Listen to the bankruptcy court ruling re government freeze & setoff rights against Noble Supply & Logistics

Good afternoon, all. This is Judge Goldblatt. We are on the record in Noble Supply and in Ray Noble Supply and Logistics LLC, which is Case Number 20300And69. Just to level set for a minute, We had a hearing on September 16, I guess Wednesday. Following that hearing, I largely ruled on the matters and asked the parties to settle orders.

I received under certification and they are docketed forms of order that were really very different from one another. And I understand that that's all struck me as both reasoned ways to implement what I had done, but sufficiently different from one another that I thought in the interest of bringing this matter to resolution, what I would do is sort of look at them, but draft my own order reflecting my effort to capture what I meant to say. My courtroom deputy circulated that by email to the parties and interest. I hope that everyone who has an interest in fact received it. If there's anyone who didn't, you should reach out to the debtors who will send it to you, right, Mr.

Dean?

Correct, Your Honor.

Okay. But the reason I and I circulated it only about half an hour before getting on the pinch. So I know folks haven't had a lot of time with it. But I thought it would be useful as a starting point to talk about what the order ought to look like. The reason I still think it makes sense to have this hearing rather than just issue it is I do appreciate that all of you know your case better than I do.

And when it comes to the details of the wording of the order, I want to make sure that I'm not missing anything. The point isn't really to open to fundamental re argument of the merits. I have decided what I've decided. But to the extent there are things I've gotten wrong, I want to make sure that you've all had a chance to tell me that before I mess things up for all of you. So that's where I am happy Mr.

Dean to cast the baton to you to start.

Good afternoon, Your Honor, and thank you. This is David Dean of Coleshot for the record and on behalf of the debtors. I think Your Honor's order is a very helpful place to go with this and reviewing it before the hearing. The debtors think it is entirely consistent with what happened at the hearing and we are fully supportive of this entry, have no comments. So I think probably makes sense to hear from the government and then I can respond to anything you'd like me for me to respond to there.

All right. Very well. So Mr. Gizmondo, from the government's perspective, I guess, and again, your rights to challenge us on appeal or whatever are fully preserved. So, I'm not asking you to consent to it.

But I do want to make sure that if there are things I haven't thought of or points you want me to be sure that I know before I enter the order that I give you that chance.

Appreciate it, Your Honor. And Alastair Desmodo on behalf of United States, I'm joined by my assistant director, Mary Schmorgel, who we've been spending time as Your Honor noted in the last half of discussing it. And I think she has some comments she'd like to share with the court.

Okay. Very well. Ms. Schmervo, let me let you be heard.

Thank you, Your Honor. Mary Schmervo on behalf of The United States. First, let me say thank you for letting us have this opportunity to comment and talk to you about this order. Obviously, The United States is disappointed with this order and respectfully have to disagree, but we appreciate the or the court recognizing our rights to appeal as well as reserving all rights. The only thing, again, that I could see that might be something that the debtors and I should talk about, in paragraph six in the court, in paragraph six, when it talks about fines on the evidence presented about the exercising of the right of the $6,900,000 And then on the next paragraph, it talks about the debtors having to remit the $537,000 Again, I would respectfully suggest that perhaps if the judge if the court is going to make a finding that we improperly set off $6,900,000 it might need to be reduced by that 537 that is going to be paid to us just again, because I'm assuming that paragraph seven recognized that if we at least had balance set off rights or we had the right to freeze the 5 point up to $537,000 So that as far as like corrections, that would be

So I hear you. When I read the forms of order, it occurred to me that we could just affect a set off here and resolve it. The issue is the government's form of order took the view that there might be a dispute about the amount owed on the $5.37 because of a claim of interest. If what you'd put if if you're not serious about that and you want to simply reduce the payment by that amount, I could probably even do the math and revise the order to reflect that.

