issue about whether the no-action clause
10 was complied with, I don't think the usual practice is let's
11 check in with the trustee and get an advisory opinion on what
12 the trustee thinks. But that may be neither here nor there. I
13 don't have a position. I don't have instructions from the
14 trustee on that.
15 THE COURT: Thank you.
16 Let me hear from Services on this piece of the case.
17 MR. GODFREY: Good morning, your Honor.
18 THE COURT: Good morning. Welcome back.
19 MR. GODFREY: Thank you, your Honor.
20 You know, I was thinking about your lease hypothetical
21 with your son. When my son moved to New York, I actually had
22 to do that. I didn't realize you had to post six months'
23 security deposit in advance. I actually rethought about that,
24 but the answer to the question was the landlord had recourse
25 only against yours truly, not my son.

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1 THE COURT: I hope the landlord didn't have to take
2 advantage of that.
3 MR. GODFREY: I made sure he did not.
4 Let me start with the first question which also
5 reverts to the last series of questions that your Honor posed.
6 Mr. Hehn, could you put up slide 3, please.
7 This is more than mootness. They have no standing.
8 They have no claim. They have no injury. In the final
9 pretrial order, they recognize and admit that. They should
10 play no role in this case. They signed the third supplemental
11 indenture. That is what they say. But it is more than simply
12 because they admit that it's been mooted. It's a fundamental
13 lack of standing.
14 And now let's revert to the last series of questions
15 that your Honor asked because they are the central part of the
16 strangely odd position that the trustee has taken.
17 THE COURT: Let me stop you for a moment.
18 My basic understanding is that standing is assessed at
19 the time that a suit is filed and that to the extent that
20 circumstances change after a suit is filed, that goes to
21 mootness, not standing.
22 In that regard, I would think there is no dispute that
23 the trustee had standing to file this lawsuit since at the time
24 that it was filed, the 2017 transactions hadn't yet occurred
25 and the third supplemental indenture was not yet in existence.

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1 So it becomes a question of mootness.
2 We discussed this back in November and December, but
3 to the extent that the 2017 transaction and the 2015
4 transactions are intertwined in quite complicated but
5 substantial ways, is there any jurisdictional problem with
6 allowing them a seat at the table to make the arguments that
7 they have made with respect to the 2015 transactions?
8 MR. GODFREY: Yes. I mentioned to your Honor, when we
9 had our final pretrial, that I read everything. I saw the
10 Court's comment about standing is measured at the start of the
11 case. That's true. It's also measured at every stage of the
12 case thereafter.
13 THE COURT: You can raise it at any point thereafter,
14 but I'm not sure it's measured at any point thereafter.
15 MR. GODFREY: The Supreme Court in the Chafin case,
16 568 U.S. at 172, quoting a case called Already LLC, says --
17 this is about mootness -- "There is no case or controversy, and
18 the suit becomes moot when the issues presented are no longer
19 live or the parties lack a legally cognizable interest in the
20 outcome."
21 The issue for standing is at all stages you must have
22 a concrete injury, a present injury, the possibility of injury.
23 There must be some injury. They don't have that.
24 So whether we debate whether it be mootness and has a
25 lack of standing or standing and has a lack of mootness doesn't

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1 matter. But it's at every stage of the case. They don't have
2 a role here. They shouldn't have a role here.
3 Now, the question though that you really put your
4 finger on at the end -- and I can tell it's been the elephant
5 in this room -- is what is the trustee, a trustee, doing here.
6 The trustee in this case did not simply sign at the
7 direction of Windstream Services the third supplemental
8 indenture. It did a few more things that are affirmative acts
9 that are not only admissions but that were in fulfillment of
10 its independent duties as a trustee. They're not some mere
11 passive observer.
12 So let's take a look at slide 4.
13 THE COURT: Can I stop you for one moment there.
14 MR. GODFREY: Yes.
15 THE COURT: At the end of the day, does it matter with
16 respect to the disputes at the heart of the case? That is to
17 say, it may affect the validity of your counterclaims against
18 the trustee for fees and costs and what have you. But let's
19 assume, for the sake of argument, that I had agreed with you
20 way back when and dismissed the trustee from the case.
21 Presumably Mr. Robbins would stand up in the context
22 of litigating the validity of the 2017 transactions and make
23 the same arguments with respect to the 2015 transactions
24 because they are a necessary step in connection with some of
25 the arguments at least that he's making as to the 2017

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1 transactions.
2 MR. GODFREY: Slide 22, please, Mr. Hehn.
3 THE COURT: You're getting me nervous.
4 MR. GODFREY: I think your Honor probably is familiar
5 with the Abbott and Costello routine of "Who's" on first,
6 "What's" on second, and "I don't know" is on third.
7 THE COURT: I'm not that old -- or young. I'm not
8 that young I meant to say. I am familiar, yes.
9 MR. GODFREY: I thought about a play on words here,
10 but who goes first.
11 So Aurelius says -- because, remember. It's not suing
12 under Section 4.19. It's not suing to challenge the sale
13 leaseback under 419. It says we have claims based upon the
14 assumption of the 419 violation.
15 So their claims are conditioned upon U.S. Bank
16 winning. U.S. Bank, on the other hand, says we have no claims.
17 We can't get to first base. We can't get to second, third, and
18 home unless Aurelius is successful in setting aside and in
19 validating the third supplemental indenture.
20 You have a spinning whirlpool on the lack of standing.
21 The way that they have chosen to try this case is each depends
22 upon the other first to win before the other can proceed. Two
23 legally defective complaints that lack standing cannot become
24 valid by trying them together. That is the flaw. It's been
25 the inherent flaw from one day.

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1 Now, in fairness to your Honor, on the November 7
2 status, the statements were made that a complaint would be
3 coming and that these were intertwined. That's what you were
4 told. They were intertwined. When I read the record, I read
5 it chronologically, like your Honor.
6 They told you. And I assumed, therefore, that when
7 the counterclaims were filed by Aurelius, they'd be making the
8 4.19 claim, but they did not make that claim. They assume that
9 U.S. Bank has won.
10 So you have two legally defective complaints, neither
11 one of which has standing, each of which depends upon the other
12 to win first. Under those circumstances, U.S. Bank should have
13 no role.
14 Now, in answer to your Honor's question -- and I think
15 you know the answer -- do you need to reach the merits. You do
16 not need to reach the merits. However, there is a case called
17 20 Miljam. I think your Honor is probably familiar with that
18 case. You argued it in the Second Circuit. The court found no
19 standing. The court did reach the merits.
20 There is a fundamental distinction with that case that
21 your Honor argued back in 2011 with this case. In that case,
22 the party challenging the third supplemental indenture was the
23 party seeking to challenge the underlying conduct.
24 Here U.S. Bank is not challenging the third
25 supplemental indenture. They're saying we're bound by it.

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1 We're relying upon Aurelius, our good buddies Aurelius, to do
2 that. Hence the inherent flaw in standing.
3 Let's go to the questions that your Honor was asking.
4 What is the role of the trustee. They are not some mere
5 passive observer. So what did they do.
6 Slide 4, please, Mr. Hehn.
7 A note shall not be valid until authenticated by the
8 manual signature of the trustee. Such signature shall be
9 conclusive evidence. Conclusive evidence as to who? These
10 innocent third-party noteholders, the people who have been
11 trading.
12 There is a whole secondary market out there relying
13 upon what the trustee did. The trustee was not some mere
14 passive observer. They just didn't stamp it and move on. In
15 fact, I was curious. What do you mean manual signature?
16 Let's take a look at slides 5 and 6, please, Mr. Hehn.
17 There it is. Manual signature. A senior person at
18 the U.S. Bank had to physically look at and sign $553 million.
19 That's an affirmative act to the market that says to the
20 market, this is in compliance with the indenture.
21 Now, they did this in the context of they're being
22 told by Aurelius' counsel, you just can't take orders from
23 Windstream Services.
24 Turn to slide 7, please, Mr. Hehn.
25 You'll recall I confronted Mr. Prieto with this. This

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1 is the Kramer Levin memo. Kramer Levin actually gave the
2 proper advice to the U.S. Bank as trustee. You must satisfy
3 itself, yourselves, as to the validity. They don't take
4 orders. They were told this on October 27. That's Windstream
5 Exhibit 159.
6 THE COURT: Obviously the trustee disagrees with that.
7 I take it you're in agreement with Kramer Levin's
8 position on that front?
9 MR. GODFREY: I agree that Kramer Levin was correct
10 that they had an independent duty. The indenture itself
11 provides that you have to be in accordance with law and
12 compliance with the indenture. That's part of Section 2.02.
13 Let's talk about the other thing that they did
14 affirmatively.
15 Go to slide 9, please.
16 They had to cancel half a billion in old notes, half a
17 billion.
21 They had to cancel half a billion in old notes. So
22 the market participants, the secondary market, the direct
23 market participants -- what do they know? They have an
24 indenture. They can read Section 2.2 which provides that they
25 must act in accordance with the indenture and pursuant to law.

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1 They had been informed by Kramer Levin, U.S.'s counsel, you
2 must satisfy yourself independently. What did they do.
3 Six days later, they canceled, manually canceling by
4 the signature of a senior official at U.S. Bank, half a billion
5 in old notes and issued $553 million in new notes.
6 THE COURT: What do I make of the language in the
7 third supplemental indenture that pretty clearly notes the
8 existence of this dispute and the possibility that a court may
9 invalidate the third supplemental indenture?
10 Don't the holders of the new notes and anyone who
11 acquired them in the secondary market do so at their peril,
12 understanding that that is a distinct possibility?
13 MR. GODFREY: No. Contracts 101. Every contract,
14 whether it's stated expressly or not, under the law is subject
15 to the law which says a contract is only valid if a court says
16 it is in an enforcement proceeding.
17 This is an irrelevant addition to this contract. It
18 gives them no special rights. It gives them no special savings
19 clause. It doesn't give them the right to sue.
20 Every contract is subject. As we learn in contracts
21 101, first year, first semester, that if the contract is
22 legally invalid, it bears no fruit. That's just contracts 101.
23 The fact that someone thought contracts 101 is
24 necessary is common in the petroleum industry in international
25 contracts so people can understand that in foreign nations, but

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1 you see this routinely. This is no special deal, which is why
2 U.S. Bank answered to your Honor. We are suing under it.
3 So the question becomes in light of this, because this
4 goes to the equities, and it goes to standing, why is U.S. Bank
5 taking this position?
6 On October 18 until November 6, they could have
7 interpleaded and said, your Honor, we're caught in the middle.
8 Why are they taking this position? They have chosen sides.
9 Now, it's interesting that over 90 percent of all
10 noteholders and over 61 percent of the August 23 noteholders --
11 they all voted to waive.
12 Slides 1 and 2, please, Mr. Hehn.
13 They all voted to waive.
14 Mr. Hehn, slide 2. 61.35 percent.
15 So U.S. Bank is picking sides. Why are they picking
16 sides? Why are they not acting as a trustee who traditionally
17 acts as a fiduciary? We now know the answer to that question,
18 because their counsel is Aurelius' counsel, and they're
19 controlled by Aurelius.
20 Slide 14.
21 This is what I asked Mr. Prieto: Is U.S. Banking
22 prosecuting this lawsuit in this trial at the direction of
23 Aurelius? Yes.
24 A trustee in this case is acting contrary to the
25 indenture agreement as signed, contrary to the affirmative act

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1 of canceling half a billion in notes, contrary to the
2 affirmative act of issuing $553 million in authenticated new
3 notes, contrary to the wishes and directions of 90 percent of
4 all noteholders and 61.35 percent of the noteholders of the
5 series at issue, August 2023.
6 And we now know it is doing so because it has picked
7 sides acting at the direction of Aurelius. And by the way,
8 counsel for U.S. Bank was Aurelius' counsel originally for
9 purposes of the notice of default.
10 Now, I recalled in preparation for this case a case
11 that you learn in first-year contracts by Justice Cardozo, who
12 not only served in the U.S. Supreme Court but served in the
13 highest court of this case. It's a case called Meinhard. It
14 rings as true today as it did nine decades ago: "A trustee is
15 held to something stricter than the morals of the marketplace.
16 Not honesty alone, but the punctilio of an honor the most
17 sensitive, is then the standard of behavior."
18 This Court is being asked to balance the equities, and
19 one of the equities you will have to balance here is unclean
20 hands.
21 We leave it to your Honor to balance those equities in
22 light of what duties are expected of a trustee as defined by
23 the indenture. They lack standing. It's been mooted. But
24 they are acting contrary to the interests of the noteholders,
25 which also is a violation of Section 6, as your Honor knows.

