MORRISON & FOERSTER LLP 1290 Avenue of the Americas New York, New York 10104 Telephone: (212)

468-8000 Facsimile: (212) 468-7900 Brett H. Miller Lorenzo Marinuzzi Jordan A. Wishnew Proposed Attorneys for the Official Committee of Unsecured Creditors of Innkeepers USA Trust, et al. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re Innkeepers USA Trust, et al., Debtors. ) ) ) ) ) ) ) Chapter 11 10-13800 (SCC) Jointly Administered

OBJECTION OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS TO THE MOTION OF THE AD HOC COMMITTEE OF PREFERRED SHAREHOLDERS FOR AN ORDER DIRECTING THE APPOINTMENT OF AN EXAMINER PURSUANT TO SECTION 1104(c)(1)-(2) OF THE BANKRUPTCY CODE The Official Committee of Unsecured Creditors (the Committee) of Innkeepers USA Trust (Innkeepers) and certain of its direct and indirect subsidiaries in the above-captioned chapter 11 cases, as debtors and debtors in possession (collectively, the Debtors), by its proposed counsel, Morrison & Foerster LLP, hereby submits this objection to the Motion of the Ad Hoc Committee of Preferred Shareholders (the Equity Holders) for an Order Directing the Appointment of an Examiner Pursuant to 11 U.S.C. 1104(c)(1)-(2) (the Examiner Motion). In support thereof, the Committee respectfully represents and alleges as follows: PRELIMINARY STATEMENT On August 11, 2010, the Equity Holders filed a motion, pursuant to 11 U.S.C. 1104(c), seeking the appointment of an examiner to pursue an expedition into the Debtors affairs in the

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hopes that the examiner unearths information that substantiates the Equity Holders allegations in the instant motion. The Equity Holders speculate that, before filing for bankruptcy, the Debtors and Apollo Investment Corp. (Apollo), the Debtors ultimate common equity owner, engineered a transaction designed to place all equity of the reorganized Innkeepers in the hands of Apollo and a chosen creditor, Lehman ALI Inc. (Lehman), while wrongfully extinguishing the interests of the preferred shareholders. See Examiner Motion at 1. Therefore, the Equity Holders contend that an independent examiner is needed to uncover the tricks and shenanigans that Innkeepers and Apollo have engaged in to extinguish other parties in interest. See Examiner Motion at 7. Unfortunately, the Equity Holders fail to satisfy either of the statutory predicates in section 1104(c) of the Bankruptcy Code, and are not entitled to the requested relief. First, the appointment of an examiner is not in the interest of the general body of creditors or these estates because it will (i) unnecessarily replicate the efforts being undertaken by the Committee as well as other parties-in-interest, (ii) interfere with and possibly delay the Debtors chapter 11 process, and (iii) add on incremental layers of expense that the estates can ill afford. Second, the Equity Holders do not establish by clear and convincing evidence that the Debtors fixed, liquidated, unsecured debts exceed $5,000,000. Accordingly, the Court should deny the Equity Holders request in its entirety. However, if the Court is inclined to grant the Equity Holders request, then it is in the best interests of the Debtors estates and their creditors to (i) narrowly define the scope of the examination in order to avoid duplicative work, excessive costs and delay, (ii) require (if the Court authorizes the Debtors to assume their Plan Support Agreement (discussed below)) that the examination be completed reasonably in advance of any scheduled hearing on the Debtors Disclosure Statement

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so as to avoid delay to the Debtors reorganization efforts, and (iii) preserve the estates assets by limiting the examiners fees and expenses. BACKGROUND A. The Chapter 11 Cases 1. On July 19, 2010 (the Petition Date), each of the Debtors filed with the Court a

voluntary petition for relief under chapter 11 of the Bankruptcy Code, commencing the above captioned chapter 11 cases. 2. Pursuant to an order of this Court dated July 20, 2010, the Debtors chapter 11

cases are being jointly administered. 3. The Debtors continue to operate their businesses and manage their properties as

debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 4. On July 28, 2010, the United States Trustee for the Southern District of New York

(the United States Trustee) appointed the five (5) member Committee pursuant to section 1102(a)(1) of the Bankruptcy Code. On that same date, the Committee selected Morrison & Foerster to serve as its counsel. 5. On July 30, 2010, the Committee met and selected Jefferies & Company, Inc.

