Re: ITC Filing: Otteson Letter 1-10-14

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Re: ITC Filing: Otteson Letter 1-10-14

in response to

ITC Filing: Otteson Letter 1-10-14

BaNosser

posted on Jan 11, 2014 01:33PM

OPPOSITION TO MOTION TO APPOINT TRUSTEE

Page 7

12. The OCC failed to schedule, within 48

hours of each notification to it of any of

the three settlements, or at any later time, “

. . . a conference call to consider the proposed

settlement . . . among the Settlement Committee,

committee counsel, TPL’s bankruptcy counsel,

TPL’s special litigation counsel and the licensi

ng director for Alliacense Limited LLC.”

Following each of the three electronic notificatio

ns of settlement descri

bed in the preceding

paragraph, the OCC’s only response was to respond in an email that “[t]he committee will only

consider further proposed settlements if 20% of th

e gross settlement proceeds is deposited into a

trust account for the benefit of credito

rs.” Motion, 3:25-4:5.

13. Paragraph 5 of the Settlement Procedur

es Order specifies the actions the OCC

shall (not may) take after receiving a settle

ment proposal from TPL and how long it has to

respond.

“Immediately following a presentation described in

Paragraph 3 or 4 above [the one the OCC is required to

schedule within 48 hours of receipt

of a notice of settlement],

the Settlement Committee shall convene to discuss the

proposed settlement and decide if

it does or does not support it.

Immediately thereafter, committee counsel shall notify TPL’s

bankruptcy counsel in writing

of the Settlement Committee’s

position regarding the proposal.”

Settlement Procedures Order, Par. 5.

14. Paragraph 7 of the Settlement Procedures

Order then specifies what an objection

of the OCC to a proposed settlement, if any, must contain:

“If the Settlement Committee objects to TPL’s proposed

settlement, committee counsel will communicate such

decision in writing to TPL’s

bankruptcy counsel setting

out the basis for that opp

osition, including the reason

the Settlement Committee claims the proposed settlement

is not in the best interest of

the bankruptcy estate, or why

Settlement Committee believes a better settlement could be

obtained.”

Case: 13-51589 Doc# 357 Filed: 01/09/14 Entered: 01/09/14 19:00:11 Page 10 of

OPPOSITION TO MOTION TO APPOINT TRUSTEE

Page 8

Settlement Procedures Order, Par. 7.

15. Paragraph 9 of the Settlement Procedur

es Order provides for deemed approval of

settlements should the OCC fail to perform its

duties under paragra

phs 3, 5, and 7:

“If TPL provides the notice described in paragraph 3,

and the Settlement Committee fails to (a) agree to a

time for a conference within 48 hours, (b) attend an

agreed-on conference, or (c) provide a written statement

of its position as described in paragraph 5 [in other words,

following the “presentation” or

conference call required in

paragraph 3], then it is deemed that the creditors committee

has not objected to the proposed

settlement, and TPL may

enter into it as described in paragraph 6.”

16. It is undisputed that the OCC did not

agree to a time for a conference within 48

hours (as required by paragraph 3) or attend an

agreed-on conference (a

s required by paragraph

5). The OCC flatly refused to meet with TPL at

all to consider any of

the proposed settlements,

all of which were several years in the making, ex

traordinarily time sensitive, and substantially

beneficial to the Portfolio being licensed owing to the size and position of the licensees in the

market.

17. The OCC asserts that its blanket refusa

ls to consider settlements (Motion, 3:25-

4:5) constituted written responses sufficient

to comply with paragraph 9 of the Settlement

Procedures Order. The OCC

is wrong for two reasons.

a. First, the prerequisite fo

r a qualifying statemen

t of position under

paragraph 5 is a

meeting or conference call

between the OCC and the specific list of parties

necessary to present a settlemen

t that the OCC could then eval

uate. (“Immediately following a

presentation described in Paragraph 3 or 4 a

bove, the Settlement Committee shall convene to

discuss the proposed settlement and decide if

it does or does not support it. Immediately

Case: 13-51589 Doc# 357 Filed: 01/09/14 Entered: 01/09/14 19:00:11 Page 11 of

OPPOSITION TO MOTION TO APPOINT TRUSTEE

Page 9

thereafter, committee counsel shall notify TPL’s ba

nkruptcy counsel in writing of the Settlement

Committee’s position.” Settlement Pr

ocedures Order, Par. 5.).

b. Second, the text of the OCC’s blanke

t refusals to consider settlements is

deficient and cannot constitute qualifying responses.

