Residential Capital, LLC

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK 	FOR PUBLICATION
In re:
RESIDENTIAL CAPITAL, LLC, et al.,
Debtors.
Case No. 12-12020 (MG)
Jointly Administered
MEMORANDUM OPINION AND ORDER GRANTING BERKSHIRE HATHAWAY’S
MOTION TO APPOINT AN EXAMINER UNDER 11 U.S.C. § 1104(c)
A P P E A R A N C E S:
MUNGER, TOLLES & OLSON LLP
Counsel for Berkshire Hathaway Inc.
355 South Grant Avenue, 35th Floor
Los Angeles, California 90071
By: 	Thomas B. Walper, Esq.
Seth Goldman, Esq.
Bradley R. Schneider, Esq.
MORRISON & FOERSTER LLP
Proposed Counsel for the Debtors and Debtors in Possession
1290 Avenue of the Americas
New York, New York 10104
By: 	Larren M. Nashelsky, Esq.
Gary S. Lee, Esq.
Anthony Princi, Esq.
KRAMER LEVIN NAFTALIS & FRANKEL LLP
Proposed Counsel for the Official Committee of Unsecured Creditors
1177 Avenue of the Americas
New York, New York 10036
By: 	Kenneth H. Eckstein, Esq.
Barry H. Berke, Esq.
TRACY HOPE DAVIS
United States Trustee for Region 2
33 Whitehall Street, 21st Floor
New York, New York 10004
By: 	Brian S. Masumoto, Esq.
Michael Driscoll, Esq.
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KIRKLAND & ELLIS LLP
Counsel for Ally Financial Inc.
601 Lexington Avenue
New York, New York 10022
-and-
655 15th Street, N.W. Ste. 1200
Washington, D.C. 20005
By: 	Richard M. Cieri, Esq.
Ray C. Schrock, Esq.
Stephen E. Hessler, Esq.
Jeffrey S. Powell, Esq.
Daniel T. Donovan, Esq.
WHITE & CASE LLP
Attorneys for the Ad Hoc Group of Junior Secured Noteholders
1155 Avenue of the Americas
New York, New York 10036
By: 	J. Christopher Shore, Esq.
Harrison L. Denman, Esq.
Gerard Uzzi, Esq.
LOWENSTEIN SANDLER PC
Bankruptcy Counsel for The Union Central Life Insurance Co., Ameritas Life Insurance Corp. &
Acacia Life Insurance Co. & New Jersey Carpenters Health Fund
1251 Avenue of the Americas, 18th Floor
New York, New York 10020
-and-
65 Livingston Avenue
Roseland, New Jersey 07068
By: 	Michael S. Etkin, Esq.
Ira M. Levee, Esq.
Andrew Behlmann, Esq.
CLEARY GOTTLIEB STEEN & HAMILTON LLP
Counsel for Certain Unsecured Noteholders
One Liberty Plaza
New York, New York 10006
By: 	Thomas J. Moloney, Esq.
Sean A. O’Neal, Esq.
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MARTIN GLENN
UNITED STATES BANKRUPTCY JUDGE
Berkshire Hathaway Inc. (“Berkshire”) moves for the appointment of an examiner to
investigate and report on the actions of the debtor Residential Capital, LLC (“ResCap”) and its
affiliated debtors (collectively with ResCap, the “Debtors”), including, without limitation, the
Debtors’ prepetition transactions with non-debtor Ally Financial Inc. (“Ally” or “AFI”),1 any
claims that the Debtors may hold against their officers or directors, any claims the Debtors may
hold against Ally’s officers and directors, and any claims that the Debtors propose to release as
part of their plan. (“Examiner Motion,” ECF Doc. # 208.) The Official Committee of
Unsecured Creditors (“Creditors Committee”) opposes the motion. (“Creditors Committee
Objection,” ECF Doc. # 297.) The Debtors also oppose the motion. (ECF Doc. # 304.) The
United States Trustee (“UST”) filed a response to the Examiner Motion, arguing that the
appointment of an examiner is mandatory.2 (“UST Response,” ECF Doc. # 406.) No party
really disputes that an investigation and report should be done in this case; the only issue is
whether the Creditors Committee should perform the investigation, or whether an examiner must
be appointed to conduct the investigation pursuant to section 1104(c) of the Bankruptcy Code.
