[00:00:02] Speaker 01:
Okay, can we get an appearance from the Appellant's Council, please?

[00:00:24] Speaker 01:
Yes, good morning.

[00:00:25] Speaker 01:
This is Amy Teary on behalf of the appellants.

[00:00:28] Speaker 03:
Okay, this is Judge Lafferty.

[00:00:30] Speaker 03:
One thing I meant to mention in the overall comments, but I'll mention now.

[00:00:33] Speaker 03:
If you'd like to reserve some time for rebuttal, you can.

[00:00:35] Speaker 03:
Just tell us how much.

[00:00:37] Speaker 01:
I'll take three minutes, please.

[00:00:39] Speaker 03:
Okay.

[00:00:39] Speaker 03:
And again, we've got a little clock here, and I hope that's visible to you.

[00:00:44] Speaker 03:
We let you monitor that.

[00:00:46] Speaker 03:
So if you go into your three minutes and you're making the best argument you ever made, we're not going to stop you.

[00:00:50] Speaker 03:
But it's up to you.

[00:00:52] Speaker 03:
If you want to stop early, that's fine.

[00:00:54] Speaker 03:
If you want to

[00:00:55] Speaker 03:
Otherwise, invade your time, it's up to you.

[00:00:56] Speaker 03:
We'll give you a heads up when you're getting at your three minutes, just so you know, okay?

[00:01:02] Speaker 03:
Okay, you may proceed.

[00:01:03] Speaker 01:
Thank you, may it please the court.

[00:01:06] Speaker 01:
I represent appellants who are seven former employees of the debtors, Matheson Flight Extenders and Matheson Trucking, who sued their employers for unlawful employment discrimination and retaliation under federal employment law.

[00:01:20] Speaker 01:
Debtors businesses involved sorting and transporting mail,

[00:01:23] Speaker 01:
for the United States Postal Service as a contractor.

[00:01:26] Speaker 01:
The Postal Service was the debtor's primary client.

[00:01:29] Speaker 01:
In February 2015, a Colorado federal court held a jury trial, and the jury found my clients liable for the unlawful employment discrimination claims.

[00:01:40] Speaker 03:
Well, they didn't find your clients liable, right?

[00:01:42] Speaker 03:
They found them, they gave them an award.

[00:01:44] Speaker 01:
I'm sorry, the debtors helped them.

[00:01:48] Speaker 01:
In that case, the jury awarded

[00:01:51] Speaker 01:
$15 million, $1 million in compensatories and $14 million in punitive damages.

[00:01:55] Speaker 03:
Well, I mean, here's the point that's going to come up in part two of this.

[00:01:58] Speaker 03:
It was very exact to work, correct?

[00:02:01] Speaker 01:
Yes.

[00:02:01] Speaker 03:
Yeah.

[00:02:02] Speaker 03:
Okay.

[00:02:03] Speaker 01:
$968,000 in compensatories.

[00:02:05] Speaker 01:
And then I think each of the seven got almost $2 million in punitive damages.

[00:02:10] Speaker 01:
Right.

[00:02:10] Speaker 03:
That's correct.

[00:02:11] Speaker 01:
So, appellants also filed motions for front pay, judgment interest, and attorney's fees and costs.

[00:02:18] Speaker 01:
They believe that their total award should be close to $18 million.

[00:02:22] Speaker 01:
Less than two months later, MFE, Matheson Flight Extenders, filed its voluntary petition under Chapter 11 in the District of Nevada.

[00:02:31] Speaker 01:
MTI, Matheson Trucking Inc., was a co-proponent of MFE's plan in that case, even though it was never a debtor.

[00:02:38] Speaker 01:
Appellants filed their proofs of claim totaling $17.9 million, including the original awards plus what they sought in additional awards and fees and costs.

[00:02:48] Speaker 01:
Debtors initially proposed to separately classify and subordinate the punitive damage components of my client's claims, but debtors thereafter offered a global settlement, which my clients accepted.

[00:03:00] Speaker 01:
The parties executed a settlement agreement

[00:03:03] Speaker 01:
that the debtors then incorporated into their second amended Chapter 11 plan in Nevada.

[00:03:09] Speaker 01:
The Nevada Bankruptcy Court entered its final and binding confirmation order on December 28, 2015.

[00:03:15] Speaker 01:
Through the settlement, debtors proposed to pay an appellant's accepted payments totaling $7.3 million.

[00:03:21] Speaker 03:
Can I jump in for a second?

[00:03:24] Speaker 03:
There's actually a lot to talk about here, and I want to give you a sense of where we're getting a little stuck, okay?

[00:03:31] Speaker 03:
And by the way, I thank you for the background.

[00:03:33] Speaker 03:
It's a long case and it's a very important background.