Paragraph 7 of the Settlement Procedures

Order requires that the OCC, if it objects, set

out in the objection “ . . . the basis for that

opposition, including the reason the Settlement Committ

ee claims the proposed settlement is not

in the best interest of the bankruptcy estate

, or why Settlement Committee believes a better

settlement could be obtained.” The purpose of this

in the Order is to ensure TPL has sufficient

information to then address the OCC’s conc

erns by either supplyi

ng the OCC with more

information or restructuring the settlement.

The OCC’s demand for an economic concession and

for the set aside of funds in der

ogation of the rights of secured

parties, contingency counsel, and

in a manner not permitted by the agreed cash collateral orders in place, in no way addressed why

any of the three proposed settlements themselves

(as opposed to directi

on or re-direction of

proceeds paid after consummation) were not in th

e best interest of the estate, much less why

better settlements could be obtained. In fact,

TPL believes the settlements were in the best

interests of the estate and that no

better settlements

could be obtained.

18. The OCC consciously elect

ed to disregard the Settl

ement Procedure Order for

improper purposes. The OCC freely admits in the

Motion why it did so, and the timing of that

admission is as damning as its substance. Th

e OCC advised TPL on November 13, 2013, that “ .

. . without significant progress in the negotiations

regarding the plan, you should not expect

approval of further proposed li

censing transactions/settlements.”

Motion, 3:17-23. This was

transmitted at a time that the B.D.R.P. process

ordered by this Court to generate a consensual

plan had not yet concluded. It was not until

November 18, 2013, that

the OCC advised Judge

Case: 13-51589 Doc# 357 Filed: 01/09/14 Entered: 01/09/14 19:00:11 Page 12 of

OPPOSITION TO MOTION TO APPOINT TRUSTEE

Page 10

Montali that a further session would “not be

productive” and unilaterally terminated the

B.D.R.P.process.

19. The fact that the OCC began sending

emails, after it had disregarded its

obligations under the Settlement Procedures Order,

is not relevant to

the question of whether

cause for relief exists under Bankruptcy Code

section 1104(a)(1). The issue is whether TPL

complied with the Settlement Procedures Order.

The OCC’s communications

subsequent to the

deemed approval of three settlements suggest only

that the OCC belatedly reviewed the terms of

the Settlement Procedures Order and realized the

consequences of its failed effort to block all

further settlements and defund the estate.

20. As set forth in paragraph 7 above,

TPL consistently followed the specific

requirements of the Settlement Procedures Order

from the date of its entry. The first six

settlements TPL proposed to the OCC were proposed in the same format, with the same

information provided, and the OCC scheduled calls promptly. TPL notified the OCC of each of

the last three settlements it negotiated in the same manner, and asked that the OCC schedule

meetings with TPL to evaluate them; there have

been no other settlements. TPL will continue to

follow the requirements of the Settlement Procedur

es Order and present all settlements to the

OCC whenever they are negotiated.

21. TPL is including with this Opposition Br

ief a declaration from its Chief Financial

Officer, Dwayne Hannah. Mr. Hannah

details the uses of funds rece

ived from the last three

settlements and $4,000,000 received. All amounts

paid were within the allowed amounts for

categories of expenses approved by this Court pu

rsuant to TPL’s Second Motion to Approve Use

of Cash Collateral (FRBP 4001(b)). It is notewo

rthy that the OCC’s allega

tions as to “wasteful

dissipation of assets” (Motion, 5:16-7:10) de

scribe expenditures in budget categories and

Case: 13-51589 Doc# 357 Filed: 01/09/14 Entered: 01/09/14 19:00:11 Page 13 of

OPPOSITION TO MOTION TO APPOINT TRUSTEE

Page 11

amounts to which the secured creditors of this case

have stipulated and, w

ith two exceptions (the

first and last cash collateral hearings)

to which the OCC has agreed as well.

22. It is also noteworthy that the demand made by the Committee to set aside 20% of

the gross amounts of the licenses

for unsecured creditors was mathem

atically impossible in light

of TPL’s other obligations under to contingency

payment agreements with

(i) litigation counsel,

(ii) the Fast Logic Portfolio pa

rtner, and (iii) Alliacense (which

negotiated all three settlements

and whose work made them possible), as well as

the required adequate protection payments to

TPL’s secured creditors, and the carve out paym

ents to professionals demanded by the OCC if

TPL was to pay expenses and any kind of pa

yroll. TPL repeatedly informed the OCC

subcommittee that the 20% gross formula was infeasible; the explanation was apparently

ignored.

23. TPL respectfully submits that the Court

should deny the Motion to the extent that

its seeks relief based upon allegatio

ns made regarding the Settleme

nt Procedures Order, decline

to issue an order to show cause re: contempt, fi

nd that the settlements

proposed to the OCC have

been disclosed as required in the Settlement Pro

cedures Order, and decline to issue an injunction

directing sequestration of the proceeds

of current or future settlements.

