shl Doc 41 Filed 03/05/12 Entered 03/05/12 16:54:32 Main Document Pg 1 of 18 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

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1 Pg 1 of 18 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: MSR RESORT GOLF COURSE LLC, et al., 1 Debtors. MSR RESORT GOLF COURSE LLC, et al., Plaintiffs, vs. Waldorf=Astoria Management LLC, Defendant. Chapter 11 Case No (SHL Jointly Administered Adversary Proceeding No (SHL 1 The debtors in these chapter 11 cases, along with the last four digits of each debtor s federal tax identification number include: MSR Resort Golf Course LLC (7388; MSR Biltmore Resort, LP (5736; MSR Claremont Resort, LP (5787; MSR Desert Resort, LP (5850; MSR Grand Wailea Resort, LP (5708; MSR Resort Ancillary Tenant, LLC (9698; MSR Resort Biltmore Real Estate, Inc. (8464; MSR Resort Desert Real Estate, Inc. (9265; MSR Resort Hotel, LP (5558; MSR Resort Intermediate Mezz GP, LLC (3864; MSR Resort Intermediate Mezz LLC (7342; MSR Resort Intermediate Mezz, LP (3865; MSR Resort Intermediate MREP, LLC (9703; MSR Resort Lodging Tenant, LLC (9699; MSR Resort REP, LLC (9708; MSR Resort Senior Mezz GP, LLC (9969; MSR Resort Senior Mezz LLC (7348; MSR Resort Senior Mezz, LP (9971; MSR Resort Senior MREP, LLC (9707; MSR Resort Silver Properties, LP (5674; MSR Resort SPE GP II LLC (5611; MSR Resort SPE GP LLC (7349; MSR Resort Sub Intermediate Mezz GP, LLC (1186; MSR Resort Sub Intermediate Mezz LLC (7341; MSR Resort Sub Intermediate Mezz, LP (1187; MSR Resort Sub Intermediate MREP, LLC (9701; MSR Resort Sub Senior Mezz GP, LLC (9966; MSR Resort Sub Senior Mezz LLC (7347; MSR Resort Sub Senior Mezz, LP (9968; and MSR Resort Sub Senior MREP, LLC (9705. The location of the debtors service address is: c/o CNL-AB LLC, 1251 Avenue of the Americas, New York, New York

2 Pg 2 of 18 WALDORF=ASTORIA MANAGEMENT LLC'S RESPONSE TO DEBTORS STATEMENT OF UNDISPUTED FACTS IN SUPPORT OF THEIR MOTION FOR SUMMARY JUDGMENT Waldorf=Astoria Management LLC ("Hilton", by its undersigned counsel, hereby responds to the Debtors' Statement of Undisputed Facts in Support of Their Motion for Summary Judgment (the "Debtors' Statement of Facts" as follows: 2 1. In 2004, CNL Hotels & Resorts, Inc. and its subsidiaries ( CNL acquired three resorts: (1 the Arizona Biltmore Resort & Spa (the Biltmore, located in Phoenix, Arizona; (2 the Grand Wailea Resort Hotel & Spa ( Grand Wailea, located in Wailea, Maui, Hawaii; and (3 the La Quinta Resort & Club ( La Quinta, located in La Quinta, California (collectively, the Resorts. (Declaration of Ryan Morettini in Support of the Debtors Motion for Summary Judgment ( Morettini Decl., Ex. A, CNL 10K. HILTON'S RESPONSE: Hilton does not contest the facts contained in paragraph Each of the Resorts was owned by a fee owner subsidiary of CNL (the Fee Owners that entered into operating leases with tenant entities (the Tenant Entities, which effectively functioned as the landlords of the three Resorts. (Declaration of Daniel Kamensky ( Kamensky Decl. Case No shl, Docket No. 3, 20-21; see also Morettini Decl. Ex. B, Feldman Report, pp HILTON'S RESPONSE: Hilton does not contest the facts contained in paragraph At the time of the CNL acquisition in 2004, KSL II Management Operations, LLC ( KSL was the property manager for each of the Resorts. (Morettini Decl. Ex. A, CNL 10K, p. 62. HILTON'S RESPONSE: Hilton does not contest the facts contained in paragraph On January 31, 2006, the Tenant Entities at each of the three Resorts removed KSL as property manager and replaced it with Management Company, LLC ( 90210, a wholly-owned subsidiary of Hilton Hotels Corporation. The Tenant Entities for each of the Resorts entered into Amended and Restated Management Agreements with (Morettini Decl. Ex. C, Biltmore Mgmt. Agm t; Ex. D, Grand Wailea Mgmt. Agm t; Ex. E, La Quinta Mgmt. Agm t. (collectively, the Management Agreements. 2 All facts not contested by Hilton herein should not be deemed as admissions for purposes of trial. Rather, Hilton's decision not to contest certain factual allegations is applicable only to the pending cross motions for summary judgment. Hilton reserves all rights to contest all factual contentions contained in the Debtors' Statement of Facts at trial. 2

