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Hearing Date: August 2, 2011 at 2:00 pm (prevailing Easter Time) (adjourned from July 21, 2011 at the request

of Five Mile Bidder)

Adam C. Harris SCHULTE ROTH & ZABEL LLP 919 Third Avenue New York, New York 10022 Telephone: (212) 756-2000 Facsimile: (212) 593-5955 Attorneys for Cerberus Capital Management, L.P. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: INNKEEPERS USA TRUST, et al.,1 Debtors. ) ) ) ) ) ) ) Chapter 11 Case No. 10-13800 (SCC) Jointly Administered

SUR-REPLY TO FIVE MILE BIDDERS APPLICATION PURSUANT TO SECTIONS 503(b)(3)(D) AND 503(b)(4) OF THE BANKRUPTCY CODE FOR ALLOWANCE AND PAYMENT OF ADMINISTRATIVE EXPENSE CLAIMS Cerberus Capital Management, L.P. by and through its subsidiary Cerberus Series Four Holdings, LLC (collectively, Cerberus) hereby files this Sur-Reply to the application, dated June 8, 2011 (the Application) of Five Mile Capital Partners LLC and its affiliates (collectively, Five Mile) and Hunt Realty Investments, Inc. and its affiliates (collectively, Hunt and together with Five Mile, the Five Mile Bidder) for allowance and payment of an administrative expense claim in the amount of $718,257.33 pursuant to section 503(b) of the Bankruptcy Code (Code) [Docket No. 1643], and in support thereof respectfully represents as follows:

Capitalized terms used but not defined herein shall have the meaning ascribed to them in the Application, the Findings of Fact, Conclusions of Law, and Order Confirming Debtors Plans of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code, entered June 29, 2011 [Docket No. 1804] (the Confirmation Order), or the Debtors Plans of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code, dated June 29, 2011 [Docket No. 1799] (as the same may have been subsequently modified, supplemented, or otherwise amended from time to time, the Plan), as applicable.
DOC ID-17114016.1

Hearing Date: August 2, 2011 at 2:00 pm (prevailing Easter Time) (adjourned from July 21, 2011 at the request of Five Mile Bidder)

The Reply Filed by Five Mile Bidder Should be Stricken or Disregarded 1. As this Court is aware, the hearing in respect of the Application was initially scheduled to be heard on July 21, 2011. Due to an unfortunate accident resulting in an injury to its lead counsel, the Debtors and Cerberus extended appropriate professional courtesy and acquiesced to Five Mile Bidders request for an adjournment of the hearing. Apparently, professional courtesy only runs in one direction. 2. Using the occasion of its counsels injury and the time afforded by the adjournment, Five Mile Bidder chose to take advantage of Cerberuss and the Debtors professional courtesy, and at 7:00 p.m. on Friday July 29th -- one business day before the hearing -- filed and served a substantial response to the detailed and timely filed objections submitted by Cerberus and the Debtors. See Five Mile Bidders Reply to Objections and in Further Support of Its Application Pursuant to Sections 503(b)(3)(D) and 503(b)(4) of the Bankruptcy Code for Allowance and Payment of Administrative Expense Claim, dated July 29, 2011 [Docket No. 1969] (the Reply). Despite the courtesy shown to counsel for Five Mile Bidder, Five Mile Bidder chose not to inform Cerberus (or, tithe best of Cerberuss knowledge, the Debtors) of its intention to file the Reply. Such conduct is inappropriate, unprofessional and contrary to the Local Rules of this Court, and should not be countenanced. 3. Had Cerberus and the Debtors not been so accommodating, Five Mile Bidder would have been compelled to proceed on the Application on the originally scheduled hearing date, and would not have had the opportunity to file the Reply. The intention of Cerberus in agreeing to the adjournment was simply to accommodate the issues relating the Five Mile Bidders counsel and his injury while maintaining the status quo; not to afford Five Mile Bidder