For the reasons explained below, the Court concludes that section 1104(c) of the Bankruptcy
1 	AFI is the corporate parent of the intermediate non-debtor company that owns 100% of ResCap’s equity,
GMAC Mortgage Group, LLC. 	AFI has been partially owned by Cerberus Capital Management, L.P. since
November 2006.
2 	Additional pleadings were filed in response to the Examiner Motion: Ally Financial Inc. Limited Objection
to Berkshire Hathaway Inc.’s Motion for the Appointment of an Examiner Pursuant to 11 U.S.C. § 1104(c) (ECF
Doc. # 289); Ad Hoc Group of Junior Secured Noteholders filed a Limited Statement of the Ad Hoc Group of Junior
Secured Noteholders in Connection with the Motion of Berkshire Hathaway Inc. for the Appointment of an
Examiner Pursuant to 11 U.S.C. § 1104(c) (ECF Doc. # 295); Union Central Life Insurance Company, Ameritas
Life Insurance Corp. and Acacia Life Insurance Company Joinder to Motion of Berkshire Hathaway, Inc. for the
Appointment of an Examiner (ECF Doc. # 329); New Jersey Carpenters Health Fund Joinder to Motion of Berkshire
Hathaway, Inc. for the Appointment of an Examiner (ECF Doc. # 330); Statement and Limited Joinder of Certain
Unsecured Noteholders to the Debtors’ Objection to Motion of Berkshire Hathaway Inc. for Appointment of an
Examiner Pursuant to 11 U.S.C. § 1104(c) (ECF Doc. # 379).
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Code requires appointment of an examiner in these cases. The scope, timing and budget for the
investigation remain to be decided after the examiner is appointed and confers with other parties
in interest.
BACKGROUND
The Debtors filed voluntary petitions under chapter 11 of the Bankruptcy Code on May
14, 2012, and the Court authorized joint administration of the cases. (ECF Doc. # 59.) On May
16, 2012, the UST appointed the Creditors Committee pursuant to section 1102(a) of the
Bankruptcy Code. (ECF Doc. # 102.)
The Debtors’ business operations include servicing mortgage loans for investors,
including loans originated by the Debtors, non-debtor Ally Bank (f/k/a GMAC Bank), and other
third parties. As of March 31, 2012, the Debtors were servicing over 2.4 million domestic
residential mortgage loans with an aggregate unpaid principal balance of approximately $374
billion. (Affidavit of James Whitlinger in Support of Chapter 11 Petitions and First Day
Pleadings (“Whitlinger Affidavit.”) ¶ 6; ECF Doc. # 6.) The Debtors are collectively the fifth-
largest servicer of residential mortgage loans in the United States. Whitlinger Aff. ¶ 9.
The Debtors’ unaudited consolidated balance sheet reflects assets of $15,675,571,000 and
liabilities of $15,276,228,000. Whitlinger Aff., Ex. 12, Schedule 4. As of April 30, 2012, the
Debtors report aggregate fixed, liquidated unsecured debts to the Debtors’ bondholders of
$813,700,000. Id., Ex. 3.
On June 1, 2012, the Creditors Committee filed a motion seeking an order for production
of documents and testimony by the Debtors and others pursuant to Federal Rule of Bankruptcy
Procedure 2004. (“2004 Motion,” ECF Doc. # 192.) Through the 2004 Motion the Creditors
Committee sought to launch a broad investigation of pre- and post-petition transactions by the
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Debtors with Ally and the Debtors’ secured creditors.3
Objections to the 2004 Motion were required to by filed by June 4, 2012. No objections
were filed to the 2004 Motion, but on June 4, 2012, Berkshire filed the Examiner Motion,
seeking the appointment of an examiner to conduct an investigation pursuant to 11 U.S.C.