(Jefferies) as financial advisor and investment banker to the Committee. 6. Since the appointment of the Committee, its professionals have been working

continuously with the Debtors and their professionals to better understand the Debtors day-today operations and the events that precipitated this bankruptcy filing. These ongoing diligence efforts include reviewing the Debtors financial records, examining prepetition secured credit facilities, examining the Debtors prepetition financial transactions, including publicly filed documents concerning the 2007 acquisition by Apollo, and understanding the details of the Plan Support Agreement between the Debtors and Lehman (the PSA). Moreover, the Committees 3
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professionals have been in contact with advisors for other parties-in-interest to discuss these same issues. 7. On August 17, 2010, the Committee filed a motion pursuant to Federal Rule 2004

of the Federal Rules of Bankruptcy Procedure to examine the 2007 transaction as well as the liens and claims of Debtors secured lenders. B. The Equity Holders 8. On July 28, 2010, the Equity Holders sent the United States Trustee a letter

requesting the appointment of an official committee of equity security holders (the July 28 Request). 9. On August 10, 2010, the Debtors and the Committee each provided the United

States Trustee with their respective responses to the July 28 Request strongly urging the United States Trustees denial of the Equity Holders request because the appointment of an official equity committee is unjustified and will only serve to delay administration of the Debtors cases and increase costs. 10. Subsequently, on August 11, 2010, the Equity Holders filed the Examiner Motion

requesting the appointment of an examiner to conduct an investigation of the Debtors, Apollo and their respective directors and senior officers, in respect of a laundry list of issues: (a) Prepetition acts and omissions from and after July 1, 2009 in respect of the Debtors officers and directors, and the officers and directors of the Debtors other direct and indirect subsidiaries impacting their respective fiduciary duties of care, loyalty, and good faith to preferred shareholders; Postpetition acts and omissions from and after the Petition Date in respect of Innkeepers officers and directors, and the officers and directors of Innkeepers other direct and indirect subsidiaries impacting their respective fiduciary duties of care, loyalty, and good faith to preferred shareholders; Whether Apollo caused Innkeepers to take any steps to advantage Apollo at the expense of other creditors and preferred shareholders; 4
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(b)

(c)

(d) (e)

The communications and negotiations that led to the Debtors proposed PSA; Whether and how Innkeepers and Apollo created self-imposed emergencies by causing properties not encumbered by Lehmans mortgage to default unnecessarily; The purpose and necessity of DIP financing on all the hotels, especially the DIP collateralized by the equity of the Residence Inn San Diego and the Residence Inn Tysons; Exploration of Innkeepers franchising relationship with Marriott, and whether Innkeepers entered into franchise agreements with Marriott merely to fulfill a guarantee by Apollo; Whether Apollos 2007 purchase of Innkeepers constitutes a fraudulent conveyance; The nature and extent of the relationships between Lehman and Apollo; How value can be maximized for preferred shareholders and unsecured claimholders; and Valuation of Debtors, including, but not limited to, the March 31, 2010 valuation referenced in Apollos Form 10-K filed on May 26, 2010, and any valuation of the Debtors that Lehman may have performed in connection with its own chapter 11 cases.

(f)

(g)

(h) (i) (j) (k)

11.

Notwithstanding the filing of the Examiner Motion, on August 11, 2010, the

Equity Holders sent a second letter to the United States Trustee, supplementing their earlier request for the appointment of an official committee of equity security holders (the August 11 Request). 12. On August 17, 2010, both the Debtors and the Committee sent the United States

Trustee their respective responses to the August 11 Request to express the continuing view that an official equity committee should not be appointed in the Debtors cases. 13. The Equity Holders wrote the United States Trustee yet again on August 19, 2010

in support of their position (the August 19 Request, and together with the July 28 Request and