. The Other Facts Alleged by The OCC

Are Not Sufficient as Cause for Relief

under Bankruptcy Code Section 1104(a)(1)

24. In the conclusion of the Motion, the

OCC alleges that TPL and Daniel E.

Leckrone have “ . . . breached their fiduciary obli

gations to the estate . . . .” Motion, 11:20. The

Motion contains four categories of allegations th

at the OCC is apparently

pressing as cause for

appointment of a trustee to

support the point. Each are ad

dressed in turn below.

///

Case: 13-51589 Doc# 357 Filed: 01/09/14 Entered: 01/09/14 19:00:11 Page 14 of

OPPOSITION TO MOTION TO APPOINT TRUSTEE

Page 12

Case Expenditures to Date

25. The OCC categorizes TPL’s court-approved expenditures for employee salary and

vendor payments to Alliacense

, all authorized for payment without objection from the OCC to

cash collateral authority requested (at leas

t until the December 4, 2013 final hearing), as

“outlandish” (Motion, 5:10) and a “wasteful di

ssipation of assets” (Motion, 5:16). The OCC

however offers no explanation of why the sala

ries paid to TPL insiders are “outlandish

,” and

supplies no evidence to support its position. The

OCC must be aware that its chairman, Chet

Brown, litigated this very issue in the

Brown v. TPL

trial in the Santa Clara Superior Court (case

number 1-09-CV-159452). Judge Huber’s finding, wh

ich the OCC now appare

ntly seeks to re-

litigate, is instructive:

“It is also clear that th

ere is no evidence to suggest that [Dan Leckrone’s

children] did not perform adequately

in their respective positions with the

company.....While Brown implies that the family members were well

paid, there is no evidence to suggest their remuneration was

disproportionate to job performance

or that their compensation exceeded

that of others similarly

situated in the industry.”

Statement of Decision, 3:21-26.

26. In the event that this Court does wish

to revisit Judge H

uber’s ruling and take

further evidence on the reasonableness of salaries

paid to TPL management or insiders, TPL has

retained the services of

Mr. Greg Goodere for testimony. Mr.

Goodere, an expert in the field of

human resources and salary levels

in this field and geographic lo

cation and has assisted TPL in

the past in setting compensation, has conducted

an analysis of the

qualifications of and

compensation to TPL’s employees and manageme

nt and is able to testify thereto.

TPL will address all issues re

lated to Alliacense at once wh

en responding to claims of a

conflict of interest.

The OCC also overstates the combined salari

es of three top members of management as

$630,000 rather than their actual total of $580,000.

Case: 13-51589 Doc# 357 Filed: 01/09/14 Entered: 01/09/14 19:00:11 Page 15 of

OPPOSITION TO MOTION TO APPOINT TRUSTEE

Page 13

27. The allegations made in the Motion (5:12-7:10) as to the duties of and

compensation to employee Janet Neal is rife with

inaccuracies and mischaracterization of prior

testimony. For example, the allega

tion that “TPL paid Ms. Neal

far more than the compensation

listed in her written consulting agreement....”

(Motion, 6:8-10) is entirely unsupported. The

only thing that the OCC did cite

is Exhibit “C” to the Kim decl

aration - a copy of Ms. Neal’s

consulting agreement - which provides no support fo

r the statement that she was paid “far more”

than in her agreement.. The OCC’s reference

to Exhibit “A” of Ms Kim’s declaration is

unavailing as well as an attempt to support their

statements, inappropriately suggested as fact,

that TPL loaned money for Ms. Neal to purchas

e her home. The Exhib

it contains nothing but

unequivocal testimony by Dwayne Hannah that TPL

did not provide any funds for Ms. Neal’s

home. [1198:16-28.] No money was ever loan

ed by TPL to Ms. Neal for her home. The

statement made by the OCC that they do not know

what Ms. Neal does is supported only by a

declaration from the OCC’s attorney, Mr. Murray,

who has never met nor worked with Ms. Neal.

TPL is prepared to refute the OCC’s remaining

attacks on its employment of Ms. Neal, point-by-

point, at an evidentiar

y hearing on the Motion.

Alleged Conflicts Of Interest

28. The OCC includes section IV of its br

ief allegations regarding Mr. Leckrone’s

relationship with Alliacense, conj

ecture regarding pre-petition adva

nces and offset thereof, Mr.

Leckrone’s role on the board of PDS, and insider sa

laries. None create a c

onflict of interest that

merits the removal of TPL’s management.

a. Allegations Regarding Alliacense

29. The OCC alleges that Alliacense was,

prior to 2007, part of a “TPL Group.”

