where you could get under the table will use twenty of my thirty allotted minutes and reserved ten there are many errors are that have been asserted by the various parties in these three consolidated appeals however if the court aside the jury's finding on the aiding and abetting it will result eliminate all of the appeals and and across appeals and render various issues moved so let me begin there this is this is a case in which the class seeks to hold a corporation a publicly held corporation liable for aiding and abetting fraud of that was in business for more than ten years and the conduct that is alleged is the kind of a financing of providing underwriting services and alliance mortgage which we've shortened up to be fam co and they would get a mortgage where they would refinance so they would borrow money and they got money and they used it for whatever to reef remodel their kitchen or get a new car whatever they were going to do with and there's no doubt about that they got that those were real mortgages those mortgages  to these mortgages it held these mortgages that it owned so it would be like a real estate broker it would lean in would help fam cosell its mortgages so it would spell it in what's called securitization so they would bundle up the mortgages and they would sell them to the public and through the securitization when they sold them the mortgages would be released from the credit line the credit line would be paid off the excess would then go back to first alliance and it would have the cash or that you know the benefit of liquidating its assets so this was the transaction that was the same that lean and used whether it was first alliance mortgage or any of its other businesses there was nothing unusual about it there was nothing atypical about it this is the way the business  so that was the transaction and that was the way the mortgages and the money flowed between lehman brothers first alliance the public and borrowers the borrowers are the class of plaintiffs in this case the fraud that is a so when they received all of the written loan documents that accurately reflected the loan terms they were deceived because of world representations made to them will when the mortgages are being refinanced i think oh and fam cooperated in i believe seventeen states around the united states so this is happening in their offices around the united states there any evidence that lehman has any contact with any borrower any contact with this mortgage transaction any contact with the sale any representation to a borrower any  maybe that the key terms how you define contact and how you define knowledge and i understand what kind of celebrations are and i understand what they're not alleging what point is allegations are was concluded by the district court to be a basis for aiding and abetting and i think essential component in an aiding and abetting claim because in aiding and abetting claim you have to have someone who provides substantial assistance that means you have to participate in the fraud and in the excellent point which is proximate cause of the money that caused a fraud money alone in the cases are clear on that money alone because that's what banks do if it's if the rule of law is that b financing a company in need which is what lenders do they provide financing to companies that need financing if that's all you need to be found liable for aiding and abetting fraud then that's basically strict liability so if you have not lost a piece out there the question is if you know how the money's going to be used if you know this money is for a loan sharking operation nice if you know it's going to be running numbers or a drug ring or something at some level that knowledge brings you into the circle now the allegation here is that layman had deficient actual knowledge to be brought into the circle for aiding and abetting liability so i didn't strict liability as you lender knowing accurately how the money's going to be used in misused the i think that every case i don't think i know that every case in which i think it's been found liable for aiding and abetting the substantial assistance requirement has required misconduct and so there is no misconduct and what the court is suggesting in your questions right now is that other you know any bank any legitimate bank and you change nothing else about what lehman has done nothing else about its conduct it's changed you just changed is that laymen did that knowing how the money was being used knowing the lending practices and having actual knowledge of the allegedly fraudulent lending practices when i'm trying to distinguish errors seems to me you're making an argument that lending is legal so it doesn't matter what you lend to was long as you're not actually participating in what sam co or the borrower does and i'm suggesting that at some level in my understanding of california law aiding and abetting terms on knowledge conduct them to loan money to an institution that is engaging in some kind of a fraud well i don't think so because if you do that based on what has happened in this case in other words let me rephrase the question we have to learn refine the question is that is it aiding and is it misconduct for lending institution to lend money to another institution that it knows is using the money to perpetrate a fraud is actual knowledge and the there is some holding out in other words you are making representations you are lending your credibility you are cloaking that primary with situations and and having trouble understanding what it is this if you've got if you concede for the moment there was knowledge knowledge of what was being done my understanding i'll concede that but it seems to me the argument you're trying to make has to accept knowledge fish you're saying you need misconduct warehouse line of credit at the point the prudential