i would like to reserve three minutes all right thank you good morning your honour's may it please the court my name is raymond aver from the law offices of raymond h a very professional corporation appearing on behalf of the appellant b three capital ventures l c today i would like to discuss two primary issues one which i will say is is an attack on the sanctity of contracts and our position that the bankruptcy court erred when it determined that the debtor met its burden of proving by clear and convincing evidence that the bank had impliedly waived the right under the loan documents to default interest my second argument is that i want to focus on is that the rulings are an attack on the plain meaning of two provisions of the bankruptcy code five o two and five  zero two and five zero six b and that is that the bankruptcy court erred without the fording the three capital notice or a hearing in disapproving fees and costs incurred subsequent to december thirty one twenty sixteen with regard to the attack on the sanctity of contract it is undisputed that the debtor by the time of the filing of the bankruptcy case the clause in the contract regarding default interest is not one which gives the bank or the borrower discretion it says if there is a default default interest shall accrue at five percent  and the loan agreement talks about waiver and it it says that the lender shall not be deemed to have waived any rights under the agreement unless such waiver is given in writing and lender nor any course of dealing between lender and borrower shall constitute a waiver as to future transactions so it does seem to contemplate that there could be a course of dealing between the lender borrowed that could constitute a waiver except as to future transactions and so here the court from a particular findings regarding the course of conduct so why was that an error it seems consistent with the part under the contract that a course of conduct could constitute a waiver well your honor in this case the evidence of the alleged waiver is rather flimsy it's an e mail it's a it's a it's an e mail communication between the borrower and a lower level employee at the bank where the borrower is saying you know give give me a loan payoff and the lower level employee is saying well here are some numbers but you need to verify these if you really want to pay off you need to contact the bank and request a formal pay off that amount as i understand the record  reconsideration when we argued manifest injustice we provided a document that appeared to have been withheld which was an agreement from december where the borrower what there is a specific  agreement i think is from december of fourteen where the borrower in the bank specifically talk about the fact that that no the bank is not waiving default interest and i says from the pastor just to you as to the future i think your honor it's i mean i'd have to go back and look to the exact language the actual letter agreement is in the record but it it speaks for itself i mean the fact is aside from the estimate of the payoff  prior that there was a month to month that payments were being made and the bank up accepting crystal's payments right now apply them to both principal and interest based on the not on the default rate but just the regular interest rate and there and there was there's nothing wrong with doing that i mean there never came a point in time where there was a pay off demand or there was some definitive time frame where if the if default interest wasn't asserted it would be wa an opportunity to file amended proof of claim right ok i think so let's start with i mean let's start with the code sections because this is really i think where the gist of it is and i want to just say with regard to amended proof of claim while it's denominated amended proof of claim it's only an updated proof of claim and each the first proof of claim was as of october the second proof of claim was as of december and it only updated the numbers nothing else was changed no so and i want that i'd like the court to focus in on the language of five zero two and five zero six v so in five o two basically says that if an objection to a claim is made the court after notice and a hearing shall determine the amount of such claim in lawful currency of the united states as of the date of the filing of the petition so that is when the determination is made as to an objection to a proof of claim it's pretty pretty clear from the statute now you can't you can't read five o two in isolation you have to also look at five o six and five zero six as to to the extent an allowed claim is secured by property the value of which after any recovery is greater than the amount of such a claim there shall be allowed to the holder of such a claim interest on such a claim and any reasonable fees cossack cetera et cetera so in this particular case the determination is the amount of the claim under the code is as of the date of the filing of the petition and then a separate determination should be made as to the allow ability whether you know whether you've gotten over secured creditor and whether they're allowed to fees and interest on their claim because if they're under secured they wouldn't be entitled to that in our case what happened is we went in we the filings are what they are and we went to the court and we had a hearing and because of some delays in briefing  and it's been said that we delayed in filing our papers we say that we were given an opportunity to a couple of days extension filed papers at any rate what happened essentially is no was the reply was filed two days before the hearing and there was a lengthy hearing and the hearing primarily dealt with the entitlements a default interest but at the end of this hearing i said i just want to make sure th under the terms of the no the proof of claims disses eclipse says that the claim is as of december thirty one we were standing there before the court on january twenty five you know a little less than thirty days later it's pretty apparent to anyone that there would have been additional fees and costs that would have been incurred between december thirty one and january twenty five you have asked to make those calls your honor you know it's a sure i could have estimated them but how reliable would that be and how would a court be able to determine the reasonable this of that every day as as the court knows every day more time is put in how much time are you going to need to prepare for the hearing how much time are you going to need to prepare the opposition how it's almost in a sense educated speculation and the court says in response to that comment said well i think the court asked for a spreadsheet that would have tallied to it and i think what and that and what i think the court is talking to as far as asking for a spread sheet