interest in the waterfall pursuant to section two point zero nine of the indenture there's no question that the breach of contract claims are valid claims they are legally sufficient so the only question here is when bank of new york chose not to bring the suit and acquiesced in the bringing the suit does that confer either to rid of standing or inability to bring a substitute trustee there's i know it's not directly really irrelevant to the arguments you're about to make but  bank of new york in breach of any obligation by declining to bring this action well not when they acquiesced to allow us to do so under the kaplan decision by the delaware supreme court their acquiescence to our bringing the have standing to bring these claims and we submit that the court erred under both theories of standing if i could start because of limited time with the substitute the trustee claimed the district court seemed to think that we were too late because having gone through two rounds of trying to plead the derivative standing in a fashion that would be satisfactory judge sheindlin in the h s b c case had already found to have to rivet have standing by the time this came teano decision which we cited on page forty four of the brief which makes clear that the standard is whether there is unfair prejudice or undue delay or till a terry tactics or bad faith none of those findings were made here the question is really finale's going to trump what would be valid claims that could be brought by the ins usa against the banks here and we would submit that that's not a sufficient reason that is a that is a breach of the discretion that the district court has to go back to judge carney's line of questioning you have similar concerns the bank of new york did not want to bring this action is that right correct to pursued judge carney's question not a violation of the bank of new york to do sherry duty as in the nj a trustee it it it would if there was no route that we could bring these claims but under the well settled kaplan decision in the delaware to before we go off to well settled cases elsewhere why this is an innocent view of these matters so forgive me but why didn't you sue the bank of new york for violating its for the surety duty because they gave us the permission to bring the suit there's no difference in how the suit is going to be prosecuted what defenses are going to be made how the recoveries are going to flow through is simply a ministerial question  who is best positioned because of their interest to bring this suit we had no problem in the sense that the bank of new york was giving us permission to pursue the very same claims that the bank of new york could so the real question here is given that this is not going to affect the prosecution of the lawsuit in any measure whether the defendants are entitled to a windfall because the district court was confused about the role that article three jurisdiction and standing play in the calculus of who has the right to bring these suits on to help us by pointing to a provision in the inventor agreement that gives the n g s and trusts a beneficial interest  list start with the granting clause which is it page eight for thirty four in vic ranting clause makes clear that the engine in trust estate is the beneficiary of any actions that are being brought the waterfall provision at two point zero nine which is it page a for sixty one the very last one makes clear that the certificates which are owner trust certificates are at the very end of the waterfall the certificates defined in the agreement in the indenture agreement as to those residual interests once all the note holders have been paid off for the benefit of the trust to state the owner trust certificate are beneficial a four thirty four what is it that i'm supposed to find in a four thirty four which is now open before me at a four thirty four if you look at the very end of the granting clause it says constitute all or part of including in the proceeds of the foregoing collectively the trust to state so everything this been granted here is to benefit the trust the state the trust the state in turn has a series of payments that are going to flow into it that right he four six one hopeless so if you go down to the a little roman at i ax that's any remaining available funds to the holders of the certificates ok so the  paid off if the guarantee provision has been satisfied and there is presumably money left over if the claims are allowed to proceed because the trusts have lost money on these mortgage securities so the question here is the only entity that has a beneficial ownership interest in these trusts is the ins usa as the liquidating agent it has an interest in the upside through these owner trust certificates as the guarantor the agency is obligated to pay the note holders if there is not enough money in the trust to pay off the note holders the note holders have no interest they have no incentive they have no power to do anything but collect guaranteed payments from the ensue so the way this trust was designed in the indenture was designed to be implemented was to give the ins he way both the potential upside and be responsible for the potential downside that's why the ensue a wants to pursue these claims notwithstanding the fact that the bank of new york is a defendant in similar claims in other places in therefore did not want to bring this particular suit so when you go back to the indenture it's very important judge to promise also to look at page five is section five point zero one which is on page eighty four seventy nine and if i could direct the court there it's very important to understand that the interest that the powers of the indentured trustee is the true and lawful i'm reading at the very beginning the issue are constantly irrevocably constitutes an appoints the  indentured trustee as it's true and lawful attorney in fact with full irrevocable power and authority in place and then it goes down for the purpose of enforcing the rights powers and  the issuer that's the in g n trust under the trust agreement which is the trust agreement that was signed and ratified the very same day and to take all the appropriate actions in order to do so and the  the a one subsection makes clear that the purpose behind act conferral of power is quote to protect the interests of the note holders and the guarantor so when you look at what the indentured trustee is designed to do it's to protect the power and the assets of the trust to state and one of the key assets here are these claims for breach of the fighters sherry duties in the breach of contract claims that have been brought on behalf of the n c u a for the benefit of the trust estate now the trust estate been links in and about i'm am i correct that there are two different kinds of