Yes. I was going to say, so we looked into the interest, which and again, the debtors can and should verify this. I believe it accrues on a daily basis at $72 And we did ask, as of today, what the payoff amount with that daily interest would be. And the number we came up with, and again, we would ask obviously, the debtor should verify this, would be $538,183.63

I'm sorry, just run that number by me again. It's

$500,000 or $538,000 so $538,000 $183.63 I can email that to your clerk as well.

Okay. No, I think I've got that. So I take it, Ms. Schmergold, your position is that we should tweak paragraph six and seven and say essentially that you were entitled to well, look, whether you're entitled to freeze all of it now or not isn't really the question. $972,000 $618,000,000 minus the amount that would otherwise be coming back to you, which is subject to Mr.

Dean's right to tell me otherwise, the $538,000,000 and direct instead of this two step process, direct a one step payment that's net of the settlement amount reserving your other rights under the settlement agreement. I take it that's your proposal?

I believe so. Yes, yes, Your Honor.

All right. Mr. Dean Yes. Are we going to litigate the question of interest or what's the debtor's position?

No, we don't have any objection to that change, Your Honor. We don't dispute the right to settle the $5.37 or $5.38. In any event, our disputes are with all of the other amounts. So we're fine with that, Your Honor.

Okay. Look, I'm happy to tweak the order to reflect that. So that's a one step process. That'll take me a few minutes and you'll all have to trust that I can do the math correctly. And if I don't, you have the right to seek reconsideration and to appeal in any event.

Anything else from the government's perspective? Again, I'm not asking you to agree. You're entitled totally entitled to disagree and all of your rights are reserved. But I just want to make sure that at least I'm correctly implementing the decision that I think I've made.

No other question. I do just want to clarify for the record that the finding is that DLA was only allowed to do an administrative hold for any fixed, undisputed, non contingent claim?

So look, I'm happy to say a few more words about that. To me, what and I reread Schumpf again a couple of times. And it certainly says as this draft order does that a creditor can withhold can can put it impose an administrative freeze to protect its right to set off. It requires the party to move promptly, And I think it's at least implicit that the set off the freeze can be no broader than necessary to protect the rights of set off. And so my concern here isn't and it doesn't address the question candidly of what happens when the claimed right of set off is itself a disputed amount.

And we had an interesting discussion about that question. Both parties sort of agreed that there wasn't a lot of clarity about that. And what I concluded would be appropriate when the amount was disputed was for the court to conduct an estimation and to handle it that way. The thing that the government did here that that I find is inconsistent with the code is that it imposed an administrative freeze for an amount that exceeded the maximum amount that it might be owed. And so there were amounts that would have otherwise been that I find would have been otherwise paid in the ordinary course and that could have been released without threatening the government's right of set off even if the amount is the maximum amount it contend was due to it, but that it nevertheless refused to release.

And I think that that is inconsistent with, basically $3.62 and $5.42. So that's my finding. I'm not finding that there was anything that there is an there is ambiguity about the law here. So, you know, I'm not finding that anyone acted in bad faith. I just think it was incorrect.

And so that's my finding.

Thank you, Your Honor. Just one last thing, just in case I don't get another chance, obviously, I'm going to ask for a stay pending appeal.

So given the exigencies of time, I'm not going to impose an administrative stay. This is written, so the amount is due within three days. And unless that is stayed or reversed, that's what you're ordered to do, Obviously, you have the ability to seek an emergency stay from the district court. But I'm not going to given the exigencies of time, I don't think that a state pending appeal is appropriate. But you have checked the box of having asked me, so you're now free to ask a judge across the street.

Thank you, your Honor.

Okay. So I will make that change. Is there anything else that any party would like the chance to be heard with respect to? Mr. Dean from the debtor, nothing further?

Nothing further from the debtor. Thank you for hearing us again, Ron. We appreciate your accommodations this week.

This is, as I say, the job for which I signed up. Miss Schmeichel, anything further from The United States?

No, you're on. Thank you.

Okay. Very well. I'll make these changes to the order and have it hit the docket. And if anything else comes up where you need my assistance, you all know how to find me. So with that, we're adjourned.

Thank you.