3 Pg 3 of 18 HILTON'S RESPONSE: Hilton does not contest the facts contained in paragraph All of the Management Agreements were signed by Ted Middleton in his capacity as Senior Vice President for Hilton Hotels Corporation. (Morettini Decl. Ex. C, Biltmore Mgmt. Agm t; Ex. D, Grand Wailea Mgmt. Agm t; Ex. E, La Quinta Mgmt. Agm t. HILTON'S RESPONSE: Hilton contests the facts in paragraph 5. Middleton executed the Management Agreements in his capacity as Senior Vice President for (See Morettini Decl. at Exs. C, D, E. 6. The Management Agreements granted Hilton the right to manage each of the Resorts on behalf of the Tenant Entities. (Morettini Decl. Ex. C, Biltmore Mgmt. Agm t Art. 2.1; Ex. D, Grand Wailea Mgmt. Agm t Art. 2.1; Ex. E, La Quinta Mgmt. Agm t Art HILTON'S RESPONSE: Hilton does not contest the facts in paragraph Hilton also entered into a Guaranty for each of the Resorts, under which Hilton s parent corporation, Hilton Hotels Corporation, agreed to be liable for Hilton s obligations under the Management Agreements. (Morettini Decl. Ex. F, Guaranty. HILTON'S RESPONSE: Hilton contests the facts in paragraph 7. Although Hilton Hotels Corporation did execute the Guaranty, it did not agree to be liable for all of Hilton's obligations under the Management Agreements. Rather, Hilton Hotels Corporation only guaranteed the financial performance of the Hilton Resorts with payments of up to $50,000,000. (See Waldorf=Astoria Management LLC's Statement of Material Facts as to Which There is No Genuine Issue in Support of Motion for Summary Judgment (Adversary Docket No. 25 ("Hilton's Facts" at The Guaranty was entered into contemporaneously with the Management Agreements, and was signed by Ted Middleton in his capacity as Senior Vice President for Hilton Hotels Corporation. (Morettini Decl. Ex. F, Guaranty. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph 8. 3

4 Pg 4 of Hilton also entered into a Non-Disturbance and Attornment Agreement with the Fee Owners and the Tenant Entities for each of the Resorts (collectively, the NDAs. (Morettini Decl. Ex. G, Biltmore NDA; Ex. H, Grand Wailea NDA; Ex. I, La Quinta NDA. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph The NDAs provide: In the event of a termination or surrender of either of the Operating Leases or the expiration of the term of the Operating Leases... Manager s rights under the Management Agreement shall not be disturbed, the Management Agreement shall thereafter continue in full force and effect in accordance with the terms thereof as a direct agreement between Manager and either [Fee Owner] or, in [Fee Owner s] sole discretion, the Successor Tenant. (Morettini Decl. Ex. G, Biltmore NDA 2; Ex. H, Grand Wailea NDA 2; Ex. I, La Quinta NDA 2. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph Each of the NDAs was signed by Ted Middleton in his capacity as Senior Vice President for Hilton Hotels Corporation. (Morettini Decl. Ex. G, Biltmore NDA p. 5; Ex. H, Grand Wailea NDA p. 5; Ex. I, La Quinta NDA p. 6; Ex. J, Middleton Dep. 64: HILTON'S RESPONSE: Hilton contests the facts in paragraph 11. Ted Middleton executed the NDA's in his capacity as Senior Vice President of (See Morettini Decl. at Exs. G, H, J. 12. Less than a year after entering into the Management Agreements, the Guaranty and the NDAs with Hilton, CNL began the process of selling its assets to affiliates of Morgan Stanley Real Estate (collectively, MSREF and others (the MSREF Transaction. (Morettini Decl. Ex. K, Merger Agreement. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph As part of the transaction, MSREF was to become the ultimate owner of CNL, including the various subsidiaries that owned and operated the Resorts. (Morettini Decl. Ex. K, Merger Agreement. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph 13. 4