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the August 11 Request, the Requests). The Debtors and the Committee each responded in writing on August 23, 2010. 14. As of the date of this Objection, the United States Trustee has not yet replied to

the Equity Holders Requests. ARGUMENT 15. Section 1104(c) of the Bankruptcy Code provides that: If the court does not order the appointment of a trustee under this section, then at any time before the confirmation of a plan, on request of a party in interest or the United States trustee, and after notice and a hearing, the court shall order the appointment of an examiner to conduct such an investigation of the debtor as is appropriate, including an investigation of any allegations of fraud, dishonesty, incompetence, misconduct, mismanagement, or irregularity in the management of the affairs of the debtor of or by current or former management of the debtor, if (1) such appointment is in the interests of creditors, any equity security holders, and other interests of the estate; or the debtors fixed, liquidated, unsecured debts, other than debts for goods, services, or taxes, or owing to an insider, exceed $5,000,000.

(2)

11 U.S.C. 1104(c). A. The Equity Holders Have Not Shown That An Examiner Is In The Interests Of Creditors, Equity Holders And The Estate 16. A party seeking the appointment of an examiner must show that an examiner is in

the interest of all parties with a stake in the debtors estate; it is not sufficient to merely show that the appointment is in the interest of the moving party. See In re Sletteland, 260 B.R. 657, 672 (Bankr. S.D.N.Y. 2001) ([A] creditor group, no matter how dominant, cannot justify the appointment of a trustee or examiner simply by alleging that it would be in its interests. It must show that the appointment is in the interests of all those with a stake in the estate . . . .). 17. For example, in Sletteland, the Bankruptcy Court for the Southern District of New

York (the Sletteland Court) denied a shareholder groups motion for appointment of an

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examiner where, since the time in which the motion was filed, the group was appointed as a creditors committee and had served discovery on the debtor. See Sletteland, 260 B.R. at 672. The Sletteland Court explained that these circumstances make it particularly inappropriate to impose on the estate . . . the sizable cost of a trustee or examiner because it would appear that the committee can appropriately perform any necessary investigation. Id. 18. Here, the Examiner Motion is nothing more than the Equity Holders attempt to

have its issues and interests formally addressed by the Bankruptcy Court at the expense of the Debtors estates. Indeed, after reading the Requests and the Examiner Motion, it is readily apparent that the Equity Holders (i) have converted the Requests into the Examiner Motion and (ii) seek to use the section 1104(c) examination procedure to accomplish what they have not yet been able to achieve in connection with their Requestsnamely, force the estates to bear the expense of pursuing issues that would more appropriately be addressed in the form of plan objections by the Equity Holders and other parties-in-interest. 19. In addition, the investigation sought by way of the Examiner Motion with respect

to the Debtors Plan of Reorganization (Plan) and the PSA would be redundant of the efforts already being pursued by the Committee and Midland Loan Services, Inc. (Midland), a secured creditor of the Debtors. Indeed, Midland, the Debtors, Apollo and Lehman have already begun the process of discovery in connection with Midlands challenge to the Debtors motion to assume the PSA. 20. As noted in the Examiner Motion, it was Midland that first voiced concerns

regarding the Plan and the PSA and advised the Court and the parties-in-interest of the restructuring arrangement between Lehman and Apollo, which may result in Apollos acquisition

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of half of the reorganized Innkeeperss equity from Lehman.1 Specifically, the issues voiced by Midland, which mirror the issues of the Equity Holders in the Examiner Motion, include, without limitation, the concern that: (i) the cash collateral will be used in furtherance of a plan that would result in Apollos retention or receipt of equity in the newly reorganized debtors, see Midland Objection at 2(d); (ii) [u]nder the PSA, Lehman has agreed to support a plan in which Apollo . . . will receive 50% of the reorganized Debtors equity in what amounts to a new value plan with every other creditor taking a massive haircut, see Midland Objection at 15; and (iii) certain of the debtor-in-possession financing will be used to create a windfall of value appreciation to be reaped by Lehman and Apollo, see Midland Objection at 18. 21. Since that time, Midland has been in the process of conducting discovery in the

form of depositions and document review regarding the propriety of the Debtors assumption of the PSA. The Examiner Motion fails to provide any reason why the Equity Holders interests will not be pursued adequately by the actions of Midland, particularly in light of the fact that, at the August 12, 2010 omnibus hearing, the Equity Holders were invited to join in the ongoing discovery in connection with the contested motion relating to the PSA. Thus, there is no need to bring in a third party that is unfamiliar with the facts and issues in the Debtors cases to conduct a duplicative investigation and thereby burden the Debtors estates with unnecessary expenses. 22. In addition, the Equity Holders also seek examination with respect to whether