Motion, 12:13-14, but does not arti

culate any significance to this

characterization, and further

Case: 13-51589 Doc# 357 Filed: 01/09/14 Entered: 01/09/14 19:00:11 Page 16 of

OPPOSITION TO MOTION TO APPOINT TRUSTEE

Page 14

misstates Alliacense’s corporate history. Alli

acense was formed as a Nevada corporation on

January 4, 2005, and it operated under that name

until it was merged into an existing Delaware

LLC (named Alliacenes LLC) on December 31, 2008, which was then renamed Alliacense

Limited LLC. The “TPL Group” referenced

by the OCC was a marketing denomination for

services rendered by separate entities and does

not describe a legal re

lationship. Alliacense has

always been maintained and operated as a free

standing entity to provi

de essential Licensing

Program services to TPL.

30. The OCC’s central argument as to c

onflict of interest is that both TPL and

Alliacense are “ . . . owned and managed by Mr.

Leckrone as its sole shareholder and sole

member,” (Motion, 7:15-17), in a manner that re

sulted in “self dealing” (Motion, 8:16). The

authority cited for the claim of not only owners

hip but control is to a motion filed by TPL dated

April 15, 2013. TPL believes that

no conflict exists between Mr.

Leckrone’s in his role as

responsible individual for TPL and

his ownership of Alliacense for

the reasons set forth in TPL’s

Response to Objection

. . . Until June 2013, Dan Leckrone was the

sole owner and manager of Alliacense

and Mac Leckrone, his son, was the Pres

ident. In June 2013, Mr. Leckrone

resigned as manager of the company and ha

s not participated in the management

of Alliacense since that time. Corporat

e formalities are strictly observed. TPL

does not believe there is a

conflict for Mr. Leckrone be

cause (1) he no longer is

the manager of the company; (2) even

prior to his formal resignation, Mac

Leckrone handled the day-to-day operati

ons of the company as President and (3)

TPL is confident that it is being charged

at or below market rates for the services

provided. TPL does not believe any conflic

t arises due to the common ownership

between the companies, and the Committee ha

s not identified an actual conflict to

which TPL can respond.

Response to Objection, 11:3-11.

Response By Debtor To Objection Of Offi

cial Committee Of Unsecured Creditors To

Debtor’s Disclosure Statement Re: TPL Plan

Of Reorganization (D

ecember 9, 2013)(the “TPL

Response to Objection”).

Case: 13-51589 Doc# 357 Filed: 01/09/14 Entered: 01/09/14 19:00:11 Page 17 of

OPPOSITION TO MOTION TO APPOINT TRUSTEE

Page 15

31. The OCC alleges that pre-petition payments to Alliacense occurred under an

earlier version of the Services Agreement that ha

d not been reduced to writing and later, when it

was, had not been signed. Motion, 7:17-19. Ca

lifornia Civil Code sec

tion 1622 provides that a

contract need not be in writing to be enforceable

: “[a]ll contracts may be

oral, except such as are

specially required by stat

ute to be in writing.”

See also

, CACI 304 Oral or Written Contract

Terms [Contracts may be written or

oral. Oral contracts are just as

valid as written contracts;];

Cal. Jury Inst. 10.57 [A contract may be oral, writte

n, or partly oral and partly written. An oral,

or a partly oral and partly written contract, is

as valid and enforceable as a written contract.]

32. TPL’s Disclosure Statement discusses in

substantial detail th

e history of TPL’s

relationship with Alliacense as well as the hi

story of the agreements. Counter to the

misstatements in the OCC’s Motion that there wa

s not a written agreement, there has been a

written agreement between the pa

rties since 2007 and Mr. Hannah une

quivocally testified to this

in the

Brown v. TPL

case; in fact, the testim

ony is found in Exhibit A to

Ms. Kim’s declaration at

page 1158, lines 21-28. The 2007 Services Agreemen

t was also provided to the OCC by TPL on

April 30, 2013.

33. The OCC theorizes, without any eviden

tiary support, that

that amounts paid by

TPL to Alliacense were “ . . . to enhance revenues flowing to Mr. Leckrone and other insiders

while maintaining liabilities in TPL and to di

vert revenues from TPL by

allowing licensing fees

to be paid from TPL, who was

responsible for licensing the MMP

Portfolio, to Alliacense.”

Motion, 7:20-23.