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1 So that's question one.
2 THE COURT: Why don't you move to the least related
3 questions.
4 Why is the trustee wrong that the dispositive question
5 for whether it qualifies as a sale and leaseback transaction
6 within the meaning of the indenture is whether the transferor
7 subsidiaries leased the transferred assets, whether pursuant to
8 the master lease or otherwise? Why is that not the dispositive
9 question?
10 MR. GODFREY: It is too narrowly stated. It is the
11 dispositive question as to whether or not, under the plain and
12 unambiguous terms of the indenture, there has been a sale and
13 leaseback, under the plain and unambiguous terms.
14 But what the trustee seeks to do on behalf of a
15 singular noteholder for the injury of all other noteholders is
16 to rewrite the indenture and the master lease. These are not
17 minor rewritings. These are massive rewritings.
19 We put together a slide, Your Honor, identifying all
20 the terms that would have to be rewritten to agree with the
21 trustee.
22 Rewrite Section 4.19, directly or indirectly. Rewrite
23 the definition of "sale" and "leaseback." Rewrite Section
24 1.04. Rewrite under the guise of implied terms the express
25 terms of Section 4.19. Rewrite or void the first supplemental

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1 indenture. We could go on and on, but that's not all.
2 Next slide, please, Mr. Hehn, please.
3 You asked the question of Mr. Fletcher directly or
4 indirectly which he took into account at the time they drafted
5 this transaction. The drafters of the indenture knew precisely
6 how to insert the phrase "directly or indirectly" into the
7 indenture when they wanted to, but they didn't do it here.
8 THE COURT: I will grant you that, and it certainly
9 appears in many other places throughout the indenture. My
10 question to you is: Why does that matter here?
11 In other words, looking just at the plain language of
12 4.19, the sale and leaseback provision, let's assume that it
13 has to be the same party, the same person, as defined in
14 Section 1.01. The transferor subsidiary constitutes a person
15 within the meaning of "investor;" correct?
16 MR. GODFREY: The transferor subsidiary would be a
17 person.
18 THE COURT: So the transferor subsidiaries -- you
19 agree that they have transferred the transferred assets to
20 CS&L. Correct?
21 MR. GODFREY: Yes.
22 THE COURT: So why would it not fall within the
23 meaning of the sale and leaseback transaction if I were to
24 conclude -- and we can move to whether I should or not in a
25 moment.

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1 But if I were to conclude that the transferor
2 subsidiaries then leased those assets back, would that not
3 satisfy the definition in 4.19, full stop, whether directly or
4 indirectly altering the definition of person, without the need
5 for an affiliate clause, etc.?
6 MR. GODFREY: If the Court were to find that there was
7 an actual lease between the transferor subsidiaries and CS&L,
8 then I do not think I could persuade the Court -- nor would I
9 try -- that there was a sale and leaseback.
10 The problem is that there is no actual lease or
11 implied lease between CS&L and now Uniti and the transferor
12 subsidiaries. Instead, the lease is with Holdings which was
13 not a person that transferred assets. That's the problem.
14 Mr. Fletcher, you'll recall, your Honor, testified
15 that had he believed that there would be a lease between
16 CS&L/Holdings and the transferor subs, that he would not have
17 supported the transaction because of his concerns with
18 compliance with Section 4.19.
19 So the question for your Honor is on the plain face of
20 the contract and the plain face of the master lease, there is
21 no sale and leaseback under the terms of Section 4.19. You
22 only get there if you rewrite the master lease or imply some
23 unwritten multibillion-dollar, multiyear lease between the
24 transferor subsidiaries and CS&L/Uniti.
25 THE COURT: Why does it matter? Looking at the

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1 definition of the term, is it your position that I would have
2 to find a lease between CS&L and the transferor subsidiaries?
3 Why does the counterparty for whatever lease the
4 transferor subsidiaries were party to -- assuming for the
5 moment I concluded that they were party to a lease, why does
6 the counterparty matter under the definition of sale and
7 leaseback transaction?
8 MR. GODFREY: That's the name of the game. It's what
9 determines who is covered and who is not covered by the term of
10 sale and leaseback transaction.
11 THE COURT: Look at the language.
12 MR. GODFREY: I am.
13 THE COURT: "Any person."
14 MR. GODFREY: Means with respect to any person any
15 transaction involving any of the assets or properties of such
16 person -- so same person, person A -- whether now owned or
17 hereinafter acquired, whereby such person, person A, sells or
18 otherwise cancels such assets or properties and then or
19 thereafter leases such assets or properties or any part
20 thereof.
21 THE COURT: Slow down. Okay.
22 So "such person" here is a transferor subsidiary. So
23 transferor subsidiary sells or otherwise transfers such assets
24 or properties. Right? We have that. Agreed?
25 MR. GODFREY: That's their argument. They did that.

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1 They transferred the assets.
2 THE COURT: So then the next part is and then or
3 thereafter leases such assets or properties.
4 MR. GODFREY: Correct.
5 THE COURT: Which such person intends to use for
6 substantially the same purposes.
7 So why does it matter who the counterparty to a lease
8 is? Doesn't it fall within the definition as long as I find
9 that the transferor subsidiaries leased the transferred assets
10 back, full stop, and used it for the same purposes, which I
11 assume you agree that they did here?
12 Correct?
13 MR. GODFREY: That was a compound question.
14 THE COURT: Right. So take the last part.
15 I assume you would concede that the last requirement,
16 namely, that the transferor subsidiaries used the transferred
17 assets for purpose or purposes.
18 MR. GODFREY: That part I agree with.
19 THE COURT: So focusing on the middle part, thereafter
20 leases such assets or properties or any part thereof, why is
21 that --
22 MR. GODFREY: Because there has to be a lease. There
23 has to be a lease from the person they transferred it to. They
24 have to lease it. There's no lease here.
25 THE COURT: I'm just trying to identify what the

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1 issues are in dispute.
2 Why does that not make the trustee's point correct,
3 namely, that the 4.19 issue in this case, whether I need to
4 reach it or not, rises or falls on whether I conclude that the
5 transferor subsidiaries were parties to a lease, leased the
6 transferred assets back?
7 MR. GODFREY: We have always said that they have to
8 prove that the subsidiaries who transferred the assets are
9 parties to a lease for those assets. In this case, they would
10 be parties to a lease from CS&L/Uniti. And they're not.
11 If you go to the next slide, Mr. Hehn, please.
12 That's why they need to rewrite the terms of the
13 master lease.
14 THE COURT: So let's talk about why they were not
15 parties to a lease since I'm not sure I'm going to get the
16 concession out of you that I was looking for.
17 Talk to me about the actual question of whether there
18 is a lease.
19 MR. GODFREY: First of all, there is a lease. The
20 lease is between Holdings and Uniti.
21 THE COURT: You know what I meant, why there's no
22 lease involving the transferor subsidiaries.
23 MR. GODFREY: That's part of the issue, because if
24 there is a lease with a sole and exclusive tenant provision,
25 which there is, called a master lease, then by definition,

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1 there would be another lease for the same property when it's
2 sole and exclusive.
3 Also if you look at recital B of the master lease, it
4 draws a clear distinction between Holdings and Services.
5 Holdings is the sole and exclusive tenant.
6 THE COURT: Does the master lease prohibit the
7 sublease of the properties? In other words, you've made the
8 argument that where there is a written contract, you can't
9 imply a contract that would be inconsistent with the written
10 contract.
11 MR. GODFREY: That is correct.
12 THE COURT: How is it inconsistent here?
13 MR. GODFREY: Because there is no other written
14 agreement by which they have subleased it or leased it. Uniti
15 has not leased it to the subsidiaries.
16 THE COURT: That begs the question. My question is:
17 Why would it be inconsistent to imply a lease in fact, whether
18 from CS&L or a sublease from Holdings?
19 MR. GODFREY: Well, generally leases in fact are not
20 implied where there is an express lease governing the same
21 property. That's a general rule in New York law. The Court is
22 familiar with it.
23 Here you don't even need to get that far because we
24 know, pursuant to the master lease under section 7.2 and 7.2(e)
25 exactly how the subs actually are allowed to use the property

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1 pursuant to the master lease between Holdings and Uniti.
2 It's pretty simple. The question is U.S. Bank says
3 the subs are the lessees. Now, we don't have a written lease.
4 They say. They admit. I guess it's as an oral multibillion
5 multi-year lease. Maybe that's what it is.
6 They say we know that because the subs are allowed to
7 use it which, by the way, is pursuant to the master lease where
8 the sole tenant, where the sole obligation is to pay rent,
9 where the sole obligation is for maintenance, taxes, etc., etc,
10 Why with Holdings?
11 That's why they're trying to rewrite the master lease.
12 This master lease precludes by its very express terms the
13 implied lease that they seek to have the Court create out of
14 whole cloth. That's the problem.
15 THE COURT: Do you want to address the judicial
16 admission estoppel question briefly?
17 MR. GODFREY: Sure. Where do I start. You stopped
18 me, if you'll recall --
20 -- during my redirect of Mr. Fletcher because I took
21 three of the states. And for every singular statement, because
22 it was a singular statement, an imprecise statement in
23 Mr. Fletcher's words at the start of each application, there
24 were six, seven, eight, or ten statements describing precisely
25 the correct relationship.

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1 And after the third one, you said, Mr. Godfrey, I get
2 the point. Then I said could I put up one more slide, and you
3 said yes. I'm going to put it up again.
4 PX24, Mr. Hehn, second page.
5 This is from Kentucky, and they made such a big deal
6 about Kentucky. And this of course talked about the transfer
7 of the subject assets to Windstream Corporation. Let's
8 re-lease the assets back to Windstream Holdings, Holdings.
9 Holdings is subject to the leaseback.
10 The regulators did not rely upon the imprecise
11 language which appeared at the start of every one of these
12 applications. There was no inconsistent regulatory ruling.
13 You can take that down, Mr. Hehn. Thank you.
14 So when we say "cherrypicked," the representation was
15 made in the questions -- and the argument is being made -- they
16 told the regulators. The regulators relied that the leaseback
17 was going to be to the subs. But after the initial statement
18 in some of the regulatory applications, they all went into the
19 details.
20 You'll recall, your Honor, when I looked at Arizona,
21 for example, and Alabama, they attached the draft lease which
22 spelled it out. You cannot have a judicial estoppel based upon
23 inconsistent statements within the documents themselves, but
24 there was no judicial estoppel here. The regulators got it.
25 They knew precisely what was taking place. It was spelled out

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1 to them.
2 This would be the first Court in history which says,
3 I'm going to look at a regulatory application which says it
4 imprecisely or incorrectly in the first sentence and then says
5 it correctly in the next eight sentences, and I'm going to find
6 that that one imprecise statements buys the companies, even
7 though the regulators didn't rely upon it, knew what the facts
8 were, were given drafts of the master lease, had them explained
9 to them in detail, but we're going to find judicial estoppel
10 nonetheless. They don't have a case to support that for good
11 reasons. It would be an extraordinary judicial proposition.
12 THE COURT: What do I make of Mr. Fletcher's testimony
13 that those representations were not inaccurate? Imprecise
14 perhaps, overbroad perhaps but not inaccurate.
15 MR. GODFREY: Yes, because you have to look, at the
16 entire filing itself. The way these filings worked they have
17 the first paragraph or second paragraph description, and then
18 you'll recall with the one -- I don't remember which one it
19 was now. It's at Section 4, details of the transaction, that I
20 pointed out to you at the time. I think that's where you
21 stopped me when you said you had the point because that's where
22 it spelled out specifically the details.
23 So this is not the situation where someone has come in
24 and said, it's A. And now they're coming into this court and
25 saying, it's X. This is a situation where someone told the

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1 regulators, here's what it is, and the regulators looked at it.
2 As you saw from Kentucky, Kentucky came out, and on
3 the Arizona one or Alabama, which I'm sure they'll want to
4 point to where the regulators have that language -- if you'll
5 recall that point on page 6 where it says as understood by the
6 petitioners and as outlined by the petitioners. And it was
7 laid out accurately in detail. So in terms of cherrypicking,
8 that's precisely what we had.
9 After the cross-examination, the impression was left
10 in this courtroom that everything that was told to the
11 regulators was that Services and its subs were going to be part
12 of the leaseback. And that's why I went through the first
13 three in detail, and I was prepared to go through every single
14 one in detail, but I think your Honor saw the point and got the
15 point.
16 THE COURT: Yes. I'm mindful of the time. We need to
17 keep moving. Why don't you wrap up, I will hear briefly from
18 Mr. Friedman. And then I will check with the reporter if she
19 needs a break. We may take a break before the next phase of
20 the argument. I've already devoted more time to this than I
21 expected or intended.
22 MR. GODFREY: So the third party leasing, etc., that
23 was pursuant to 7(a). Mr. Fletcher explained the process of
24 that. That's of record. That's pursuant to the master lease.
25 It does not create a separate master lease.