Apollos 2007 purchase of Innkeepers constitutes a fraudulent conveyance. However, the Committee has already begun an investigation into this matter. See Motion of the Official
1

See Examiner Motion at 14; see also Midland Loan Services, Inc.s, Special Servicer For The Fixed Rate Trustee, Objection To (1) The Motion (A) Authorizing The Debtors To (i) Use The Adequate Protection Parties Cash Collateral And (ii) Providing Adequate Protection Pursuant To 11 U.S.C. Sections 361, 362, And 363 And (B) Scheduling A Final Hearing Pursuant To Bankruptcy Rule 4001(b) And (2) Motion For Entry Of An Order Authorizing The Continued Use Of (I) Existing Cash Management System, As Modified Herein, (II) Existing Bank Accounts, (III) Existing Business Forms, And (IV) Certain Existing Investment Guidelines [Docket No. 36] (the Midland Objection) at 8.

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Committee of Unsecured Creditors of Innkeepers USA Trust, et al. for an Order Permitting the Committee to Conduct Rule 2004 Discovery of Innkeepers USA Trust et al. and Other Parties [Docket No. 222]. Specifically, the Committee has begun reviewing relevant documents and has provided parties-in-interest with advanced notice of its intent to examine the merits of that transaction and seek discovery from those parties. The Equity Holders can show no reason why their interests will not be pursued adequately by the actions of the Committee. 23. Furthermore, an examination of such great breadth is likely to delay the Debtors

chapter 11 process, cause the estates to bear the cost of an overbroad, speculative and unnecessarily burdensome examination, and consequently delay the confirmation of the Debtors Plan. 24. According to the timeline provided in the PSA, (i) an order authorizing the

assumption of the PSA is to be entered no later than forty-five (45) days after the Petition Date, (ii) a disclosure statement is to be approved by the Court no later than 120 days after the Petition Date, (iii) an order confirming a plan must be entered by the Court no later than 240 days after the Petition Date, and (iv) the effective date of the Plan must occur no later than 270 days after the Petition Date. See Debtors Motion For An Order (A) Authorizing The Debtors To Assume The Plan Support Agreement And (B) Granting Related Relief [Docket No. 15] at 11. Given the broad scope of issues proposed by the Equity Holders and the time for an examiner to be appointed, retain professionals, and begin its investigation, there is a significant risk that the appointment of an examiner will delay the Debtors proposed timeline and create an event of default under the PSA. 25. Also, the appointment of an examiner may trigger events of default or termination

events under the Debtors proposed financing agreements thereby jeopardizing the Debtors

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financing sources. See Proposed Final Order Authorizing the Debtors to (i) Use the Adequate Protection Parties Cash Collateral and (ii) Provide Adequate Protection to the Adequate Protection Parties Pursuant to 11 U.S.C. 361, 362, and 363, [Docket No. __] at 10(a)(xv) (providing as a termination event the appointment of a trustee or an examiner with expanded powers pursuant to section 1104 of the Bankruptcy Code in any of the Chapter 11 Cases); Proposed Senior Secured Super Priority Debtor-in-Possession Loan Agreement with Solar Finance Inc. [Docket No. 200, Exhibit B] at 8.1(a)(v)(D) (indicating that the appointment of . . . an examiner in the Chapter 11 Cases with expanded powers is an event of default); Proposed Senior Secured Super-Priority Debtor-in-Possession Credit Agreement with Five Mile Capital Partners [Docket No. 201, Exhibit B] at 6.01(g)(iii) (providing as an event of default the appointment of an examiner with enlarged powers). 26. The Committee acknowledges that the PSA has not yet been approved and that

the terms and timeline of the PSA are not set in stone; nonetheless, the Committee is concerned that the appointment of an examiner will disrupt the progress that has been made thus far in the Debtors restructuring. 27. Therefore, in light of the potential duplication of efforts, the additional cost and