[00:03:36] Speaker 03:
I'm not suggesting it isn't.

[00:03:37] Speaker 03:
But if you would focus more on the basis on which after confirmation of the second plan, the bankruptcy court basically subordinated a bunch of claims and the reliance on 1129A7 to get there because I don't think the, correct me if I'm wrong, I think the bankruptcy court carefully said I'm not relying on 510.

[00:03:59] Speaker 03:
So if you could address the 1129A7 aspect of this, I'd be very grateful.

[00:04:06] Speaker 01:
Certainly, Your Honor.

[00:04:07] Speaker 01:
So when the plan administrator filed the objection to my client's claims post-confirmation last year in February 25, the basis was Section 510C, equitable subordination.

[00:04:19] Speaker 03:
Right.

[00:04:21] Speaker 01:
And when we got to oral argument, Judge Klein-Suizponte raised Section 726A4,

[00:04:28] Speaker 01:
as the basis to subordinate.

[00:04:31] Speaker 01:
And in the opinion, Judge Klein failed to analyze Section 510C.

[00:04:37] Speaker 01:
Instead, he relied upon 1129A7 to get to apply 726A4.

[00:04:44] Speaker 01:
And my argument with respect to why 1129A7, the best interest creditors test, does not apply is that it presumes that my client's claims are still punitive damages, which we can test because

[00:04:57] Speaker 01:
The claims were transformed into contract debts.

[00:05:02] Speaker 03:
Yes, sir.

[00:05:02] Speaker 03:
I'm sorry.

[00:05:03] Speaker 03:
Can I give you another thought about that, which is kind of where we're more focusing?

[00:05:08] Speaker 03:
And I'm going to be a little bit colloquial here.

[00:05:10] Speaker 03:
1129A7 is a statute that is utilized to demonstrate that the proponent has or has not complied with all the requirements of bankruptcy to confirm a plan, right?

[00:05:25] Speaker 01:
Yes.

[00:05:26] Speaker 03:
How do you, here's my colloquial part, how does the trial court get to get in the way back machine and five months after confirmation invoke 1129A7?

[00:05:35] Speaker 03:
I mean, it just seems totally out of place to us.

[00:05:39] Speaker 01:
It does to me too.

[00:05:40] Speaker 01:
I looked for cases that would use 1129A in a context post confirmation.

[00:05:47] Speaker 01:
I couldn't find it.

[00:05:48] Speaker 01:
So I would say that it's the same reason I argue there's a claim preclusive effect of the original Nevada bankruptcy court order.

[00:05:56] Speaker 01:
confirming their plan.

[00:05:58] Speaker 03:
It's the same standard because this plan confirmation order... Even if there isn't, I think you're arguing you have an independent basis to complain of the judge's determination because 11297 just isn't useful in this context.

[00:06:15] Speaker 03:
It's useful in the context of can we confirm a plan?

[00:06:18] Speaker 03:
And it really, we question how it can be folded into something, a plan,

[00:06:24] Speaker 03:
a claim objection process five months later.

[00:06:28] Speaker 03:
I mean, there's also the question of, look, the plan was confirmed, right?

[00:06:31] Speaker 03:
And the plan didn't deal with this issue one way or the other.

[00:06:35] Speaker 03:
So your thoughts about that would be very helpful.

[00:06:39] Speaker 01:
Your Honor, I personally think this decision is a reverse engineering to get to the result.

[00:06:44] Speaker 01:
It's a very result-oriented decision.

[00:06:46] Speaker 01:
The court knew the Section 510C requirement of creditor misconduct could not be satisfied.

[00:06:54] Speaker 01:
I mean, it's very evident.

[00:06:56] Speaker 01:
The court even failed to analyze Section 510C.

[00:07:01] Speaker 03:
Clarification, it's not our job to do it here.

[00:07:03] Speaker 03:
We're not going to find too much facts.

[00:07:05] Speaker 03:
That's not on the table in my view.

[00:07:06] Speaker 03:
So go ahead.

[00:07:07] Speaker 01:
Thank you.

[00:07:08] Speaker 01:
But again, it's because the judge wanted to do an end run around Section 510C.

[00:07:16] Speaker 01:
So he used 1129A7 to make 726A4 applicable in the Chapter 11 context.

[00:07:24] Speaker 01:
when Section 103B makes that improper and does not permit it because that section only applies in Chapter 7 cases.

[00:07:33] Speaker 01:
So, Your Honor, I'm on the same page with you.

[00:07:35] Speaker 01:
I don't think 1129A7 is applicable in a post-confirmation claim objection process period.

[00:07:43] Speaker 01:
And I think it's wrong and it's reversible legal error.