5 Pg 5 of On April 11, 2007, as part of the MSREF Transaction, Hilton issued three different estoppel certificates, one for each of the Biltmore, Grand Wailea, and La Quinta (collectively, the Hilton Estoppels. (Morettini Decl. Ex. L, Biltmore Estoppel; Ex. M, Grand Wailea Estoppel; Ex. N, La Quinta Estoppel. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph The purpose of the Hilton Estoppels in particular was for Hilton to certif[y] to MSREF affiliates certain facts pertaining to Hilton s management of each of the Resorts as part of MSREF s diligence efforts in connection with the MSREF Transaction. (Morettini Decl. Ex. L, Biltmore Estoppel; Ex. M, Grand Wailea Estoppel; Ex. N, La Quinta Estoppel; see also Ex. O, Hudspeth Dep. 40:25-41:8. HILTON'S RESPONSE: Hilton contests the facts in paragraph 15. The Hilton Estoppels were not certified to MSREF, but rather they were directed to MS Resort Holdings LLC and MS Resort Acquisition LLC and inured to the benefit of MS Resort Holdings LLC and the Tenant Entities. (See Morettini Decl. at Exs. L, M, N. 16. As noted by MSREF, it was important for MSREF to know what agreements existed before it closed on the MSREF Transaction so that it could understand which entities were liable under the Management Agreements for the Resorts and determine the value of the transaction. (See Morettini Decl. Ex. O, Hudspeth Dep. 42:1-43:6, 43:16-44:4. HILTON'S RESPONSE: Hilton contests the facts in paragraph 16, which misstate and take out of context Mark Hudspeth's testimony. Hudspeth actually testified that he was not aware of the Estoppels at the time the MSREF Transaction closed and he did not know whether anyone at MSREF had looked at the Estoppels before closing. (See Hudspeth Dep. Trans. at 14:19-15:3, 16: Also, Hudspeth testified that (1 he did not recall any discussions regarding whether Hilton had NDA's from the Fee Owners (see id. at 17:6-10; (2 he had no idea how MSREF decided what to pay for the Debtors' five resorts (see id. at 14:14-18; (3 he had no idea how the Estoppels factored into the price paid by MSREF for the Debtors' five resorts (see id. at 56:22-3 Pertinent pages of the Hudspeth Dep. Trans. are attached to Waldorf=Astoria Management LLC's Response to Debtors' Motion for Summary Judgment ("Hilton's Response", which is being filed contemporaneously herewith, at Exhibit G. 5

6 Pg 6 of 18 57:8; and (4 he had no idea how the Estoppels factored into Morgan Stanley's decision to make the corporate mezzanine loans (see id. at 20:7-21:16. Moreover, Hudspeth's deposition testimony cited by the Debtors would be inadmissible as evidence at trial because the Debtors' counsel used leading questions and Hudspeth lacked the foundation to give the answers he gave that were cited by the Debtors. 17. It is undisputed that third parties rely upon estoppel certificates to be truthful and accurate at the time they are issued, especially in commercial real estate transactions. (See Morettini Decl. Ex. P, Feldman Dep. 26:5-27:16; Ex. J, Middleton Dep. 77:4-78:3, 80:13-81:14; Ex. Q, Broderick Dep. 68:20-69:13. HILTON'S RESPONSE: Hilton contests the facts in paragraph 17. The statement in paragraph 17 is not a statement of fact, but is an argument based on testimony taken out of context and lacking foundation. How third parties typically treat estoppel certificates is not the issue; rather, the question is whether it is reasonable for a third party to rely upon an out-of-date estoppel certificate that is not directed to it. The evidence proves that, under the circumstances of this case, it is not reasonable for third parties not identified in an estoppel certificate to rely upon such certificate. (See Feldman Dep. Trans. at 36:16-37:3, 65:10-14, 72:8-73:12; Feldman Report at p. 3; Lee Dep. Trans. at 39:3-23, 44:7-15, 45: To that end, the Management Agreement for each one of the Resorts provides that statements in estoppel certificates are intended to be relied upon by others with whom the Party requesting such certificate may be dealing. (Morettini Decl. Ex. C, Biltmore Mgmt. Agm t 15.9; Ex. D, Grand Wailea Mgmt. Agm t 15.9; Ex. E, La Quinta Mgmt. Agm t HILTON'S RESPONSE: Hilton does not contest the facts in paragraph 18, but states that the the Management Agreements, including section 15.9, are the best evidence of their terms and the Debtors have taken quoted excerpts of section 15.9 out of context. 4 Pertinent pages of the Feldman Dep. Trans. and the Lee Dep. Trans. are attached to Hilton's Response at Exhibits F and D, respectively. 6