DOC ID-17114016.1

Hearing Date: August 2, 2011 at 2:00 pm (prevailing Easter Time) (adjourned from July 21, 2011 at the request of Five Mile Bidder)

the opportunity to alter it. This Court should either strike or disregard the Reply, thus restoring the parties to the positions they were in as of the date of the initially scheduled hearing. 4. As a legal matter, the Local Rules of this Court do not provide a movant the opportunity to file reply papers addressing matters raised in objections. Local Rule 9006-1(b) sets the minimum notice period for the filing of motions and answering papers. It does not provide for the filing of reply papers. See Rule 9006-1(b) of the Local Bankruptcy Rules of the United States Bankruptcy Court for the Southern District of New York. 2 As a result, reply papers may only be filed with leave of the Court.3 5. Further, pursuant to this Courts equitable powers embodied in Section 105(a) of the Bankruptcy Code, this Court may properly determine to strike or ignore the Reply. Section 105(a) provides as follows: The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process. 11. U.S.C. 105(a). Use of the Courts powers under section 105(a) to strike or disregard the Reply under the present circumstances -- given Five Mile Bidders clear abuse of the process -would seem particularly appropriate. Five Mile Bidders Right Is Limited to the $3 Million Expense Reimbursement 6. Despite the clear language of the Bidding Procedures Order, Five Mile Bidder now has the audacity to argue that the waiver of any right to seek a substantial contribution claim
In contrast, Rule 9006-1(d) of the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the District of Delaware specifically provides for the filing of reply papers and the timing for such filing.
3 2

While litigants may take liberties and file reply papers without leave, such filings are not in conformity with the Local Rules and this Court has the power to either accept or reject such pleadings.

DOC ID-17114016.1

Hearing Date: August 2, 2011 at 2:00 pm (prevailing Easter Time) (adjourned from July 21, 2011 at the request of Five Mile Bidder)

under section 503(b) of the Bankruptcy Code was only intended to apply to other bidders, but not to them. See Reply, Section III. No only does this argument defy logic, it is wholly inconsistent with the colloquy between counsel for Five Mile Bidder and the Court at the Bid Procedures Hearing. And even if Five Mile Bidder were to prevail on this point, Five Mile Bidder would nonetheless still be limited to its right to receive the $3 million of expense reimbursement provided under the Bidding Procedures Order, and no more. 7. As more fully set forth in the Objection (see Sections I and II), the terms set forth in the Bidding Procedures Order were negotiated by, and ultimately approved by, Five Mile Bidder. Five Mile Bidder knew exactly what was provided for in such Order, and agreed to proceed on those terms. In addition, the terms and what they were intended to mean -particularly on the section 503(b) waiver issue -- were specifically discussed by the Court with counsel for Five Mile Bidder at the Bidding Procedures Hearing. At no time did counsel for Five Mile Bidder ever advise the Court or take the position that the waiver only applied to other bidders, but not Five Mile Bidder -- presumably because Five Mile Bidder did not want to the Court to have concerns that it was being afforded a competitive advantage. In fact, the statements of counsel to Five Mile Bidder at the hearing are completely inconsistent with the argument they are now making that they are not bound by the waiver. See Bidding Procedures Hrg Tr. 29: 20-25 (So it now suggests after having put us through those final paces, and really limited us to the most minimal bidder protections, which is really just this expense reimbursement, it seems to us -- it really seems that it would be .. really unfair to let it go to anyone else.)(emphasis added)(Mar. 11, 2011) . 8. Further, the argument presented by Five Mile Bidder, if accepted by the Court, would have made the conduct of the Fixed/Floating Auction a practical impossibility. Under the

DOC ID-17114016.1

Hearing Date: August 2, 2011 at 2:00 pm (prevailing Easter Time) (adjourned from July 21, 2011 at the request of Five Mile Bidder)

terms of the Bidding Procedures, any Overbid after the Initial Minimum Overbid was required to be at least $5 million higher than the prior Bid. If, as Five Mile Bidder suggests, it retained an ever-present right to seek a 503(b) claim in an undetermined amount, it would have been impossible for the Debtors to ever determine whether the Minimum Overbid Increment had been satisfied. While, as it turns out, Five Mile Bidders request is for approximately $720,000, it could just have easily been for several million dollars. No one at the time knew or could have known. More importantly, however, no one at the time had any idea that they needed to be concerned since all parties (other than Five Mile Bidder, apparently) were operating under the understanding that the right to seek additional reimbursement had been waived. In the absence of comfort that all obligations to Five Mile Bidder had been adequately provided for (which the Initial Minimum Overbid was designed to do relative to the $3 million expense reimbursement), the Debtors could not possibly have ever determined that the Minimum Overbid Increment had been satisfied. 9. Finally, Five Mile Bidders argument that the $3 million expense reimbursement did not constitute a cap is ludicrous, particularly given the context in which agreement was reached providing for that reimbursement. Additionally, the reservation of rights language Five Mile Bidder relies on in the Bid Term Sheet does not support its argument, as it appears pertains to its rights in other capacities, and not as a bidders. (nothing in the Stalking Horse Fee section of the Term Sheet shall limit any rights and remedies at law or in equity that the Plan Sponsors have or may have as creditors of the Company )(emphasis added). 10. Based upon the foregoing the Court should reject Five Mile Bidders afterthe-fact tortured interpretation of the terms of the Bidding Procedures Order.4