walks away pampas out of business well i understand that that is the argument but the evidence is that that is their argument but the problem you have is that the the courts arguments again if this were raiding one of the  cause of one of the first or the harm it isn't the money that is you suggesting that the financing of the methamphetamine ring is not the proximate cause i mean the banks not producing the math so the banks off the hook and i don't think that's what the la operation but you know you is doing something improper let's talk about knowledge then for the moment then you have a case here where all you have to do is find a company that's  and so it could be microsoft and produces a due diligence report where the lenders on employee appears to conclude that in fact the operation is a house of cards and that they're engaged in fraud on funding proud know where the you know where it says there is no fraud in the operations he spends there is no fraud in the operations he doesn't like the business it displeases him it personally offends him but he said there was no friday in the operations he may not he may find it personally distasteful as maybe many of us who listen to the the employee mr huber the lehman employee well that's what i'm saying so here where you're having where there you're suggesting that there's knowledge this is nothing more than if you have a company that conducts to diligence then and you and you have a highly regulated company which first alliance was in seventeen states with regulators and none of which pulled its license during the time that it was being funded by the mn brothers and being scrutinized by insurance and being you know all of these things are current during the time of the but there are verdict or that finding well it's a much harder test for us well i think that the crandall that's what i was saying i think that on the substantial assistance is a much cleaner way to go because on the substantial assistance you have to show some conduct which is in line with all of the cases including the cases cited by the class which shows you are misrepresenting it doesn't have to be in th representation to the borrowers i'm not suggesting that lehman had to have done perpetrated the front but either had to have developed the deceptive sales practice train loan officer somehow been involved need a representation about fan coal what a great company it was how you should invest in something whether it's the nielsen case  one of those cases whether it's woods versus barnett any of the plaintiff cases the banks are doing something they are making in this representation they're repeating even the ninth circuit levine case three pacific was repeating this representations every time a bank is found to have aided and abetted they did something wrong they either repeated the farai if you were hold this verdict what you're saying to every bank is that if you do your due diligence and if you find any any possibility that the company that you were lending has had some problems that somebody later is going to say you should have known that when we look back lenders that they were liable for this are guilty of that and you're going to be held liable a inherently you have that risk of a jury or a finder of fact determining after the fact looking backwards you should have known that's a risk in our system inherently well but you do we do greatest i harbored we say lending by itself contexts financing unlawful conduct can be the basis for a finding of unlawful conduct why is it different here i understand the risk to banks i understand we're putting risk on banks of having second guessing after the fact that our legal system is institutional second guessing if a bank has actual knowledge i'm question one module lock block certain not an evidentiary question i can hear everybody coming back from due diligence  this is a loan sharking operation and they've got a drug business on the side and the bank continues to land do you say just because all they do is one thing and they're not doing the lawn shocking themselves are not doing the drugs they're not doing the prostitution or anything else is the banks in th sharking operation money is not illegal right i can lend money to somebody that's perfectly legal if they take the money and conducted an long sharking or use a divide drugs and have a drug ring that's the activit you know it was a fraud i was fool to and if the jury decides now than the bank roll goes down layman's saying here and i understand with with good evidence and good reason to believe they're speaking truthfully we didn't really know what was going on in the fraud we had the suspicion maybe got the suspicions were dissipated in the states hadn't actually shut them down in the lawsuits were going both ways so we didn't know and i understand that as being a perfectly legitimate defense but the jury defines you as you did now and if they did know why shouldn't they be held culpable if you can be held criminally culpable for bankroll plus knowledge why can't we hold somebody liable for bankrupt us knowledge before i run out of time when we tell you why first of all we didn't get the intent stiffest the primary that was do not how can you help hold us liable for aiding and abetting without an intent i mean it's a lesser stand tort it's the same it's just a secondary liability for fraud it's still fraud so there has to be an intent jury instruction so that's got to be reversible error so i thought you were going to start with yeah sorry all right the other but i guess what i consider the other easy one is reliance i mean under california law the class is entitled to a presumption of reliance when they have a uniform script they've got a class certification based on a uniform script the problem was their script didn't have a mis representation their case was based on oral misrepresentations