7 Pg 7 of As Hilton s former counsel, Mr. Lee, explained, Section 15.9 of the Management Agreements means that the person delivering the estoppel was willing to have the statements in that estoppel relied upon by others, to the extent they specify. (Morettini Decl. Ex. R, Lee Dep. 45:7-16. HILTON'S RESPONSE: Hilton does not contest paragraph 19 partially quotes Bernard Lee's deposition testimony, albeit out of context. Hilton notes that Lee testified that Section 15.9 of the Management Agreements merely means that parties other than those to the Hilton Management Agreements could rely upon estoppels, but only if such parties were so specified in those estoppels. (See Lee Dep. Trans. at 43:8-45:22. Lee's testimony was confirmed by Hilton's expert, Michael Feldman. (See Feldman Dep. Trans. at 67:17-68: Each of the Hilton Estoppels provides that it is being issued in connection with the upcoming merger between MSREF and CNL. (Morettini Decl. Ex. L, Biltmore Estoppel p. 1; Ex. M, Grand Wailea Estoppel p. 1; Ex. N, La Quinta Estoppel p. 1. HILTON'S RESPONSE: Hilton contests the facts in paragraph 20. The Hilton Estoppels do no make any reference to MSREF, but rather refer to "a merger by MS Resort Acquisition LLC... into CNL Hotels & Resorts, Inc." (See Morettini Decl. at Exs. L, M, N. 21. In the estoppel certificate for the La Quinta, Hilton certified that the following was true: Other than the Management Agreement, there are no outstanding agreements between Hilton or its affiliates and Owner or its affiliates with respect to the Hotel, except as follows: Guaranty dated as of January 31, 2006 given by Hilton and Hilton Hotels Corporation ( Hilton Parent in favor of Owner and CNL Resort Biltmore Real Estate, Inc. (the Guaranty. (Morettini Decl. Ex. N, La Quinta Estoppel 5. 7

8 Pg 8 of 18 HILTON'S RESPONSE: Hilton does not contest the facts in paragraph 21, but clarifies that Hilton only made such certification to MS Resort Acquisition LLC and MS Resort Holdings LLC. true: 22. In the estoppel certificate for the Biltmore, Hilton certified that the following was Other than the Management Agreement, there are no outstanding agreements between Hilton or its affiliates and Owner or its affiliates with respect to the Hotel, except as follows: Guaranty dated as of January 31, 2006 given by Hilton and Hilton Hotels Corporation ( Hilton Parent in favor of Owner, CNL Resort Ancillary Tenant Corp., and CNL Resort Desert Real Estate, Inc. (the Guaranty. (Morettini Decl. Ex. L, Biltmore Estoppel 5. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph 22, but clarifies that Hilton only made such certification to MS Resort Acquisition LLC and MS Resort Holdings LLC. 23. In the estoppel certificate for the Grand Wailea, Hilton certified that the following was true: Other than the Management Agreement, there are no outstanding agreements between Hilton or its affiliates and Operating Lessee or its affiliates with respect to the Hotel, except as follows: Guaranty dated as of January 31, 2006 given by Hilton and Hilton Hotels Corporation ( Hilton Parent in favor of Operating Lessee, CNL Resort Ancillary Tenant Corp., CNL Resort Biltmore Real Estate, Inc., and CNL Resort Desert Real Estate, Inc. (the Guaranty. (Morettini Decl. Ex. M, Grand Wailea Estoppel 5. 8