In fact, Alliacense is paid for services it

renders to TPL, which are essential to

the successful commercialization of its Portfoli

os. In fact, TPL has not been responsible for

licensing the MMP Portfolio since

July 2012. The issues the OCC

has with the licensing of the

MMP Portfolio, which TPL disputes

virtually in their entirety,

are at any rate not currently

relevant to the issue of the appointment of a

trustee since TPL has not

been responsible for

Case: 13-51589 Doc# 357 Filed: 01/09/14 Entered: 01/09/14 19:00:11 Page 18 of

OPPOSITION TO MOTION TO APPOINT TRUSTEE

Page 16

licensing MMP since July 2012. The OCC fails to

suggest how a trustee would have any impact

with respect to licensing the MMP Portfolio give

n that TPL does not manage the MMP Portfolio

licensing effort. Since TPL’s Plan calls for th

e OCC to appoint a repr

esentative to the PDS

management committee to take over any remaini

ng involvement TPL has in the MMP Portfolio,

even the prospective effect of appointing a tr

ustee to address this concern is negligible.

34. OCC Chairman Brown’s efforts in

litigation yielded a

critical finding in

December, 2012, with regard to the relationshi

p between Alliacense and TPL and the value of

Alliacense’s services. Judge Huber stated in hi

s Statement of Decision, th

at “[i]n the case of

Alliacense, a contract existed which paid that company 15 percent of licensing recovers [sic] as a

service fee. No evidence has been introduced

to suggest that Alliacense did not provide

appropriate services for the amount of income th

ey received. To the extent that money was

provided to Alliacense over and above the 15 per

cent, to keep them in operation, those monies

were treated as either a distribution to Leckr

one or an intercompany transfer; if the latter

Alliacense owes that amount to TPL. [¶] The ev

idence demonstrates that the work performed by

Alliance was necessary to the well-being of TPL.

The Court has seen no evidence of excessive

expense or that Alliacense did anything improper

with the funding it received under its contract

or loans for additional operating expenses receive

d from TPL.” Statement of Decision, 4:23-5:5.

35. The OCC inaccurately asserts that TP

L made a $15 million “loan” to Alliacense;

TPL’s Disclosure Statement and that te

stimony of Mr. Hannah. Motion, 7:25-26. The

statements in the Motion mischaracterize Mr.

Hannah’s testimony as review of the transcript

pages cited by the OCC will s

how. As TPL explained in

its Disclosure Statement

“ . . . the

advances made by TPL to Alliacense from 2006 to 2012 totaled approximately $15 million; in

Disclosure Statement Re: TPL Plan

Of Reorganization (December 23, 2013)

Case: 13-51589 Doc# 357 Filed: 01/09/14 Entered: 01/09/14 19:00:11 Page 19 of

OPPOSITION TO MOTION TO APPOINT TRUSTEE

Page 17

addition, the hourly time and expense calculation

for the Alliacense Litiga

tion Support services

and Prosecution and Maintenance services totale

d $16.3 million for that period.” Disclosure

Statement, 72:10-13. Moreover, the $15 million wa

s not forgiven (Motion, 8:11), as the OCC

incorrectly alleges, it was offset as a negotiated term of the Amended Services Agreement in

March, 2012, a fact which TPL has openly disclosed

from the outset of this case. It is worth

noting that Alliacense would, had the offset not o

ccurred, retained offset and recoupment rights

of its own; under such circumstances, and th

e collectability of $15 million from Alliacense

would have been a doubtful proposition at best.

In any event, both the OCC and TPL plans

preserve the right to pursue Alliacense for any av

oidance claims that may exist for pursuit by a

CreditorTrust Trustee in

the case of the TPL Plan and the O

CC under its own proposal. In either

case, the obligation to investigate and, if necessar

y, prosecute claims against Alliacense has been

preserved, and two-year statute

of limitations is nowhere near running. TPL has therefore

fulfilled its fiduciary obligations with respect to claims against Alliacense.

b. Claims Regarding L

eckrone Role On PDS Board

36. The OCC references Mr. Leckrone’s

disagreement with the other PDS board

members on appointment of a third member of

the board, though it does not explain exactly how

alleged conflicts as board member of that non-deb

tor entity that has resulted in an inability to

make decisions (Motion, 8:28-9:3) automatically tr

anslate to a conflict in

this bankruptcy case.

There is merely an unspecified allegation that

Mr. Leckrone “places Alliacense’s interests ahead

of PDS’s or TPL’s interests in

communications with PDS.” Th

e facts are worth reviewing as

they show that any discontinuity of decision-

making results not from inaction by Mr. Leckrone

but the PDS Board’s inexplicable refusal to impl

ement the contractual remedy available to it to

fill the third board seat.