§ 1104(c) of the same matters that the Creditors Committee sought to investigate through the
2004 Motion. Pursuant to the Case Management Order in this case, the Examiner Motion was
calendared for June 18, 2012. On June 5, 2012, the Court entered an order granting the 2004
3 	The 2004 Motion stated:
In addition to these proposed post-petition transactions—which apparently were
structured to benefit Ally and the Debtors’ secured creditors—from 2004
through the Petition Date, the Debtors and Ally, or Ally’s corporate parent
Cerberus, consummated a series of significant related party transactions
involving the transfer of billions of dollars of assets and the provision of billions
of dollars in financing. 	For example, in 2006 and 2008, ResCap effectively
transferred its subsidiary federal savings bank, along with $1.2 billion in
mortgage-related assets owned by that bank, to Ally and/or Ally Bank (formerly
known as GMAC Bank) (the “GMAC Bank Transfer”); in 2007, Ally reportedly
purchased ResCap’s healthcare financing business for $900 million (the
“Healthcare Financing Sale”); in 2008, Ally reportedly purchased for an
apparently undisclosed amount ResCap’s resort financing business valued at
$1.5 billion (the “Resort Financing Sale”); and in 2008, Cerberus reportedly
purchased ResCap’s model home business, valued at $479 million, for $230
million and a junior preferred equity interest in Cerberus’ newly formed
acquisition vehicle (the “Model Home Business Sale”). There are many other
similar pre-petition related party transactions. 	In addition, as of the Petition
Date, Ally had extended $1.1 billion of secured indebtedness to certain of the
Debtors.
This complex constellation of pre- and post-petition transactions, involving
billions of dollars of transfers and financings among interested parties, lies at
the heart of these Chapter 11 cases. No plan of reorganization can be confirmed
until the fairness of these transactions and the conduct of the interested parties is
thoroughly examined. 	In particular, the Debtors’ attempt to secure Non-
Consensual Third Party Releases for Ally will require the overwhelming support
of unsecured creditors holding such claims. 	However, other than the
Committee, there is currently no independent party with the ability and authority
to fully investigate and analyze these matters for the benefit of parties other than
Ally and the Debtors’ secured creditors.
2004 Mot. ¶¶ 4-5, at 3-4 (emphasis in original).
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Motion. (“2004 Order,” ECF Doc. # 217.) In signing the 2004 Order, the Court did so
recognizing that an investigation should be conducted, either by the Creditors Committee or by
an examiner if one is appointed. Because of the fast track on which this case is proceeding, the
Court concluded that document production should proceed promptly; any documents produced to
the Creditors Committee could be turned over to an examiner.4
DISCUSSION
A. 	There is a Split of Authority Whether Section 1104(c)(2) Mandates the Appointment
of an Examiner In Any Case in Which the Debtor’s Fixed, Liquidated, Unsecured
Debts, Other than Debts for Goods, Services, or Taxes, or Owing to an Insider,
Exceed $5,000,000
There is a split in authority whether appointment of an examiner is mandatory in cases in
which a debtor’s fixed debts exceed $5 million. See 7 COLLIER ON BANKRUPTCY ¶ 1104.03[2], at
1104-36 (Alan N. Resnick & Henry J. Sommer eds., 16th ed. rev. 2011) (“Notwithstanding the
mandatory language of section 1104(c), some courts have denied the appointment of an examiner
even when the debtor’s fixed, liquidated, unsecured debts, other than debts for goods, services or
taxes, or debts owing to an insider, exceed $5,000,000.”). Analysis of this issue begins, as it
must, with the statutory text.
4 	Approving the 2004 Motion did not preempt the Examiner Motion. While on a fast track, these cases are
still at an early stage. There is no basis to argue that the filing of the Examiner Motion, three days after the 2004
Motion was filed, involved undue delay or that the 2004 Motion gives the Creditors Committee a priority over any
examiner. In granting the Examiner Motion, the Court fully expects that a non-duplicative investigation will be
conducted, with complete cooperation expected between the Debtors, the Creditors Committee, and all other parties.
The scope, timing and budget for the examiner’s investigation will be set by the Court after the examiner is
appointed and confers with other parties in interest. In the first instance, the scope of the investigation established
by the 2004 Order sets the appropriate scope parameter for the investigation, subject to later adjustment if necessary.
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Section 1104(c) provides as follows:
If the court does not order the appointment of a trustee under this
section, then at any time before confirmation of a plan, on request
of a party in interest or the United States trustee, and after notice
and a hearing, the court shall order the appointment of an examiner
to conduct such an investigation of the debtor as is appropriate,
including an investigation of any allegations of fraud, dishonesty,
incompetence, misconduct, mismanagement, or irregularity in the
management of the affairs of the debtor of or by current or former
management of the debtor, if—
(1) such appointment is in the interests of creditors, any
equity security holders, and other interests of the estate; or
(2) the debtor’s fixed, liquidated, unsecured debts, other
than debts for goods, services, or taxes, or owing to an insider,
exceed $5,000,000.