so the class should have been decertified it wasn't so they are not entitled and did not could not and did not meet satisf reliance element of their claim they also didn't satisfy the damages done and they did not prove damages because they submitted and argued the wrong measure of damages and then overarching action the judge gave the wrong instruction ask about that situation peculiar situation where you have a jury verdict which the judge himself while trying to rationalize it says it's implausible believe the jury followed the russian alliteration that there's just no way around the fact you've got an inexact averaging of two numbers one of which is based on a low theory of damages which the judge unfortunately too late decided was out of bounds was inappropriate and i so far haven't encountered and usually were really lo get into how jury calculates damages but i haven't encountered a precedent that speaks to quite that situation where you have to calculations put in front of a jury one of which should have heard and it comes out with a conclusion that average as to what  lost money in every loan and made up on volume or what i mean that now it is getting it right into the ground because they went broke they got ran a grant or they were stopped you know what they would have been run into the ground around had they continue by becoming broke because of the amount of the claims that were building up your money well this is being what it is in this case if they continue to get liabilities they got deeper in debt that happens all the time this was  but that's exactly what happened there wasn't another lender in this country that would touch them because business operations now with respect to the appear on the issues conscience of the court how could it not this duncan stood up here you see a lot of bad stuff it takes a lot to shock us well that that is probably true in the real know the status quo prevails will be the only party who is more than made whole there will be no consequences financially to lehman brothers previous borrowers from fam co were not victims of the fraud which laymen aided and abetted because lehmann wasn't lending money before that's correct so i understand the smaller group i'm not sure why that's significant or why the larger group has much of a claim they don't have the same the fraud was true the fraud the bankruptcy as opposed as a fraud directed someplace else i think it's inequitable conduct and that's a pretty broad umbrella but i don't think it is that narrowly limited lehman found out what they knew their stock is characterization that they found the fraud that was explained by the man who wrote this on the witness stand and you read it in context is pretty clear as well fact that the legal system works and after the fact if you that that an ignorant fool may be in a better position than someone to digs around and looks for everything in the corner and get a mixed bag results in rarely is a response from an investigation one hundred percent white one hundred percent black you get a mixed sense and you make a judgment there and it almost discourages looking into the corners or investigating are really doing serious due diligence if in fact note that is found in one thousand nine hundred sixty five can ers are ninety ninety five in ten years later be waved around as evidence we never should have done that i mean if they had really known about the fraud it seems to me unlikely that lehmann goes forward because they're afraid that the borrowers don't pay back the loans and as a result all these securitized the mortgages they resold on the secondary market are going to go bad and that's going to come back to haunt laim in the air and so that's probably what they're more focused on but there's an assessment made all things considered that that's not a risk that should deter that wealthy now ten years later we're we're second guessing that isn't are you concerned about large more serious review or their second or view whatever their a few years later when they actually started lending the money nobody said it appears don't do it this is going to come back to haunt us their judgment was well it's a mixed bag here but to be bad paper but they've got lawsuits from those people to do so nobody knowingly goes into a transaction where you think the house of cards is going to come down and the money doesn't get repaid by the borrower than expensive erling you know no ordinary and typical lending facility would do that that's what makes this case so unusual i mean first union credential all the other all the other funders of this operation drop them like they were ready alaca do we know why they reading their internal memoranda and from the testimony from their own witnesses that they knew exactly what their vice president says i want to take a shower for meetings got talking about them more good than a lot of things about sub prime markets are are going to produce clean these feelings but what do you think their white shoes you know it's just it's a different world they don't like the flavor of it the risk is that the business model collapses and the mrs model collapse for multiple reasons the one that would most be apparent to me is that the b don't pay the money back the second big risk would be that whether the borrowers pay or not the state shuts them down and the operation comes down that way neither of those are are out of of layman's anticipation i mean they must didn't just lending to people that can't borrow money easily this was this was i don't know how to describe it it's long struck and all their interest rates are lower than credit card interest rates or our credit card however what happened was the court apparently felt bound and determined to enforce of our order a paper order from another case involving a larger class in a case that did not involve any kaypro