us good afternoon may please the court at david an f on behalf of the appellant who we will call the lender so we have two legal issues on appeal one is whether class acceptance any joint plan is determined per debtor or per plan and the other is whether a lender is entitled to full due on sale protection any time that it makes an eleven eleven b election now before you get too far i want to be sure of one thing am i correct in saying that the bankruptcy judges determination that this was fair and equitable is not being appealed it was stipulated to or at least not appealed is that correct if we could start perhaps with the one better one plan issue there is no basis in the bankruptcy code for a joint plan where each debtor is not required to meet the standard of confirmation in section eleven twenty nine absent subs and consolidation there was no substance consolidation here that's admitted that was a statement in the disclosure statement is there any difference between what happened here and what it would have looked like if there had been substantive consolidation because it i'm quite confused about why it kind of looks like this was treated like some sort of consolidation but that's an excellent question  first while there could never be subset consolidation because the standard could not have been met here since subsurface auditions a very difficult standard to meet but so i guess what i'm struggling with is if in fact everyone was sort of acting like this was substantive consolidation then maybe you should have objected hey wait a second there never was substantive consolidation officially and so why are you all doing this that that in essence was what the objection was that each debtor has to satisfy the plan confirmation requirements most importantly each of the debtors had to show that it had an accepting impaired class that in essence was the objection that was made and the disclosure statement said there was no subset of consolidation of the district court a plain reading tells me and it's a nice place to start i mean we don't modify by interpretation the statute the legislature has to make those determinations and if the legislator could have said it could have said it that it  required each debtor but did it talk about plans if you look at sectional levon twenty nine and each one of the requirements it's clear the bankruptcy code only contemplates one plan impacting one debt or one plan by one debtor it talks about the plan and it talks about the plan proponent it never talks about plans it never contemplates multiple debtors being impacted by a single plan and in fact the only way you could have that is if the debtors could establish a subset of consolidation which they which they couldn't and that is what you're saying is perhaps a legislator should have done a better job but he takes a look at it for with the legislature to legislature does and he says i don't see this is other than plain meaning of what they they could have said it differently and you're saying they could have said it all know what i'm saying and in fact it was pointed out in the tribune  decision that under the bankruptcy rules of interpretation i believe that section one zero two seven the singular shall include the plural the reading by the tribune decision is that therefore when you file a joint plan involving multiple debtors you're in essence filing multiple plans for each debtor just subsumed in one document called the joint plan not unusual in bankruptcy but you still have to show that each of the debtors satisfies each of the requirements of section eleven twenty nine and where do you get that out of the actual statute well if you look at section one zero two seven you know you went outside in looking at one one nine eight what is the wording in there that lets you know that you're right it talks about the plan which section one zero two seven says you interpret as the plants which in essence is what was filed in this case but if you but if you take the one on to seven at least as i like at it that would really amend the statute to read in quotes at least one class of claims that is impaired under the plans has accepted the plan that's what that could be construed to mean under one of two seven that doesn't really help you does it well it's each per debtor each debtor has an accepting impaired class that's what should be required in this case you know one of the problems i with this case is that both sides are really wrapped up in the facts and yet we're trying to construe statute and you know in this case you've got a situation where  i guess your client acquired the mezzanine loan or if you will and then use that to in effect veto this plan the mezzanine loan was worthless in terms of its original status because that was secured by the equity of the mezzanine holders their equity it's got now you've consolidated them under the statute you convert it so they would be secure but it seems to me kind of if you will little on just that something that was in effect worthless could be used in this way to veto a plan that affects so many people so many dollars and we and we know and i think you would concede the whole purpose of chapter eleven is to make company that might otherwise or a property otherwise fail but there is a value in control and in fact the whole basis of mezzanine lending is that if there's a default you get to step into the shoes of the borrower had there been no bankruptcy had been a bankruptcy of them as debtors there would have been a u c c foreclosure sale the mess lender then would have assumed control of the operating debtors and would have filed its own plan or done something different than what was ultimately d it was only by virtue of the mess debtors having filed for bankruptcy now what the bargain was before bankruptcy was for them as a lender to be able to step into the shoes and in this particular instance that was not allowed and the mess lender end up getting nothing so if i could just give you what i believe the consequences from as lenders of a ruling that affirms mez lenders have no meaningful vote because they can't block plan confirmation which was the basis upon which they made their mess loan to begin with is that they be the only creditor and have that ability to bankruptcy they're not entitled to state relief that is there anything in the documents that in this case intended and relied upon well there's nothing there's nothing in the record to show that that's just ok you just my understanding of the basis of mezzanine landing is that you're the only creditor and if there's a bankruptcy creditor i understand i did i've done a lot of lawyer in from as lenders and i've never heard anybody say that that was a lead pipe thing and that was a big deal why you