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1 In terms of your questions number -- I think I've
2 already answered the question about under New York law the
3 lease cannot be implied except for two circumstances,
4 month-to-month, periodic leases, unsigned leases. We don't
5 have that here. That was briefed by the parties.
6 Question number 6, the record is clear there is no
7 legal obligation on the part of the subsidiaries, the
8 transferor subsidiaries, to pay rent. No legal obligation to
9 make any of those things. That's solely on behalf of tenant.
10 This is not unimportant because if there were claims,
11 Mr. Friedman asserted, cavalierly asserted, that good heavens.
12 If they breach the lease, Uniti can sue the subs. They may sue
13 them to exclude them from the premises like if my son had made
14 his rent payments on time, but they couldn't sue them for back
15 rent. It has a party it can sue.
16 Finally on this point, we had a discussion -- you did
17 actually with one of the witnesses -- about structural
18 subordination, and you'll recall the benefits of the
19 transaction.
20 This is an important concept. When you have the lease
21 at the Holdings level, Uniti's recourse is against Holdings,
22 not against the subs which is better for noteholders.
23 It makes it better for noteholders. They have less of
24 a risk under those circumstances. That was a point
25 Mr. Fletcher was getting to. That was the point the witnesses

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1 were answering to the Court's question. That's not an
2 unimportant point.
3 So to sum up our position on U.S. Bank, number one, it
4 lacks standing. Number two, under the plain and unambiguous
5 terms of Section 4.19, there was no sale and leaseback.
6 Number three, if you're going to find a sale and
7 leaseback, you have got to then rewrite the master lease; you
8 have to then rewrite the indenture, multiple terms which we
9 identified for the Court; and you've got to, frankly, violate
10 settled New York law in terms of applying a lease in terms of
11 these circumstances.
12 Number four, you've got to do it on behalf of a
13 trustee who is supposed to be a fiduciary for all noteholders
14 but who is acting in violation of the third supplemental
15 indenture and the wishes of over 90 percent of the noteholders,
16 61.35 percent of the noteholders with respect to the
17 August 2023 notes.
18 Unless the Court has any other questions about the
19 topics regarding U.S. Bank.
20 THE COURT: Let me ask you the question that I posed
21 to Mr. Friedman -- and then I'll ask you to sit down -- which
22 is: Assume for the sake of argument that I were to conclude
23 that Aurelius is barred by the no-action clause.
24 Should I nonetheless proceed to the merits on the
25 theory that either the Circuit might disagree or that failure

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1 to comply with the no-action clause is curable and we could be
2 back here in 60 days or what have you?
3 MR. GODFREY: I'll start in reverse. One, it's not
4 curable. Even if it's curable, they still lack standing for
5 the reason on slide 22. Aurelius can't proceed unless U.S.
6 Bank first wins a Section 4.19 violation. That's just the way
7 they pled themselves on a standing basis. That's just a fact.
8 So it's not curable, number one.
9 Number two, even if it was curable from the no-action
10 clause perspective, they have a fundamental lack of standing
11 problem -- who's on first, what's on second, and I don't know
12 how they get standings on third.
13 As far as the first question, the Court knows the
14 answer to that question. I did not listen to the oral argument
15 tape when your Honor argued the Miljam case. I don't know the
16 reason the Court should just skip the Article III standing
17 issue or not. I think it's within the sound discretion of this
18 Court.
19 THE COURT: All right. Thank you.
20 Mr. Friedman, very briefly, and then we'll go from
21 there.
22 MR. FRIEDMAN: Yes. I'll try to go in reverse order
23 since some of the later points that Mr. Godfrey was
24 articulating are a little fresher in my mind.
25 So, yes, your Honor. We've been through this trial.

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1 If the Aurelius claim should be dismissed for some procedural
2 ground, then, yes. The Court should decide the merits of the
3 trustee claim for purposes of appeal and otherwise. We've been
4 here. We tried the case.
5 And, in fact, this is a case where the merits are
6 intertwined with mootness and justiciability. So the
7 authorities -- and we've had them in letters to your Honor --
8 are clear that the merits should be decided.
9 Next Mr. Godfrey talks about General Counsel Fletcher
10 articulating something about priority benefits to noteholders.
11 Fletcher admitted that when it came to financial matters, his
12 understanding came from Gunderman.
13 Gunderman testified that even though the lease is
14 signed by Holdings with CSL, it's no less of a risk. It's more
15 of a risk for the noteholders because the obligation to pay the
16 rent, which has to come from the transferor subsidiaries, is a
17 high priority obligation within all of Windstream, otherwise
18 the transferor subsidiaries and the company are out of
19 business.
20 With respect to judicial estoppel, now I'm going to
21 talk about cherrypicking for a minute, cherrypicking by the
22 other side. We have nine regulatory proceedings. Mr. Godfrey
23 likes to say, well, look at this order. The order of the
24 commission does not refer to the transferor subsidiaries
25 leasing.

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1 Well, for judicial estoppel, typically you have one
2 prior proceeding and one prior ruling. If I have two or three,
3 I've got two or three times more than I need.
4 We focused on the Alabama public commission order
5 because that's one order your Honor can look at. It's a case
6 where Windstream said to the commission the transferor
7 subsidiaries will be leasing.
8 When the Alabama commission issued its order, it
9 describes the transaction twice as a transaction in which the
10 transferor subsidiaries are leasing back the assets.
11 It does not say Holdings is leasing. It says the
12 transferor subsidiaries are leasing, and that's the transaction
13 that it approves. That's the basis for judicial estoppel. It
14 doesn't matter, oh, you can look at this order or that order,
15 and it says something different. You only need one.
16 THE COURT: Last word.
17 MR. FRIEDMAN: I have two last words. Maybe I'll talk
18 fast.
19 THE COURT: Don't talk fast.
20 MR. FRIEDMAN: The argument by Windstream that the
21 transferor subsidiaries are not leasing boils down to Holdings
22 signed the master lease. That is elevating form over
23 substance.
24 The cases that we cite, including Alico (phonetic),
25 Associated Gas, make clear that when you interpret indentures,

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1 you absolutely do not elevate form over substance. You look at
2 the substance, our case right here, more egregious than those
3 cases where covenant violations were found.
4 Finally, with respect to the trustee and
5 authentication, if we look at 7.02(a) of the indenture, it's
6 crystal clear. What it says is that "The trustee may
7 conclusively rely and shall be protected in acting or
8 refraining from acting upon any document believed by it to be
9 genuine."
10 It's fine that Kirkland & Ellis believes that the
11 trustee had an independent duty. I surmise that Kramer Levin
12 thought the trustee had an independent duty, but that is not
13 what the indenture says, your Honor. So with that, I
14 appreciate the Court's consideration.
16 We only have one court reporter today in contrast to
17 the trial last week.
18 Let's take a five-minute break. Then we'll pick up
19 where we left off. Maybe in the meantime, if Aurelius' counsel
20 wants to take the front table, that would make sense. I'll be
21 back in five minutes.
22 (Recess)
23 THE COURT: All right. Mr. Robbins, good morning.
24 MR. ROBBINS: Good morning, your Honor.
25 May I ask, before we get started, because the time

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1 seems to have evolved --
2 THE COURT: It's not been strictly enforced.
3 MR. ROBBINS: I'm reluctant to put it that way,
4 your Honor.
5 Could I just ask how much time the Court wishes to
6 give the parties on the second half of the case.
7 THE COURT: You can ask, but I'm not going to answer.
8 However much time I think is warranted. I devoted maybe a
9 little more than I should have or intended to to that last bit.
10 I'm guessing it will still be about an hour. I'm mindful of
11 everybody's need, myself included, to eat. Why don't you
12 proceed.
13 MR. ROBBINS: What I propose to do is walk through the
14 questions that the Court put to us yesterday. If it's okay
15 with the Court, the no-action clause questions I'm going to
16 defer to my partner, Mr. Trunk.
17 What I'll do, rather than to have people popping up
18 and down, if this is okay, your Honor, is to cover all the
19 remaining questions myself before I sit down, even if that
20 means we're taking them slightly out of the order in which they
21 were posed in the Court's order.
22 THE COURT: That's fine.
23 MR. ROBBINS: So let me start with the two general
24 questions that the Court posed at the outset. The answer to
25 the first question is yes. A ruling in Services' favor that

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1 the 2015 transaction is in fact not a violation of the sale and
2 leaseback provision would moot our part of the case.
3 Let me add just a little footnote to that. The answer
4 I just gave actually is connected to the no-action clause
5 issue. If we had been pursuing a freestanding breach of the
6 indenture under, for example, 417 and seeking a freestanding
7 cause of action, then in that event, actually a finding that
8 the sale and leaseback transaction is not a violation would not
9 moot that issue.
10 But it's precisely because we are not making a
11 freestanding argument that the sale and leaseback issue is a
12 predicate to our claims, and it's precisely for that reason as
13 well that the no-action clause does not preclude our claim for
14 the reasons Mr. Trunk will elaborate.
15 THE COURT: So explain that to me.
16 Why would it moot your arguments with respect to 4.17
17 and the minimum issuance condition?
18 MR. ROBBINS: Because the claims that we are making
19 are all claims that say, in essence, there is no waiver of the
20 sale and leaseback transaction. We are not making, in other
21 words, freestanding breach of contracts claims. We're not
22 asking, for example, that all of the transactions be
23 securitized ratably. We're not arguing that we should be given
24 equal consent payments as a freestanding violation of 4.17.
25 If we were making those arguments, they would not be

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1 mooted, at least the 4.17 argument, by the predicate claim
2 about 2015. But it's precisely because we are not making
3 freestanding claims, precisely because all we are doing is
4 defending against a claim of waiver in a lawsuit brought
5 against us by the company that the no-action clause is not
6 implicated.
7 But I don't want to go down too far that path because
8 Mr. Trunk will be covering it.
9 THE COURT: But aren't you making an argument seeking
10 a declaration that the consents, the waivers, were not valid?
11 MR. ROBBINS: Indeed.
12 THE COURT: I understand maybe at the end of the day
13 it would be academic if I concluded that you and the trustee
14 were wrong on the 2015 piece.
15 But aren't you making the argument that they are
16 invalid, in part, because issuance of the additional notes was
17 impermissible because it constituted a breach of 4.17 and
18 failed to comply with the minimum issuance condition?
19 MR. ROBBINS: Yes. That's all true. Maybe I've gone
20 too far down this path. All I'm suggesting is that the answer
21 to your first question is yes and that that also has
22 implications, as Mr. Trunk will explain, for the no-action
23 clause part of the case. They are related points.
24 Let me turn, if I might, because there is a fair
25 amount to get through, to the relief question. This is the

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1 argument that the other side leads with in their reply
2 conclusions of law in which they say, in substance, that you
3 should reject our defenses to the waiver claim because various
4 notes have traded that you'll have to, in essence, unscramble
5 some eggs. This, I respectfully suggest, is a red herring.
6 So let me be as clear as I can be about what exactly
7 the relief is that we're seeking, and it's prescribed. It's
8 specified in paragraph 49 of the joint pretrial statement.
9 We are asking, your Honor, for only the following
10 relief: A declaration that the new notes do not constitute
11 additional notes within the meaning of the indenture and
12 therefore did not have the right to vote on the waiver.
13 We are seeking relief that the existing 6 3/8 notes
14 were validly accelerated on December 7, that Aurelius be paid
15 a money judgment on account of the acceleration, and whatever
16 such further relief as the Court deems appropriate much.
17 What we are not doing and what we are accused of doing
18 but it is simply not so is we are not seeking to invalidate the
19 debt exchange or ask that the new notes be declared invalid.
20 The relief that we are seeking would not entail any of those
21 things.
22 Indeed the new notes would continue to exist, trade in
23 the market. They are issued pursuant to an entirely separate
24 CUSIP which allows them to be easily and separately identified.
25 And what happens to the rights of the holders of those

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1 notes is a question for another day that can be resolved in a
2 variety of ways, including through any number of transactions
3 that the company has at its disposal, including but not limited
4 to the recent exchange they just undertook which leaves very
5 little of these new notes even in existence to be concerned
6 about.
7 But the fact is --
8 THE COURT: You're not referring to something that's
9 in the trial record I take it.
10 MR. ROBBINS: No. We have not put in proof about
11 that.
12 THE COURT: All right.
13 MR. ROBBINS: But all I'm suggesting, your Honor --
14 and I don't propose to go into it further -- is the question of
15 what, if any, remedies might be available for the holders of
16 the new notes is a question for another day, and then I'll move
17 on to 4.09.
18 I think it would be passing strange, your Honor, for
19 the company to be able to say, in substance, what this argument
20 really is saying. What they're really saying is, look. We
21 should be able to sue you, Aurelius -- because that's what they
22 did. That's how we got into this case. They sued us -- we
23 should be able to level a claim against you, block you from
24 insisting on the sale and leaseback default, claim a waiver,
25 and prevent you from defending our waiver claim because we have

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1 traded these notes and we have gone on with our lives in such a
2 way that you should not be allowed to defend the case.
3 That, I suggest, just makes absolutely no sense, but
4 it's, in any event, not a question before this Court and
5 presumes all manner of things that are not in the record such
6 as, for example, that these notes have turned over a bunch of
7 times. Who knows.
8 THE COURT: Can you just address quickly Mr. Godfrey's
9 argument that essentially there are two legally invalid,
10 defective complaints here. As I understand the argument, it
11 would be looking in a vacuum at the trustee's complaint.
12 That complaint should be dismissed as moot because the
13 trustee signed off on the third supplemental indenture; that it
14 concedes that if the waivers are valid, that its claims go
15 away. Proof. Therefore, it's moot unless and until you were
16 to prevail on the argument that the waivers were invalid.
17 But your argument on that depends on their arguments
18 concerning the sale and leaseback. In other words, each one --
19 I don't want to mix metaphors -- is a two-legged stool that the
20 other leg is whatever. You got the point.
21 MR. ROBBINS: Yes.
22 Respectfully, your Honor, I think this is a chain of
23 causation that would make Mrs. Polecraft (phonetic) blush.
24 THE COURT: Justice Cardozo is figuring prominently
25 today.