claims our case no federal claims no securities claims and involved an intentional tort claim against a single non selling defendant the jury was not told what to make of question  y that is on the verdict form it was just a box and they were supposed to add up to one hundred percent and allocate percentages of the sponsibility first alliance the quote first alliance board of directors choose  individual loan officers were all put in one box when the brothers was put in a second boston m b i a not involved in any way and not really involved in the trial it always put in a third box the result of th infant chair and say it was his fault but the issue here isn't whether kaypro applies as a matter of law the issue is whether cipro applies reason as a result of the a stipulation that was entered into in connection with settling the bankruptcy and the other subtle meant and it appears to be as a matter of contract and agreement amongst the parties including the class plaintiffs that there would be this form of determination of abortions you're a liability not so your respect to this bar order because no one in the class side thought that even when the case ultimately went to trial against women on aiding and abetting fraud a california state more intentional tort claim this bar order was going to spring up to require this sort of allocation even if under california law laymen were entitle it to some offset and the control in california losses no if you're an intentional tort these are you don't yet contribution or indemnity very clear but even if they had been what they would have been entitle to at most was a straight offset there was testimony by a layman's damages expert dr karen at trial that the people in this class a very small subset of the people in that settlement class were getting approximately fifteen point eight million dollars out of that settlement and that estimate turns out to be high but let's take it as correct because the jury had that piece of information the jury could well have credited that amount fully certainly reasonable to assume that one of the calculation that was the piece of data they had and assuming that one was entitled to that which we say they weren't they got that credits so even if the entirety of this verdict the fifty million dollars verdict should be reallocated to laymen only and we say it should be they were he got the legitimate legal benefit of that cave pro order under its own terms now that's assuming they were entitled to that offset under california law we've cited all the cases from the ninth circuit from the california courts that say they w you can have a little leeway and maybe it doesn't have to come up for the final pretrial order but if that never comes up and the other side can't deal with it and can't attack it then they're prejudiced well we look i think confused here we have final preacher order anything else this is something the court's going to apply later if by its terms and i think one of the problems here quite frankly might be because the bar order was very familiar to judge carter and he's presiding over all this litigation and he might and i don't like to psychoanalyze judges he might have had it in his head that it was going to apply but i look at it frankly it seems to me it doesn't but thank you rather that's the problem it doesn't apply to that with respect to california claims there was a different system and at the time that order was entered this case that went to trial the next spring was part of that occasion involving not only women but at the time a larger class at the time present at the time first union and there were mixes of federal and state claims in those complaints the recall claims there were truth in lending act claims there was a mix of claims california law and we get proportional allocation we would have then said oh no you don't the bar order doesn't make new law that all common law doesn't apply here you can you might get caper on federal claims we don't have any of those against you but you can't have it here and we could have hashed it out of quite frankly it could have come up this court on peel if it were contested that that didn't happen it doesn't get raised not our job to raise it it's the job of the beneficiary to raise confusing the court my point was not only was an error as a matter of law to two for anyone to have done this if you're right the jury could have been told nothing about this and the judge might have after the fact decided i'm going to allocate it that way that would still be an error the error in the interest compounded because the jury is told to do something they're not told how to do it they're not told why do do what they're not told under what law they should do it because there is proffered one jury instruction on this point it was their jury instruction number thirty one and i took it from bajaj fourteen ninety one and they called it guidelines in determining comparative negligence which isn't in the case the bag i used instruction says you can't instruction in intentional case because you can't do this sort of application the judge to his credit didn't give this instruction it would have been paid in error to do so it didn't apply but the judge gave no instruction to the jury simply adopted the verdict form and at the result of this verdict form was the poor jury sitting here trying to apportion responsibility and damages among folks that never heard from at the trial and didn't even hear about it trial was pointing to an empty chair that wasn't there there were no one three chairs in the courtroom for the board of directors there is no ability for the jury to do this so the only just and fair is me either as a matter we're way into deficit spending but that's ok because other cases are being submitted today with regard to damages separate element of damages miss you actually i