did it most ms lenders do because they think they're going to make money because again i have a boat in bankruptcy so i want to be sure but here you purchase them so you get the vote right so i mean if very clear here whether obviously whether we bought the voter not however you rule it's going to apply obviously in other cases so that number one is you have no you have no ability to block confirmation which is what the documents you have you're not entitled to stay relief even though there's no equity in the collateral because because the debtor potentially can file a joint plan with the would anybody do it we look at this situation they allegedly put in sixty to eighty million dollars obviously they think they're going to make money here obviously they must thought that they came in into a situation where the property was at a very low valuation at ninety two million dollars and was going to pretty shot they thought they thought they had an equitable move our panel decided otherwise but they thought it was a done deal they're going to get interest only that's all they're getting into will they can get it out but if they knew that your client had the right to veto what they wanted to do why would they do it why would anybody well they they never would have gotten into that situation because the plan would not have been confirmed and presumably then well but then the lender would have stepped in and confirmed implications are of this role though here's what you're ruling will mean for her peers with the district court's ruling means for muslims no meaningful vote can't block confirmation not entitled to stay relief because the debtor might be able to confirm a claim based on how they did it here they're not entitled any payment on their claim because of the absolute priority rule as it applies to the creditors at the operating together level they have no standing to be heard in the operating debtors bankruptcy because they're not creditors even though there's now this ex post facto subsume consolidation it hadn't occurred before playing confirmation so they had no standing to be heard in the operating debtors cases and they can't raise the absolute priority rule because the mess debtors owner is not receiving a retaining price and the property under the plan so they have no ability to ask the judge to terminate exclusivity or to allow it to put in a competing bit based on the supreme court's two or three north to sell decision so ultimately what it means is where the underlying property is worth less than what the mortgage holder is owed the mezzanine lender always loses so i understand why your client doesn't want that but i am having trouble understanding if that's bad in general so it seems like but to putting aside the fairness of this case and what that expectations were when the investments were made going forward people will make their investments knowing what this new rule is and can you help me with why it would be a bad world for mezzanine lenders to have less have this regime you just described well if they end up with this type of situation where they have unlike healthy the bankruptcy court found  that just mean there would never be this kind of structure or would something else happen i'm trying to figure out if it's good or bad in this alternative universe that would be good and well i think the ruling would be very bad for me as lenders for the ones who already exist but what about the ones in the future i mean would they even exist in the future i would think they would be less likely to want to lend in a situation like this if they would end up with nothing and i think it goes beyond mess and is that bad for the world in some way i mean if there are no mess lenders what happened to these struck that's  step into the shoes you want to save any your time council we didn't talk about that time so i can you just answer those questions or the question about what why would it be bad for the world if people don't want to be misled or as you just would have far fewer transactions mez lending exists to bridge the gap equitable findings of judge hollowell are not being challenged i will focus my comments as such but i do think there may be a reason to come back and revisit that if simply for the reasons that we just heard which is the plight of the meds then even in this case for example judge hollowell did an eleven twenty nine b analysis and fair and equitable as to the mez lender in this particular case specifically and eleven twenty nine eight which required her to do so because they voted against the plan and she found in fact there was  rable equivalent as to the value that value by the way was a nature of their own doing back in two thousand and seven when they underwent this project they underwrote the structure of the project the independent entities but they wouldn't have if they had known that you might win this case right if you win this case if you agree with them that mezzanine lenders wouldn't enter these kind of a arrangement i don't know they would enter the arrangement in which they would be in a situation like this but they may say we need additional security we know personal guarantee we need additional protections if in fact we actually underwrite the same transaction in the same way i for one looking back on the economic crisis in two thousand and nine perhaps think that things were overheated this was a two thousand and seven transaction and perhaps a needed to have a little more conservatives in the underwriting and perhaps the most lenders should have looked for other sources of collateral other than the equity in that in the debt or in the operating debt or and perhaps perhaps even take a look at the relationship with the senior lend in the record the in a creditor agreements the subordination agreements in the like they put themselves below the senior lender and by the way we do have to appeal to everyone on behalf of the senior lender regarding the eleven eleven b alteration of a loan document not reversal all of a plan they're not asking for a reversal of the plan today no one is there only asking for a change of the senior land of the confirmation orders not to be set aside they're not asking for that i can show you in their papers but they're not and on the other side they're the represent the letters being frozen out here because the senior lender had the senior position and made the election an eleven eleven b that being said now i want to point out something which i think is cogent for the points you raised your honor and that is why should we have a purpose plan versus a per debtor and why does it work in this particular set setting and why did it work with all the other cases with where exception the tribune jamieson by the way with the