10-15973-scc Doc 860 Filed 03/06/12 Entered 03/06/12 163703 Main Document Pg 1 of 14 Peter A. Ivanick Allison H. Weiss 1301 Avenue of the Americas New York, New York 10019 Tel (212) 259-8000 Fax (212) 259-6333 - and - Todd L. Padnos (admitted pro hac vice) 1950 University Avenue, Suite 500 East Palo Alto, California 94303 Tel (650) 845-7000 Fax (650) 845-7333 Attorneys for the Debtor and Debtor in Possession Hearing Date and Time March 13, 2012 at 1000 a.m. (prevailing Eastern Time) Objection Deadline March 13, 2012 at 1000 a.m. (prevailing Eastern Time) UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ---------------------------------------------------------------- x In re AMBAC FINANCIAL GROUP, INC., Debtor. ---------------------------------------------------------------- x Chapter 11 Case No. 10-15973 (SCC) NOTICE OF THE DEBTOR S MOTION TO STRIKE REFERENCES TO NHB ADVISORS, INC. AND ITS PRELIMINARY ANALYSIS FROM THE AD HOC GROUP OF EQUITY SECURITY HOLDERS OBJECTION TO THE THIRD AMENDED PLAN OF REORGANIZATION OF AMBAC FINANCIAL GROUP, INC. PLEASE TAKE NOTICE that Ambac Financial Group, Inc., as debtor and debtor in possession in the above-captioned case (the Debtor ), has filed the attached Debtor s Motion to Strike References To NHB Advisors, Inc. And Its Preliminary Analysis From The Ad Hoc Group Of Equity Security Holders Objection To The Third Amended Plan Of Reorganization Of Ambac Financial Group, Inc. (the Motion ) with the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court ). A hearing (the Hearing ) shall be held to
10-15973-scc Doc 860 Filed 03/06/12 Entered 03/06/12 163703 Main Document Pg 2 of 14 consider the relief requested in the Motion on March 13, 2012 at 1000 a.m. (prevailing Eastern Time) before the Honorable Shelley C. Chapman, United States Bankruptcy Judge, in Room 610 of the Bankruptcy Court, located at One Bowling Green, New York, New York 10004. PLEASE TAKE FURTHER NOTICE that objections, if any, to the Motion must (i) be in writing and state with particularity the legal and factual basis for the objection; (ii) conform to the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ), the Local Bankruptcy Rules for the Southern District of New York, and the amended order establishing certain notice, case management, and administrative procedures entered on December 21, 2010 [Docket No. 75]; and (iii) be filed with the Bankruptcy Court, together with a proof of service, and served, so as to be received, on or before March 13, 2012, at 1000 a.m. (prevailing Eastern Time) upon (a) the chambers of the Honorable Shelley C. Chapman, United States Bankruptcy Judge, United States Bankruptcy Court for the Southern District of New York, One Bowling Green, New York, New York 10004; (b) counsel for the Debtor, Dewey & LeBoeuf LLP, Attn Danielle T. Kennedy, 1301 Avenue of the Americas, New York, New York 10019; (c) counsel for the statutory committee of creditors, Morrison & Foerster LLP, Attn Anthony Princi, 1290 Avenue of the Americas, New York, New York 10104; (d) counsel for the Office of the Commissioner of Insurance of the State of Wisconsin, Foley & Lardner LLP, Attn Frank W. DiCastri, 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202; (e) the Office of the United States Trustee for the Southern District of New York, Attn Brian S. Masumoto, 33 Whitehall Street, 21st Floor, New York, New York, 10004; (f) counsel for the ad hoc group of the Debtor s equity security holders, DiConza Traurig Magaliff LLP, Attn Howard P. Magaliff and Jeffrey M. Traurig, 630 Third Avenue, 7th Floor, New York, New York 10017; and (g) all entities which have filed a written request for notice with the Bankruptcy Court pursuant to Bankruptcy Rule 2002.