11 U.S.C. § 1104(c) (emphasis added).5 Section 1104(c)(2) thus requires the satisfaction of at
least three elements before a court must appoint an examiner upon request of a party in interest:
(1) a chapter 11 trustee must not have been appointed; (2) a plan must not have been confirmed;
and (3) the debtor must owe in excess of $5 million in fixed debt. The issue before this Court is
whether the requirement that a court “order the appointment of an examiner to conduct such an
investigation of the debtor as is appropriate” confers any discretion to deny an examiner motion
when a debtor’s fixed debts exceed $5 million. Id.
Berkshire and the UST argue that section 1104(c)(2) plainly and unambiguously
mandates that the court “shall” order the appointment of an examiner upon request by a party in
interest or the UST where “the debtor’s fixed, liquidated, unsecured debts, other than debts for
goods, services, or taxes, or owing to an insider, exceed $5,000,000,” provided only that no
trustee is appointed and no plan has been confirmed. No party disputes that the Debtors’ fixed
5 	Section 1104(c) was originally codified as section 1104(b) under the 1978 Bankruptcy Code; it was
renumbered as section 1104(c) when the Bankruptcy Reform Act of 1994 added a new subsection (b), authorizing
trustee elections in Chapter 11 cases. See Bankruptcy Reform Act of 1994, Pub. L. No. 103-394 (enacted October
22, 1994 and effective in cases filed after that date).
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debts greatly exceed $5 million. The Debtors and the Creditors Committee argue that section
1104(c)(2) does not require appointment of an examiner; rather, they contend that the phrase
“such an investigation of the debtor as is appropriate,” preceding subsections (1) and (2), limits
the circumstances under which an examiner must be appointed. They assert that because the
Creditors Committee has already begun its investigation and is a more suitable party to conduct
the investigation in this case, the motion to appoint an examiner should be denied. The Court
concludes that appointment of an examiner is not mandatory in all cases satisfying subsection
(c)(2) because the phrase “such an investigation of the debtor as is appropriate” provides a
limitation on the requirement for appointment of an examiner under either subsections (1) or (2).
Still, as explained below, the Court determines that limitation is inapplicable on the particular
circumstances present here.
1. 	Cases Holding that Section 1104(c)(2) Mandates the Appointment of an
Examiner
The UST argues that the use of the word “shall” in section 1104(c) makes appointment of
an examiner mandatory:
“Where the word ‘shall’ appears in a statutory directive, ‘Congress
could not have chosen stronger words to express its intent that [the
specified action] be mandatory . . . .’” Plaut v. Spendthrift Farm,
Inc., 1 F.3d 1487, 1490 (6th Cir. 1993), aff’d, 514 U.S. 211 . . .
(1995), quoting from United States v. Monsanto, 491 U.S. 600,
607 . . . (1989). See also Lexecon Inc. v. Milberg Weiss Bershad
Hynes & Lerach, 523 U.S. 26, 35, 118 S.Ct. 956, 962 (1998) (“the
mandatory ‘shall’. . . normally creates an obligation impervious to
judicial discretion”) (citing Anderson v. Yungkau, 329 U.S. 482,
485 . . . (1947)); Barbieri v. RAJ Acquisition Corp. (In re
Barbieri), 199 F.3d 616, 619 (2d Cir. 1999) (“The term ‘shall,’ . . .
generally is mandatory and leaves no room for the exercise of
discretion by the trial court”); Hall [Fin. Grp.], Inc. v. DP Partners
Ltd. [P’ship] (In re DP Partners Ltd. [P’ship]), 106 F.3d 667,
670-71 (5th Cir.), cert. denied, 522 U.S. 815 . . . (1997) (“Use of
the word ‘shall’ connotes a mandatory intent”).
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UST Resp. at 5.
The argument has some force and has been accepted by some courts as commanding the
result sought by the UST—mandatory appointment of a trustee under section 1104(c)(2) when
the fixed debts exceed $5 million.
This was the reasoning adopted by the Sixth Circuit in Morgenstern v. Revco D.S., Inc.