[00:07:46] Speaker 02:
Do you believe that it's reverse or reverse and we may have

[00:07:50] Speaker 01:
It's reverse, and Your Honor, I'm asking for a remand with direction to allow my client's claims in the full amount of $3.7 million.

[00:08:01] Speaker 01:
But the 510 hasn't been applied?

[00:08:03] Speaker 01:
Correct.

[00:08:04] Speaker 02:
That was the issue that was brought, wasn't it?

[00:08:06] Speaker 01:
Right, but Your Honor, they can't satisfy it.

[00:08:08] Speaker 01:
Creditor misconduct does not exist.

[00:08:11] Speaker 02:
But that's not for us.

[00:08:12] Speaker 02:
As Judge Labrador was saying, that's beyond our scope.

[00:08:18] Speaker 01:
Fine, then it would have to be a remand, I understand.

[00:08:20] Speaker 01:
You need findings of fact on 510C.

[00:08:23] Speaker 03:
Well, if you want to indulge me here, do you want to take a quick shift over to the disallowance issue?

[00:08:29] Speaker 01:
When you say disallowance, is that the Murgeo case?

[00:08:32] Speaker 01:
I don't believe the court really addressed the question of disallowance versus subordination.

[00:08:37] Speaker 01:
The court subordinated under 726A4.

[00:08:42] Speaker 01:
didn't really specifically, quote, disallow.

[00:08:44] Speaker 01:
In this context, it's a disallowance because this plan doesn't provide for a subordinated class for punitive damage claims.

[00:08:52] Speaker 03:
But just, I mean, I guess a little bit more directly, and if I'm skipping over some things, I'm just trying to get your analysis out on the table.

[00:08:59] Speaker 03:
Would you agree that this was a liquidated damages type scenario and that therefore an unenforceable penalty analysis pertains?

[00:09:08] Speaker 01:
Your Honor, with respect to, I would say ultimately that when my clients and the debtors entered into that original settlement agreement, there was a capping of the debtor's total expenditure from approximately 18 million down to 10.

[00:09:27] Speaker 01:
So I don't think it's quite the same thing as liquidated damages to the extent that when you enter into a contract,

[00:09:33] Speaker 01:
trying to determine in the future what the potential damages would be, we already have damages determined.

[00:09:40] Speaker 03:
I mean, the whole predicate of this is the jury did that.

[00:09:43] Speaker 00:
Yes.

[00:09:43] Speaker 03:
That's the predicate.

[00:09:44] Speaker 03:
The jury told you down to that penny what the damages were.

[00:09:47] Speaker 00:
That's correct.

[00:09:48] Speaker 00:
Liquidated damages are to assess in advance damages that would be uncertain in the future.

[00:09:53] Speaker 01:
That's correct.

[00:09:55] Speaker 01:
And here we knew what the damages were, and it was a reduction of the total amount, I think 44%.

[00:10:01] Speaker 01:
So as a matter of fact, it can't be a penalty.

[00:10:05] Speaker 02:
Well, this happens all the time in bankruptcy settlements, too.

[00:10:08] Speaker 02:
Somebody comes up with a claim, you go to settlement conference, you say, we'll agree to X. But if you don't do it, it goes up to Y. This holding, if allowed, would apply to every one of those situations, wouldn't it?

[00:10:19] Speaker 01:
I would think so, Your Honor.

[00:10:20] Speaker 01:
Again, I think the bankruptcy court erred and it should be reversed.

[00:10:25] Speaker 03:
Well, look, I took you off track, so I'm sure you had many other

[00:10:28] Speaker 03:
great points you wanted to make.

[00:10:29] Speaker 03:
You've got another $240 before you are into your rebuttal time.

[00:10:34] Speaker 01:
Thank you very much.

[00:10:34] Speaker 01:
I mean, you know, there are seven issues on appeal.

[00:10:37] Speaker 01:
There's a lot to cover.

[00:10:39] Speaker 01:
Here I'll highlight the two other points we haven't addressed yet, which are the claim preclusive effect of the Nevada Bankruptcy Court's confirmation order that transmuted, so to speak, my client's punitive damage judgment awards into contract debts

[00:10:55] Speaker 01:
They were, it became a new contract between the debtors and my clients.

[00:10:59] Speaker 02:
We only get to that if we believe that 726 is applicable post confirmation, correct?

[00:11:09] Speaker 02:
Otherwise it's apples and oranges.

[00:11:11] Speaker 01:
Yes, I agree.

[00:11:12] Speaker 01:
This is a completely alternative basis.

[00:11:14] Speaker 01:
Okay.

[00:11:14] Speaker 01:
So it's an alternative basis for your ruling and why the court should be reversed.

[00:11:20] Speaker 01:
But the point is, you know, my clients don't have punitive damage awards.