9 Pg 9 of 18 HILTON'S RESPONSE: Hilton does not contest the facts in paragraph 23, but clarifies that Hilton made such certification only to MS Resort Acquisition LLC and MS Resort Holdings LLC. 24. Hilton did not disclose the existence of the NDAs in any of the Hilton Estoppels. (Morettini Decl. Ex. L, Biltmore Estoppel 5; Ex. M, Grand Wailea Estoppel 5; Ex. N, La Quinta Estoppel 5; see also Ex. P, Feldman Dep. 33:4-9; 35:17-20; Ex. O, Hudspeth Dep. 45:4-20; 46:11-47:14. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph 24, except notes that the Estoppels refer to the Hilton Management Agreements, which do refer to and contemplate the delivery of NDA's. 25. Hilton was aware of the existence of the NDAs when it executed the Hilton Estoppels. (Morettini Decl. Ex. S, Hilton Responses to the Debtor s Interrogatories, Interrogatory 7. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph It is further undisputed that the NDAs should have been listed in the Hilton Estoppels. (See Morettini Decl. Ex. R, Lee Dep. 102:14-103:13; 103:23-104:13. HILTON'S RESPONSE: Hilton contests the facts in paragraph 26. Hilton believed the Estoppels were accurate, complete and adequate for the purpose requested when they were given. (See Lee Dep. Trans. at 101: Each of the three Hilton Estoppels was signed by Ted Middleton, the same individual who signed the three NDAs. (Morettini Decl. Ex. L, Biltmore Estoppel p. 4; Ex. M, Grand Wailea Estoppel p. 4; Ex. N, La Quinta Estoppel p. 4. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph Mr. Middleton was aware that the NDAs existed, but did not ask that the NDAs be disclosed in the estoppel certificates. (See Morettini Decl. Ex. J, Middleton Dep. 88:24-89:24. 9

10 Pg 10 of 18 HILTON'S RESPONSE: Hilton does not contest the facts in paragraph 28, but clarifies that Middleton did not negotiate the terms of the NDA's or the Estoppels. (See Middleton Decl. at Hilton s former counsel, Mr. Lee, edited drafts of the Hilton Estoppels without telling anyone that the NDAs should be identified in the estoppel certificates as an outstanding agreement between Hilton and the Fee Owner. (See Morettini Decl. Ex. R, Lee Dep. 104:10-13, 106:4-10. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph 29, but clarifies that Lee was never asked whether Hilton had NDA's. (See Hilton's Facts at 77. Moreover, Lee was not concerned about the lack of any reference to the NDA's in the Hilton Estoppels because they were sent to Hilton by CNL's counsel, which clearly knew of the existence of the NDA's, which CNL signed a year earlier. (See Lee Decl. at 9. 6 Also, the negotiations that occurred in connection with the Estoppels involved almost exclusively the financial representations requested of Hilton in the Estoppels and at no time did anyone ask whether Hilton had NDAs or SNDAs. (See id. at Hilton s expert, David [sic] Feldman, also agrees that the Hilton Estoppels were not truthful and accurate in all respects at the time that they were issued. (See Morettini Decl. Ex. P, Feldman Dep. 86:19-88:20. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph Hilton knew that the Hilton Estoppels would be relied upon by MSREF during its due diligence in connection with a potential acquisition of the Resorts. (See Morettini Decl. Ex. R, Lee Dep. 65:24-67:14. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph 31, but clarifies that Lee testified that he had no knowledge whether MSREF would use the information in the 5 6 The Middleton Decl. is attached to Hilton's Facts at Exhibit B. The Lee Decl. is attached to the Hilton Facts at Exhibit F. 10