Case: 13-51589 Doc# 357 Filed: 01/09/14 Entered: 01/09/14 19:00:11 Page 20 of

OPPOSITION TO MOTION TO APPOINT TRUSTEE

Page 18

37. The vacancy arose under the following circumstances: during the course of

rancorous litigation initiated

by PTSC Directors Felcyn and Johnson against TPL in April of

2010, the five-year term of the Independent Memb

er of the PDS Management Committee Robert

Neilson expired, and PTSC’s Directors (not TPL)

refused to reengage his services on the

financial basis he was proposing. The Independent Member position has remained vacant ever

since with no effort by PTSC Directors to ex

ercise their right under Article 4 of the PDS

Operating Agreement to cause the appointment of an Independent Member by employing an

Arbitrator to make the selection.

38. PTSC’s apparent motivation in seeking

appointment of a third board member was

disclosed in its 2013 10Q Statement, which TP

L discussed in its Response to Objection:

Third, the reason that TPL proposed in th

e Plan that the seat would revert

to Mr. Leckrone in the event of a ca

pital call is compelling: PTSC has an

unwaivable conflict of interest with

respect to PDS, and should the OCC

be incapable of or unwilling to prot

ect the MMP Proceeds

directed to the

Creditor Trust by voting against cap

ital calls for the benefit of

all

creditors

in the estate, including those not in

Class 6A, Mr. Leckrone is duty-bound

to step in to ensure this key asset of the estate is maintained and protected.

Were a capital call made that TPL could not meet, which might well be

the case since its free cash is devoted

under the Plan to pay creditors, TPL

would lose its controllin

g interest in the MMP Portfolio. PDS has stated

this to be the case in its Octobe

r 15, 2013 10Q Statement filed with the

Securities and Exchange Commission:

On March 20, 2013, TPL filed a pe

tition under Chapte

r 11 of the

United States Bankruptcy Code. We have been appointed to the

creditors’ committee and will be closely monitoring the progress in

this matter as it relates to our interest in PDS.

If we provide

funding to PDS that is not reci

procated by TPL, our ownership

percentage in PDS will increa

se and we will have a controlling

financial interest in PDS, in wh

ich case, we will consolidate PDS

in our consolidated financial statements

. If we determine that it is

appropriate to consolidate PDS,

we would measure the assets,

liabilities and noncont

rolling interests of PDS at

their fair values at

the date that we have the contro

lling financial interest (emphasis

added).

Case: 13-51589 Doc# 357 Filed: 01/09/14 Entered: 01/09/14 19:00:11 Page 21 of

OPPOSITION TO MOTION TO APPOINT TRUSTEE

Page 19

TPL Response to Objection, 8:23-9:12.

39. PTSC has the contractual right to seek

appointment of a third board member but

has elected not to act. Mr. Leckrone’s refusal

to agree to appoint a boa

rd member of PTSC’s

choosing and support PTSC’s desire to take contro

l over the MMP Portfolio

to the detriment of

this estate cannot be consider

ed a conflict in this bankrupt

cy case, much less cause for

appointment of a trustee.

c. Insider Salaries

40. Finally, the OCC asserts

that the payment of ”unconscionable” salaries to insiders

is a conflict of interest in light of asserted

post-petition losses in ex

cess of $2 million. As was

argued above, TPL contends that it does not

pay management or ot

her employees either

“outlandish” or “unconscionable” salaries, a

nd no evidence has been submitted to prove

otherwise.

41. The OCC offers no authority that a de

btor develops a “conflict” when it pays

salaries and operating expenses

during a period when post-filing ope

rations are not profitable in

any particular month or months. From the outse

t, TPL has acknowledged that its income stream

is “lumpy” as it depends upon the sale of license

s and settlement with

litigation defendants

whose activity is often timed to

court hearings, panel rulings, a

nd trials. In addition, TPL has

emphasized the negative effect on revenues the Ch

apter 11 case has caused. TPL’s management

and employees have taken the burden of the lu

mpy income stream upon themselves by agreeing

to receive minimum wage payrolls when cash

is short, extending the

practice employed since

long before this case was filed. Beyond that, Mr

. Leckrone, Ms. Neal, and Ms. Anhalt have

already agreed to a reduc

tion of salaries by 10%.

Case: 13-51589 Doc# 357 Filed: 01/09/14 Entered: 01/09/14 19:00:11 Page 22 of

OPPOSITION TO MOTION TO APPOINT TRUSTEE

Page 20

42. As was disclosed to the Court at th

e last hearing, and

as set forth in the

accompanying Declaration of Dwayne Hannah, TPL is

getting back on track with its original

cash collateral projections for revenues create

d at the outset of this case and exceeded the

projections for November/December period. Contra

ry to the allegations of the OCC, TPL has

not lost more than $2 million from operations

. The net loss is only $1.1 million and, excluding

professional fees (a total of $2.2 million has been

expensed through December), operations alone

are profitable despite the stigma and damper to settlement caused by the bankruptcy filing.