interest one is the residual interest which is the upside that you seek to amend to that you can pursue directly and the other is a kind of equitable interest that remains in the other trust that as to which the payments haven't been completed or we don't really know how those are going to come out as that's right cause has to that those that you seek to amend to add the separate trustee to pursue those at the separate trustee will be pursuing both the separate trustee would be in standing in the shoes of bank in new york that would be under the theory that we don't have to rivet  standing under the kaplan decision in the way delaware statutory trust act works and if you were to disagree with the long and complicated briefing on that point we would submit that on the sets a number of district courts that have held that ways that right there are a couple of district cour that have held that way that is correct judge carney although what judge fail recently did in the wells fargo two case was to uphold the appointment of a substitute trustee blackrock yes that's correct and in that case what judge ferrer ruled was that there was no undue delay or bad faith or anything of that appointment so though that also was premised on her decision that the all the rights intertidal in interest  transferred that's the kind of thing that i bet that's correct and so what that does is that brings into play the interplay between the granting clause which grants all the rights and then the residual interest which is under t agreement which is set forth is section three point zero three that's it a five five nine and in that what the trust estate gets back the owner trust certificates so it is true that the granting clause gives all the rights but what the trust does is it reserves it specifically reserves these beneficial interests in bats the theory on which we are proceeding with this client right now understanding that this structure a after the defaults is that is that right that's correct and the reason judge carney was that when the fire of larcenous five of the largest credit unions failed the agency faced the most catastrophic crisis in the eighty plus year history of the agency and needed to find a way to recapitalize so what it did was it formed these trusts it took the toxic mortgage backed securities it put them into these  mortgage backed security pools that have been restructured in a way that a number of district court has found flawed is that right it i would snob say flawed i would say that for purposes advancing this particular form of standing the district courts have founded on satisfactory i don't think that you know from the perspective of looking at it from a standing to bring suit theory i don't think they c test that the bank in new york could bring these claims so ultimately what you're looking at is kind of a foot fault of the agency in drafting these agreements in emergency circumstances not square  exact language that would create direct standing it took several years for that to merge for the agency to accept that answer and all right title and interest meant transferring all right title and interest right and that's because the trust is self provided for the give back of the owner trust certificates which are clear beneficial interest and so when you have a beneficial ownership interest and the note holders have no incentive to bring suit because they're guaranteed there they get their payment guaranteed the only entity that has a real interest in the trust to states assets is the way either in its capacity as liquidating agent so that the estates of the failed credit units will have more assets and thereby be able to pay off more creditors or if these notes these guaranteed notes were to be insufficient to pay the note holders the ins you a is an agency is going to have to pay the guarantee so it is true that in litigating these over multiple years the district courts of the southern district have found you know various issues with the way these documents were put together but i don't think that that should affect what this court has to decide it which is in the face of valid claims where there is clear interest and there are theories for either derivative standing or an appointment of a substitute trustee we should be allowed to bring in continue the suits four he said down quick question about the second amended complaint can you tell us why you waited until after the second the men that complain of this move to have graham bush named separate christie yes because under lauralee financing case this court had held that a plaintiff should not be put to the quote hobson's choice of waiting to amend to do an acceptable theory of standing when it had not gotten a definitive ruling on the standing in place and we think that the district court here pre term it it is our right understanding under the law really financing case where these are admittedly complex transactions as complex as they were in the law really permits n c u a as a certificate holder issue or to direct bank of new york mellon to bring the r m b s claims that are at issue here and there's two fundamental reasons for that but the first is because the inventor makes clear that bank of new york mellon as the indenture trustee acts on behalf of the note holders and the guarantor the two parties that may direct bank of new york mellon as indentured to bring these claims are the note holders and the guarantor it does not provide that the issuer of the certificate holder may do that and that gets to a fundamental problem with n c ways derivative theory n c u a is seeking to bring these claims the r and b s claims on behalf of the end and trust the problem as judge force correctly noted and is just fire noted in the black rock case in is that if the engine trust doesn't have the claims the granting clause here is is very clear in its broad and by the granting clause the energy and trust assigned all of its rights and interests in the are m v s securities and the related claims to the bank of new york mellon so the bank of new york mellon has the claims and as a result of that n c u a cannot stand in the shoes of the end of the energy and trust and assert those claims now one important point to note also is if you look at the terms of the indenture and the indenture is controlling while the notes are outstanding while bank of new york mellon is still making these payments on the notes and still administer ing the notes it's very clear that other terms that the assignment of the r and b securities and the claims was complete you've got provisions that say that before the transfer of the trust estate which includes the the r b s securities and claims the trust warrants that it quote had good title to and was the sole owner of each underlying security and then after