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1 MR. ROBBINS: Here is the problem. First off, the
2 first missing leg of the stool is not missing at all. So let
3 me talk about the trustee.
4 For the reasons Mr. Friedman explained, the trustee
5 has not committed to the proposition that our part of the case
6 is invalid. The trustee has simply said -- and the trustee, by
7 the way, insisted on putting into the third supplemental
8 indenture -- that language came from the trustee.
9 And it said, we are agnostic on the Aurelius part of
10 the case. We're not taking a position. Do not take our
11 authentication as somehow a blessing on this. We're neutral.
12 That's up to them to decide. So there's no suggestion that
13 they've somehow relinquished one leg of the stool.
14 Now let's come over to our part of the stool. Number
15 one, we have standing on the sale and leaseback transaction as
16 well.
17 THE COURT: You may have standing, but it's not in
18 your complaint, is it?
19 MR. ROBBINS: It is in our complaint, but it's
20 channeled through the trustee. That's true. That's what the
21 indenture requires. But there is no sense -- this notion that
22 there is some kind of shell game going on is simply not true.
23 The trustee has alleged it's part of the case. We
24 were sued on that theory as well. We, likewise, insist that
25 this was a violation of the sale and leaseback transaction.

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1 But it's the trustee's claim to make because 6.06 so
2 prescribes.
3 The part of the case that's ours is the part that
4 Mr. Friedman told you the trustee cannot make. The trustee, we
5 suggest, is disabled from making because it's a claim unique to
6 us. So we're making it.
7 I just don't think there's any leg that's missing
8 here. It's true it's a little bit complicated. We had to try
9 it in pieces. We had to be cocounsel with another firm because
10 the indenture channels that particular claim through the
11 particular representative of the bondholders.
12 This remaining claim is ours. The trustee couldn't
13 bring it. Among other reasons, that's one of many reasons why
14 the no-action clause doesn't apply. So I think the notion of
15 standing or mootness, however one wants to frame it, is simply
16 also a red herring in the case.
17 THE COURT: Maybe this is a question better addressed
18 to Mr. Trunk, but if I were to conclude that the no-action
19 clause applies and bars your piece of the case, do you have a
20 view on whether I can or should proceed to decide the merits of
21 the rest of it?
22 MR. ROBBINS: I definitely do, but I need to break
23 down the question a little bit. First of all, we need to
24 understand what it means to say the no-action clause applies to
25 your part of the case. I think it doesn't apply to our case

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1 for all kinds of reasons, but let me be clear about what it
2 would mean if it did apply.
3 If it did apply, it might arguably preclude Aurelius
4 from filing its own counterclaim. That would be the pursuit of
5 a remedy within the meaning of 6.06(a). But what it would not
6 do, your Honor, what it would not do, what it could not
7 constitutionally do is preclude us from defending the exact
8 same claim brought in Windstream's counterclaim against us.
9 THE COURT: That's an argument I'll let Mr. Trunk
10 make.
11 MR. ROBBINS: Yes, but that's important for purposes
12 of the question you asked me because if I'm right about that,
13 if I'm right that it could not vitiate the claim against us,
14 that means that claim remains in the case. It ought to and
15 must be decided.
16 By the way, your Honor, even if it were true that all
17 of our claims disappeared and we couldn't even defend against
18 the Windstream counterclaims against us, which I think would be
19 quite odd, but even if that were all true, it would still be
20 the correct, prudential decision to decide these in the
21 alternative so that there is no need to retry a case that could
22 simply end in which the Second Circuit would just rescind the
23 entire decision, for example, if it were to disagree with the
24 no-action clause holding and reverse with the rest of the case
25 in mind.

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1 May I turn to 409 then, your Honor?
2 THE COURT: You not only may. You must.
3 MR. ROBBINS: Thank you.
4 You've asked a series of questions.
5 THE COURT: I think your answer on the first question
6 is fairly straightforward, and it's a yes.
7 MR. ROBBINS: The answer is yes, but I want to be
8 clear about what that means. Yes, they should be held to the
9 answers to their contention interrogatories. What that means
10 is they should not be making arguments before the Court that
11 they have disavowed.
12 There were some inklings, for example, in the course
13 of the trial that oh, well, maybe after all, the entire $40
14 million of additional principal indebtedness was incurred to
15 pay a premium.
16 That is the theory which they ultimately attributed to
17 us and poo-pooed in paragraph 196 of their opening conclusions
18 of law. So when I say that they should be held to their
19 contention interrogatories, what I mean by that is that they
20 should not be heard to be arguing for the existence of a
21 premium when they have repeatedly -- and I mean repeatedly --
22 said that there was no such premium.
23 But the reason I've qualified my answer is this,
24 Judge: In the end, the question whether there is a premium and
25 what it means is a question of law. We are not relying just or

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1 even mainly on their concessions but, rather, on what the word
2 "premium" means in every other place it's used in the
3 indenture.
4 Every place it's used, every single place it's used,
5 it is used to mean a value above the principal amount of the
6 notes being refinanced. The Second Circuit has held in a
7 number of cases, including the Chesapeake decision by
8 Judge Leval, that when a term of art is used in a contract,
9 whether indenture or otherwise, it is to be given the same
10 meaning in each of its contexts.
11 So that is, I think, the answer to the first question.
12 They are bound by what they said. But in any event, what they
13 said turns out to be right, albeit for different legal reasons.
14 They are right that there was no premium. The reason
15 there was no premium is because it is undisputed that
16 Windstream did not pay the old noteholders more than the
17 principal amount of their notes, period, full stop. That's
18 what "premium" means.
19 Now, the Court's second question was what the word
20 "amount" means. This is just straightforward. It's defined in
21 the indenture. Whatever Mr. McCarty may privately think it
22 means, it means what the indenture says, and what the indenture
23 says in Section 1.01 is amount of indebtedness is defined as
24 the "principal amount thereof."
25 That makes sense because PRI is simply an aspect of

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1 4.09, and the covenant in 4.09 is designed to protect creditors
2 against the company incurring large amounts of principal
3 indebtedness that it may have to pay off at maturity or that
4 will dilute existing debt if they go into bankruptcy.
5 So what is relevant is the principal amount of the
6 notes, and that's why it makes perfect sense that the indenture
7 tells us that.
8 THE COURT: Why does that matter more than the value
9 of the note? In other words, if the company is exchanging one
10 note for another but the maturity date and the coupon rate are
11 radically different, presumably, in order to make them
12 mathematically equivalent, of the same value, it would have to
13 be a different principal amount.
14 MR. ROBBINS: Yes.
15 THE COURT: Those are the three principal ingredients,
16 no pun intended, of the value of the note and whether a
17 noteholder would be willing to exchange it. Correct?
18 MR. ROBBINS: Yes. That is completely right and also
19 completely irrelevant.
20 THE COURT: Because the language is not "value." It's
21 "amount."
22 MR. ROBBINS: Because the word "amount" is defined.
23 We could all come up with nice theories. Mr. McCarty's is as
24 lovely and elegant as the next I suppose.
25 THE COURT: Right, but you were making an argument for

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1 why it makes sense for bondholders to be concerned with amount,
2 and I'm saying why does that make sense?
3 MR. ROBBINS: Well, it makes sense because it's a
4 covenant designed to protect the risk of existing creditors,
5 and the risk of existing creditors turns on the principal
6 indebtedness risk of the company.
7 If the company goes into bankruptcy, it's the
8 principal they'll have to pay. When the company gets to
9 maturity, it's the principal they will have to pay. It's not
10 the value.
11 If, for example, the company becomes distressed so
12 that the value of the debt goes down, perversely enough under
13 Mr. McCarty's theory of mathematical equivalence, the company
14 could borrow even more precisely because the debt having gone
15 down in value gives them more runway to borrow more and more
16 because it's worth less and less. That doesn't make any sense.
17 Let me just say one other thing about mathematical
18 equivalence. It's a completely incoherent, subjective, and
19 indeterminate standard. I'd like to actually put on the board
20 just for a moment the slide that shows all the steps you have
21 to take to figure out whether notes are mathematically
22 equivalent.
23 These are all from Mr. McCarty, and I've cited all the
24 portions of his testimony. You first look at the coupons.
25 Then you calculate present value. Then you calculate dollar

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1 consequences of extending maturities. Then you have to use
2 some algorithms to figure out the risk element of the new bond.
3 But then comes the really subjective part -- and I
4 know that your Honor -- I tested the Court's patience with my
5 little Punch and Judy show with the witness about calling me
6 up.
7 There was a point, a method to that madness, which was
8 to illustrate how totally subjective this process is. It
9 cannot be that a crucial input to crucial portions of the
10 indenture could turn on such things as using peoples' judgment
11 or socializing the issues.
12 These are indentures. They have provisions that
13 parties need to understand. They have to be predictable. The
14 words have to have concrete meaning. You have to be able to
15 tell beforehand is there a premium or not. Is the amount
16 higher or lower.
17 You can't have to guess about what the outcome of
18 socialization might be to figure these things out.
19 Fortunately, you don't have to because the indenture answers
20 the questions.
21 THE COURT: So assume that the amount has increased.
22 I take it your position is that that would be defensible,
23 permissible, only if it qualified as a reasonably determined
24 premium necessary to accomplish such financing.
25 MR. ROBBINS: Precisely. That's the only thing that

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1 could possibly justify the $40 million, and everybody in front
2 of the Court today -- all the lawyers, all the parties -- have
3 submitted to the Court that there is no premium.
4 Every now and then Windstream says, well, a sliver.
5 $40 million is on account of a premium. Sometimes they say
6 there's no premium. Sometimes they say there's a sliver.
7 It really doesn't matter. In the end what matters is
8 that the $40 million cannot be justified by a premium. If it
9 can't be justified by a premium, it can't be justified, full
10 stop.
11 That, your Honor, is the end of the 4.09 issue in this
12 case. For those reasons alone, we ought to get a judgment on
13 the exchange and consent part of the case.
14 THE COURT: Do you want to turn to the minimum
15 issuance condition?
16 MR. ROBBINS: Yes. So I'll make just a couple points
17 about that. First let me just set the stage quickly with
18 slides 25, if I could.
19 What I wanted to show at the outset is why this
20 matters for purposes of the validity of the exchange.
21 THE COURT: You don't need to. I understand why it
22 matters.
23 MR. ROBBINS: So let me turn directly to the two
24 questions the Court asked. The first one is what is the
25 consequence of the fact that Aurelius did not participate in

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1 the particular exchange, the '22 and '23 exchange.
2 I suggest that that might be a relevant concern if
3 what we were doing with this claim is suing on it as if they
4 breached the contract. If, for example, your Honor, we had
5 been an exchanger in that transaction, gave up our debt for the
6 new notes, and woke up the next morning and discovered that,
7 unbeknownst to us, the company had changed one of the material
8 terms in the deal without telling us -- because that's what
9 happened -- we might have a lawsuit based on breach of
10 contract.
11 And if we did, if that's what was going on, the Court
12 would be well justified in asking, well, gosh, did you actually
13 exchange? Were you actually part of that deal? But that's not
14 the procedural context in which this comes to the Court.
15 This comes to the Court as a question whether the 6
16 3/8, whether the indenture was violated by this conduct. The
17 answer is that it was. That is because, as we argued in
18 paragraph 140 of our proposed conclusions of law, this
19 violation of the minimum issuance condition is also a breach,
20 your Honor, of Section 6.04 of our indenture.
21 Why? Because that provision says that only the notes
22 outstanding can be voted in favor of a waiver. The only notes
23 that were outstanding at the time of the November 6 closing
24 were the existing 6 3/8, not the new notes that had not yet
25 been issued.