was in the court's tentative ruling and then counsel for the for the debtor says and this is on page seven fifty and seven fifty one and there will be additional fees that are incurred by b three presumably so even the debtors coun acknowledged that there would be additional fees and costs what happened after that hearing is the court issued its order setting the briefing schedule and as we know in that order setting the briefing schedule  you know there was nothing about attorney's fees or costs so we essentially were blindsided in the sense that as of the time of the hearing we thought we were reserving our rights everyone knew that there were additional attorney's fees and costs and potentially there would be a a nother hearing at another time not to determine you know what the actual fees and costs were because as an over secure creditor under five o six b we the attorney season costs we incurred shall be awarded to us unless the court determines that those fees and costs are not reasonable that's what the language is the closest shall how much are we talking about this month  we're talking about thirty five forty thousand dollars not an insignificant amount and the court concluded without even determining having the attorney season cost before it that it would be prejudicial to two it allowed b three capital to seek those fees and costs but as we know the debtor hadn't even filed a disclosure statement or plan at that point in time and as we subsequently learned and i don't think counsel will dispute this the debtor filed a motion for order approving a structured dismissal and by that order the debtor agreed to set aside three million dollars in sufficient funds to pay among other claims these reschooling so how much prejudice i just don't i don't see the prejudice at all and i so that you're on earth unless the court has any questions for me that's  if a please the court i would rest my focus my comments on those that were made by counsel and he seems to have a limited the three issues down to two it deals with the waiver argument and the expressed terms of the loan and security agreement as well as the attorney's fees counsel tries to as it relates to attorney's fees trying to say that we really weren't dealing with anything beyond the data that the titian or anything beyond december thirty first two thousand and sixteen that's really not true we found a motion to object to their claim to disallow the claim we found that motion and prior to that time we had asked on a half a dozen or even a dozen occasions between a two month period to ask for the backup documents regarding the b three proof a claim that was filed in october thirty first it took us forever to get those documents we probably would have had a more extensive motion to disallow the claim if we actually received the documents before we had a file that objection it was clear from the hearings and it was clear from the briefs that we weren't just limiting this to the date of the bankruptcy petition we were limiting it we were not limiting it we were looking for additional fees through the day that we were looking at the hearing and the reason that we were looking for these fees your honor is as you have in any bankruptcy proceeding you need to deal with how much money is being paid to the secured creditor underneath that secured loan if you don't know what you have there you don't know what you have left to pay the balance of the claims you don't know what you're paying and then this rate of claims unsecured priority claims that were general unsecured claims that's why it's so important to have this figure so to talk about how much money is set aside your honor to look at it and hindsight would probably just obliterate what happened in the bankruptcy court because it would say we still have three million dollars left now we have sufficient money even if there was a mistake even if there was a waiver and even if counsel for the secured creditor did not comply with what they were supposed to do in the bankruptcy court so i would say that even though there's a bankruptcy code section five zero six b that says that an over secured credit or is entitle to post petition interest as well as attorney's fees i don't argue with five a success as i'm aware that over secured creditors are only entitled to their accruing interest at the contract way when we get into the next argument and they're entitled to attorneys fees but it also comes down to the reasonable nuss of it it doesn't say i ask for axel i'm entitled to x it comes down to a discussion and the motions that were found the bankruptcy court to determine what the allowance of those fees are what it is limited to if it's limited to what all and what the reasonable miss of those fees are and i think that the bankruptcy court in the district court did get it right but a counselor saying he was blindsided by the fact that he follows issues at stake was what was i was the december thirty two thousand and sixteen and that they would be a subsequent petition that as of the january if i don't look at the record and see it that way as it relates to a subsequent petition your honor i look at it and i see that there's an objection to a claim asking for fees that have been incurred in this case how much money are you owed for attorney's fees that you've spent on this case up to today what he should have asked of night oh i've done it i just did it in a motion the other day or it's common practice to basically say we're owed this when we get to the hearing because you don't to waive that amount of money when you get to the hearing if you say i'm owed one hundred thousand dollars as of x but i still have to see the opposition i need to see the reply and i need to attend the hearing you need to put in an estimate of what you believe it's going to cost over estimate but when you get or underestimate whatever you do but take a reasonable estimate and when you get to the court you can actually advise the court at that time your honor i've estimated seventy five hundred dollars but after today if we're hearing is over it's only six thousand dollars but at least everybody has notice an and that would be blindsiding to say that we would deal with that at another time it just wouldn't happen you're dealing with a one claim with regard to fees if there is additional claims we guarding fees and counsel would be filing a motion to supplement the counsel would be asking for because a demand would go into escrow which it did because we actually sold the whole tell in the bankruptcy proceeding which was the reason we could do a structured dismissal but we were dealing with the issues of the attorney's fees incurred that time up to the date of the hearing so an estimate is reasonable and it's expected and it's common practice with regard to the waiver your argument your honor counsel in his brief