[00:11:25] Speaker 01:
They agreed to settle their claims.

[00:11:27] Speaker 01:
They received payments, 27 payments over almost seven years under the settlement.

[00:11:33] Speaker 01:
They honored that by filing proofs of claim in these bankruptcy cases that capped their damages at the settlement amounts.

[00:11:42] Speaker 01:
So, and the court's order uses the standard for issue preclusion instead of claim preclusion in disregarding the argument that there was a claim preclusive effect of the bankruptcy court's final order in Nevada.

[00:11:55] Speaker 01:
Because it said that issue was not fully and actually litigated in Nevada.

[00:12:00] Speaker 01:
However, that's not the standard.

[00:12:01] Speaker 01:
It's whether or not there's an opportunity to fully litigate.

[00:12:06] Speaker 01:
And they had that opportunity because my clients filed their proofs of claim

[00:12:09] Speaker 01:
based upon their punitive damage awards in the bankruptcy court in Nevada.

[00:12:14] Speaker 01:
And they were scheduled as disputed.

[00:12:16] Speaker 01:
So, Your Honor, I believe claim preclusive effect is another basis.

[00:12:19] Speaker 01:
And then judicial estoppel is the other argument I'd like to raise if I have a moment.

[00:12:24] Speaker 01:
So here, I believe the debtors are playing fast and loose with the courts because they obtained a benefit when they got their plan confirmed in Nevada.

[00:12:35] Speaker 01:
which allowed them to settle those putative damage claims against them and allowed them to reorganize.

[00:12:43] Speaker 01:
And now here they are after getting the benefit of that settlement, allowing to continue to operate

[00:12:48] Speaker 01:
with the United States Postal Service as their primary client over those seven years.

[00:12:53] Speaker 01:
And I cite to the reply brief that I filed about the joint letter that was filed or sent to the Postal Service after the settlement was reached.

[00:13:04] Speaker 01:
But in that instance, the debtors got the benefit of that.

[00:13:07] Speaker 01:
Now they stand before this bankruptcy court in California and say, my client's claims are punitive damages when they settled them.

[00:13:14] Speaker 01:
seven years ago.

[00:13:16] Speaker 01:
And then finally, they've obtained a substantial benefit to my client's detriment because if this order is allowed to stand, my clients will not receive a 26% distribution on account of their claims.

[00:13:29] Speaker 01:
So I believe the arguments or the position the debtors have taken in this case should be denied based upon judicial estoppel.

[00:13:40] Speaker 03:
We've got a little over two minutes left.

[00:13:41] Speaker 03:
Good time to pause?

[00:13:42] Speaker 03:
Thank you.

[00:13:42] Speaker 03:
Yes, thank you.

[00:13:47] Speaker 04:
Good morning, your honors.

[00:13:49] Speaker 04:
Let me address first.

[00:13:51] Speaker 03:
Yeah, you got an idea where we're where we're a little perplexed, right?

[00:13:56] Speaker 04:
Yeah, 1129 a seven Imposes a distributional priority Can I stop you there?

[00:14:02] Speaker 02:
This is a good point to jump into a question I have I am struck in my view how close this parallels Espinosa

[00:14:14] Speaker 02:
As you are well aware, Nespinoza court confirmed a plan that allowed for the discharge of a non-dischargeable debt after the performance of the 13 plan came back and said, obviously we've got to fix this because you can't confirm a plan that does something that should not happen.

[00:14:31] Speaker 02:
The Supreme Court said that is the court's obligation to ensure that.

[00:14:38] Speaker 02:
But if it doesn't happen, the judgment is the judgment.

[00:14:42] Speaker 02:
Why are we hearing a confirmation issue as a basis for a claim objection when it was your clients that proposed the plan and got it confirmed on that basis?

[00:14:56] Speaker 04:
Well, two reasons.

[00:14:57] Speaker 04:
First, the plan Article 9.1 of our plan expressly preserved the ability of the plan administrator.

[00:15:06] Speaker 03:
Well, we're going to get to that on a matter of

[00:15:08] Speaker 03:
public policy in the Ninth Circuit's instruction to us in a minute.

[00:15:11] Speaker 03:
But go ahead and make the point.

[00:15:12] Speaker 03:
We're going to have a long conversation about that.

[00:15:16] Speaker 04:
So yes, it preserved the ability to object to or seek subordination.

[00:15:22] Speaker 02:
But you're not objecting.

[00:15:23] Speaker 02:
You're retroactively applying a confirmation standard based upon 1129, not 726.

[00:15:30] Speaker 02:
Your client had the option to file a Chapter 7 and invoke 726.

[00:15:35] Speaker 02:
It went with a liquidating 11.

[00:15:38] Speaker 04:
So I guess we're all in agreement that if we had filed a, if our plan said that the Kamara plaintiff's claims would be subordinated.

