fully owned by the debtors in the chapter seven case the hollands mr and mrs howe once contracted to buy the farm in two thousand and seven for one point six million and right before the closing this signed that contract to metal lake a l l c that they formed just for that purpose three years later they paid seven hundred fifty thousand dollars or so towards the mortgage debt they borrowed all of the one point six million dollars purchase price and then thirty days later they sold the farm for eight hundred thousand dollars to beads and steeds which was formed at that time for that purpose by robert hale the howland's filed a chapter seven a little more than two years later and this action seeks to undo the transfer and or recover the difference between the fair market value in the purchase price let me ask you this question the transfer last transfer was from metalink correct and i know what your argument is about the confluence between them but it doesn't setting aside the alaskan vance wouldn't put that's the title back in the debtor's no there's another thing that has to zero and under the bankruptcy code section five forty four the trustee has the rights under state law as well as under the bankruptcy code the bankruptcy code five forty eight has a two year look back and so i think it's without question that the timing of this filing was beyond the two years of the transfer but to go back to what you  asked judge guy the necessary ingredient to garner the half million dollar plus that the trustee alleges is the difference between the purchase price and the value at that time is fourth the court to hold that the debtors and mental lake were one in the same the alter ego theory and on that point another question i don't want to get you off go back to the order in which you want to present this but you make the statement that the creditors debtors and mentally treated them as if they were one and the same but i don't see any support to demonstrate that that was the case so it's some point if you would address that but don't do it now if it's not well order that you're what i'm happy to address that because that really goes to the other claim for a substantive consolidation i don't think that's a necessary part of the claim with respect to alter ego the alter ego claim doesn't rely upon that is a principle fact  the direct they'll piercing theory under kentucky law at the time the court said that we have three theories that really achieve pretty much the same  instrumentality theory the alter ego theory an equitable theory and what the court came out with for again direct piercing is that the  person alleging alter ego liability has to prove that there's domination of the corporation by the owner shareholder or here unit holders because metal lake was a limited liability company and that the second prong of it is whether the circumstances that existed at the time of the transfer or at the time of the action that's being complained of would sanction or fraud or promote consolidation theory correct you're also in effect trying to consolidate under that's what happens with the use of alter ego theory or piercing the corporate veil you have a case where the kentucky courts have done docket and the i have the case here and i can give the citation in a moment but in addition there is nutrition rich vs nutrition resources a case that i apologized to didn't  it's pretty much the same holding again a court of appeals case affirming a trial court's utilization of peers in the corporate veil and that's a two thousand and three case it two thousand and three west law one thirty three nine three zero nine but in each case so far if i've been hearing you right you're saying well this lays out the doctrine of veil piercing but you keep calling your theory reverse veil piercing and does the one allow the other because as i understand it that the reverse does in effect consolidate not just change liability well yes i think judge group is asking  is there one that has that has a law and indeed done exactly what it is you want to say now you're saying is this leak case or that not even that one is really well both you know what was the no four cases don't do what you the court set up what it would do if there wasn't controlling president this actually had to do with kentucky controlling president and you look at analogous cases in relevant dicta in the supreme court of kentucky you look at kentucky decisions in actually what would the kentucky supreme court do the kentucky supreme court actually did do that in the interest tell versus lynn station case it looked at two seven circle cases it looked at bloomberg on corporate treaties it in its footnote five it looked at cases from three other jurisdictions and then on page one sixty six it said and i quote there is however authority for piercing the veil of any related entity i'm getting close to reverse bill piercing with that and in the quite there well i'm moving towards it and in in the  cases that are cited for that proposition of any related entity there are three cases one of them is from the first circuit your two thousand brotherhood of railway engineers versus springfield and in that case the issue was whether a subsidiary this is nonpoint but it's close whether a subsidiary could be held liable under the railway labor act for a  liability of the parent again this is alter ego this is how would you make a subsidiary liable for the obligation of a parent that is the  reverse theory and in in the in or tell case that gives you the roadmap of what the kentucky supreme court would do were faced with