11 Pg 11 of 18 Estoppels in deciding whether to close the merger. (See Lee Dep. Trans. at 67:13-25, 69:3-70:19, 74: It was reasonable for the party to whom [the estoppel certificate] was issued (MSREF and its affiliates and the Tenant Entities to rely upon the accuracy of the estoppel at the time it was issued. (Morettini Decl. Ex. P, Feldman Dep. 65:10-13, 68:23-70:7. HILTON'S RESPONSE: Hilton does not contest that the parties to which the Hilton Estoppels were issued could rely upon them at the time they were issued. However, Hilton contests the remaining facts in paragraph 32. The Hilton Estoppels were not issued to MSREF and its affiliates. Rather, the Hilton Estoppels were issued to MS Resort Holdings LLC and MS Resort Acquisition LLC. (See Morettini Decl. at Exs. L, M, N. 33. On April 13, 2007, MSREF and its affiliates consummated the MSREF Transaction and acquired the three Resorts (and other properties. (Morettini Decl. Ex. K, Agreement and Plan of Merger. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph The transaction documents made no mention of the NDAs. (Morettini Decl. Ex. K, MSREF Merger Agreement; Ex. T, Company Letter. HILTON'S RESPONSE: Hilton contests the facts in paragraph 34. The use of the term "transaction documents" is vague and ambiguous and there is no evidence to prove that the MSREF Merger Agreement and the Company Letter constitute the totality of the documents memorializing the MSREF Transaction. There is likewise no evidence that the NDA's were not listed in any of the transaction documents. 35. The transaction documents made no mention of the NDAs because MSREF had no knowledge of the NDAs when it completed the merger. (Morettini Decl. Ex. O, Hudspeth Dep 54:16-55:12. 11

12 Pg 12 of 18 HILTON'S RESPONSE: Hilton contests the facts in paragraph 35. The use of the term "transaction documents" is vague and ambiguous. Moreover, there is no evidence that the NDA's were not listed in any of the transaction documents. Even if the NDA's were not listed in any of the transaction documents, there is no evidence demonstrating why the NDA's were not listed in those documents. Hudspeth only testified that he did not believe MSREF had knowledge of the NDA's. Moreover, Hudspeth's deposition testimony cited by the Debtors would be inadmissible in evidence at trial because the Debtors' counsel used leading questions and Hudspeth lacked foundation to give the answers he gave that were cited by the Debtors. 36. In October 2007, assigned its rights in each of the management agreements to Hilton, also a wholly-owned subsidiary of Hilton Hotels Corporation, pursuant to three separate Agreements of Assignment. (Waldorf=Astoria s Answer to Complaint and Affirmative Defenses, Adv. Pro. No shl, Docket No. 9, 16. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph On January 28, 2011, ownership of the Resorts again changed when CNL-AB, a successor-in-interest to certain of the Corporate Mezz Lenders of MS Resorts III, LLC, completed a foreclosure on 100 percent of the membership interests in MS Resorts III, LLC (the indirect parent of MSR Resort Lodging Tenant LLC, which membership interests were pledged as security under a $200 million loan to affiliate MS Resorts IV, LLC, held by CNL-AB (the Foreclosure. (Kamensky Decl., Case No shl, Docket No. 3, 6. HILTON'S RESPONSE: Hilton contests the characterization of CNL-AB as a successor-ininterest to certain of the Corporate Mezz Lenders. There is no evidence to support this legal conclusion. Hilton does not contest the remaining facts in paragraph The Foreclosure effectively eliminated $600 million of mezzanine debt and foreclosed out the obligation to pay $200 million in structurally subordinated preferred equity. (Kamensky Decl., Case No shl, Docket No. 3, 8. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph

13 Pg 13 of As a result, CNL-AB became the ultimate equity holder of all of the Debtor entities, including the Fee Owners and Tenant Entities for the Resorts. (Kamensky Decl., Case No shl, Docket No. 3, HILTON'S RESPONSE: Hilton does not contest the facts in paragraph Prior to the Foreclosure, CNL-AB asked MSREF to disclose all agreements related to the management and operation of the Resorts, including any NDAs between Hilton and the Fee Owners. (Morettini Decl. Ex. Q, Broderick Dep. 54:21-55:9. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph MSREF disclosed dozens of agreements related to the management and operation of the Resorts, including the Management Agreements and the Hilton Estoppels. (Morettini Decl. Ex. U, Agm t Re Corp. Mezz. Loans 3(a(v, Schedule E. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph MSREF did not disclose the NDAs because MSREF had no knowledge of their existence. (See Morettini Decl. Ex. O, Hudspeth Dep. 49:17-53:19; 54:16-55:12. HILTON'S RESPONSE: Hilton contests the facts in paragraph 42. There is no evidence that MSREF did not have any knowledge of the NDA's. Even if it did not have knowledge of the NDA's, there is no evidence relating to why MSREF did not disclose the NDA's to CNL-AB. 43. MSREF contractually represented that, to the best of its knowledge, it had disclosed all of the agreements for the management and operation of the Resorts. (Morettini Decl. Ex. U, Agm t Re Corp. Mezz. Loans 3(a(v, Schedule E. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph And in reliance on MSREF s representations and the Hilton Estoppels, CNL-AB agreed with other Corporate Mezzanine Lenders to structure the Foreclosure as voluntary rather than involuntary, forfeiting a $75 million recovery under a non-recourse carve-out guarantee in the mezzanine loans. (Morettini Decl. Ex. V, Kamensky Dep. 34:22-37:6. HILTON'S RESPONSE: Hilton contests the facts in paragraph 44. Daniel Kamensky's deposition testimony cited by the Debtors in paragraph 44 does not demonstrate that "CNL-AB" 13