[00:15:46] Speaker 02:
And we're also in agreement they didn't.

[00:15:49] Speaker 04:
Yes, but the plan also provides that we have the ability to seek subordination of any claim.

[00:15:54] Speaker 04:
Well, let me, let me.

[00:15:56] Speaker 04:
If I, if I may just finish your honor.

[00:15:59] Speaker 04:
Section 502B1 says that a claim can be disallowed if it's unenforceable under applicable law.

[00:16:09] Speaker 02:
It's not applicable law, Mr. Coleman.

[00:16:11] Speaker 02:
You're not in 7.

[00:16:14] Speaker 04:
Applicable law is that the fact that there is a distributional priority that is imposed in Chapter 11 cases.

[00:16:20] Speaker 02:
And you waived it.

[00:16:22] Speaker 02:
You sought a plan that provided for full payment.

[00:16:25] Speaker 02:
Your clients.

[00:16:26] Speaker 02:
That's mysterious judicial estoppel.

[00:16:30] Speaker 04:
I'm sorry, which are you when you say we waived that what are you referring to?

[00:16:37] Speaker 02:
By asking for confirmation of plan that provided for full treatment Equivalent equivalent treatment of all unsecured creditors including mysterious clients You had the chance to invoke 726 through the 11 through the confirmation process and you chose not to

[00:16:56] Speaker 04:
Well, in that case, there were two important distinguishing features.

[00:17:00] Speaker 04:
Number one, all the creditors were being paid in full in the 2015 bankruptcy case.

[00:17:06] Speaker 02:
We're not talking about 2015.

[00:17:07] Speaker 02:
As Judge Lafferty indicated, that is history.

[00:17:09] Speaker 02:
It's informative, but it's not applicable here.

[00:17:13] Speaker 04:
OK.

[00:17:14] Speaker 04:
So we propose a plan that preserves our ability to object to or seek subordination of the Camaro plaintiff's claims on any grounds

[00:17:25] Speaker 04:
And you're saying that we don't have any grounds to object to their claim.

[00:17:31] Speaker 04:
And my response is no.

[00:17:34] Speaker 02:
You have plenty of grounds to object to it.

[00:17:36] Speaker 02:
It could be untimely.

[00:17:37] Speaker 02:
It could be this.

[00:17:38] Speaker 02:
It could be that.

[00:17:39] Speaker 02:
But you can't, as Judge Lafferty said, go in the way back and then relitigate confirmation standards as a basis for claim objection.

[00:17:49] Speaker 03:
uh... well i guess again there is a vast body of case law going back decades disallowed claims for punitive damages that's applicable that's not the issue also that is not the issue the issue is how do you use a statute that set up as a gatekeeping statute you cannot confirm a plan on less you satisfy this you confirm the plan this didn't come up

[00:18:18] Speaker 03:
That's Judge Spraker's point.

[00:18:20] Speaker 03:
You cannot reinvigorate.

[00:18:22] Speaker 03:
We are not aware of a process or case law that says you get to reinvigorate 1120-987 for this purpose.

[00:18:28] Speaker 03:
That is not 1120-987's purpose as far as we can tell.

[00:18:32] Speaker 02:
And how do you get around Espinoza?

[00:18:35] Speaker 04:
Well, I would say that we get around Espinosa because our plan expressly preserved.

[00:18:39] Speaker 02:
Apples and oranges, that's what you're hearing us say.

[00:18:42] Speaker 02:
That is a different section for a different purpose.

[00:18:45] Speaker 02:
You're relying upon cases decided mostly well before law versus Segal to say there's a general equitable right to get rid of punitive damages because they're punitive.

[00:18:58] Speaker 02:
And I don't know how you get around Wall v. Siegel either, because 510 gives you the express statutory provision to equitably subordinate.

[00:19:08] Speaker 02:
And you are asking us to reach back to those cases that say there's a general undergring, that that's punitive, and we won't let that happen for a reorganization.

[00:19:17] Speaker 02:
And this is not a reorganization.

[00:19:20] Speaker 02:
It's a liquidation that you chose to run through Chapter 11.

[00:19:24] Speaker 04:
Uh, yes, that's correct.

[00:19:28] Speaker 04:
Uh, but I guess what I, what I'm still struggling with is we, we do have the statutory authorization to object to claims.

[00:19:36] Speaker 04:
I think that's law versus Siegel, uh, is, you know, there's well-recognized authority for the treatment of, uh, of punitive damages claims in chapter 11.

[00:19:50] Speaker 04:
Well, can I, can I?

[00:19:53] Speaker 03:
I hate to keep breaking it, but let me... Go ahead.

[00:19:56] Speaker 03:
I mean, whatever.