the issue i don't have precedent on point what with the kentucky supreme court do it would look to other cases that it's decided none really on point courts of appeals cases and with all due respect to the opposing brief there is no court of appeal case in kentucky that holds against this what we have is two cases that hold in favor reversed piercing and then we have quite a bit of foreign law to that point and i think the ok case is really a good one to look at because it involved a trustee and the trustee cannot proceed with her fraudulent conveyance claims under the bankruptcy code or kentucky law unless the transfer made by a metal lake kentucky limited liability company is converted into a transfer made by record your honor if i may referenced something that was discussed just a few moments ago if i understand the appellate argument correctly he seems to be saying now that there doesn't have to be a consolidation under reverse kentucky reversed bill pearson which by the way is the court knows kentucky has never adopted i take issue with that your honor because as a prerequisite for a trustee to apply state law there has to have been a transfer by the debtor the vehicle the statutory authority for a trustee to apply state law is a l five forty four and has decided in the briefs five forty four specifically says the trustee shall have as of the commitment of the case the rotten powers of or may avoid any transfer of property of the debtor in other words you don't even get to a reverse piercing theory unless there's been a transfer by the debtor i thought the maybe this is the man ticks which is what we deal in but i thought they were in effect there are reverse avail piercing theory was to make the transfer of a metal lake the transfer of alan's your honor and if that were correct then wouldn't that do the job and they're using you can't say you can't use state law for this theory if the whole point of the theory is to make it a state law a transfer of by the helens yes your hon and as has been recognized kentucky has never adopted reverse piercing the only kentucky destroying to convince us that they would if they got it i'm not saying he's right but i'm just saying proceed really seems to me that you're kentucky your forty four argument doesn't defeat that we're going to be right on the merits in your honor before the court can reach that conclusion court's directions in other words a prediction as to what the kentucky supreme court would say about reversed fell piercing in this instance the kentucky supreme court has at least addressed in dicta reversed fail piercing and that of course is the turner interest case which is was a unanimous published decision of the kentucky supreme court in that case there is an acknowledgement of commentary that kentucky would probably not recognize reverse f piercing moreover in the williams v oates case a kentucky appellate court decision on published it cites to turner and notes that same speculation value in terms of the determination because as it clearly states in the opinion and i'm reading from page four of that opinion on appeal the appellant's do not challenge any of the court's factual findings regarding alter ego  in other words the point that the appellate trust to make with the leak case was not even before the kentucky court of appeals it was never appealed to that body moreover this particular case furthers the argument that we've made about how reverse veil piercing may work if it were unexpectedly adopted in kentucky here just for a second because part of my problem trying to understand the case is different uses of terminology because when i went into this alter ego you know meant one thing to me from overall corporate law and i'm not sure here whether alter ego is simply a generic term for all of these kinds of different combinations or whether as you're using is here you it's a very particular theory your honor i would submit to the court that under kentucky law alter ego is a way to prevent pierce the veil it's a method to get to veil piercing in and in kentucky under kentucky law in essence what our dean tradition is less in your view than another view of alter ego which is the two are simply one which some people would use it that way write it in terms of if if i understood your question correctly judge in in terms of how reverse veil piercing alter ego may work the best indicator of that as pointed out by both of the lower courts is how traditional veil piercing works in kentucky that top of the piercing simply exposes the assets of the shareholder to recovery from a judgment debtor of a corporation when such assets would otherwise be beyond the reach of the judgment creditor due to basis for it in country because if you simply called it reverse then you would say it exposes the assets of the corporation to the debts of the shareholder precisely your honor and that still wouldn't get the transfer back from beads and steeds that's correct because that would not transform the transfer of the property by metal lake to stayed into a transfer of the property by the debtors to be in states the in that's also recognized by the fact that kentucky recognizes veil piercing as a remedy here the trustee is trying to use the remedy on the front end to in effect address a fatal deficiency in her claims it simply doesn't work like that and there's no indication under any sort of kentucky law that it would that harkens back to the leak case where in that instance which dealt with kentucky's garnishment statute there was a judgment first before there was any discussion of alter ego or