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1 THE COURT: So let me make sure I understand the
2 argument.
3 To the extent that the argument sort of sounds in the
4 world of standing, your argument is that you have standing
5 because the arguments that you're making are ultimately about
6 the indenture itself. And as a holder of the August 2023
7 notes, you have standing to make those arguments. This is a
8 necessary step in service of that ultimate argument.
9 MR. ROBBINS: That's it in a nutshell.
10 May I turn to the second question?
11 THE COURT: Yes. Then I'll hear from Mr. Trunk.
12 MR. ROBBINS: The second question is what is the form
13 of notice that is required for a change in the contract. The
14 answer to that question is under New York law, which is adopted
15 by the indenture, both parties to an agreement -- there has to
16 be a meeting of the minds around any indenture change, any
17 change in the contract.
18 This is a change in the contract. It's essentially an
19 attempted waiver.
20 THE COURT: Obviously Services is not sitting down
21 with the bondholders who are opting into the consent exchange.
22 Right? They are making the offer, and then by virtue of people
23 opting into it, the offer is being accepted.
24 So really doesn't it come down to whether those who
25 are opting in had notice of the change?

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1 MR. ROBBINS: Exactly. The evidence is just
2 undisputed that they had no notice. You heard from
3 Mr. Gunderman.
4 THE COURT: I guess my question is: What level of
5 notice is required? Do they actually have to specifically be
6 put on notice of the change? Or is it sufficient to alert them
7 that a change has been made to the language and then they're
8 constructively on notice of what that change is, even if they
9 never received direct notice of the change?
10 MR. ROBBINS: I would argue that they actually need to
11 do the first. They have to tell them the precise language.
12 But, your Honor, they were not told even that some language has
13 been changed.
14 They were told in the press release -- first of all,
15 they were told nothing in the form of the second supplemental
16 indenture because it's undisputed that didn't get out.
17 So the only other source of any information at all is
18 a press release. It is in evidence. I went over it with
19 Mr. Gunderman. He conceded that there is not even an aversion
20 to the language change that we are now talking about.
21 The only thing that that told bondholders in the
22 press release was that the minimum issuance amount had dropped
23 from I think 500 and change to 200 and change. But there was
24 not even a suggestion that there were other changes.
25 For example, in your Honor's question to me, I suppose

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1 they could have said, and by the way, noteholders, there are
2 some other changes that you should know about. We're not going
3 to spell it out here, but you can check with your broker. You
4 can check with the depository trust company. You can call
5 Mr. Montano from Global Bond Services. Nothing.
6 THE COURT: Let me run with that hypothetical.
7 If the press release had said we're making additional
8 changes to the language. See the supplemental memo for those
9 changes, I assume you would have a harder argument to make that
10 they weren't on notice and, therefore, accepted the terms of
11 the --
12 MR. ROBBINS: Yes. I would have a harder argument. I
13 have today an easy argument because there is not a whisper of
14 that suggestion in that press release, and that's all they got.
15 Now I'll turn the floor over, if your Honor doesn't
16 mind, to Mr. Trunk.
18 MR. TRUNK: Thank you, your Honor. Bill Trunk for
19 Aurelius.
20 I'd like to start by touching on a subject that's come
21 up a few times today. Your Honor asked a question of
22 Mr. Friedman -- and you had a colloquy with Mr. Robbins on this
23 question -- whether the trustee in fact could pursue the claim
24 that is being pursued by Aurelius.
25 I think Mr. Friedman, when you posed that question to

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1 him, correctly answered that question no. The trustee is
2 ill-positioned, to say the least, to pursue the claim being
3 prosecuted by Aurelius precisely because, as Mr. Friedman
4 explained, the trustee was obligated under the indenture, upon
5 receiving the appropriate confirmations from the company, to
6 authenticate the new notes and authenticate the third
7 supplemental indenture.
8 It now, therefore at least presumptively, owes duties
9 to the new noteholders and, therefore, is fundamentally
10 conflicted from taking positions that would impair the rights
11 of those noteholders.
12 So for the reasons set forth in our papers,
13 your Honor, and as set forth in the Feldbaum (phonetic) case
14 and other cases that we cite, the no-action clause simply has
15 no applicability here to Aurelius' claims.
16 THE COURT: I understand that's what Feldbaum says.
17 Tell me why that makes sense. In other words, if you
18 run through the requirements of 6.06, there are a series of
19 steps, one of which is that you have to request the trustee
20 take action and essentially wait a certain amount of time.
21 If they don't take that action and you don't receive a
22 countervailing direction -- or the trustee doesn't -- from a
23 majority of the noteholders, then you may proceed.
24 Correct?
25 MR. TRUNK: That's correct.

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1 THE COURT: In the scenario that you're describing,
2 which may or may not be this case, where the trustee is
3 disabled from taking action, why does that allow to you skip
4 that step?
5 In other words, wouldn't it make sense to say you
6 still have to make the request and then the trustee can make a
7 decision as to whether it can or should proceed but you still
8 have to wait for it to make that decision?
9 If it comes back to you and says, we can't proceed
10 because this puts us in a bind, then fine. You have your
11 answer, and you can proceed to the next step in the chain.
12 If the trustee doesn't receive a countervailing
13 direction from a majority of the noteholders, then you can
14 proceed.
15 Why does it relieve of you having to make that request
16 in the first place?
17 MR. TRUNK: Your Honor, as I'd like to explain in a
18 few moments, we did follow those steps.
19 THE COURT: Don't resist the hypothetical. You're
20 making an argument that the clause doesn't apply at all, and
21 I'm responding to that.
22 So why would it relieve you of the obligation to
23 follow the requirements of the clause?
24 MR. TRUNK: Well, because I think that the cases say
25 correctly that in circumstances where the trustee is incapable

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1 of acting, compliance with the no-action clause simply would be
2 futile.
3 If you think about shareholder derivative actions,
4 it's an analogous construct where making demand upon a company,
5 you take certain actions, and in circumstances where such a
6 demand would be futile, courts don't require shareholders to
7 take that action.
8 THE COURT: Except that here there is another step,
9 which is that it gives an opportunity to the other noteholders
10 to pipe up and say, hold on a second. We don't want you to
11 take that action, and we actually order you specifically not
12 to.
13 By not following the steps in the no-action clause at
14 all, presumably you deprive the majority of other noteholders
15 from giving that countervailing direction.
16 MR. TRUNK: Well, there's the rub, your Honor. The
17 gravamen of our claims is that the lion's share of noteholders
18 are not actually noteholders.
19 THE COURT: I understand that. I understand that.
20 Again, that gets to the facts here and whether you've complied
21 with the clause. I'm responding to the argument that it
22 doesn't apply at all.
23 In other words, I see -- and notwithstanding what the
24 court in Feldbaum said, I don't quite understand why even where
25 a trustee is conflicted that should relieve a noteholder from

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1 following the steps in the no-action clause.
2 I think it just preordains the answer to some of those
3 steps, namely, that the trustee won't take the action that it's
4 being asked to take.
5 MR. TRUNK: I take your Honor's point. I think it's a
6 fair inference from the cases that in circumstances, whereas
7 here, compliance would be futile, you don't need to go through
8 the ministerial process of making a request upon the trustee
9 and having the trustee say no.
10 To your Honor's point, I'd like, if I can, to talk
11 about why here it actually doesn't matter because Aurelius
12 complied with each of the steps.
13 THE COURT: So I take your argument there that you
14 complied because you gave a notice of event of default, namely,
15 in connection with your original notice of September 21.
16 Is that correct?
17 MR. TRUNK: Not quite, your Honor. The notice of a
18 continuing Event of Default, capital E, capital D, was actually
19 issued on December 7.
20 THE COURT: But it traces back to the original notice
21 which was issued on September 21.
22 MR. TRUNK: Precisely. The original notice that was
23 issued on September 21 ripened into an event of default. It's
24 normally a 60-day period. I believe your Honor extended that
25 period of time to 16 days.

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1 So as of December 7, that original default that opened
2 this can of worms, as it were, ripened into an event of
3 default, and that's what was issued to the trustee.
4 THE COURT: But in contrast to the November 27 notice
5 of default which you later rescinded, that notice of default
6 made no mention of the 4.12 and 4.09 and 4.17 arguments that
7 you're now making.
8 Correct?
9 MR. TRUNK: I believe your Honor is referring to the
10 November 27 notice that was rescinded ten or so days later.
11 THE COURT: I don't know if I misspoke, but correct.
12 So in other words, if we matched up the notices with
13 the complaints and claims in this action, the November 27
14 notice, which was later rescinded, matches up with the
15 arguments that you made in the second part of the trial
16 pertaining to the 2017 transaction.
17 Correct?
18 MR. TRUNK: Well, I think that's correct. But I
19 actually believe that the original September 21 notice, which
20 ripened into an event of default, likewise relates. It's on
21 all fours with the arguments we're making here because, as
22 Mr. Robbins explained, we're not pursuing freestanding remedies
23 under 4.12 or 4.09 or 4.17. We're not seeking to accelerate
24 the notes on that basis.
25 In particular, what the arguments boil down to is a

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1 defense to the claim that was brought against us by the
2 company. Remember. They sued us. And they sued us, among
3 other things, to enjoin us and the trustee from taking any
4 further actions in connection with the September 21 notice of
5 default, the sale and leaseback default. One of their
6 principal arguments for enjoining us is that the sale and
7 leaseback default was cured by dint of the exchange and consent
8 transaction.
9 Our counterclaims, which it is true look to 4.09 and
10 4.12, boil down to the argument that no, it didn't. You didn't
11 cure the default. And in particular, you didn't cure the
12 default because the new notes that you purported to issue did
13 not comply with Article 4.
14 The November 27 notice to which your Honor averted it
15 is true actually itemized freestanding breaches of the
16 indenture under 4.09, 4.12, 4.17 and articulated certain
17 remedies that might be available for those freestanding
18 defaults.
19 That notice was rescinded precisely because it
20 actually doesn't matter for purposes of this litigation whether
21 in fact the company -- whether Aurelius and its fellow
22 noteholders are entitled to remedies for freestanding
23 violations of 4.12.
24 For example, we might argue that we are entitled to
25 specific performance of the company's obligation to secure

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1 ratably all of the existing notes with any new notes that are
2 issued with liens attached to them.
3 We're not making that argument. We're not seeking
4 specific performance. All we're seeking to preserve the
5 trustee's ability on behalf of Aurelius and its fellow
6 noteholders, to pursue the trustee's ability to prosecute the
7 original sale leaseback defaults that was noticed on
8 September 21 and that ripened into an event of default on
9 December 7.
10 THE COURT: Okay, but by not issuing a notice with
11 respect to those arguments, did you not deprive the other
12 noteholders, putting aside for a moment who they are, of the
13 opportunity to basically say, no. No. No. This is not in the
14 interest of all noteholders. This is Aurelius going out on its
15 own and basically acting in a way that is in derogation of the
16 noteholders' interests ultimately. We don't want you to do
17 this and giving that countervailing interest, direction.
18 In other words, by relying on the September 21 notice
19 that pertains only to the sale and leaseback transaction, are
20 you not depriving the other noteholders of the opportunity to
21 essentially prevent the arguments that you're making and try
22 and wipe the slate clean with the 2017 transactions?
23 MR. TRUNK: I think this question actually goes to the
24 first of the three questions that your Honor posed in your
25 order yesterday, the question whether there is some relatedness

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1 requirement with respect to the event of default on the one
2 hand and the remedy being pursued on the other hand.
3 The answer, frankly, is no. There is no such
4 relatedness requirement in the indenture. There are actually
5 compelling contextual reasons for that. For one thing, the
6 prefatory language in the no-action clause refers to the
7 remedy. It says if any bondholder wishes to pursue a remedy,
8 it needs to comply with these following steps.
9 THE COURT: So let me give you a hypothetical. Let's
10 say your September 21 notice of default says the 2015
11 transaction constitutes a sale and leaseback transaction
12 because it was executed on a Tuesday, a frivolous argument, a
13 ridiculous argument, and the trustee says, you know what.
14 We're not going to press that argument. It's frivolous. It's
15 not in the interest of all the bondholders. You're on your
16 own. And then you sue later saying that actually it
17 constitutes a breach of the sale and leaseback prohibition
18 because -- and you make precisely the argument that's now being
19 made here.
20 How does that further and advance the purpose of the
21 no-action clause? In other words, the trustee wasn't presented
22 in the first instance and the other noteholders weren't
23 presented in the first instance with the argument that you then
24 make in the lawsuit.
25 How does that advance the purpose of the clause?