the transfer is completed the trust it says that the trust shall not have an i'm speaking of the indenture here section six point zero five shall not have a legal equitable or beneficial interest in the collateral account which is where the trust estate is deposit if we were to agree with you on that analysis judge fail allowed amendment to add a separate her discretion in denying leave to amend here because into a it simply waited too long and also because into a had a fair opportunity but we were you just in any way your honor this court's cases are clear judge forest notes allowing in the late stage of the litigation and she noted that eighteen months had had lapsed that it was a late stage but had discovery occurred no your honor discovery had just occurred but it had and it hadn't proceeded in earnest at that point but i would note that allowing the appointment of the separate trustee at that point in the litigation would introduce new issues new substantive issues into the case and that would include whether the extenders statute of limitations that applies to into you way is properly applicable to the separate trustee and if not which states statue of limitations applies there would be a cruel and relation back issues so you would have these new issues that would be introduced and understand derivative standing theory that was the that was an extensive amount of litigation over a theory that was doomed to fail and was crystal clear as the court noted after the order on the first amended complaint and so the point is that n c u a had the chance to present its derivative theory and when judge forrest noted in her order made two thousand and fifteen order dismissing the first amended complaint that it would have one more opportunity to plead it should have if it wanted to pivot to the issue to pivoted to the separate trustee theory at that point but it persisted with this derivative thing very and at that point  only party that had the terms of the indenture and had the terms of the trust agreement and if you look at the order on the form so you are saying that those terms are unknown to you your honor we didn't have the indentures at that point and we didn't have the trust agreement but n c u a did and if you look at the may two thousand and fifteen or so this is the order dismissing the first amended complaint judge force clearly puts the issue of assignment on the table she clearly indicates that whether and she way would have derivative standing or direct standing would rest critically on whether it had assigned the way the claims this is in the front half of her order from a two thousand and fifteen order i would also note that on the same day judge forrest issued that order  she had issued the phoenix light decision where she did have indenture language like the granting clause in front of her and she noted that that kind of language assigns away all the rights and interest in the in the so had before it not just an order from this judge that said that assignment was a critical issue but also in order in a related case and n c u a had asked that phoenix light be treated as a related case issued by the same judge dealing with indenture language treating it as a full and complete assignment and n c u a had all the information it needed to know that there were real problems with theory and it made the choice to persist in that theory instead of at that point seeking the appointment of the separate trustee and so i think it is really important to note that the district court did  give away the opportunity to present that theory and if it so choose chose to then move to the separate trustee theory and that's why the lorillard decision that my friend mister frederick referenced is an app is it because that decision involve a situation where a district judge did not give a party a reasoned decision identifying the defects with the complaint there had been no motion practice in that case were as here there were two rounds of motions to dismiss that a party has unduly delayed in presenting a theory the i would point to the case as an illustration of that even apart from any prejudiced analysis and we submit that we did suffer prejudice but even apart from that the district court here properly exercised its discretion let me ask one other i'm sorry i pedalling back to the very beginning of the case i understand you your position that way was not the proper party to sue in that it didn't have rights having transferred them all to the trusts but do you dispute that n c u a has article three standing your honor judge forrest we haven't pressed article three standing on appeal and the reason is because it wasn't the ground for judge forces denial of leave to him and he's just yesterday she made mention last year on it it wasn't the ground but i'm interested in knowing whether you would agree that given least the residual whether a plaintiff has adequately pled derivative standing may choose that ground and not reach the article three issue and that's what the district court did hear your it you are not taking a position you do not concede article three standing notwithstanding the residual interests of the agency is that no your honor we haven't litigated that but we would we would have arguments on that through our order of let me try to move away from for the moment from the quite subtle and important principles of standing the writ of plaintiff theory assignment and other indenture language just perhaps you could describe to us who far as who's got it i think you're owners of veterans who has the interests and in my friend mr frederick argue i want to ask it's a much more fundamental question sure if you prevail here well first of all why don't you tell us first what sort of the cree would want from us what what is the result that you want here and then tell us what the result of that decision would be sure your honor we would like the court to affirm judge for us exercise of discretion in denying in to a leave to supplement the complaint and also to substitute in the separate trustee if and then with respect to the unwinding allegations her discretion to deny leave to supplement with respect to those also and then to affirm her ruling on derivative standing at that point if the separate trustee wishes to refile attempt to refile the claims and to assert the are n b s claims entitle to try and do that and the statute limitations your honor we would have defenses and we would urge those defenses but the point is there's nothing in judge force ruling that prevents the separate trustee if it i resources and party resources she would not allow the the appoint the late appointment and supplementation to add the unwinding allegations in this case that's  was not a merits determination thank you it's clear i think from the presentation that