expense, and the possible disruption of the contemplated timeline of the Debtors restructuring, this Court should deny the Examiner Motion, because it is not in the interest of the entire body of creditors and these estates. B. The Equity Holders Have Not Met The Threshold Showing For 1104(c)(2) 28. A party seeking the appointment of an examiner must establish, through clear and

convincing evidence, that the requirements of section 1104(c) are met. See H.R. Rep. No. 95595, 95th Cong., 1st Sess. 402 (1977) (The standards for the appointment of an examiner are the same as those for the appointment of a trustee: the protection must be needed, and the costs and 10
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expenses must not be disproportionately high.); see also In re WorldCom, Inc., No. 02-13533, 2003 Bankr. LEXIS 2192, at *16 (Bankr. S.D.N.Y. May 16, 2003) (The party seeking appointment of the trustee has the burden of showing, by clear and convincing evidence, cause under section 1104(a)(1) or the need for a trustee under section 1104(a)(2).); In re Table Talk, Inc., 22 B.R. 706, 710-11 (Bankr. D. Mass. 1982) (noting that [t]he standards the court applies for the appointment of an examiner are the same as those applied for the appointment of a trustee, namely, that the protection must be needed, and the costs and expenses must not be disproportionately high and that the appointment of an examiner should be limited to cases [where] there is sufficient evidence to provide a factual basis for . . . such relief) (citations omitted). 29. The burden of clear and convincing evidence has been described as requiring

factual contentions that are highly probable and evidence which does not leave the issue in doubt. Schneiderman v. United States, 320 U.S. 118, 135 (1943); Colorado v. New Mexico, 467 U.S. 310, 316 (1984) (requiring the movant, under the clear and convincing standard, to place in the ultimate factfinder an abiding conviction that the truth of its factual contentions are highly probable); see also Levin v. Tiber Holding Corp., 277 F.3d 243, 250 (2d Cir. 2002) (In the context of civil contempt, the clear and convincing standard requires a quantum of proof adequate to demonstrate a reasonable certainty that a violation occurred.) 30. The Equity Holders acknowledge that the appointment of an examiner is

appropriate where the standards set forth in section 1104(c)(2) are met. See Examiner Motion at 31. However, the Equity Holders fail to provide clear and convincing evidence that these standards are satisfied in the Debtors cases.

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31.

Specifically, with respect to the requirement that a debtors fixed, liquidated,

unsecured debts exceed $5,000,000, the Equity Holders merely assert that [g]iven the small amount of trade debt and the Debtors assertion that there is no value for shareholders, it is reasonable to assume that the Debtors calculations show purported deficiency claims in excess of $5 million. Examiner Motion at 31 (emphasis added). 32. Simply proffering an assumption does not amount to clear and convincing

evidence that the $5,000,000 requirement under section 1104(c)(2) is met because the Equity Holders assumption does not provide sufficient weight such that the issue is no longer in doubt, nor does it establish a high probability that the Debtors fixed, liquidated, unsecured debts exceed $5,000,000. 33. Moreover, the Equity Holders fail to recognize that any deficiency claims are not

liquidated at this time and thus, should not be counted for purposes of satisfying the elements of section 1104(c)(2) of the Bankruptcy Code. See In re Sneijder, 407 B.R. 46, 53 (Bankr. S.D.N.Y. 2009) (indicating that the amount of a deficiency claims is not known until after the collateral has been surrendered and valued); In re Planes, Inc., 48 B.R. 698, 703 (Bankr. N.D. Ga. 1985) (recognizing that deficiency claims are contingent, unliquidated claims). 34. Therefore, the Equity Holders can not rely on section 1104(c)(2) as a basis for

granting the Examiner Motion because the Equity Holders have failed to prove that the Debtors fixed, liquidated, unsecured debts exceed $5,000,000. C. The Proposed Examiner Will Interfere With The Debtors Plan Process 35. Even if the Court finds that the Equity Holders satisfy section 1104(c)(2) of the