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1 MR. TRUNK: Two answers, your Honor.
2 First of all, Joe, if you have it handy, pull up
3 Section 6.06. I don't want to take up time if it's going to
4 take a moment.
5 Your Honor is referring to sort of the gatekeeping
6 function that's served by a no-action clause, and you'll see
7 it's on this screen here. The gatekeeping function,
8 your Honor, is served by (2) of the no-action clause which
9 specifies that at least 25 percent in aggregate and principal
10 amount -- there is no dispute, by the way, that Aurelius held
11 that amount and more -- make a written request of the trustee
12 to pursue the remedy. This is the remedy that is referred to
13 in the prefatory language of this provision.
14 This allows the trustee, as well as fellow
15 noteholders, to make an assessment of the remedy that is being
16 pursued. If the remedy is in your Honor's hypothetical that
17 the sale and leaseback transaction was invalid because it
18 occurred on a Tuesday, the trustee could appraise that proposed
19 course of action.
20 THE COURT: The remedy is to declare a breach and
21 acceleration of the principal because it constituted an
22 impermissible sale and leaseback transaction. My hypothetical
23 was premised upon an argument that is frivolous as to why that
24 is, even though there might be a nonfrivolous one somewhere
25 else.

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1 MR. TRUNK: That's fair, your Honor. My understanding
2 of Section 6.06, when it refers to the remedy, it's referring
3 to the basis for the claim being pursued and the remedy being
4 sought. This is the relatedness requirement that exists in
5 Section 6.06. If you look at (1) which refers to the notice of
6 the continuing event of default, it makes no mention of a
7 remedy.
8 There is no requirement that the continuing event of
9 default relate to the remedy, and there is a good reason for
10 that by the way. (1), the notice of a continuing event of
11 default, empowers the trustee to purchase see --
12 This is Section 6.03, Joe, if you have that available.
13 If an event of default occurs and is continuing with
14 respect to the notes, the trustee may pursue any available
15 remedy to collect the payment of principal -- it goes on -- or
16 to enforce the performance of any provision of the notes or
17 this indenture.
18 So once (1) of the no-action clause is satisfied, the
19 trustee has all of the powers in the world to pursue any
20 remedy, whether it "relates" to the event of default or not.
21 Then you move to (2), which is where the holders of
22 the notes wishing to pursue the remedy must actually
23 particularize what they're looking for -- what's the claim,
24 what's the basis for the claim, and what remedy are you
25 pursuing. That, your Honor, is the gatekeeping function.

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1 Here there is no question that the trustee knew and
2 the bondholders knew the basis for the remedy being sought by
3 Aurelius. Aurelius sent letters to noteholders, it sent
4 memorandums to the trustee, and it made numerous requests of
5 the trustee to pursue precisely the claims that Aurelius is now
6 pursuing.
7 THE COURT: Last question for you, which is the mirror
8 image question. Your argument dating back to November has been
9 that even if your counterclaims are barred by the no-action
10 clause, I would still have to delve into the merits because the
11 relief that Services is seeking would require me to do so.
12 Is that actually the case? I mean they're seeking an
13 injunction, a declaration that would bar -- basically a
14 declaration that the third supplemental indenture is valid and
15 therefore has waived any breach providing the 2015
16 transactions.
17 If your counterclaims are out of the case, there is no
18 party making an argument that the third supplemental indenture
19 is invalid because the trustee is not making that argument.
20 You're by hypothesis out of the case.
21 Are they not entitled at that point to the injunction
22 or the declaration that they're seeking because there is no one
23 taking a different position?
24 MR. TRUNK: The answer is no, your Honor, because in
25 that hypothetical, we would not be out of the case. The

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1 company sued us. The basis for their claim against us is,
2 among other things, that we should be enjoined from prosecuting
3 or assisting to prosecute the sale and leaseback default
4 because it was cured in the November transaction.
5 Whether or not we have active affirmative
6 counterclaims in the case, our defense against that claim
7 against us is no, you didn't. You didn't cure anything because
8 the new notes that you issued did not comply with Article 4 of
9 the indenture. So that claim would remain live. Our defense
10 to that claim would remain live.
11 As my colleague, Mr. Robbins, said, it's hard to
12 fathom that a no-action clause can constitutionally deprive a
13 litigant of defending against a claim that seeks to deprive it
14 of it property.
15 So that's why, your Honor, even if our counterclaims
16 were dismissed, the claim that the company brought against us,
17 which is what started this whole thing, would remain in the
18 case, and it would remain to be litigated whether in fact the
19 November 6 transaction succeeded in curing the sale and
20 leaseback default.
22 Let me hear finally from Services, and then we will
23 wrap up.
24 MR. GODFREY: If it's acceptable to your Honor, I'll
25 proceed in the order of the questions as compared to the order

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1 of the argument.
2 THE COURT: Sure.
3 MR. GODFREY: Question 7 on mootness, yes. It would
4 moot Aurelius' claim, but it's more than that. It's standing.
5 Slide 22. Mr. Robbins confirmed it, reluctantly confirmed it,
6 but he confirmed it. Aurelius' claim depends upon U.S. Bank
7 winning first. Unfortunately, U.S. Bank's claim depends upon
8 Aurelius winning first.
9 THE COURT: I got that.
10 MR. GODFREY: The point is if Aurelius' claim was down
11 the hall and you had U.S. Bank's claim, both judges would toss
12 the claims for lack of standing and we'd be done. Combining
13 two defective complaints that lack standing into one proceeding
14 does not equate standing.
15 Number 2, question number 8 about remedies. I put a
16 marker down during the Prieto cross-examination about the sub
17 silentio amendments that are taking place. One of the
18 questions I have for the Court is -- and I am serious about
19 this -- is I don't mind being held to our pleadings, but is
20 Aurelius going to be held to its pleadings because its
21 pleadings are quite different than the argument they're making
22 today, as I will be more than going into in a few minutes.
23 Mr. Hehn, please put up pages 83 and 84 of Windstream
24 Exhibit Number 178.
25 Let's start with the operative prayer for relief of

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1 the operative counterclaims. That's what we're here for. This
2 is docket number 104. What are we here for.
3 Mr. Hehn, the last two pages, please.
4 This is the prayer for relief that new notes do not
5 constitute additional notes or invalidating the new notes.
6 That's important on invalidation. Why is that important?
7 Because if your Honor turns to Section 2.02 of the indenture,
8 it specifically says that: "The notes issued on the issue date
9 and any additional notes subsequently issued shall be treated
10 as a single class for all purposes under this indenture."
11 So when they say they don't want the new notes to
12 constitute additional notes, that is another way of saying they
13 are invalidated because under Section 2.02 by definition under
14 the indenture, the additional notes have the same
15 classification and the same valuation and the same rights and
16 duties as the originally issued notes.
17 So they either are amending the indenture Section 2.02
18 or they're invalidating the notes. Either way, that is an
19 inequitable relief request.
20 THE COURT: Can't they have all of those things, that
21 is, the same rights but not constitute additional notes within
22 the meaning of the indenture?
23 MR. GODFREY: Well, then they invalidate the notes.
24 The notes says that additional notes have the same rights as
25 the original issued notes. So if you say the additional notes

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1 don't have those rights like voting, etc., you've invalidated
2 the notes. That's why they have phrased this the way they
3 phrased it in (a).
4 Don't forget Mr. Robbins forgot that they're also
5 seeking to invalidate the third supplemental indenture. That
6 is in their complaint. That's in (b), page 83 of the
7 complaint.
8 So when you look at the equitable relief that is being
9 sought, it is quite radical. Why is this important? Because
10 they sat on their rights. There was a time -- and we have an
11 unclean hands and a laches defense.
12 There was a time, a period of almost of four weeks by
13 which they could have come into court. They gave directions to
14 the trustee. The trustee declined. Again, when I was
15 cross-examining, you said you got the point, and I knew you
16 had.
17 That's what normal litigants do. Normal litigants do
18 not play games with the Court. They do not hedge their bet and
19 seek to get equitable relief nine months after the fact to
20 unwind the transaction. I say "normal litigants" because this
21 is not the first rodeo that Aurelius has participated in.
22 Turn to slides 115 and 116, please.
23 This is Judge Lane's decision from last December,
24 your Honor, which is eerily similar in terms of Aurelius'
25 investment strategy and their approach to using litigation as a

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1 weapon and to weaponize the courts.
2 In this case, Aurelius sat silent and participated in
3 certain rulings of the court, if you read the court's opinion,
4 and then turned around and pretended that they did not exist.
5 The court was not amused.
6 Turn to the next page, please.
7 The court -- there are many, many of these findings,
8 your Honor. We could go on and on. Aurelius has weaponized
9 chapter 15. That is what they seek to do here.
10 They seek to elicit the equitable powers of this court
11 to weaponize them, to penalize the 90 percent of the
12 noteholders who have voted yes. 61.35 percent of the
13 noteholders who voted yes, and you have the court strip them of
14 their rights nine months after the fact when if they really
15 believe that and they really want to pursue that, they had
16 plenty of opportunity last October and November, and they
17 waived their rights.
18 THE COURT: Do you have authority for the proposition
19 that where a party does not seek emergency injunctive relief it
20 waives the right to seek that relief in a lawsuit?
21 MR. GODFREY: They waived the remedies. They waived
22 the equitable remedies. It's called laches. It's called
23 unclean hands. That's classic laches.
24 Returning to the Meinhard case, there's a great line,
25 Justice Cardozo: "When faced with such conduct, a court of

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1 equity does not accord a healing benediction. It's a wonderful
2 line. That is what they're seeking from this Court, a healing
3 benediction to cover for their own conduct.
4 THE COURT: Let's move to the next no-action clause.
5 MR. GODFREY: Next question, number 9. Reverse order.
6 They have a constitutional right? I'm sorry. They're parties
7 to an indenture. They're parties to a contract. Their rights
8 are defined by the contract. They either complied with the
9 no-action clause or they didn't comply with the no-action
10 clause.
11 THE COURT: I think their argument is that they have a
12 constitutional right to defend against the relief that you had
13 sought. And you sought an injunction barring Aurelius from
14 declaring an event of default. And the argument is that they
15 are entitled to defend against that request for an injunction
16 and, in doing so, to make the arguments that they are making as
17 part of their counterclaims.
18 MR. GODFREY: Remember when I said read the pleadings?
19 THE COURT: I do.
20 MR. GODFREY: The counterclaim that we filed, that
21 Windstream Services filed, docket 72 on the 22nd of November,
22 by the way, one day after they filed their counterclaims, but
23 the claims that were filed do not make any allegations about
24 the consents against them or the exchange offers.
25 Count One was a breach of contract against U.S. Bank

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1 for violations of the third supplemental indenture ordering
2 U.S. Bank to comport and dismiss its complaint in compliance.
3 Count Two was the breach of contract against U.S. Bank. Count
4 Three was a declaratory judgment that Services did not enter
5 into a leaseback transaction. Count Four was a declaratory
6 judgment, no breach of Section 4.07 or 4.19.
7 We wanted an injunction against the trustee on its own
8 direction or at the direction of any holder of notes, including
9 Aurelius, from declaring an event of default relating to the
10 September 21 Section 4.19 allegation of the default under
11 Section 4.19.
12 Windstream Services did not sue Aurelius over the
13 consents and the exchange. If we are being candid, this was
14 the complaint that existed before the consent exchange. They
15 then sued us, but this notion that it's a mirror image, it is
16 anything but a mirror image, certainly not the mirror image
17 that they argued.
18 THE COURT: You're seeking to enjoin Aurelius from
19 declaring an event of default.
20 MR. GODFREY: Under Section 4.19.
21 THE COURT: Correct. But a necessary step for them to
22 declare that event of default is --
23 MR. GODFREY: To comply with the no-action clause
24 which they did not do.
25 THE COURT: Let's assume for the sake of argument that

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1 I conclude that the 2015 transaction was an impermissible sale
2 and leaseback transaction within the meaning of the indenture.
3 I know you argue otherwise.
4 MR. GODFREY: We'll set aside the standing issue.
5 We'll set that aside.
6 THE COURT: Correct. Assuming that it does constitute
7 a sale and leaseback transaction, presumably they would be
8 entitled to declare an event of default, unless there is
9 something about the 2017 transaction that prevents them from
10 doing so, which would require me to decide that question.
11 No? So in order to grant you the relief you're
12 seeking, mainly an injunction preventing them from doing that,
13 assuming that I do think the 2015 transaction is a breach, I
14 would need to decide the propriety of the waivers and consents.
15 MR. GODFREY: No.
16 THE COURT: Why?
17 MR. GODFREY: It doesn't work that way. You can't
18 decide Section 4.19 until you decide the standing question.
19 And you can't decide the standing question in their favor
20 unless they have different pleadings which they do not have.
21 Let's assume all that's brushed aside. Let's assume
22 all that's brushed aside, and let's assume we have a normal
23 complaint with a normal litigant that simply says, you breached
24 Section 4.19, and we're also going to sue you to set aside the
25 third supplemental indenture, which, by the way, Mr. Robbins

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1 neglected to mention when you asked him the question about
2 equitable relief that you wanted.
3 Assume they comply with the no-action clause. Assume
4 all those things. Then it's not because of a mirror image.
5 They would need to do that any way to pursue their Section 4.19
6 claim. It's not because we sued them. It's because they would
7 need to do that to pursue their Section 4.19 claim; otherwise,
8 U.S. Bank cannot pursue it.
9 We're here because U.S. Bank is not challenging the
10 third supplemental indenture. That's the problem. That's why
11 I can't agree with the premise of the Court's question.
12 If U.S. Bank were out of the picture so it's just
13 Aurelius v. Windstream Services, then I would agree with
14 your Honor that they could file a complaint challenging 4.19.
15 They would need to set aside the third supplemental indenture.
16 They've challenged the consents, etc., etc. You and I would be
17 on the same page. That's not this case.
18 THE COURT: I don't know what page I'm on yet, just to
19 be clear. That's what I'm trying to figure out.
20 MR. GODFREY: Did I answer the Court's question, or
21 have I confused the Court?
22 THE COURT: You answered it. Whether I'm confused or
23 not is a different question.
24 MR. GODFREY: I never want the Court to be confused on
25 my account.