10-15973-scc Doc 860 Filed 03/06/12 Entered 03/06/12 163703 Main Document Pg 3 of 14 PLEASE TAKE FURTHER NOTICE that the Hearing may be adjourned by the Debtor without further notice other than by such adjournment being announced in open court or by a notice of adjournment filed with the Bankruptcy Court and served upon parties entitled to receive notice in the above-captioned case. Dated March 6, 2012 New York, New York /s/ Peter A. Ivanick Peter A. Ivanick Allison H. Weiss 1301 Avenue of the Americas New York, New York 10019 Tel (212) 259-8000 Fax (212) 259-6333 - and - Todd L. Padnos (admitted pro hac vice) 1950 University Avenue, Suite 500 East Palo Alto, California 94303 Tel (650) 845-7000 Fax (650) 845-7333 Attorneys for the Debtor and Debtor in Possession NYA 643615.1
10-15973-scc Doc 860 Filed 03/06/12 Entered 03/06/12 163703 Main Document Pg 4 of 14 Peter A. Ivanick Allison H. Weiss 1301 Avenue of the Americas New York, New York 10019 Tel (212) 259-8000 Fax (212) 259-6333 - and - Todd L. Padnos (admitted pro hac vice) 1950 University Avenue, Suite 500 East Palo Alto, California 94303 Tel (650) 845-7000 Fax (650) 845-7333 Attorneys for the Debtor and Debtor in Possession Hearing Date and Time March 13, 2012 at 1000 a.m. (prevailing Eastern Time) Objection Deadline March 13, 2012 at 1000 a.m. (prevailing Eastern Time) UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK --------------------------------------------------------------- x In re AMBAC FINANCIAL GROUP, INC., Debtor. --------------------------------------------------------------- x Chapter 11 Case No. 10-15973 (SCC) DEBTOR S MOTION TO STRIKE REFERENCES TO NHB ADVISORS, INC. AND ITS PRELIMINARY ANALYSIS FROM THE AD HOC GROUP OF EQUITY SECURITY HOLDERS OBJECTION TO THE THIRD AMENDED PLAN OF REORGANIZATION OF AMBAC FINANCIAL GROUP, INC. Ambac Financial Group, Inc. (the Debtor ), as debtor and debtor in possession in the above-captioned chapter 11 case, by and through its undersigned counsel, hereby submits this motion to strike references to NHB Advisors, Inc. ( NHB ) and its preliminary analysis of the Third Amended Plan of Reorganization of Ambac Financial Group, Inc. (the Plan ) from the Ad Hoc Group of Equity Security Holders Objection to the Third Amended Plan of Reorganization
10-15973-scc Doc 860 Filed 03/06/12 Entered 03/06/12 163703 Main Document Pg 5 of 14 of Ambac Financial Group, Inc., filed on March 2, 2012 [Docket No. 849] (the Objection ) and respectfully states as follows Preliminary Statement 1. The Ad Hoc Group of Equity Security Holders (the Equity Group ) objects to confirmation of the Plan based upon a preliminary analysis performed by its financial advisors, NHB, although it has had several months to perform and finalize such preliminary analysis. In addition to relying upon a preliminary analysis when there has been more than adequate time to perform a thorough review of the Plan, the Equity Group failed to provide any basis for the Bankruptcy Court to determine the admissibility and reliability of such preliminary analysis. 2. The Equity Group did not provide any affidavit or report setting forth the following (i) a complete statement of all of NHB s opinions and the basis and reason for such opinions; (ii) the facts or data considered by NHB in forming its opinions; (iii) any exhibits used to summarize or support NHB s opinions; (iv) NHB s qualifications; (v) other cases NHB has testified in as an expert at trial or by deposition; or (vi) the compensation paid to NHB by the Equity Group for NHB s preliminary analysis. The failure to include a detailed affidavit or report from NHB makes it impossible for the Debtor to review and address NHB s preliminary analysis of the Plan. 3. Moreover, without either an affidavit or report from NHB regarding its preliminary analysis and information regarding NHB s qualifications or expertise to provide such preliminary analysis, the Bankruptcy Court has no basis to determine whether such preliminary analysis is reliable and admissible when ruling on the Equity Group s Objection. The little information provided suggests just the opposite, i.e., that NHB s preliminary analysis is far off the mark.