motion to dismiss wasn't fully developed bad faith filing et off to the side unless you need me to drill down on it more in this case i did something and i did it late last night i did a little mind map of the facts of each of those cases and i looked at it and a couple of things struck me we really have an evolution of how business has been run in the last fifteen twenty maybe thirty years everything's being run by special purpose entities everything's being run by separate entities we don't longer have one large corporation we have an holding company with subsidiaries and then we have a single business that does everything together with all of those subsidiaries operating together that was certainly the facts in the s p ga case where we have a single holding company in ten subsidiaries and we have one plan being submitted under  in our case you're saying it was joint administration but it looks a lot like subset of consolidation doesn't it well it could in fact because of the joint administration say i'm going to look at all aspects but the separateness of the entities in the bargain force structure that was put in place in two thousand and seven was respected and in fact what happened in this case the operating debtors the owners of the property were reorganizing going forward and we were in just about year six of a very successful chapter eleven reorganization was don't lose sight intact in other words the ownership structures the actual structures the holding company was ultimately dismissed and it's no longer available the mess debtors have now been dissolved and they've moved on i wish i was making a slightly different point if i could just let me go back to it each of the cases that we cited from s p chief to the morgan chase charter communication to stations casino all involve a situation to where there is a single plan under ten fifteen or joint administration but the reason isn't because of somebody cobbling together various interests it's because the business had a reason and a purpose to exist in the first place and was hoping to exit the chapter eleven reorganization as an operating business going forward and needed the structure now there are several reasons these cases and said the joint administration was proper and that's a gatekeeper by the bankruptcy judge to be able to do that now in one it was because that's how businesses were run as p j all the subsidiaries with no act of the employees or anything else all the employees at the holding company running these they needed all of them to go forward and when you have the different tranches of classes the senior lenders and the junior lenders and the like that's you know you get your parent class voting in favor you move forward and you do your ten eleven twenty nine b analysis and you go on now in another one it was the structure of the lender that drove it and another one there was a structure of contracts along with the business that drove it as to why that was important so my point this morning or this afternoon sorry is that these cases as they have viewed as to the choir minister per plan or per debtor have looked at it as to the viable business reasons the entity that came into bankruptcy now again i postulate that thirty years ago or forty years ago when i was in business school this would have been a and i think part of their argument is the bankruptcy code anticipates that it would be one entity with one plan but here we've got multiple debtors and he's saying it should have been multiple plans but somehow we get this one plan which seems a lot like subset of consolidation so how did that happen  reality and this in this particular case there was no substantive consolidation didn't need to be subsequently all the days and there was in fact one plan for four or five debtors and the question here is yes a plan or or one of the documents act only one objection but if it's multiple plans then they have a better argument and if i don't quite understand whose fault it is that it's like things preceded as almost like every there had been subs of consolidation even though everyone saying i wasn't i'm still confused about how that entities that are now going to be subsequence all of it as well as getting rid of the corporate structures and basically having all creditors available to all assets of all those entities and then in the middle we have traditionally the ability to have joined in ministration of multiple debtors and to propose a single plan they're not mutually exclusive each of those are different buckets into the procedural and abilities for a practitioner and a bankruptcy judge to use and here the question is on a joint administrat one joint plan how the interpretation of eleven twenty nine and whether in the plain statute it says debtor or plan except you and i do have the mezzanine debtors have had their own plan then they clearly would have had the right to object if they were the only ones right those lend i mean and if that isn't a separate plan then this all would have happened differently because they would but it would have also destroyed the intricate structure that was set in place in two thousand and seven by these specific lenders this is how the structure was set up this was the operating group of entities this is how it was presented this is what was dealt so now in dealing with that you have separate are you saying that that's what they did when they set up these loans originally when the took the loans originally so you're saying it was the lenders idea to structure it up with all these levels that's true it was and that's how the inner predator agreements that's all the other documents and that's what i said i just postulated if the mess lender were sitting here rather than an ass in the us a senior lender would be making arguments on my side saying them as lender made that deal they were one hundred sixty million dollars below water they had no value in this their security interest is worthless in these to be cancelled to be able to have an effect of chapter eleven reorganization so on and so for structure that had these wholly owned subsidiaries you're saying that structure was dictated by the lenders yes how that's how i gather that your argument would be that i don't know what the exact number is but it sounds like tribune is the isolation i mean it's a rare out out in the field approach to the others are they approach you think is the majority and better rule i have my thoughts on tribune although you know in reality i think that the better reason cases are the ones that are single plan or joint consolidation there are one hundred eleven debtors in tribune but they had disparate businesses they had  operations they had television operations they had i can't remember all of them but if