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1 THE COURT: I understand.
2 MR. GODFREY: The point was it needed to relate back
3 to the notice of default. Of course it does.
4 Do you know how we know that? Do you know how we know
5 it needed to relate back? Because Aurelius recognized that.
6 That's why on November 27 they sent a notice of default over
7 the consents and exchange. That's why they sent it.
8 Now, they rescinded it, they say for convenience and
9 to simplify things, but their own conduct reflects the fact
10 that they recognize the obvious with your Honor's hypothetical.
11 Other noteholders have rights here. One of the things
12 I think that is interesting about this case is I agree with
13 Mr. Trunk. Mr. Trunk and I agree 100 percent on one thing.
14 U.S. Bank as a trustee is in an incredibly conflicted position
15 in this case.
16 Who speaks for the 90 percent of the noteholders and
17 the 61.39 percent, not just new noteholders? All noteholders.
18 Who speaks for them? U.S. Bank is supposed to speak for them,
19 but we know that they do not because, A, they're conflicted;
20 and because B, Mr. Prieto admitted that they're acting under
21 the direction of Aurelius. So only one party in this courtroom
22 speaks for them. I can't. Your Honor can. That's the
23 problem.
24 So when we get to the no-action clause, the notion
25 that a noteholder can send a notice of default saying you

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1 breached A and then at the time of trial say, I don't care
2 about A anymore. I really care about X, the gatekeeping
3 function would have failed by definition. Other noteholders
4 have no opportunity to weigh in.
5 THE COURT: Let's turn to 4.09.
6 MR. GODFREY: Let me just check one other thing, if I
7 could, your Honor. On the futility point, if it was futile,
8 then they should have filed a TRO and sought the emergency
9 injunctive relief. That's not an excuse. The futility point
10 makes my argument for me. They had plenty of time. They
11 waived it. They waived their remedies.
12 4.09.
13 THE COURT: Do you accept or embrace the position that
14 Mr. McCarty took? Namely, that the amount of indebtedness is
15 the same before and after the 2017 transactions because there's
16 a mathematical equivalence.
17 Or do you agree with Mr. Robbins that amount of
18 indebtedness under the terms of the indenture means the amount
19 of the principal and, therefore, the amount has increased?
20 It's a very straightforward question. I confess that
21 I'm not entirely sure what your position is, whether you
22 actually embrace and agree with your witnesses' testimony or
23 not.
24 MR. GODFREY: Well, I do not agree with Mr. Robbins on
25 anything.

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1 THE COURT: Okay.
2 MR. GODFREY: I'm going to go into some detail why
3 because the Court has ordered a duty of candor. First, based
4 on the text of the indenture, Windstream Services' position is
5 and has been that no premium was paid because there was no
6 additional amount of indebtedness.
7 Second, why does Windstream Services say that.
8 Mr. Gunderman testified to that. He explained that at the
9 time. And he said, under cross-examination by Mr. Robbins,
10 that if there were additional amounts above, then that would be
11 considered a premium.
12 But Windstream Services does not believe a premium has
13 been paid because of what Mr. McCarty and what Mr. Cheeseman
14 said, economic equivalence. Now, why, based on the text of the
15 indenture, does Windstream Services say that? Because the word
16 "amount" is not defined. It's small A. The word "premium" in
17 the PRI definition is not defined.
18 What's interesting is the drafters knew how to define
19 it.
20 THE COURT: Does it need to be a capital A in order
21 for me to conclude that it's defined in the indenture? At page
22 14 it says: "The amount of any indebtedness outstanding shall
23 be the outstanding balance" and so forth. And then it goes on
24 to say: "The principal amount thereof."
25 MR. GODFREY: That's all true. If you want to go to

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1 page 18, which defines existing indebtedness, it also defines
2 it there as principal.
3 The drafters -- whenever they wanted to use the word
4 "principle" or "outstanding," they knew precisely how to do so,
5 and they used that language in the otherwise undefined term.
6 They did not use that language in connection with
7 permitted refinancing indebtedness. Why is that? Because you
8 heard from investment bankers with between them 75 years of
9 experience that in the financial field, when they look at it,
10 they look at it as economic equivalence. That's how they look
11 at it.
12 So if the drafters of the indenture had wanted to
13 agree with Mr. Robbins, they would have made it a defined term
14 or at least whenever it's used, use it as they did under
15 existing indebtedness, but they chose not to do so.
16 And the Court is well aware of the canons of
17 contractual construction. When you put words in, you mean what
18 they say. When you take words out when you otherwise use them,
19 it means what it says.
20 THE COURT: So your argument is that the text on page
21 14 defining the amount of any indebtedness does not apply to
22 the PRI clause which speaks of the amount of such permitted
23 refinancing indebtedness.
24 MR. GODFREY: Correct. They did not use the same
25 language. But we've always said --

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1 Slide 68, please.
2 Mr. Robbins asked him this, and I was pleased he asked
3 him this. I guess this is the one time I agree with
4 Mr. Robbins.
5 Our witnesses all made the same point, the new notes
6 were basically the economic equivalent to the old notes.
7 "Q. Then your point is if there's an excess over that which
8 you say there was not, that might be the premium, but you don't
9 think there was one. Correct?
10 "A. Correct."
11 So our argument, Windstream Services' argument, is
12 based on the text of the indenture, based on what the economic
13 experts, based on the investment bankers, based on what the CFO
14 think. There was no premium.
15 We stand behind that based on the text of the
16 indenture. But we also say that if you disagree, then by
17 definition there was a premium. And the evidence is virtually
18 undisputed that it was necessary and reasonably determined.
19 That's from Cheeseman, and that's from McCarty. They
20 complained why.
21 THE COURT: And the full $40 million would
22 constitute --
23 MR. GODFREY: Would constitute that. Now, here is
24 where I think it gets interesting. Mr. Robbins says, well, we
25 win. Everyone agrees there's no premium. That means we win.

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1 That means we won. That means we won our counterclaims.
2 Have you looked at the counterclaims they actually
3 filed? The counterclaims that are of record here -- they filed
4 a letter with the Court saying it was a canard, a footnote, a
5 canard for us to suggest in our proposed findings that Aurelius
6 had ever claimed there was a premium.
7 The Court might find it interesting to read docket
8 104. In docket 104, the entire claim is the premium was paid
9 and it was not necessary and not reasonably determined. That
10 is the claim. That is the claim that they have made in this
11 case. Not only did they make it in this case, they made it
12 beforehand. They made it consistently beforehand.
13 So let's just see what they've told the Court because
14 this is kind of important. They're making a claim here that
15 has turned the rule upside down. They're pretending that
16 they've always said that there was no premium, and because we
17 know that if there was no premium, that means they won.
18 Their argument is just to the contrary. The operative
19 pleading theory is they failed to say that it was not
20 reasonably determined and was not necessary.
21 So let's turn to slide 81.
22 This is the beginning of their counterclaim,
23 409(b)(v). They've underlined the requirements of 4.09.
24 Then go to slide 82.
25 What we've done, your Honor, is we've put their

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1 original counterclaims and their amended counterclaims back to
2 back so you can see they don't functionally change.
3 The reality is that the exchange offers were a
4 vote-buying exercise. The premiums paid through the issuance
5 of the new notes were not for the purpose of effecting a
6 refinancing.
7 Go to slide 83, paragraph 48. Here a premium was paid
8 to secure a consent. For this reason, the basket for
9 refinancing under Section 4.09(b)(V) was not available for the
10 issuance of the new note.
11 Go to slide 84, paragraph 49. Second, the premiums
12 were not reasonable in amount. The principal of the amount of
13 new notes offered an exchange. It goes on.
14 This isn't the only time they did it. Prior to filing
15 the counterclaims -- go to slide 85 -- Kramer Levin -- they
16 write this note about how the premiums cannot be reasonably
17 determined to accomplish a refinancing.
18 I like this one the best, slide 86. This is
19 Windstream Exhibit 155 that I went through with Mr. Prieto.
20 "The exchange at issue here is one at a premium."
21 I could go on and on and on. The allegation that they
22 never claimed the premium was paid or that it was not
23 reasonably determined to be necessary is simply false.
24 And yet that is now, as I said when I had the Prieto
25 discussion with your Honor about what we could go into or not

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1 go into, that has now been flipped on its head. When you say
2 you have a claim to premium, now that Windstream Services says
3 there is no premium, that means we win. On the pleadings as
4 filed and not sub silentio as amended, they have lost the
5 4.09(b)(v) claim.
6 THE COURT: Wait a second. Let's say they filed their
7 pleading saying the premium was not reasonably determined, etc.
8 In the course of discovery, they served a contention
9 interrogatory and say -- I can bring them up -- was the premium
10 reasonably determined and so forth to which you answer, we
11 didn't pay a premium, full stop.
12 MR. GODFREY: The interrogatories were actually
13 different. They asked whether we paid a premium, and we don't
14 believe we paid a premium because it was based on the text of
15 the indenture, an economic equivalent.
16 THE COURT: In other words, through the contention
17 interrogatories, you disclaim that you paid any premium.
18 MR. GODFREY: Correct.
19 THE COURT: That narrows the disputes in the case and
20 renders essentially moot, to use a loaded term, the argument
21 that they made in the first instance that the premium was not
22 reasonably determined.
23 They no longer need to make that argument is what I
24 understand them to be saying because you've conceded the point
25 and taken it out of the case. That's the point of a contention

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1 interrogatory. It narrows the dispute.
2 MR. GODFREY: Part of a contention interrogatory is
3 knowing a dispute that is in the pleading to which it applies.
4 They never asked us a question of if it was a premium, was it
5 reasonably determined. We debated that with them. We think it
6 was determined and necessary if that's the case.
7 But that is not the threshold issue. The threshold
8 issue is whether or not the indenture as written is interpreted
9 by Windstream Services or is interpreted by Aurelius.
10 Our point to you is very simple, when they say, as
11 they said in their July 13 letter to this Court, and when they
12 say in their findings of fact that they never contended that a
13 premium was paid and it was always a fallback argument as to
14 whether or not it was reasonably determined and necessary,
15 that's simply false. It's untrue.
16 So think of it this way, your Honor. We're trying a
17 classic case with two counts, strict liability and assault and
18 battery, something like that. And then when it comes time for
19 trial, they say, we're not trying that case. We've got a
20 negligence claim.
21 You can't sub silentio amend your operative complaint
22 and then deprive the defendant of saying what the alternative
23 arguments are on defense. These alternative arguments have
24 been laid out in our expert reports. They were laid out in the
25 expert testimony. They were laid out by Mr. Gunderman. They

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1 were laid out during discovery. They are not inconsistent with
2 our position that no premium was made.
3 Our position that no premium was paid was based upon
4 the understanding of the indenture that Windstream Services
5 has. That does not deprive us of the alternative. If you
6 disagree with that, then it comes down to was it reasonably
7 determined and was it necessary.
8 THE COURT: Why don't you briefly address the minimum
9 issuance condition, and then we can wrap up.
10 MR. GODFREY: Sure.
11 THE COURT: We've been going a long time.
12 MR. GODFREY: I need to find my folder, your Honor.
13 So first there's no standing. The problem with the
14 standing argument he makes is he's saying, well, other
15 noteholders may have been misled. And because they may have
16 been misled, we don't know for a fact whether the votes
17 actually should count. Therefore, it injures us.
18 The parties that have that claim are the people whose
19 votes were misled, and none of those people have come forward.
20 No one has complained. In fact, they have a very different
21 view of the world than does Aurelius.
22 So what they're asking the Court to do is to strike
23 the votes of everyone else who in the nine months since they
24 voted haven't whistled in a complaint, haven't raised the
25 issue, haven't tried to intervene in this court and strike all