(In re Revco D.S., Inc.), 898 F.2d 498 (6th Cir. 1990), the only circuit decision addressing the
issue. The bankruptcy court denied the UST’s motion to appoint an examiner in a case involving
more than $5 million in fixed debts. The district court dismissed the appeal. The court of
appeals reversed. The court stated that it was applying the plain meaning of the word “shall,” id.
at 500, which it viewed as mandating the appointment of an examiner. The court expressed
concern that permitting discretion to deny an examiner in cases with fixed debt in excess of $5
million ignored the distinction drawn by Congress: “Unless § 1104[c](2) requires the
appointment of an examiner in such a case [with more than $5 million in fixed debts], it becomes
indistinguishable from § 1104[c](1).” Id. at 501. Subsection (c)(1) gives the court discretion to
appoint an examiner in cases with less than $5 million in fixed debt, so long as “such
appointment is in the interests of the estate . . . .” Id. 	The court only addressed the “as is
appropriate” language somewhat elliptically:
The debtors claim that such a construction of the statute invites
abuse, and that the trustee or any other party in interest could
needlessly 	prolong 	a 	case 	with 	last-minute 	demands 	for 	an
examiner. That is not the case before us, of course, and we do not
decide it except to note that the bankruptcy court retains broad
discretion to direct the examiner’s investigation, including its
nature, extent, and duration. Section 1104[c] plainly states that the
court shall appoint an examiner “to conduct such an investigation
of the debtor as is appropriate.” Furthermore, the U.S. trustee may
be removed by the Attorney General if he abuses his office. See 28
U.S.C. § 581(b)(2).
Id. at 501.
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The Revco court did not explain how the two subsections would be indistinguishable if
separate force is given to the “as is appropriate” language—which applies to both subsections of
section 1104(c). If the standard for the exercise of discretion accorded the bankruptcy court by
the “as is appropriate” language applicable to both subsections is different than the discretion
accorded by the “interests of creditors” language in subsection (1), then the two subsections
remain distinguishable. Indeed, the court acknowledged that the bankruptcy court “retains broad
discretion to direct the examiner’s investigation, including its nature, extent, and duration.” Id.
If the “as is appropriate” language provides such discretion with respect to the nature, extent and
duration of the investigation, then why doesn’t the same language provide the discretion to “just
say no” to an examiner investigation where it may not be justified on the particular facts and
circumstances of the case?6
Several district courts have reached the same conclusion as the Sixth Circuit in Revco.
See Walton v. Cornerstone Ministries Invs., Inc. (In re Cornerstone Ministries Invs., Inc.), 398
B.R. 77, 84 (N.D. Ga. 2008) (acknowledging the creditors committee’s concerns that the
appointment of an examiner would duplicate the efforts of the committee but concluding that
“[n]onetheless, the statute is clear, and ‘[w]hile Congress may not have foreseen the problems
that arise when discretion over an appointment of an examiner is missing, that is not sufficient
grounds for refusing to give effect to the plain meaning of the statute’”) (internal citation
omitted); Loral Stockholders Protective Comm. v. Loral Space & Commc’ns, Ltd. (In re Loral
Space & Commc’ns, Ltd.), No. 04 CV 8645 RPP, 2004 WL 2979785, at *5 (S.D.N.Y. Dec. 23,
2004) (reversing the bankruptcy court and finding that section 1104(c)(2) mandates the
6 	For example, an examiner investigation might not be appropriate in cases where the SEC has completed a
lengthy investigation and commenced an enforcement action laying out the specific misconduct of the debtor’s prior
management, or where the company or its senior managers were indicted, or where the creditors committee had
already completed and reported on a lengthy investigation of its own.
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appointment of an examiner where the debt threshold is met).
The UST points to other bankruptcy court decisions that have likewise reached the same
conclusion. In re Vision Dev. Grp. of Broward Cnty., LLC, No. 07-17778-BKC-RBR, 2008 WL
2676827, at *3 (Bankr. S.D. Fla. June 30, 2008) (holding that appointment of an examiner is
mandatory under section 1104(c)(2)); In re Big Rivers Elec. Corp., 213 B.R. 962, 965-66 (Bankr.
W.D. Ky. 1997) (holding that appointment of examiner was required as a matter of law); In re
Mechem Fin. of Ohio, Inc., 92 B.R. 760, 761 (Bankr. N.D. Ohio 1988) (mandatory); In re The
Bible Speaks, 74 B.R. 511, 514 (Bankr. D. Mass. 1987) (holding that appointment of examiner is
required if trustee is not appointed, but court appointed trustee); In re 1243 20th St., Inc., 6 B.R.