[00:19:57] Speaker 03:
Finish it.

[00:19:59] Speaker 04:
The real reason that I want to... The thing that we all need to focus on here is who is harmed by this.

[00:20:06] Speaker 04:
And it's not the debtors who are being harmed.

[00:20:10] Speaker 04:
It's the interests of the other creditors who hold their claims based upon actual pecuniary loss.

[00:20:16] Speaker 02:
It could have objected as well.

[00:20:19] Speaker 02:
It had the opportunity

[00:20:21] Speaker 02:
and a clear right under 1129A7 to object.

[00:20:27] Speaker 02:
Usually that's called a waiver.

[00:20:30] Speaker 04:
Well, but in circumstances, again, where the ability to object on any grounds is preserved, what you're basically imposing upon the debtors and a plan administrator is to

[00:20:43] Speaker 04:
scour every nook and cranny of the claims register and determine that there's a basis to subordinate a claim.

[00:20:51] Speaker 03:
Well, I mean, hardly.

[00:20:54] Speaker 03:
Hardly, counsel.

[00:20:55] Speaker 03:
I mean, let's go back a couple steps, okay?

[00:20:57] Speaker 03:
First of all, although I don't think it's necessarily case-determinative, there is a history here.

[00:21:03] Speaker 03:
These were originally punitive damages claims awarded by a jury.

[00:21:07] Speaker 03:
They had a certain treatment in a prior plan.

[00:21:09] Speaker 03:
I'm not suggesting that cleanse them or change them necessarily the way that your worthy adversary would like us to think.

[00:21:17] Speaker 03:
But you could not have been unaware of the fact that there were some punitive damages issues here.

[00:21:23] Speaker 03:
You had a general reservation in the plan.

[00:21:25] Speaker 03:
That's fine.

[00:21:27] Speaker 03:
But the liquidation analysis didn't deal with this issue at all, at all.

[00:21:31] Speaker 03:
And number two, the way we read

[00:21:34] Speaker 03:
instructions to us in the Massengale case, which is a case in which, you know, we basically felt bound by certain, you know, code provisions to enforce a fairly harsh outcome.

[00:21:47] Speaker 03:
And the Ninth Circuit told us, well, wait a minute, in the plan confirmation process, it is required that there be really full disclosure.

[00:21:54] Speaker 03:
You don't speak with

[00:21:55] Speaker 03:
you know, two directions out of your mouth.

[00:21:57] Speaker 03:
A general reservation of rights in this strikes me as not consistent with the obligations of debtors in possession under Massengale, as the Ninth Circuit tells us, and under Solomano framing as we decided about a year later relying on Massengale.

[00:22:12] Speaker 03:
So I realize you've got a general reservation.

[00:22:15] Speaker 03:
I don't see how that's applicable here.

[00:22:17] Speaker 03:
It certainly gets you over the obligation to give these people a heads up at the time of confirmation when this had not been brooded at all.

[00:22:25] Speaker 03:
that there was some danger here.

[00:22:27] Speaker 04:
Well, I guess, Your Honor, I would say that there's prior decisions of this panel, the Network Electronics Corporation case, that found that this was sufficient to preserve the ability to object to a claim.

[00:22:47] Speaker 03:
I'm not suggesting this would be the sole grounds for reversal if we end up reversing, but it's troubling.

[00:22:52] Speaker 03:
It is troubling.

[00:22:55] Speaker 04:
Well, let's turn to why the disclosures are important.

[00:23:03] Speaker 04:
Usually, if creditors are acting in reliance on certain representations to support a plan, I could see why these concerns would arise.

[00:23:16] Speaker 04:
But whether or not the Kamara plaintiffs voted in favor or not in support of our plan was immaterial.

[00:23:25] Speaker 04:
the plan confirmation did in no way hinged on what how the Kumar plaintiffs didn't matter until the amount of either Council didn't matter at all.

[00:23:36] Speaker 03:
It was a totally different plan was the plan.

[00:23:39] Speaker 03:
The question was the treatment.

[00:23:42] Speaker 04:
But so but again,

[00:23:44] Speaker 04:
What you're saying is that any debtor or trustee who's proposing a plan needs to scrutinize the claims register.

[00:23:59] Speaker 02:
Isn't that what 112987 requires?

[00:24:01] Speaker 02:
Isn't that the obligation under Espinoza?

[00:24:04] Speaker 02:
When you come to confirmation, you have to affirmatively prove that each of the creditors are going to receive at least as much as they would in a Chapter 7.

[00:24:11] Speaker 02:
That was the debtor's burden.

[00:24:13] Speaker 02:
Did you meet that burden?

[00:24:17] Speaker 04:
Yes, because we thought... Then that's the end of the question.