the banks don't suffer any prejudice here except for the windfall that they want to have if they don't have to defend this suit and if there is not a permission for the substitution of mr bush's a separate trustee there clearly are going to be statue limitations issues and the pocket veto that he's trying to assert here is to be able to preclude us from bringing these claims at all which are concededly meritorious claims like to follow up and judge promises question i ask you to answer his question yes the money would flow through the trust to state in the way that section two point zero nine of the indenture contemplates so that the money comes into the trust estate and there's a waterfall provision that says who gets paid out what in what order and in those assets give us the range of value we're talking about hundreds of millions of dollars that we believe would be recovered in this action and that would alternately to the benefit of the liquidation the states of the failed credit unions through the owner trust certificates or to protect the agency from having to invoke the guarantee under the full faith and credit of the united states that was given on these rappers so the agency has a very strong interest here that's why you so as you general counsel is with me at counsel table because the agency cares about whether or not it can bring these claims and whether or not the substitution or whether you do it through derivative standing and i would submit judge carney that at the time all of this was happening we had order saying that derivative standing was ok so i don't think you can say that we acted in some dilatory fashion or in bad faith in some manner we had a discrete court decision from a distinguish judge saying we could bring these claims through driven if only notably many similar suits are pending there are three other in the country i don't know but the n c u a has three other pending suits in this are in this circuit in the southern district two of them are proceeding one on the derivative standing theory the other on the substitution of the trustee theory and the third has been in a band sort of expected that there would be others around the country but i take it you don't know well because  has the power over all the credit unions it has consolidated these actions against the trustee and brought them in the home form of the banks where the trustees were and so that's why there are only a few of these there are hundreds of millions of dollars at stake but what they would do is to flow through the waterfall now i want to make clear that there is no argument here about the futility of substitution so that part of the normal amendment process is not brought it's simply an allegation about the but the substitution was made six weeks after a definitive ruling on the second amended complaint was filed which i don't think given what and why not earlier because the bank of new york is a complicated bureaucracy the united states government is a complicated bureaucracy i think everybody did the best that they could in the circumstances this was the very first time the n c u a had appointed a separate trustee because at that time the state of the law was which is that we can bring these derivative standing claims and so it took a little bit a while to get the mechanics of that going up but i don't think that you could argue that there is a deal a turing us or bad faith on the part of the agency having to adopt what is novel ground now my my friend here says that the note holders have the power to direct that's actually not correct if you look at eleven point zero two of the indenture the guarantor has the so power to determine when the bank of new york would be able to bring the litigation and that is because the guarantor essentially is preserving is the final backstop on these trust a states  e the theory that he said propounding that the bank of new york somehow has some free floating theory in order to bring these claims really doesn't make sense if you understand what the role of a trustee is in a trust which is to protect the trust assets and he does not address the power provision which is five point zero one which makes absolutely clear that the only reason why the bank of new york is in this is to protect and advance the interests of the trust estate finally this cour inman makes very clear that outsiders to this type of trust arrangement should not have standing to be complaining about this judge carney i accept your point that the drafting here was not pellucid but the idea behind was that it was to pollute well it wasn't it wasn't if you accept the idea that the give back of the owner trust certificates made very clear who has the beneficial ownership interest of the estate and so the fact that the granting clause gives all the claims the empowerment clause of pi point zero one says how to exercise them which is protect the entire trust estate and so rajam and says if the beneficiaries and the trustee get together and they're ok with how to construe the trust document it's not really not for outsiders to be complaining about that the banks make that argument all the time when people are coming in complaining about their process agreements and here they're trying to use that is a sword to preclude the way from bringing these claims unless the court has an even further one will submit or give mr riley one minute because i've given you some extra time and so with respect to raj and that case is very different because in that instance you had a party who was not a party to the contract asserting contractual rights offensively as the plaintiff and here were simply noting that because and the engine entrusted that's important given mr frederick derivative theory that n c u a is suing on behalf of the indian trust that they've assigned the claims the way they can establish the black letter requirements for derivative standing as judge forrest noted and with respect to the provisions of the indenture eleven point zero one two the provision that mr frederick reference merely notes that the guarantor has to consent to any direction by the note holders but it's very clear that the is the point that judge carney adverted to a reference to a moment ago and that is that the granting clause is very clear and as as judge fire noted in blackrock the word all means all and all the rights and interests in these claims have been assigned to bank of new york mellon bank of new york mellon is not a trustee of and certainly not a statutory trustee of the trust it is an indentured trustee that represents the interest of the note holders in the guarantor and for that reason the derivative theory here simply falls apart and judge force was correct in arriving at that determination thank you very much reserve decision and thank you both for