14 Pg 14 of 18 and "other Corporate Mezzanine Lenders" forfeited "a $75 million recovery under a nonrecourse carve-out guarantee in the mezzanine loans" in reliance upon "MSREF's representations and the Hilton Estoppels." Moreover, any such waiver had no impact on the Debtors, which are the entities seeking to assert the Estoppels, as that money would have gone to CNL-AB. Also, there is no evidence identifying the entity that allegedly was liable under the Guaranty, its ability to pay under the Guaranty or the likelihood that it would not file bankruptcy to avoid its Guaranty liability. Likewise, there is no evidence regarding what events would trigger liability under the Guaranty (see Broderick Dep. Trans. at 60:14-61:21 7 and the Debtors also do not reveal what CNL-AB received in exchange for waiving that Guaranty, including the ownership interest in the three hotels not subject to these bankruptcy cases. In addition, the Debtors had to gain immediate control over the Debtors to file for bankruptcy and stay Midland's foreclosure action once its loan matured on February 1, There is no way it could have accomplished a non-consensual foreclosure by that date (indeed, it just completed the consensual foreclosure three days before that date. Accordingly, the Debtors had no choice but to "structure the Foreclosure as voluntary." 45. In addition, based again on the lack of NDAs, the members of CNL-AB negotiated a complicated restructuring as part of the Foreclosure whereby certain members agreed to take a higher ownership interest in the Debtors in exchange for a lower ownership interest in non-debtor entities that owned different assets. (Morettini Decl. Ex. V, Kamensky Dep. 50:14-52:19. HILTON'S RESPONSE: Hilton contests the facts in paragraph 45. Paulson, which owns a majority interest in CNL-AB, began considering the restructuring referred to by the Debtors in 7 Pertinent pages of the Broderick Dep. Trans. are attached to the Hilton Response at Exhibit C. 14

15 Pg 15 of 18 paragraph 45 before Paulson and CNL-AB's other members were even aware of the Hilton Estoppels. (See Broderick Dep. Trans. at 26:19-23; Kamensky Dep. Trans. at 30: The Hilton Estoppels disclosed by MSREF provided assurance to CNL-AB that there were no NDAs for the Resorts that predated April 11, 2007, the date of the Estoppel Certificates. (Morettini Decl. Ex. Q, Broderick Dep. 73:1-7. HILTON'S RESPONSE: Hilton contests the facts in paragraph 46. The statement in paragraph 17 is not a statement of fact, but rather is an argument. The Hilton Estoppels did not assure anyone that Hilton did not procure the NDA's. The Hilton Estoppels did not affirmatively state that Hilton did not have NDA's, and other extrinsic evidence, as well as custom and practice addressing hotel management agreements, pointed to the fact that Hilton had procured the NDA's. (See Memorandum of Law in Support of Waldorf=Astoria Management LLC's Motion for Summary Judgment (Adversary Docket No. 23 at II.D. 47. On February 1, 2011, the Debtors, including both the Fee Owners and Tenant Entities for the Resorts, commenced this bankruptcy case intending to restructure their debts and create value for the estate. (Debtors Voluntary Petition, Case No shl, Docket No. 1. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph Part of the Debtors restructuring strategy included restructuring and, if necessary, rejecting the Hilton Management Agreements in order to maximize value for the Debtors stakeholders. (Morettini Decl. Ex. V, Kamensky Dep. 48:5-53:9. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph 48. However, Hilton reserves the right to dispute when the Debtors' allege they first developed this strategy and its relevance to the Complaint. 8 Pertinent pages of the Kamensky Dep. Trans. are attached to the Hilton Response at Exhibit H. 15