683, 685 n.3 (Bankr. D.D.C. 1980) (mandatory); In re Lenihan, 4 B.R. 209, 211 (Bankr. D.R.I.
1980) (mandatory). See also In re UAL Corp., 307 B.R. 80, 84 (Bankr. N.D. Ill. 2004) (Wedoff,
J.) (“Although the question is not free from doubt, the best reading of the statute differs from that
proposed by either of the parties: appointment of an examiner is mandatory if the four conditions
are met, but the court retains the discretion to determine the nature and scope of the examiner’s
investigation. That is the holding of the only circuit court decision to consider the question, it
best reflects the plain meaning of the statutory language, and it is consistent with the legislative
history of the statute.”).
The UST recognizes, however, that while some courts have found the appointment
mandatory, they have found the requirement waived even though the statutory language allows
no such exceptions. 	See In re Schepps Food Stores, Inc., 148 B.R. 27, 30 (S.D. Tex. 1992)
(concluding that appointment is mandatory, but finding that creditor waived right to appointment
of examiner by failing to make request until eve of confirmation hearing); In re Bradlees Stores,
Inc., 209 B.R. 36, 38 (Bankr. S.D.N.Y. 1997) (concluding that creditors waived right to
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appointment of examiner to investigate claims arising from leveraged buyout by failing to make
request until approximately two years after cases were filed and eight months after issuance of
report on same matter by debtors’ professionals following a thirteen-month investigation).
2. 	Other Recent Cases Have Concluded that the “As Is Appropriate” Language
Provides Discretion to Refuse to Appoint an Examiner
The Creditors Committee Objection collects recent decisions rejecting the argument that
appointment of an examiner is mandatory just because fixed debt exceeds $5 million. U.S. Bank
Nat’l Ass’n v. Wilmington Trust Co. (In re Spansion, Inc.), 426 B.R. 114, 128 (Bankr. D. Del.
2010) (rejecting mandatory interpretation of section 1104(c)(2) and denying a motion to appoint
examiner pursuant to section 1104(c)(2) because the “as is appropriate” language afforded court
discretion to deny appointment that would result in waste and delay); In re Visteon Corp., No.
09-11786 (CSS) (Bankr. D. Del. May 12, 2010), Hr’g Tr. at 170:16-20 (ECF Doc. # 3145)
(denying appointment of examiner and finding “it would be an absurd result to find that in every
case where the financial criteria is met and a party-in-interest asks, the Court must appoint an
examiner. There has to be an appropriate investigation that needs to be done.”); In re Am. Home
Mortg. Holdings, Inc., No. 07-11047 (CSS) (Bankr. D. Del. Oct. 31, 2007), Hr’g Tr. at 76:09-12
(ECF Doc. # 1997) (rejecting mandatory interpretation of section 1104(c)(2) because financial
threshold was only one part of inquiry and “the other piece of the puzzle is that there has to be an
investigation to perform that’s appropriate,” and denying a motion to appoint an examiner). See
also, e.g., In re Innkeepers USA Trust, No. 10-13800 (SCC) (Bankr. S.D.N.Y. Sept. 30, 2012),
Hr’g Tr. at 167:11-170:22 (ECF Doc. # 546) (finding it unnecessary to decide whether
appointment was mandatory, but observing that a growing number of courts reject construction
of section 1104(c)(2) that mandates appointment of examiner simply because $5 million
threshold was exceeded if other facts do not make such appointment “appropriate,” or have
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appointed examiners with limited or no authority); In re Calpine Corp., No. 05-60200 (BRL)
(Bankr. S.D.N.Y. Oct. 24, 2007), Hr’g Tr. at 72:23-73:19 (ECF Doc. # 6467).7
In In re Washington Mutual Inc., No. 08-12229 (MFW) (Bankr. D. Del. May 5, 2010),
Hr’g Tr. at 101:12 (ECF Doc. #3699 ), the court denied the motion of the committee of equity
security holders (“Equity Committee”) to appoint an examiner despite the fact that no trustee had
been appointed, no plan had been confirmed, and the debtors clearly owed in excess of $5
million in fixed debt.8 The court held that it had the “discretion to determine what appropriate
investigation of the debtor should occur and that, if the Court determines that there’s no
appropriate investigation that needs to be conducted, the Court has the discretion to deny the
appointment of an examiner.” Id. at 97:9-13. The court in Washington Mutual pointed to three
factors in determining whether an investigation would be inappropriate, including (1) whether
the investigation has already been conducted by other parties; (2) whether the appointment of an
examiner would increase costs and cause a delay with no corresponding benefit; and (3) the
timing and underlying motives of the motion, i.e. whether it is a litigation tactic or an attempt to
gain an advocate, or whether the motion comes after an undue delay. Id. at 97:14-24.