Bankruptcy Code, this section should not be used as a mechanism for deliberate interference in a debtors chapter 11 case. See Alan N. Resnick & Henry J. Sommer, 15 Collier on Bankruptcy 1l04.03[2][b] (15th rev. ed. 2006), citing 124 Cong. Rec. H11,103 (daily ed. Sept. 28, 1978) 12
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([T]he mandatory nature of [section 1l04(c)(2)] was not intended and should not be relied on to permit blatant interference with the chapter 11 case or the plan confirmation process.). Moreover, [w]hile the statute states that the court may appoint an examiner any time before the plan is confirmed, a creditor cannot use [section 1l04(c)(2)] to disrupt the proceedings. In re Schepps Food Stores, Inc., 148 B.R. 27, 30 (S.D. Tex. 1992) (citations omitted). 36. The Committee notes that in Loral Stockholders Protective Committee v. Loral

Space & Communications Ltd. (In re Loral Space & Communications, Ltd.), No. 03-41710, 2004 U.S. Dist. LEXIS 25681, at *15-16 (S.D.N.Y. Dec. 23, 2004), the District Court for the Southern District of New York held that the Bankruptcy Court had no discretion to deny appointment of an examiner where . . . the $5,000,000 debt threshold is met and shareholders of a public company have moved for appointment of an examiner. However, the Committee further notes that the Loral decision is unpublished and has not been subsequently followed in any other published decisions in this District. Therefore, this Court should view the Loral decision as having little precedential value, particularly in light of the fact that, if followed, the Loral decision would have the unintended consequence of adding unnecessary layers of expense in every chapter 11 case that meets the $5,000,000 threshold set forth in section 1104(c)(2) of the Bankruptcy Code. 37. In contrast, other courts consider the motivations behind applications to appoint

an examiner and have rejected applications seen as tactical or redundant. For example, in Schepps, six weeks before the confirmation hearing, the movant requested the appointment of an examiner based on the need to investigate alleged bad faith by the debtors management. See 148 B.R. at 28. Prior to the filing of the examiner motion, the debtor had filed three separate plans of reorganization over a two-and-a-half month period. Id. at 28. The movant questioned

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the debtors good faith and asserted that differences between the plans demonstrated that the earlier plans were based on misrepresented facts, and it also asserted that the current plan entrenched management. Id. In fact, the issue raised by the movant was a pre-existing issue that was raised nearly three (3) months earlier. Based on the fact that the allegations were primarily about the structure of the plan, rather than fraudulent and dishonest operations by the debtor . . . . the court noted that there was ample support in the record to conclude that the movants interest in the appointment of an independent examiner was merely a tactic to prevent confirmation, rather than to investigate bad faith allegations. Id. at 31. Therefore, given the untimeliness, the apparent redundancy of the issue to be investigated, and concerns about the movants motives, the court denied the section 1104(c)(2) request. 38. In order to justify its request for the appointment of an examiner, the Equity

Holders proffer a variety of speculative statements, see paragraphs 12-20 of the Examiner Motion, and ask the Court to conclude that these statements support the Equity Holders hypothesis that the Debtors have engineered a bankruptcy to allow Apollo to retain equity interest in the reorganized Debtors without complying with basic bankruptcy tenets.2 However, the Equity Holders rely on unsupported and misguided information, and fail to establish that the
2

Examples of these speculative statements include, without limitation: The Ad Hoc Committee believes that an examination will reveal that [certain] hotels were forced to cease making interest payments on their CMBS loans precisely to make them delinquent so as to enable the Company to transfer the loans to a special servicer. This falsely creates the impression that there is no equity value for preferred shareholders. Examiner Motion at 13. [A]long with the Debtors failure to disclose, Apollo is causing its captive, Innkeepers, to file a proposed plan without the requirement of an auction or termination of the Debtors exclusive periods, which plan favors Apollo. While the Debtors are technically proposing the plan, in actuality, without any termination of exclusivity, it is really Apollo that is proposing the plan that only benefits Apollo. Examiner Motion at 16. [W]hile Apollo and a select few key constituents will greatly benefit by the Debtors planned short stay in this Court, other creditors and equity holders will lose all their rights without any of the safeguards required by Courts and the Bankruptcy Code. Examiner Motion at 18. [T]here is strong evidence suggesting that certain of the Debtors and non-debtor affiliates have equity value, or put another way, the Debtors estimates regarding value are suspect. Examiner Motion at 20.