raised earlier we have what seems to me to be a peculiar situation because the jury is presented with two separate calculations by separate experts and the judge at the end of the game decides that the system or the new the theory applied by the plaintiffs expert is not appropriate we have a jury verdict that comes back after that the average of the two is there any authority that speaks to let me give you the same question i gave laymen and why and what we do want to enjoy clean yes i think i think if there was ever there and we don't believe there was it now turns out to have been harmless error that does not need to be corrected by this court why this year the california supreme court came out with a decision called robinson helicopter i don't have  damages remedies can be appropriate in a fraud case so i think if there is any error there and we don't believe it is this decision by the highest court in california on a matter of california law on damages creates harm i understand it's was important i'm kind of i'm sort of mystified as to what difference it makes at this point because as i understand it leads to two injunctive relief which doesn't really seem to be much on the table is there something there that would support a monetary award damages go to the jury maybe the court was jaded maybe its conscience was in charge but it was the jury that was entitled in the first instance to decide what level what degree of reprehensibly was involved in this conduct of creating a b district court with instructions for a jury trial on the punitive damages issue only those are the three areas of relief which seeking to have the judgment rehabilitated to hold lehman accountable harm caused by its own intentional misconduct to reinstate the seventeen two hundred claim obviously there will be no double recovery because the court  court thank you and if i could reserve one minute and i apologize for going over time thank you i wanted to address the bar order issues mr graves you said there was no federal crime but we've discussed the equitable subordination claim which is a federal claim under the bankruptcy act and that under the bar order you see that the court did rely on rule sixteen and section one hundred five bankruptcy code as part of its authority in entering the bar order so there was a federal claim asserted to the state law like i don't read it that away and there's nothing that says that and in fact counsel is referring to the briefs and if you look at cape roe and if you look cases you're going to have both state and federal claims as we did here and i think because i participated as did the crime ask and the drafting and lose our right to object and the quid pro quo for that was we would then have our potential liability limited to proportional liability on a going basis and that way we were not prejudiced by waiving our rights to object to the campus settlement because we there was no harm no foul we would never be required to pay more or then there would have been prejudice and we would have then we would have had something squawk about it and there would have been a quid pro quo that would have been a very bad deal and the way judge carter and they bar order we were required to appear at the hearing we were required to waive our rights or speak or forever hold our peace we had a right to appeal i mean i don't know what makes you a party to the bar order if that doesn't we want a party to the settlement that is true we were announced that only defendant who had the right statutory rights and had interests so we were definitely a party our interests were affected and as the they didn't want only certain claims to be restricted they wanted to make sure they had the broadest possible protection the business about the empty chair defense loan officers the the board of directors these were settling to descendants in fact we had asked that they be identified we wanted to list the settling defendants and the judge frankly did the class a favor because i guess he thought that if he listed them all it would be a small percentage for lehman so he group them and i think that probably an urge to their benefit and it's not an empty chair defense it wasn't we were pointing to them in order to prove aiding and abetting it's part of the class is job to prove the underlying defense they have to prove that vanco committed the fraud so they say there was evidence it was their evidence and they haven't mentioned judicial it stop they are traditionally a start in order to receive the benefits of the fan call for a settlement they had to agree to the proportion the judgment reduction provision of the bar order in other words unit would be entitled to the proportional liability which is called for they agreed to that they are now disavowing that by getting trying to get this court to order in effect what would be editor under the classes of you remain would be required to pay for the entire and for more then it would have pain have all of the parties gone to trial shareholders attempting to convert what was an ownership interest into a creditors right here at an ownership interest that he was trying to hide is a loan but here is the borrowers aren't complaining about a bankruptcy right this is wholly independent and so i think what the trustee is doing is they're confusing a fry that was allegedly committed in the aiding and abetting which is very different than it's committed on a creditors bankruptcy right so when you're trying to shock the conscience of a court it has to be in relationship to creditors right so that's why i believe that the district court was correct and should be talking about the bankruptcy concept of actually must be applied to just those equities when there has been a wrongful conduct the wrongful conduct by will and brothers created t i believe in the claim passionately your honor thank you that's