10-15973-scc Doc 860 Filed 03/06/12 Entered 03/06/12 163703 Main Document Pg 6 of 14 4. The Equity Group attempts, by relying upon only a preliminary analysis, to further delay the confirmation process and obtain additional time to perform a final analysis of the Debtor s hypothetical liquidation valuation and financial projections, although the Equity Group has had ample time to review and analyze the Plan. 5. As the Equity Group failed to offer NHB as a financial expert and failed to provide NHB s preliminary analysis for the Debtor s and the Bankruptcy Court s review, all references to NHB and its preliminary analysis of the Plan should be stricken from the Objection. The Bankruptcy Court Should Strike All References to NHB and Its Preliminary Analysis 6. As the basis for its Objection, the Equity Group relies upon what it describes as NHB s preliminary analysis of the Debtor s hypothetical liquidation valuation and financial projections. Neither the Debtor nor the Bankruptcy Court has been provided with a copy of such preliminary analysis, let alone an expert affidavit or report. In the absence of such an affidavit or report, no evidentiary basis exists to admit the Equity Group s hearsay references to the NHB s preliminary analysis into evidence and, therefore, such references should be stricken from the Objection. 7. While the Equity Group has identified NHB as its financial advisors, the Equity Group has failed to provide any other information regarding NHB, its qualifications or its expertise in financial analysis; in particular, with respect to companies engaged in the insurance industry, which are heavily regulated and subject to statutory accounting requirements. Rather, the Equity Group expects the Bankruptcy Court simply to accept its assertions as to NHB s preliminary analysis without subjecting NHB to the standards applicable to expert witnesses or allowing the Debtor the opportunity to contest NHB s qualifications and expertise or to even offer a substantive response to NHB s preliminary analysis.
10-15973-scc Doc 860 Filed 03/06/12 Entered 03/06/12 163703 Main Document Pg 7 of 14 8. As neither the Debtor nor the Bankruptcy Court is able, based solely on the Objection, to perform the requisite analysis to determine whether NHB s preliminary analysis is admissible and reliable, references to NHB s preliminary analysis should be stricken from the Objection. Legal Standard Applicable to the Admissibility of Expert Testimony 9. To be admissible, expert testimony must be relevant and must rest on a reliable foundation. Chartwell Litig. Trust v. Addus Healthcare, Inc. (In re Med Diversified, Inc.), 346 B.R. 621, 628 (Bankr. E.D.N.Y. 2006). See also Amorgianos v. AMTRAK, 303 F.3d 256, 265 (2d Cir. 2002) (relying on Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 597 (1993)). Testimony is relevant if it has any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence. Chartwell, 346 B.R. at 628 (citing Fed. R. Evid. 401). 10. Under Rule 702 of the Federal Rules of Evidence, testimony is reliable if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case. Fed. R. Evid. 702. In determining reliability, the trial court must undertake a flexible inquiry that should focus on the principles and methodology employed by the expert, without regard to the conclusions the expert has reached or the... court s belief as to the correctness of those conclusions. Amorgianos, 303 F.3d at 266. 11. Although the Bankruptcy Court has a duty to admit expert testimony that is reliable and will assist the trier of fact, the standards established by the U.S. Supreme Court in Daubert v. Merrell Dow Pharm. Inc., 509 U.S. 579 (U.S. 1993) require the trial court to act as a gatekeeper by ensuring that every step of the expert s analysis is reliable. Chartwell, 346 B.R.