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Debtors have any net equity value. In fact, it would appear that even if any of the Debtors have net equity value, that value will be available to the Equity Holders only after it has first been channeled up the corporate structure and used to satisfy outstanding mezzanine debt and unsecured creditors claims. 39. Therefore, like Schepps, the Equity Holders only proffer speculative evidence, not

substantiated objective facts. Thus, the circumstances before the Court suggest that the Examiner Motion is merely a tactic to possibly delay and interfere with the Debtors chapter 11 process in hopes of securing an economic gift from the Debtors. Moreover, as discussed in greater detail above, the Examiner Motion is duplicative of the efforts being undertaken by the Committee as well as other parties-in-interest. Consequently, even if the Court finds that the Equity Holders satisfy section 1104(c)(2) of the Bankruptcy Code, the Court should use its discretion to deny the Examiner Motion. D. If The Court Appoints An Examiner, The Scope Of The Examination Must Be Narrowly Defined 40. If the Court holds that section 1104(c) of the Bankruptcy Code is mandatory, and

if the Court finds that the Equity Holders have demonstrated that the economic threshold is met, and if the Court finds that the Examiner Motion is timely and will not interfere with the plan process, then the Court should use its discretion when granting the relief sought by the Equity Holders. 41. Section 1104(c) of the Bankruptcy Code provides, in pertinent part, that the court

shall order the appointment of an examiner to conduct such an investigation of the debtor as is appropriate . . . . 11 U.S.C. 1104(c) (emphasis added). [T]he bankruptcy court retains broad discretion to direct the examiners investigation, including its nature, extent and duration. Morgenstern v. Revco D.S., Inc. (In re Revco D.S., Inc.), 898 F.2d 498, 501 (6th Cir. 1990).

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42.

The Committee is particularly concerned about preserving the estates assets and

whatever minimal recovery will be available to general unsecured creditors. See 15 Collier on Bankruptcy 1104.03[2][b] ([T]he Court can limit in advance the compensation and expenses to be awarded to the examiner . . . .). 43. Specifically, the Committee notes that the primary focus of the Examiner Motion

is the transaction between the Debtors and Apollo by way of the PSA as well as the possibility that there may be some equity value that the Equity Holders are unfairly being denied. However, the Equity Holders also include, within their laundry list of issues to be addressed by the examiner, whether Apollos 2007 purchase of Innkeepers constitutes a fraudulent conveyance. See p.18 of the Examiner Motion. 44. As previously described above, the Committee already commenced its initial

investigation concerning the 2007 transaction between Apollo and Innkeepers and has provided parties-in-interest with advanced notice of its intent to take discovery from third parties to examine this transaction. In addition, the Committee is in the best position to address this matter because it will be the party to bring any colorable claims that may arise as a result of an investigation into the acquisition. 45. Therefore, given the current procedural posture of the Debtors chapter 11 cases,

the Committee requests that any order approving the Examiner Motion (i) limit the scope of the examination in order to avoid excessive costs and delay as well as duplication of the efforts of the Committee, (ii) require that the examination be completed reasonably in advance of the hearing on the Debtors Disclosure Statement so as to avoid delay to the Debtors reorganization efforts, and (iii) preserve the estates assets by restricting the examiners fees and expenses. The

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Committee submits that by limiting the investigation as noted above it will minimize the disruption to the Debtors reorganization efforts and preserve assets of these estates. CONCLUSION WHEREFORE, the Committee respectfully requests that the Court (i) deny the Examiner Motion in its entirety; or (ii) in the alternative, limit the scope of any order approving the Examiner Motion so as not to duplicate the efforts of the Committee and the Debtors secured creditors; and (iii) grant such other and further relief as is just and proper. Dated: August 23, 2010 New York, New York Respectfully submitted, /s/ Lorenzo Marinuzzi MORRISON & FOERSTER LLP Brett H. Miller Lorenzo Marinuzzi Jordan A. Wishnew 1290 Avenue of the Americas New York, New York 10104 Telephone: (212) 468-8000 Facsimile: (212) 468-7900 Proposed Counsel for the Official Committee of Unsecured Creditors of Innkeepers USA Trust, et al.

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