seems to focus on lack document that was basically signed by one of the principals but that document doesn't say exactly what counsel believes that was one e mail and it was back in december third of twenty fourteen that a letter was provided by the first commercial bank f c b b talking about the letter that was submitted in connection with the motion for reconsideration correct and that's the letter and counsels they thing that we had this and the only way we actually got this year honors that is when it was produced by counsel and this is the information that we were asking for before we didn't have it in our possession the client wasn't aware this and it's a letter that was generated by absi b i would have been in their file when they purchased the loan this letter says f c b expressly reserves the right to exercise and enforce all rights and remedies under the loan documents including the right to collect all unpaid default interest exercise it in force that's one thing that counsel seems to leave out all the pleadings do exercise in a force to me means that there has to be an affirmative act on be hard of f c b to do something to exercise their rights this entire term of the loan when it started in december and two thousand and eleven nothing was done by the lender to exercise its rights to assert default interest the property taxes were paid they could have actually charged default interest it the pay off statement that was provided that might have said that we it's an estimate it didn't have attorneys and didn't have excuse me a default rate of interest in there we're not talking about a minor discrepancy regarding certain costs we're talking about an additional five percent interest calculation on past two sums we're talking about a difference here and in the pleadings between three hundred fifty thousand dollars and i'm just rounding it up to one point five million dollars there is a substantial amount of money about a one point two million dollar discrepancy but when we look at waiver factors it's not just that letter we look at the immediate right to be able to charge default interest back when the property taxes were not paid in dystonia eleven it was not done there was a letter that he's balance it identified the outstanding balance with the contract rate of interest not the default rate of interest the purchase and sale agreement in and of itself also had a number of reps and warranties section four m of the purchase and sale agreement on the reps and warranties of the seller the statement the principal balance in accrued unpaid interest around the lone set forth on exhibit a and it's true and correct as the calculation date that's at the contract rate of interest not the default rate of interest section five day at the purchase of sale agreement covenants of the seller the information set forth in the loan schedule attached with respect to the loan is true and correct in all material aspects of the date of this agreement section six b of the purchase and sale agreement provides  the seller has this loan to the purchaser that the borrower the loan is delinquent in the payment of real property taxes ascends assessed against the mortgage property the reason i mention that your honor is because even though counsel hasn't made that argument it today there was the holder in due course argument which i don't believe that the buyer is simply because one there was a default in principle because the loan payment history showed that payments stopped a year prior to the purchase of the loan and number two the notice of default which was recorded a year prior to the purchase of the loan also provided in the last sentence above the signature that the lender had actually accelerated and expected that it was all the outstanding obligations were immediately do when payable under the loan so they're not a holder in due course this is a classic example of a waiver of the provisions within the contract of and the contracts themselves or form documents are out of their laser pro docs that i leave almost every lender uses so there are similar forms and the law is clear that even though there are provisions in the agreement that provide th waiver has to be signed by the lender those provisions can be waived in the case law and i believe that what this i conduct waived by conduct your honor affirmative acts or by the documents that we have and everything that i've stated your honor i believe that that constitutes a waiver counsel says that never counsel says that well i thought that the judge was going to allow and afford us an opportunity to  present the further attorney's fees and costs counsel counsel and i would add that there was never any specific objection to the post petition attorney's fees and costs ultimately the only objection that was made by the debtor was to the pre to titian attorney's fees and costs so the consul says it's common practice to estimate i've been a bankruptcy lawyer for thirty five years i would respectfully say that  it's not a common practice to estimate counsel says that the client wasn't aware of the waiver letter well the principle of the claim the principle of the debtor throughout the bankruptcy case was l gap and if the court looks at the green and it's six o six this agreement was acknowledged and agreed to by lucy gal on december three twenty fourteen how could she not have been aware of what she had signed  s doesn't doesn't mean the smell test council says relies heavily on the purchase and sale agreement in the briefs we set forth that the purchase and sale agreement was between the buyer and the seller the debtor was not a party to that agreement the agreement specifically says that no rights are afforded any third parties the purchase and sale agreement the debtor was not a third party beneficiary of this purchase and sale agreement and to rely on anything with regard to the purchase agreement as to waiver is just wrong because it has nothing to do with the debt or lastly with regard to holder in due course i wasn't going i wasn't going to raise it the council has the bankruptcy court relied on three three zero four b one of the california uniform commercial code which says that with respect to an instrument table at a definitive time the following rules apply one if the principle is payable in installments and a due date has not been accelerated the instrument becomes overdue upon default under the inst under the instrument for nonpayment of installment and the instrument remains overdue until the  however it is our argument as set forth in the brief that be one doesn't apply because the exceptions set forth in three three zero four c which says that unless the due date of principal has been accelerated and instrument does not become overdue if there is default in payment of interest but no default in payment of principal and with that i would