7 	In Calpine, the court noted that it “appear[ed]” that the $5 million threshold had not been met. But even if
it did meet the threshold, the court noted that the movant had “waived its right to request an examiner by waiting . . .
almost two years after the petition date . . . and less than two months before the confirmation hearings.” No. 05-
60200 (BRL) (Bankr. S.D.N.Y. Oct. 24, 2007), Hr’g Tr. at 72:5-10 (ECF Doc. # 6467).
8 	In Washington Mutual, the debtor filed a voluntary petition under chaper 11 of the Bankruptcy Code on
September 26, 2008. The Equity Committee was appointed on January 11, 2010. The Equity Committee requested
the appointment of an examiner on April 26, 2010, over four months after it was formed and 19 months after the
case was filed. The motion was highly contested. On May 5, 2010, the court denied the motion, expressly declining
to rely on the length of time elapsed after the petition date and after the formation of the Equity Committee. Wash.
Mut., Hr’g Tr. at 100:22-23. Rather, the Court found that the debtor had been “investigated to death,” and that the
cost would be very high high with little ascertainable benefit to parties in the case. Id. at 98:12-100:21.
On June 8, 2010, the Equity Committee renewed its motion to appoint an examiner. The court granted the
motion after all parties agreed to the appointment of an examiner. See In re Wash. Mut. Inc., No. 08-12229, Agreed
Order Directing the Appointment of an Examiner (Bankr. D. Del. July 22, 2010) (ECF Doc. # 5120).
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3. 	The “As Is Appropriate” Language Permits a Bankruptcy Court to Deny
Appointment of an Examiner in Limited Circumstances Even if the Debtor Has
$5 Million in Fixed Debts
Congress did not articulate what it meant by the “as is appropriate” limitation. While a
court must apply the plain words of a statute when the language is clear, courts must look beyond
the simple words when a single answer is not apparent. The legislative history of section
1104(c)—section 1104(b) at the time it was adopted—explains as follows:
Subsection 	[(c)] 	permits 	the 	court, 	at 	any 	time 	after 	the
commencement of the case and on request of a party in interest, to
order the appointment of an examiner, if the court has not ordered
the appointment of a trustee. The examiner would be appointed to
conduct such an investigation of the debtor as is appropriate under
the particular circumstances of the case, including an investigation
of any allegations of fraud, dishonesty, or gross mismanagement of
the debtor of or by current or former management of the debtor.
The standards for the appointment of an examiner are the same as
those for the appointment of a trustee; the protection must be
needed, and the cost and expense must not be disproportionately
high.
H.R. Rep. No. 95-595, 95th Cong., 1st Sess. 402 (1977).
The legislative history points to the purpose of section 1104(c). An examiner shall be
appointed to conduct an investigation “as appropriate under the particular circumstances of the
case,” but “the protection must be needed . . . .” Id. This legislative purpose is met when an
examiner motion is denied in cases with fixed debts in excess of $5 million where the evidence
establishes that the protection of an examiner is not needed under the facts and circumstances of
the case. The appointment of an examiner would be inappropriate if the motion was filed for an
improper purpose such as a litigation tactic to delay a case, or if there is no factual basis to
conclude that an investigation needs to be conducted, or if an appropriate and thorough
investigation has already been conducted (or is nearly complete) by a creditors committee or a
governmental agency. See, e.g., Wash. Mut. Inc., No. 08-12229 (MFW), Hr’g Tr. at 98:12-
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100:21 (examiner motion denied where the debtor had been “investigated to death,” and where
the cost would be high with little ascertainable benefit to parties in the case). While section
1104(c) expresses a Congressional preference for appointment of an independent examiner to
conduct a necessary investigation, the facts and circumstances of the case may permit a
bankruptcy court to deny the request for appointment of an examiner even in cases with more
than $5 million in fixed debts. Accordingly, section 1104(c)(2) requires that a court order the
appointment of an examiner when (1) no plan has been confirmed; (2) no trustee has been
appointed; (3) the debtor has in excess of $5 million in fixed debts; and (4) the facts and
circumstances of a case do not render the appointment of an examiner inappropriate.