[00:24:20] Speaker 02:
Well, we thought our plan did that by preserving the ability to seek support... Where's the preservation of later objections, exception to 1129-87?

[00:24:34] Speaker 04:
Well, there doesn't have to be an exception.

[00:24:36] Speaker 02:
The court has to make a factual finding that each creditor will receive at least as much as they would in a Chapter 7.

[00:24:48] Speaker 02:
You're telling me that's not the case now.

[00:24:51] Speaker 02:
Why wasn't that the case at confirmation?

[00:24:55] Speaker 04:
I think you misinterpreted my comments.

[00:24:58] Speaker 04:
What I'm saying is that when a plan explicitly provides that if a claim is subject to subordination on appropriate grounds, it will remain subject to subordination.

[00:25:12] Speaker 02:
That's how you satisfy... I'm not talking about your subordination.

[00:25:16] Speaker 02:
I'm talking about plan confirmation, which you got.

[00:25:18] Speaker 02:
How was the court able to make that determination?

[00:25:23] Speaker 04:
by looking at the plan and seeing that it preserves the ability to subordinate claims in an appropriate case.

[00:25:29] Speaker 03:
Okay.

[00:25:30] Speaker 03:
I'm not following that.

[00:25:32] Speaker 03:
If you want to address the disallowance liquidated damages issue, you've got about three minutes left.

[00:25:39] Speaker 04:
Yes.

[00:25:39] Speaker 04:
On this one, I think Nevada law is pretty clear that when the charge imposed for a payment default

[00:25:50] Speaker 04:
is grossly disproportionate to any actual damages.

[00:25:55] Speaker 04:
It's viewed as a penalty and therefore unenforceable.

[00:25:57] Speaker 03:
Is the predicate to that that it's liquidated damages or something else?

[00:26:02] Speaker 04:
Well, I think there are reasonable liquidated damages which are fine.

[00:26:07] Speaker 03:
No, no, no, no, not reasonable.

[00:26:08] Speaker 03:
Is the predicate to that that this is liquidated damages or is it something else?

[00:26:16] Speaker 03:
Judge Klein's predicate seemed to be it was liquidated damages, right?

[00:26:20] Speaker 04:
that are grossly disproportionate to any actual damages.

[00:26:23] Speaker 03:
The threshold question is, is this liquidated damages?

[00:26:25] Speaker 03:
And our problem is a jury came down with an award to the penny.

[00:26:29] Speaker 03:
There's nothing liquidated about it.

[00:26:31] Speaker 03:
Unliquidated.

[00:26:31] Speaker 03:
It was liquidated.

[00:26:33] Speaker 03:
The parties later decided it should be a little bit less to your client's ultimate benefit.

[00:26:40] Speaker 04:
So your honor, on this point, it's important to keep in mind that the judgment that was entered in the Colorado litigation was not final.

[00:26:49] Speaker 04:
There were a number of serious problems with that judgment.

[00:26:52] Speaker 04:
Number one.

[00:26:53] Speaker 03:
Well, you got over all of them by settling it, didn't you?

[00:26:58] Speaker 04:
True.

[00:26:58] Speaker 04:
Okay.

[00:26:59] Speaker 04:
But that does not, again, that does not change

[00:27:02] Speaker 04:
the character of the claim that they had, as we showed in the proceedings below, all of the compensatory components of the claim.

[00:27:14] Speaker 03:
I agree.

[00:27:14] Speaker 03:
I agree.

[00:27:15] Speaker 03:
The question is, do we begin with the premise this is liquidated damages?

[00:27:19] Speaker 03:
And we're struggling with that.

[00:27:20] Speaker 03:
That's what we're trying to tell you.

[00:27:23] Speaker 04:
Well, all I can say is that we cite cases in our brief, which hold that these are unenforceable penalties.

[00:27:36] Speaker 04:
In terms of, I just want to address this other issue about judicial estoppel and playing fast and loose with the courts.

[00:27:44] Speaker 04:
Settlements get reached in bankruptcy cases all the time.

[00:27:48] Speaker 04:
People are not thinking through necessarily all the implications of how things will happen in a subsequent bankruptcy case.

[00:27:56] Speaker 04:
The key issue about judicial estoppel is that there has to be an explicit representation to a judge in one case that directly conflicts with the representation or position they're taking in another case.

[00:28:11] Speaker 04:
There has been no showing of that here whatsoever because the judge in the

[00:28:18] Speaker 04:
Nevada bankruptcy case really had no occasion to even consider any of this stuff.

[00:28:22] Speaker 04:
There was full payment to creditors with interest, by the way, on the part of the other general unsecureds and unanimous consent by all the creditors.

[00:28:31] Speaker 04:
So it took that issue completely off the table.