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1 their votes and say only Aurelius' view counts because we need
2 that to count in order to set aside and attack the third
3 supplemental indenture.
4 There's a fundamental act of standing. They were
5 never going to participate in that exchange, they were never
6 going to participate in the consent solicitations, and they
7 don't have the standing to complain about the injuries that
8 allegedly someone did.
9 THE COURT: Even though it's in service of their
10 ultimate argument that you breached the indenture with the sale
11 and leaseback.
12 MR. GODFREY: No. A nonparty to a contract doesn't
13 have the right to assert party's claims. We briefed this in
14 front of your Honor in GM. And you found, as you'll recall,
15 based upon settled Second Circuit precedent, that non owners of
16 various vehicles don't have the right to sue for other owners,
17 even though it's the same pattern allegedly of defect. So it's
18 the same principle that your Honor has already ruled upon and
19 considered a year or two years ago.
20 THE COURT: Let's not get into GM. That's complicated
21 enough.
22 MR. GODFREY: I don't think so, but that's okay.
23 THE COURT: What I take their argument to be is we're
24 not seeking to vindicate the interests of those who opted into
25 the exchange, but in order for us to make the arguments that we

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1 are making, we need to get past the waiver. This is why the
2 waiver is not a valid waiver and doesn't preclude us from
3 making the argument that we're making.
4 So in other words, it's a necessary step in their
5 argument that they're seeking to vindicate their own rights.
6 MR. GODFREY: They are saying that they have rights
7 only by invalidating the rights of others that they disclaim
8 having any relationship with. That's derivative standing.
9 There's no such animal as derivative standing, except by
10 statute in very narrow circumstances, as the Court is aware.
11 They don't have that right.
12 THE COURT: Last question. Do you agree that the
13 press release didn't put those who did opt into the exchange on
14 notice of the change in language?
15 MR. GODFREY: No. Not for the reason you might think.
16 The minimum issuance condition and all of the documentations
17 that were associated with it expressly provided that the
18 condition is waivable at the unilateral right of Services,
19 completely waivable.
20 Services waived the condition. That's undisputed.
21 The press release told them that there were changes. It told
22 them in the bottom if you have questions, call a company called
23 Global Bond services.
24 Windstream had no obligation to put out a special
25 press release or anything else that says, oh, heads up. We're

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1 changing. So the first point is --
2 THE COURT: You think that Services could have waived
3 the minimum issuance condition in some secret memo and not
4 revealed that to the exchanging bondholders?
5 MR. GODFREY: They had that right. It was expressly
6 given in the offer. They had that right. They said they can
7 change it for any reason at any time.
8 THE COURT: So that includes the lesser-included right
9 of altering it in ways that may be material?
10 MR. GODFREY: Correct. Secondly, nothing in the
11 indenture itself or the offering memorandum required that
12 Services provide advance notice. The indenture doesn't require
13 that.
14 Third, do you want to know how we know that this is an
15 argument that is not some mystery and not some material issue?
16 I asked Mr. Prieto on the witness stand, did you understand
17 when you got this what it meant? Remember he said, yeah. That
18 would be diluted.
19 Aurelius and everyone else fully understood what this
20 was. So it was waivable at all times in the sole discretion
21 for any reason whatsoever by Windstream Services. Mr. Prieto
22 understood it. And no other noteholder, none, has come forward
23 to this day.
24 So what you have here is you have Aurelius saying,
25 geez. We don't like it because it bars our claim. And

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1 therefore we've got to set it aside. Now, we didn't
2 participate in it which would traditionally mean we have no
3 standing, but we need to set it aside for us to be able to make
4 that claim. That, I would submit to the Court, is not a proper
5 standing to make but is just wrong under the law.
6 Unless the Court has any further questions of me, I
7 appreciate, as always, the Court's time. I think I've only
8 violated the microphone rule once today so far.
9 I will sit down, and we will ask that judgment be
10 entered in our favor, all claims against us being denied, that
11 is, Windstream Services, and also a judgment for breach of
12 contract being entered against U.S. Bank for its violation of
13 the third supplemental indenture.
15 MR. GODFREY: Thank you so much.
16 THE COURT: Mr. Robbins, I'm getting hungry.
17 MR. ROBBINS: I know. I appreciate it. I'm going to
18 try and be really quick. I apologize to the court reporter if
19 I speak more quickly than usual.
20 Let me work backwards.
21 THE COURT: I will give you two minutes.
22 MR. ROBBINS: Thank you, your Honor.
23 You heard Mr. Godfrey say the condition was waivable.
24 I think it's fairly debatable whether it's waivable, and
25 certainly the fact that the company says it's waivable doesn't

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1 make it waivable. But you can search high and low throughout
2 their papers for any claim that they actually did waive it.
3 They did not waive it. They tried to, but they did not
4 succeed.
5 He says nobody came forward and protested. Well, of
6 course nobody came forward because nobody knew. They did it in
7 secret. They tried to do it in public, and they failed.
8 Second point, Mr. Godfrey says these claims really
9 aren't mirror images because we didn't really allege the
10 consent and exchange aspects in our counterclaim against
11 Aurelius.
12 There used to be a sportscaster in New York named
13 Warner Wolf who used to say --
14 THE COURT: "Let's go to the videotape."
15 MR. ROBBINS: We go to the videotape. Here is my
16 version of the videotape. It's the verified amended
17 counterclaim. In the injunctive relief claim, fourth cause of
18 action, the first paragraph is paragraph 108: "Services
19 repeats the allegations contained in the preceding paragraphs
20 as if fully set forth therein."
21 Guess what those are. Those are the allegations that
22 by dint of the consent and exchange, we are out of luck because
23 the claim has been waived. That's why God invented
24 transcripts.
25 The contention that amount doesn't mean what it says

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1 in 101 because it isn't a capitalized word I think need not
2 detain us. Once we agreed that the indenture means what it
3 says, they are out of luck because they have conceded that
4 there is no premium which could account for the difference in
5 principal amount.
6 Let me just say a word about our counterclaims. It is
7 true that in the counterclaim we did not make the principal
8 argument we are making now. That is not a judicial admission
9 because legal contentions never give rise to judicial
10 admissions as opposed to allegations of fact.
11 But what we did say in the counterclaim is what
12 remains our fallback position, which is if there is a premium,
13 it wasn't reasonably determined. But the first line argument
14 is that there was no premium, not just because they conceded
15 it, not just because mathematical equivalence is incoherent and
16 hopelessly indeterminate but because under the rule in
17 Chesapeake against Mellon Bank, the rule of construction is
18 that when terms of art appear in an indenture, they are
19 construed to have the same meaning. The indenture doesn't have
20 to recite that. It's a background principle of law which the
21 indenture is held to observe.
22 THE COURT: Final word.
23 MR. ROBBINS: I know I've taken two minutes. I just
24 want to, as they say, put down this marker. We have two other
25 arguments that didn't surface in the Court's questions, a 4.12

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1 argument and a 4.17 argument. We continue to insert all and to
2 insist on those.
3 THE COURT: I understand, and just to be clear, I
4 wanted to focus on certain things. I have read the parties'
5 briefs, and I understand that those arguments have been made.
6 By not mentioning them here, you are not been deemed to have
7 waived that.
8 MR. ROBBINS: I understand. Thank you, your Honor.
9 THE COURT: Thank you, all. This has been extremely
10 helpful and taken longer than I anticipated.
11 I am not going to promise you when I'm going to give
12 you a decision because there are a lot of different directions
13 that I could go. Depending on what path the decision tree I
14 go, it may take me longer or shorter.
15 So all I can promise you is that I will get it to you
16 as quickly as I can. I will reserve decision. If in the
17 course of writing I think there is any need for supplemental
18 briefing, I will let you know.
19 I do, however, request -- and I assume no one has an
20 objection -- that you submit copies of your demonstrative
21 slides that you've used today by email to the Court just so I
22 have those handy since that might be helpful to me as I
23 proceed.
24 Mr. Friedman.
25 MR. FRIEDMAN: Just one question in that regard,

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1 your Honor.
2 Can we submit -- I think this probably applies to all
3 of us. We have a set of demonstrative slides that we think
4 would be helpful. I'm not sure every single one was exhibited
5 to the Court today. We'll submit the sets that we have
6 prepared.
7 MR. GODFREY: I didn't use all of the ones I prepared.
8 I used about 30, and I think the ones I used I think it's fair
9 to submit to the Court. I think the ones I did not use should
10 not be submitted. I think that rule should apply to all of us.
11 THE COURT: I understand the issue. I want you to
12 submit them all, whether you showed them to me or not. They
13 are not evidence. I will not consider them as evidence. I
14 will just consider them in essence in lieu of closing arguments
15 and to help me as I consider the evidence.
16 I don't think there is anything impermissible with my
17 seeing them. I think it might just be helpful. So please
18 submit them in their totality. I look forward to seeing the
19 122 that you didn't show me, Mr. Godfrey.
20 I do want to reiterate what I said at the close of
21 trial last week which is that this case has been exceedingly
22 well argued and lawyered. It's been a pleasure to watch you in
23 action.
24 You have both made by job easier in some respects and
25 more difficult in other respects. This is not an easy case. I

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1 will do my best to work through it and provide you with a
2 decision as quickly as possible.
3 With that, I thank everybody. I wish you all a
4 pleasant rest of your day and rest of your summer.
5 MR. GODFREY: Thank you, your Honor.
6 THE COURT: Thank you, all. Enjoy your day. We are
7 adjourned.
8 (Adjourned)
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1:17-cv-07857-JMF-GWG Document 236 Filed 08/23/18 Page 1 of 109 658

1 UNITED STATES DISTRICT COURT

3 U.S. BANK NATIONAL

19 HON. JESSE M. FURMAN,

22 FRIEDMAN KAPLAN SEILER & ADELMAN LLP

SOUTHERN DISTRICT REPORTERS, P.C.

2 KIRKLAND & ELLIS LLP

5 KRAMER LEVIN NAFTALIS & FRANKEL LLP

7 ROBBINS, RUSSELL, ENGLERT, ORSECK, UNTEREINER & SAUBER LLP

SOUTHERN DISTRICT REPORTERS, P.C.

3 THE COURT: Good morning. Welcome back. I hope

4 everyone had a good and restful weekend.

5 Let's get to it. I did issue the order yesterday

6 spelling out in broad strokes the issues that I intend to or

7 want to address today. Hopefully that was helpful to you.

8 Sorry I didn't get it out on Friday. There are only so many

9 hours in the day.

10 So let's start with the trustee, the 2015

11 transactions, and then the trustee's piece of the case.

12 Mr. Friedman, let me start with you. If you want to

13 use the questions that I framed as a guide, that would be

14 helpful. But let me just confirm at the outset the first

15 question is in the event that I did conclude that the third

16 supplemental indenture was valid, that the 2017 transactions

18 Am I correct that that would moot your piece of the

20 MR. FRIEDMAN: Yes, your Honor. A ruling in favor of

21 Services on the merits with respect to the 2017 transaction

22 does moot the trustee's claim.

23 THE COURT: Is that true whether I ruled on the merits

24 as well as on the no-action clause? That is say, if I

25 concluded that Aurelius could not proceed because it was barred

SOUTHERN DISTRICT REPORTERS, P.C.

1 by the no-action clause, would that moot your piece of the

3 MR. FRIEDMAN: I think if your Honor rules on the

4 basis of the no-action clause exactly what the trustee's

5 position would be would depend on exactly what your Honor says

6 in the following sense: The trustee is asserting its claim in

7 the context of there being a dispute that a bondholder is

8 asserting regarding the validity of the third supplemental

10 If your Honor is saying, for example, Aurelius has to

12 implications for the trustee. The real question is whether

13 there is a dispute in which a bondholder such as Aurelius is

14 asserting, either as a claim or as a defense, that the third

15 supplemental indenture and the waivers therein are not valid.

16 THE COURT: Let me ask --

17 MR. FRIEDMAN: Pending the Court's ruling on the

18 merits, then the trustee, in an appropriate procedural manner,

19 would be asserting its claim.

20 THE COURT: So let me ask you -- and I want to stress

21 at the outset that there is always a danger in reading into

22 judge's questions in oral argument. So everybody's phone

23 should be off. I don't want to have to tell anybody that. If

24 your phone rings, it's going to be confiscated. So please shut

SOUTHERN DISTRICT REPORTERS, P.C.

1 I caution everybody not to read into my comments too

3 the following: Let's assume that I decide that Aurelius is

4 barred by the no-action clause.

5 Should I proceed to decide the merits conditionally on

7 the failure to comply with the no-action clause can be cured,

9 have to re-do everything?

10 MR. FRIEDMAN: I would want to think about that

11 particular scenario, your Honor.

13 like your thoughts about it.

14 MR. FRIEDMAN: Okay.

15 THE COURT: Carry on.

16 MR. FRIEDMAN: So the next couple of questions from

17 your Honor I think I can answer very briefly and directly.