Alleged Incidents Between Principal and OCC Members

43. The OCC refers in the Motion (at 9:10-

18) to discussions th

at Mr. Leckrone had

with Ms. Felcyn and Mr. Johnson that are recalled

rather differently by Mr. Leckrone. Over the

course of various conversations regarding

PDS Management Committee operations in which

PTSC Director Felcyn has actively participate

d, the adverse impact of the pendency of TPL’s

bankruptcy on the MMP Licensing Program was of

ten discussed. Mr. Leckrone urged the

importance of streamlining the process and a

voiding distractions and issues which would

embolden infringers, damage the MMP Licensi

ng Program, and consume precious resources,

including specifically the airing of the scores

of various PTSC/TPL di

sputes which Director

Felcyn was urging be pursued, incl

uding whatever TPL claims might

exist with respect to the

PDS bank transaction that may have been mani

pulated by PTSC Direct

or Johnson, as well as

trading irregularities by Director

Felcyn with respect to PTSC st

ock based on inside information.

The characterization thereof as

“threats” to PTSC Directors J

ohnson and Felcyn is not correct

inasmuch as the assessment of risk given was a

nd remains factual. No

thing said between PDS

Board members regarding legal risks being cause

d by the actions of PTSC Directors s should

serve as cause for appointment of

a trustee in this bankruptcy case.

Case: 13-51589 Doc# 357 Filed: 01/09/14 Entered: 01/09/14 19:00:11 Page 23 of

OPPOSITION TO MOTION TO APPOINT TRUSTEE

Page 21

Committee Frustration

44. While the content of settlement negotiations between the OCC and TPL are

confidential, the oft-repeated assertion that it was

TPL that moved the goalposts in this case is far

from true. TPL could produce to the Court a ta

ble that it maintained and shared with the

members of a settlement subcomm

ittee of the OCC with the essentia

l points necessary to achieve

a consensual plan in this case. This table cont

ained the results of months of negotiations. The

evolution of this table is inst

ructive in that it shows that it

was the OCC that backtracked on

agreed positions in this case, time and again. Th

e OCC flatly contends th

at it has the “superior

position” in this case and that TPL should accede to

its will on all points, which apparently led

the OCC to believe that it could not only take

any position it desired but could change any point

to which it had already agreed. It was this

attitude and pattern that, employed by the OCC

throughout the B.D.R.P. process, resulted in an in

ability to settle and led the parties to have

competing plans about to go out to vote.

45. TPL objects to the charac

terization that it has prosecu

ted this Chapter 11 case for

the past 10 months to allow insi

ders to “pillage” th

e estate (Motion, 9:26-27). TPL prepared

cash collateral budgets to which the OCC cons

ented (with the exception of the December 4

final hearing). TPL was prepared to file a plan

in July, 2013, and delayed

doing so at the request

of the OCC in the hope that a joint plan could be

negotiated, so it can hard

ly be said to be the

author of delay. TPL has paid its management

and employees their contra

ctual salaries, without

any incentive compensation. TPL has paid Alliac

ense only the amounts to which its continued

services under the Amended Services Agreem

ent entitle it and Bankruptcy Code section 365

require it be paid.

Case: 13-51589 Doc# 357 Filed: 01/09/14 Entered: 01/09/14 19:00:11 Page 24 of

OPPOSITION TO MOTION TO APPOINT TRUSTEE

Page 22

46. The OCC apparently believes that op

erating post-petition for 10 months without

setting aside the 20% of gross proceeds it

demanded is “outrageous” and justifies the

appointment of a trustee. No case authority was

offered to support this assertion, of course. The

simple truth is that the demand simply coul

d not be met as it would have left no funds

whatsoever to pay the salary of even one em

ployee at TPL. As Mr. Hannah explains in his

accompanying declaration, the demand by the OCC,

representative of the general unsecured

creditors in this case, for 20% of gross proceeds of

every settlement, disregards (1) the fact that

the proceeds are the cash collateral of two secure

d creditors and, (2) the

rights of contingency

counsel to their fees and costs

before any funds are paid to TPL. When the 20% of gross

demanded is subtracted from the $4 million in settlement proceeds which the OCC disregarded

per the Settlement Procedures, and adequate prot

ection and contingency fees and costs are then

calculated and subtracted from the remaining proceed

s, TPL is left with an inability to pay its

own employees and expenses and the authorized pa

yments. With operational costs authorized at

roughly $300,000 per month (including patent pros

ecution and maintenance), TPL could have

been left with no choice but to

cease operating and, in so doing, gr

eatly decrease the value of its

Portfolios other than MMP.