B. 	The Protection of an Examiner is Required in this Case
Applying this standard rquires the appointment of an examiner to conduct an
investigation in this case. No trustee has been appointed in this case, no plan has been
confirmed, and it is undisputed that the Debtors owe in excess of $5 million in fixed debts.
Further, no one disputes that an investigation of the Debtor’s pre- and post-petition conduct is
appropriate.
There is no evidence that the Examiner Motion was filed in bad faith or as a litigation
tactic;9 the motion was filed early in these cases; all parties agree that an investigation needs to
be conducted; and while the Creditors Committee has started an investigation, it is far from
complete. The only dispute is whether the Creditors Committee should be permitted to conduct
an investigation without an examiner being appointed. The Creditors Committee is ably
represented in these cases, and no party questions the Creditors Committee’s professionals’
9 	The Creditors Committee Objection argues that Berkshire filed the Examiner Motion as a litigation tactic to
delay the case. No competent evidence supports that contention. Other parties in interest also support granting the
Motion.
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ability to competently and expeditiously complete an investigation. While Berkshire argues that
some members of the Creditors Committee are conflicted because they agreed before these cases
were filed to one or more plan support agreements that include support for third-party non-debtor
releases in favor of Ally and others, the Court need not resolve whether any members of the
Creditors Committee are conflicted; the Examiner Motion is not being decided on that basis.
Notwithstanding the ability of any other party to effectively and expeditiously investigate the
Debtors, section 1104(c)(2) of the Bankruptcy Code requires that that an examiner should be
appointed if no trustee has been appointed, a plan has not been confirmed, the debtors’ fixed
debts exceed $5 million and an investigation is appropriate. All of those circumstances are
present here. 	Therefore, the Court concludes that an examiner must be appointed.
Because the Debtors hope to exit these cases quickly, with third-party non-debtor
releases in favor of Ally and others,10 it is important that the investigation be conducted
expeditiously. Until an independent evaluation has been completed of any potential claims that
would be released under a proposed plan, the Court will be unable to conclude whether the
Debtors will be permitted to solicit votes in support of such a plan.
10 	Third-party non-debtor releases raise many difficult legal and factual issues. 	See, e.g., Johns-Manville
Corp. v. Chubb Indem. Ins. Co. (In re Johns-Manville), 600 F.3d 135 (2d Cir. 2010) (adhering to jurisdictional
limitation for approving third-party non-debtor releases); Johns-Manville Corp. v. Chubb Indem. Ins. Co. (In re
Johns-Manville), 517 F.3d 52, 66 (2d Cir. 2008) (finding that a bankruptcy court “only has jurisdiction to enjoin
third-party non-debtor claims that directly affect the res of the bankruptcy estate”), rev’d and remanded sub nom
Travelers Indem. Co. v. Bailey, 557 U.S. 137 (2009); Deutsche Bank AG v. Metromedia Fiber Network, Inc. (In re
Metromedia Fiber Network Inc.), 416 F.3d 136, 141 (2d Cir. 2005) (“[A] nondebtor release is a device that lends
itself to abuse. By it, a nondebtor can shield itself from liability to third parties. In form, it is a release; in effect, it
may operate as a bankruptcy discharge arranged without a filing and without the safeguards of the Code. 	The
potential for abuse is heightened when releases afford blanket immunity.”); In re Dreier, 429 B.R. 112, 132 (Bankr.
S.D.N.Y. 2010) (finding that before a court can even decide if the “unusual circumstances” standard delineated in
Metromedia is met, it must first determine whether it has subject matter jurisdiction under Manville); see also In re
Metcalfe & Mansfield Alt. Invs., 421 B.R. 685, 695-96 (Bankr. S.D.N.Y. 2010).
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CONCLUSION
For the foregoing reasons, the Examiner Motion is GRANTED. The Court expects that
the Debtors, the Creditors Committee, and all other parties in interest will cooperate with the
examiner and the examiner’s professionals once they are in place. The Court will schedule an
early case management conference with the examiner and all other parties to consider the scope,
timing and budget for the investigation.
IT IS SO ORDERED.
Dated: 	June 20, 2012
New York, New York
_____/s/Martin Glenn_______
MARTIN GLENN
United States Bankruptcy Judge
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