10-15973-scc Doc 860 Filed 03/06/12 Entered 03/06/12 163703 Main Document Pg 8 of 14 at 628 (citing Amorgianos, 303 F.3d at 267). To accomplish its gatekeeping function, the court must undertake a rigorous examination of the facts on which the expert relies, the method by which the expert draws an opinion from those facts, and how the expert applies the facts and methods to the case at hand. Amorgianos, 303 F.3d at 267. 12. Under the first prong of Federal Rule of Evidence 702, the trial court must examine the sufficiency of the data or studies underlying the expert s opinion. Chartwell, 346 B.R. at 628. If the Court concludes the studies or data upon which the expert relied are insufficient to support the expert s conclusions, the Court has a duty to close the gate on admission of the evidence as unreliable. Id. See also General Electric Co. v. Joiner, 522 U.S. 136 (1997). 13. Under the second prong, the trial court must determine whether the methods used by the expert are reliable. Chartwell, 346 B.R. at 628. In doing so, the Court may look to a number of factors, including (1) whether a theory or technique can be, and has been, tested; (2) whether the theory or technique has been subjected to peer review and publication; (3) a technique s known or potential rate of error and the existence and maintenance of standards controlling the techniques operation; and (4) whether a particular technique or theory has gained general acceptance in the relevant scientific community. Id. at 628-629. See also Daubert, 509 U.S. at 593-94; Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 149-150 (1999). 14. Lastly, under the third prong, the Court must also examine how that methodology was applied. Chartwell, 346 B.R. at 629. See also Lippe v. Bairnco Corp., 288 B.R. 678 (S.D.N.Y. 2003), aff d, 99 F. App x 274 (2d Cir. 2004) (excluding expert testimony partly because of how the expert applied the methodology). Further, the trial court must determine whether the methodology was appropriately applied to the data at issue. Id. The testimony must be sufficiently tied to the facts of the case that it will aid the [trier of fact] in
10-15973-scc Doc 860 Filed 03/06/12 Entered 03/06/12 163703 Main Document Pg 9 of 14 resolving a factual dispute. Daubert, 509 U.S. at 591 (quoting United States v. Downing, 753 F.2d 1224, 1242 (3d Cir. 1985)). If the court determines that the data, methodology or studies upon which the expert s opinion is based are inadequate to support the expert s conclusions, the court must exclude the expert s testimony. Chartwell, 346 B.R. at 629 (citing Amorgianos, 303 F.3d at 266). 15. Expert testimony offered to the Bankruptcy Court must withstand the rigorous examination required by Federal Rule of Evidence 702 and articulated by Daubert and the extensive line of cases applying the same before the Bankruptcy Court may accept and rely upon testimony. It is impossible to perform such an examination without an affidavit or report, based solely upon a preliminary analysis that is scant at best. 16. The evidence offered by the Equity Group in support of its Objection is not admissible under such an analysis. Even if the Equity Group had offered NHB as an expert witness, such testimony is not admissible under Federal Rule of Evidence 702. As the Bankruptcy Court Cannot Determine Whether NHB s Preliminary Analysis Is Admissible Expert Testimony, References to Such Preliminary Analysis Should be Stricken from the Objection 17. The Equity Group has not offered NHB as an expert financial analyst nor provided the Debtor or the Bankruptcy Court with NHB s preliminary analysis of the Plan. Without the ability to review such preliminary analysis, the Debtor cannot respond to the assertions set forth in the Objection regarding the Plan s liquidation valuation and financial projections. Moreover, the Bankruptcy Court cannot engage in the requisite analysis of the relevance and admissibility of NHB s preliminary analysis. For these reasons, references to NHB s preliminary analysis should be stricken from the Objection. 18. As discussed above, NHB s preliminary analysis, if offered as expert testimony, must satisfy the four requirements of Federal Rule of Evidence 702 (a) the expert s scientific,
10-15973-scc Doc 860 Filed 03/06/12 Entered 03/06/12 163703 Main Document Pg 10 of 14 technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue; (b) the testimony is based on sufficient facts or data; (c) the testimony is the product of reliable principles and methods; and (d) the expert has reliably applied the principles and methods to the facts of the case. Fed. R. Evid. 702. 19. NHB s preliminary analysis, as referenced in the Objection, fails to satisfy any of these requirements and is, therefore, inadmissible. 20. With respect to the first requirement, the Equity Group states only that it has recently retained [NHB] as its financial advisors to analyze the Debtor s hypothetical liquidation valuation and financial projections Objection, at 1. The Equity Group provides no information as to NHB s scientific, technical, or other specialized knowledge [that] will help the [Bankruptcy Court] to understand the liquidation valuation and financial projections in the Plan or to determine whether the Objection should be sustained. Thus, even if the Equity Group had included NHB s preliminary analysis with its Objection, such preliminary analysis would be inadmissible as expert testimony since the Equity Group failed to demonstrate why such evidence should be considered at all. 21. The second requirement is that the testimony be based on sufficient facts or data. The Equity Group failed to disclose either NHB s preliminary analysis or the facts or data relied upon by NHB in performing its preliminary analysis, making it impossible for the Bankruptcy Court to determine whether such facts or data are sufficient. Thus, NHB s preliminary analysis also fails to satisfy the second requirement of Federal Rule of Evidence 702. 22. To satisfy the third requirement, the testimony must be the product of reliable principles and methods. As the Equity Group made no reference to NHB s principles or methods for conducting its preliminary analysis and failed to make such preliminary analysis available to the Bankruptcy Court, it is again impossible for the Bankruptcy Court to determine whether
10-15973-scc Doc 860 Filed 03/06/12 Entered 03/06/12 163703 Main Document Pg 11 of 14 NHB s principles or methods for performing its preliminary analysis are reliable. Therefore, NHB s preliminary analysis fails to satisfy the third requirement of Federal Rule of Evidence 702. 23. Lastly, the expert must have reliably applied the principles and methods to the facts of the case to satisfy the fourth and final requirement of Federal Rule of Evidence 702. In the absence of NHB s preliminary analysis for review and consideration, there is no way for the Bankruptcy Court to determine whether NHB reliably applied whatever principles or methods it used to analyze whatever facts or data it reviewed to analyze the liquidation valuation and financial projections of the Plan. 24. As the Bankruptcy Court lacks sufficient information to determine whether NHB s preliminary analysis is reliable, it cannot determine whether such analysis is relevant to and, therefore, admissible in this case. Therefore, all references to NHB and its preliminary analysis of the liquidation valuation and financial projections of the Plan should be stricken from the Objection.