[00:28:36] Speaker 04:
So, Your Honor, I realize that you have some, you have concerns, but I think that the, you know, the fact that the nature of the claim is, you know, dictated by its origin and nature.

[00:28:47] Speaker 04:
Okay.

[00:28:48] Speaker 04:
And we, and we preserved the ability to, to object and seek subordinate to this claim.

[00:28:54] Speaker 04:
And it's going to be harmful to the distribution rights of the other unscathed.

[00:28:58] Speaker 03:
Okay.

[00:28:59] Speaker 03:
Thank you for your very good argument.

[00:29:00] Speaker 03:
And thank you for being such a good sport about the fact this is what's jokingly called a hot bench.

[00:29:04] Speaker 03:
I mean, we really struggled with this, and you're hearing our struggles, and thank you for doing such a professional job of responding to our concerns.

[00:29:13] Speaker 03:
And let's make one thing clear.

[00:29:15] Speaker 03:
I mean, the basis of our concern here is this 11-29-87, what we're jokingly calling a reach back.

[00:29:20] Speaker 03:
We're not suggesting that if there's five, ten seat grounds, which are not in front of us, we're not suggesting that's resolved.

[00:29:26] Speaker 03:
I don't know if it is or isn't, but, you know, I'm making no, I don't think we're going to make, we're not telling you that we're going to make a finding about that one whether, because it isn't what we do.

[00:29:35] Speaker 03:
You know, our concern is the issues that we've been exploring with you and with your worthy adversary here, okay?

[00:29:41] Speaker 03:
Okay, so back to the Appellants Council.

[00:29:43] Speaker 03:
I think you've got a little over two minutes.

[00:29:46] Speaker 01:
Yes, Your Honor, thank you.

[00:29:47] Speaker 01:
I'd like to ask you if there's any questions that I can answer for you based upon opposing counsel's argument.

[00:29:57] Speaker 03:
No, I think you're hearing us that we're not purporting to decide something on the basis that the bankruptcy court declined to decide it on, right?

[00:30:07] Speaker 03:
So we're not saying that there's no basis.

[00:30:10] Speaker 03:
If this is a vacate and remand or reverse and remand, we're not suggesting that you're out of the woods here at all, okay?

[00:30:17] Speaker 03:
That's not for us to say one way or the other.

[00:30:19] Speaker 03:
That's depending on a whole bunch of other circumstances.

[00:30:23] Speaker 02:
I will add my piece in here, though,

[00:30:25] Speaker 02:
There is a concern that what we're struggling with is the reading in to the subordination, the 1129A requirement, which we're struggling with as the basis for the subordination.

[00:30:46] Speaker 02:
It's easy to see how that same struggle, at least in my mind, would exist if that's the basis under 510.

[00:30:52] Speaker 02:
If you just shift it over and say,

[00:30:54] Speaker 02:
that the same analysis would seem to apply that how do you get 1129's best interest test into a 510 analysis?

[00:31:06] Speaker 02:
So that's the concern that's been raised by this that I would just put on the record.

[00:31:11] Speaker 02:
And there you go and it will be addressed below.

[00:31:16] Speaker 01:
Yep.

[00:31:17] Speaker 01:
Thank you, Your Honor.

[00:31:18] Speaker 01:
I'd like to just address the issue that I did raise that I didn't speak to in my opening argument, which is rule 7001-8 says that if a claim is to be subordinated, it must be brought through an adversary proceeding or through the plan confirmation process.

[00:31:36] Speaker 01:
So that procedurally is an issue that the debtors have to face if they're going to now seek to subordinate under 510C.

[00:31:42] Speaker 01:
And I just want to make a record on that.

[00:31:44] Speaker 03:
Well, and I think we'll also note that the plan could have been modified.

[00:31:50] Speaker 03:
Maybe you can't anymore, but it might have been to take account of this issue.

[00:31:55] Speaker 03:
And I don't have an opinion as to whether that's still open.

[00:31:57] Speaker 03:
I don't know, okay?

[00:32:01] Speaker 01:
Thank you.

[00:32:01] Speaker 03:
OK.

[00:32:03] Speaker 03:
Thank you both for your very good arguments.

[00:32:05] Speaker 03:
And I mean that sincerely to both of you.

[00:32:08] Speaker 03:
You could tell this one really kind of had us scratching our heads a bit.

[00:32:12] Speaker 03:
Thank you for your good arguments.

[00:32:13] Speaker 03:
The matter's on your submission, and we'll get you a written decision as soon as we can.

[00:32:17] Speaker 01:
Thank you.

[00:32:17] Speaker 03:
Thank you very much.

[00:32:18] Speaker 01:
Thank you.

[00:32:20] Speaker 03:
OK, let's call our second matter.