or other similar matters i would like to turn for just a moment on the substantive consolidation claim that is a judicially created doctrine that pools of assets and liabilities to satisfy the debts of both entities isn't that the equitable doctrine that really was graded for the situation the trustee wants to use i mean use here right even though that's something that the trustee backed into i would agree with you judge griffith that was created for circumstances somewhat similar to this or at least allegations like this and i think it's interesting he says it's not my stronger argument well the the problems with that claim is found by the bankruptcy judge was that they make a point lack the civic facts i think under trombley that creditors relied on representations of the two were the same that or as of a company where they were the same in that there was not the act of assets and all these the factual proves that the only allegation was on information and believe and then there were conclusionary statements in there in the bankruptcy judge  original complaint neither beat neither meadow lake nor the debtors were even parties yet what the trust what the of trustee is advocating for is the combination of those two three reversible piercing when neither of them are even parties before the court at the time she made that claim and as i think the court is pointing out the amended complaint sounds in reverse veil piercing as opposed to subset of consolidation because substantive consolidation is focused on the creditors reversed veil piercing exposes or scheming veil piercing generally speaking exposes assets that are other wasn't available usual usually here they want to do it reverse right and substantive consolidation pools everything together so in effect there's one entity that has all the assets and all the abilities the reason the test for subs of consolidation is so focused on the creditors it's because the creditors are the what some section of the creditor body is who bears the burden of that yes my point is if there was a kentucky state law claim that the same thing  any of these concepts either one of them that we're talking about be any different in the facts which they are in of course or that the debtors form the metal lake one week later they transferred the property to me one week later met ole transferred it to the us and one week after that the debtors to file for bankruptcy your honor i don't know that it would simply because and sell a lot of attorneys and so forth and so on so the average person who isn't knowledgeable doesn't even know what the initials stand for so when i walk into an attorney's offices and i'll see i assume it's just one entity that i'm dealing with so that degree there is some perception out there by creditors that the merger of these people yes your honor and that's precisely part of what has to be proven before there can be a subset of consolidation finding in this particular instance under the facts as alleged by the trustee which both the bankruptcy court and the district court consider true for purposes of the procedure there simply wasn't enough for a the extraordinary remedy of subset of consolidation generally speaking what's even more extraordinary is a consolidation between a debtor into t and a non debtor at citi because what they've effectively asked for is for metal lake to be deemed a debtor has of june not teen two thousand and seven that opens up a whole host of other unintended consequences for example under eleven us c three sixty two the automatic stay provision the back bankruptcy code transactions made after a petition is followed in other words after a bankruptcy is begun may be voidable that could mean every transaction that metal lake had since two thousand and seven is potentially voidable it increases the jurisdiction of the bankruptcy court under twenty eight u s c thirteen thirty four there's just so many it's such an extraordinary claim is such an extraordinary request that subset of consolidation between a debtor entity because of the impact that it has on the creditor body and frankly the understanding general understanding of commercial law in bankruptcy law cetera et cetera is just profound and it's for a fair value that wouldn't of occurred but what's lost here i think although we're trying to address the legal issues but what's lost here is a real very real fact that the debtors continued to thousand we are in so i won't go into it but at one thousand dollars a month rent for an eight hundred thousand dollars property you've got to know something else was wrong here would a creditor know that they were  i know what i meant to say is this was an inside deal and is alleged in the complaint the promise was to reconvene this to the debtors once they were able to repay the purchase price and in fact alleged in the complaint the debtors father paid off the purchase money mortgage beads in steve's gave when they bought the property and that they borrowed all the money and all of it's been paid back to the bank and the debtors father did not take even a mortgage on it i want to address the two kentucky cases that opposing counsel refer to the supreme court case that is referred to  and it was not even an issue about piercing the corporate veil it just i mean had the wrong party and in the other case the williams case the court very clearly said there wasn't anything raised below it as to the issue of piercing and there's no case law cited i think we've got that your time ok my colleagues for the questions thank you that will be submitted and clerk  ay call the next case