16 Pg 16 of In particular, the Debtors believed that restructuring or rejecting the Hilton Management Agreements presented a major opportunity to unlock value for the estate. (Debtor s Motion to Extend Exclusivity, Case No shl, Docket No. 324, 34. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph 49. However, Hilton reserves the right to dispute when the Debtors' allege they first developed this belief and its relevance to the Complaint. 50. The Debtors thus hoped to begin a major value enhancing restructuring initiative with respect to the Hilton Management Agreements to create value for stakeholders. (See Morettini Decl. Ex. V, Kamensky Dep. 79:15-22; see also Ex. W, Puntus Dep. 9:4-21; Ex. X, Murphy Dep. 20:8-21:24. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph 50. However, Hilton reserves the right to dispute when the Debtors' allege to have begun this "value enhancing restructuring initiative" and its relevance to the Complaint. 51. To that end, the Debtors relied on the fact that there were no NDAs of the type that would make the Fee Owners liable for the Tenant Entities obligations under the Management Agreements, and that therefore only the Tenant Entities would bear any liabilities under the Management Agreements. (See Morettini Decl. Ex. V, Kamensky Dep. 48:5-53:9. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph 51. However, Hilton reserves the right to dispute when the Debtors first undertook such reliance and its relevance to the Complaint. 52. After Debtors began to move forward with their restructuring initiative for the Management Agreements, Hilton informed Debtors for the first time of the existence of the NDAs on May 25, (Debtors Reply to Waldorf=Astoria s Response to Debtors Motion to Extend Exclusivity, Case No shl, Docket No. 438, 4; see also Morettini Decl. Ex. V, Kamensky Dep. 86:5-9. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph Based upon the NDAs, Hilton asserted that the Fee Owners ultimately are liable for rejection damages claims totaling several hundred million dollars in the event the 16

17 Pg 17 of 18 Management Agreements were to be rejected. (Waldorf=Astoria s Objection to Debtors Motion to Further Extend Exclusivity, Case No shl, Docket No. 662 at p. 5. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph Hilton also argues that the Debtors should have known that the NDAs existed. (Morettini Decl. Ex. B, Feldman Report. HILTON'S RESPONSE: Hilton does not contest the facts in paragraph 54. Moreover, the Debtors actually did know of the existence of the NDA's, as the Fee Owners actually executed them in (See Morettini Decl. at Exs. L, M, N; Hilton's Facts at If the Debtors had known the NDAs existed, they would have been aware that this claim existed and that restructuring the Management Agreements would be more difficult and more expensive to the Debtors, their creditors and equity holders. (Morettini Decl. Ex. V, Kamensky Dep. 87:2-10. HILTON'S RESPONSE: Hilton contests the facts contained in paragraph 55. Kamensky only testified that, had he been aware of the NDA's, it would have been "much more difficult for the debtors to restructure the management agreements with Hilton." Kamensky did not testify that it would have been "more expensive to the Debtors, their creditors and equity holders." 56. Consequently, on December 1, 2011, the Debtors brought this Adversary Proceeding against Hilton, seeking a declaratory judgment that, based upon the unequivocal representations in Hilton s own estoppel certificates, Hilton is estopped from seeking to enforce the terms of its NDAs against the Debtors. (Complaint, Adv. Pro. No shl, Docket No. 1. HILTON'S RESPONSE: Hilton does not contest that the Debtors commenced this Adversary Proceeding on December 1, (signature page follows 17

18 Pg 18 of 18 Dated: March 5, 2012 PERKINS COIE LLP By: /s/ David M. Neff David M. Neff (admitted pro hac vice Brian A. Audette (admitted pro hac vice 131 S. Dearborn St., Ste Chicago, Illinois Telephone: ( Facsimile: ( and - Schuyler Carroll 30 Rockefeller Plaza, 25th Floor New York, New York Telephone: ( Facsimile: ( Counsel to Waldorf=Astoria Management LLC 18