D. Appointment Of A Trustee Is Not In

The Best Interests Of The Estate Under

Bankruptcy Code Section 1104(a)(2).

47. The OCC quoted but did not argue for (or

cite a case regarding) appointment of a

trustee under Bankruptcy Code section 1104(a)(2).

TPL’s research reveals the factors a court

should evaluate when considering appointment

of a trustee under

section 1104(a)(2): \

Section 1104(a)(2), contrary to subsection

(a)(1) where appointment of a trustee is

mandatory upon specific finding of cause,

“envisions a flexible standard ....

giv[ing] discretion to appoin

t a trustee ‘when to do so

would serve the parties' and

estate's interests.’ ”

Marvel Entm't Grp., Inc.,

140 F.3d 463, 474 (3d Cir. 1989)

Case: 13-51589 Doc# 357 Filed: 01/09/14 Entered: 01/09/14 19:00:11 Page 25 of

OPPOSITION TO MOTION TO APPOINT TRUSTEE

Page 23

(citation omitted);

1031 Tax Group,

374 B.R. at 91 (stating that “§ 1104(a)(2)

reflects ‘the practical reality that

a trustee is needed.’ ” (quoting

In re V. Savino

Oil & Heating Co.,

99 B.R. 518, 527 n.11 (Bankr.E.D.N.Y. 1989))). Under §

1104(a)(2), the court utilizes a cost/benef

it analysis and general principles of

equity to determine whether appointment of

trustee is in the best interests of the

estate and all the constituents involved. 11 U.S.C. § 1104(a)(2);

see

Collier on

Bankruptcy

¶ 1104.02[3][d][ii] (summarizing the

cost/benefit an

alysis under §

1104(a)(2)). In balancing these anticipated

benefits and accompanying costs, the

following factors are given c

onsideration: “(1) the trus

tworthiness of the debtor;

(2) the debtor's past and present performa

nce and prospects for rehabilitation; (3)

whether the business community and creditor

s of the estate have confidence in the

debtor; and (4) whether the be

nefits outweigh the costs.”

LHC,

2013 WL

3760109, at *9 (citation omitted);

see

Sundale,

400 B.R. at 909 (“Loss of

confidence, or extreme acrimony[ ] ... consti

tute elements relevant to the decision

of whether it is in the best interest

s of creditors and ot

hers under section

1104(a)(2) to appoint a trustee.” (citations omitted)).

In re Bergeron

, __ WL __, 2013 WL 5874571 at *9

(Bkrtcy.E.D.N.C., 2013).

48. TPL suggests that the Court apply the f

actors as follows: first, inasmuch as TPL

has not violated the Settlement Procedures

Order, and no other challenge to TPL’s

trustworthiness has been brought,

the Court should find that factor

one runs agai

nst appointing a

trustee. Since TPL has operating according to

both income and expense projections over the

course of this case and plans are about to be so

licited that will, upon conf

irmation, be subject to

proof of feasibility under Bankruptcy

Code section 1129(a)(11), this i

ssue is better left to proof

at the anticipated confirmation tria

l, factor two runs ag

ainst appointing a trust

ee or is neutral.

Third, TPL expects once it files this Opposition th

at numerous creditors a

nd professionals will

join and oppose appointment of a trustee only w

eeks before plans can go out to vote, so this

factor is likely to run against a

ppointing a trustee as well. Finall

y, it is impossible to say that the

benefits of a trustee’s appointme

nt outweighs the costs; the OCC

neglected to address the point,

and the Court should find that f

actor four runs against appointi

ng a trustee. As TPL suggested

above, the damage that a trustee could do to the

business and Portfolios in the weeks up to voting

and confirmation more likely outweigh any pot

ential benefit.

Case: 13-51589 Doc# 357 Filed: 01/09/14 Entered: 01/09/14 19:00:11 Page 26 of

OPPOSITION TO MOTION TO APPOINT TRUSTEE

Page 24

III.

CONCLUSION

49. TPL has performed well in the case to da

te. It has generated settlements, paid its

secured creditors and professionals

as ordered by the Court, and ma

naged to get to the point of

soliciting a plan. Creditors will shortly have a ch

oice: do they prefer what the OCC offers in its

plan, including removal of TPL management, or

does TPL’s proposal to turn over the MMP

Portfolio proceeds to the OCC to collect and manage

as they fit until paid, along with a share of

TPL’s remaining Portfolios? Only voting will al

low the Court and parties

to know. Inasmuch as

TPL has not violated any court or

ders, and the cash from all settlements is exactly where it

should be, there is no reason to appoint a trus

tee, replace management, and disrupt TPL’s

business operations and risk further th

e estate’s prospects for 2014 income.

Dated: January 9, 2014

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