you read it the pinions eighty four pages i mean you've read it you sit there and go oh my goodness now i can see if i had a white board i could put maybe thirty of those in one plan and i could put another twenty in another plan and i could perhaps do that and i could structure classes that would be appropriate and i could perhaps get a joint plan for additional more than one debtor but when judge kerry was presented with competing plans he wasn't given that luxury and his initial ruling as you were called was that neither one would be fair and equitable to the objecting parties which i thought was instructive because he basically said go back and work on this and come back when you have it worked out a little bit better i'm running short on time and that's the one that that you're the appeal came from now judge barnes take a look at this he looked at the statute and he decided that it's very clear there may be reasons other things could be done but he looked at the statute and said he was going to be pre planned that's true do you know i haven't heard you discuss this so far but do you agree with the district judge that that is appropriate to look at the statute make a determination based upon what the legislature has given him in the bankruptcy court on the first issue absolutely the first issue on both parts of the appeal you would have to look at the statute and to do it interpretation of the plain meaning of the statute i agree and then make one observation about judge collins opinion of all of the cases that decided to by both sides on eleven twenty nine eight ten is the only one who has a review process in this is the only reviewing intermediate court that's ever addressed this because remember the original order was from judge hollowell which is the same level as tribune the original order by judge paulo is the same level as us so i actually give a little more weight to judge collins and the time he spends including the afternoon he gave us to argue that during that time period he did allow us to present including various parts of the statute that we pulled out and we had a very healthy dialogue as you see from the transcript with judge collins during that hearing and he did ask mr neff some of the questions he asked me and this boswell saw similar questions and i would suggest taking a look at some of the demonstratives the judge is a judge collins found helpful in understanding  s not only the legal rulings that a noble ruling on this statute but also on the of the fair and equitable findings which he found of course unclear or in favor of firming judge paul ok i have a minute twenty nine i have so much more to say what would you like me to i just i would just following up of what my colleague just mentioned i was impressed with judge collins opinion yes and like you i treated in effect as a reviewing if you will  appellate decision in this as it was reviewing the bankruptcy judge correct situation most the time when people appeal bankruptcy orders to district judges because they know they don't know anything about bankruptcy law and they can kind of do whatever they want but in this case the judge collins did a really really really good job is there anything in his opinion with which you strongly disagree no met fact not that he did get one fact wrong the amount of the claim by the senior lender was two hundred ninety eight million and he has an error two hundred nine the original amount of the loan but that's an intoxicant technicality and we chose not to put it out as far as changing the order now i think he walked through correctly both the legal and the equitable decisions that had to be made giving deference to both standards of review and i think that in the process of doing so he did in fact do a proper review and you agree that's a do you know full review on the initial issue as to the interpretation of the statute yes but when judge hollowell then why the mess lenders i was in a position that was fair and equitable at the endurable equivalent of what would be received in their chapter seven or if the going forward so we know that the court does a two step analysis in bankruptcy the initial is the legal here's what the rule says and now whether or not someone objects senior lender med's lender i now need to make the second analysis under eleven twenty nine eight i believe that's very very important because it is a two step analysis and by the way an issue in the issues presented both issues were presented in my pressured the clarity for mr net today that only the legal issue and the other one is there but i believe once you have the legal issue and no challenging the fine work the judge  have twenty one seconds we never reach the second issue but i hope that it was we all read that and prepared well for i hope the result here is ex post facto subsequence elevation there is no basis for it in the law and a ruling to that effect will have major ramifications not only to go to mezzanine lending but other types of debtors other types of lending into situation do you agree with his description of the corporate structure being dictated by the lenders because if that's true if there's no real purpose for the structure other than for them under this feels like the lenders can work this all out somehow the ice the structure here would have been dictated by the debtors equity holders desire to acquire the property and need to obtain a loan a mortgage loan as well as a mezzanine loan the first mortgage lender would not allow there to be a second mortgage  holder so the only way to acquire funs it's a bridge that gap that i talked about earlier would be to get him as an english which in essence is a subordinate position to the senior lender but most importantly with the control rights the rights to step into the shoes and ultimately what this case was about was two million dollars going back in the pockets of the equity holders that never should have happened so let me just as one last in with new capital to restructure something wouldn't they be frightened by the ability of a someone in your client's not your main not the senior lender but the other lender to frustrate a plan of reorganization well the bargain here by the debtor when they got the loan by the debtors actually holders was to the mess lender if i go into default you have the right to take over in essence and control the decision making for the operating doubters and what would have occurred in this case is the mess lender would have stepped into the shoes and basically been the debtor basically made the decisions for the operating debtors and could have chosen to file its own plan and then would have been at battle with the senior lender ok i guess your point you know other questions thank you both counsel thank