Five Mile Bidders reference to Cerberuss subsequent agreement with the Debtors to obtain protections is indeed ironic, as those protections were necessitated by (a) Five Mile Bidders agreement to give the Debtors a perpetual
DOC ID-17114016.1

Hearing Date: August 2, 2011 at 2:00 pm (prevailing Easter Time) (adjourned from July 21, 2011 at the request of Five Mile Bidder)

The Source of Payment Does Matter 11. Five Mile Bidder seeks to summarily dismiss Cerberuss objection based on the argument that the source of payment is not relevant to the Courts inquiry. We respectfully disagree. The parties who benefitted most from the conduct of Five Mile Bidder -- Lehman and the holders of the CMBS securities under the Fixed Rate Loan, which include Five Mile Bidder) are not bearing the burden of this claim, but rather it is being imposed on the party who conferred the substantial incremental value.5 Having already received from Cerberus a vastly superior bid that enhanced the value of the CMBS held by Five Mile Bidder, Five Mile Bidder has now come back for even more. 12. In preparing the terms of its stalking horse bid -- which all other bidders were required to adopt -- Five Mile Bidder agreed that it would pay all administrative expense claims of the Fixed/Floating Debtors not otherwise paid prior to the Effective Date. Knowing that it would be bound by this provision, Cerberus conducted diligence prior to submitting its offer so that it could better understand what the scope of the administrative claims might be, and in that regard was provided with a schedule by the Debtors listing the various categories of claims and anticipated dollar amounts. Given the terms of the Bidding Procedures Order, the $3 million expense reimbursement for Five Mile Bidder was included in that schedule. Not surprisingly, no amount was included for potential 503(b) claims by any other bidder, including Five Mile
and unfettered fiduciary out, and (b) the Debtors subsequent insistence that Cerberus agree to that term. As this Court implicitly recognized in approving the protections, no true third party bidder who has conducted due diligence, participated in good faith in a court-approved auction, and been declared the successful bidder, and whose bid is required to stay open for what could have been as long as six months, would ever agree to allow the Debtors the unfettered right to continue to solicit and potentially accept alternative proposals, and certainly not without providing the bidder with some form of economic compensation. That structure might work for someone like Five Mile Bidder -- who is already heavily invested in the capital structure and hopeful that someone else will come along to improve the value of its existing investments by submitting a higher bid -- but not for a true third party buyer. This fact is no doubt the reason why no objections were filed by Midland, Lehman or the Unsecured Creditors Committee. If any allowed claim were to be paid from their recoveries, they would most certainly have filed oppositions screaming bloody murder.
DOC ID-17114016.1
5

Hearing Date: August 2, 2011 at 2:00 pm (prevailing Easter Time) (adjourned from July 21, 2011 at the request of Five Mile Bidder)

Bidder. Cerberus and its partner fashioned their bidding decisions in reliance on this diligence, including the terms of the Bidding Procedures Order. Five Mile Bidders substantial contribution request, if approved, would thus retroactively result in an increase in the purchase price for reasons not anticipated by, and not disclosed to, Cerberus. That result is inappropriate and inconsistent with the rules set by this Court. WHEREFORE, for the reasons set forth in the Objection and above, Cerberus respectfully requests that the relief requested in the Application be denied.6 Dated: August 1, 2011 New York, New York SCHULTE ROTH & ZABEL LLP

By: __ /s/ Adam C. Harris____ Adam C. Harris 919 Third Avenue New York, New York 10022 Telephone: (212) 756-2000 Facsimile: (212) 593-5955 E-mail: adam.harris@srz.com Attorneys for Cerberus Capital Management, L.P.

Cerberus reserves the right to seek relief from this Court allowing it to reduce the amount payable on account of the expense reimbursement by an amount equal to the reasonable fees and expenses incurred by Cerberus and the Debtors in connection with their opposition to the Application.
DOC ID-17114016.1

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