10-15973-scc Doc 860 Filed 03/06/12 Entered 03/06/12 163703 Main Document Pg 12 of 14 WHEREFORE, for the reasons set forth above, the Debtor respectfully requests the entry of an order striking all references to the NHB and its preliminary analysis from the Objection, and granting such other and further relief as the Bankruptcy Court deems just and proper. Dated March 6, 2012 New York, New York Respectfully Submitted, /s/ Peter A. Ivanick Peter A. Ivanick Allison H. Weiss 1301 Avenue of the Americas New York, New York 10019 Tel (212) 259-8000 Fax (212) 259-6333 - and - Todd L. Padnos (admitted pro hac vice) 1950 University Avenue, Suite 500 East Palo Alto, California 94303 Tel (650) 845-7000 Fax (650) 845-7333 Attorneys for the Debtor and Debtor in Possession NYA 643615.1
10-15973-scc Doc 860 Filed 03/06/12 Entered 03/06/12 163703 Main Document Pg 13 of 14 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK --------------------------------------------------------------- x In re AMBAC FINANCIAL GROUP, INC., Debtor. --------------------------------------------------------------- x Chapter 11 Case No. 10-15973 (SCC) ORDER STRIKING REFERENCES TO NHB ADVISORS, INC. AND ITS PRELIMINARY ANALYSIS FROM THE AD HOC GROUP OF EQUITY SECURITY HOLDERS OBJECTION TO THE THIRD AMENDED PLAN OF REORGANIZATION OF AMBAC FINANCIAL GROUP, INC. Ambac Financial Group, Inc., as debtor and debtor in possession in the above-captioned case (the Debtor ), having requested entry of this order (the Order ) 1 striking references to NHB Advisors, Inc. and its preliminary analysis from the Ad Hoc Group of Equity Security Holders Objection to the Third Amended Plan of Reorganization of Ambac Financial Group, Inc., filed on March 2, 2012 [Docket No. 849] (the Equity Group Objection ); and consideration of the relief requested by the Debtor being a core proceeding pursuant to 28 U.S.C. 157(b); and venue being proper before this Court pursuant to 28 U.S.C. 1408 and 1409; and the Court having determined that entry of this Order is in the best interests of the Debtor, its estate, its creditors, and all parties in interest; and after due deliberation and sufficient cause appearing therefor, it is hereby ORDERED that all references to NHB Advisors, Inc. and its preliminary analysis are stricken from the Equity Group Objection; and it is further 1 Capitalized terms used but not defined in the Order shall have the meanings set forth in the Debtor s Motion To Strike References To NHB Advisors, Inc. And Its Preliminary Analysis From The Ad Hoc Group Of Equity Security Holders Objection To The Third Amended Plan Of Reorganization Of Ambac Financial Group, Inc., filed on March 6, 2012.
10-15973-scc Doc 860 Filed 03/06/12 Entered 03/06/12 163703 Main Document Pg 14 of 14 ORDERED that this Court shall retain jurisdiction in order to hear and determine all matters arising from or related to the implementation, interpretation, and/or enforcement of this Order. Dated, 2012 New York, New York HONORABLE SHELLEY C. CHAPMAN UNITED STATES BANKRUPTCY JUDGE US1 32329117.1 32346257.4