a please the court this is larry robins for appellant mark kirschner the litigation trustee going to begin with the imputation question in the intentional fraudulent transfer claim against shareholders in dismissing this claim district court held that the fraudulent intent of tribune's senior most management could not be and he did to tribune less management effectively controlled the special committee's decision to approve the l this control test for imputation is wrong for at least three reasons st basic common law imputation principles tell us that the district courts controlled test is mistaken for more than a century in both civil and criminal cases the intent of a corporation has been imputed from the intent of its agents in federal criminal cases as justice harlan explain more than seventy years ago us against a n p trucking quote it is elementary that quote impersonal entities such as corporations quote can be guilty of knowing or willful violations through the doctrine of responded superior or is this court put it more recently in us against th century fox quote once it is determined that the corporate agent wilfully violated the law the corporation  responsibility indeed that is true even where the corporate agent who harbored the wrongful intent lacked control over the ultimate act of criminal wrongdoing that is the lesson of cases such as u against short accountancy corporation cited at page thirty two dollars of our opening brief and of course the same holds true in civil cases in which the actual intent of a corporation is an element of judge code for example applied common law principles imputing management intent of the corporation lyondell the case materially indistinguishable from this one and in which judge cote reversed the very bankruptcy court decision on which judge sullivan relied on the supreme court's stop decision makes precisely the same point there as here the court was construing a federal tort statute and therefore quote likewise governed by basic common law imputation principles what's striking about staub is that the th circuit in that case had applied precisely the control test adopted by the district court in our case  imposes on the special on the board of directors approval responsibility for mergers if therefore thought that only the board's intent or those who control the board is relevant of as a matter of federal common law which i completely dispute but even if you thought that section two hundred and fifty one dollars if you actually take a look at it makes clear that there's a whole range of actors whose can competent  conduct is necessary for the approval of a merger yes it's true that the board of directors must approve but it all but section two hundred and fifty one dollars a also requires a merger agreement which is almost always negotiated by management section two hundred and fifty one b says that the merger agreement must be executed in the knowledge by an authorized officer section two hundred and fifty one c one requires a majority of outstanding shareholders to approve section two hundred and fifty one c two requires that the corporate secretary or assistant secretary certify the shareholder approval and the point of this judge chin a statute that disperses merger authority over so widen a ray of corporate actors plainly has no role in defining whose intent may be attributed to the corporation under federal common law the correct result we think is what the supreme court said in stub where as i say the th circuit had applied precisely the control test that district court did in this case it's the th circuit had said that because the employees who possessed the wrongful intent did not have quote singular influence over the actual decision maker the intent of the bad actors could not be attributed to the employer supreme court flat rejected that standard in favor of a common law proximate cause test for imputation and i also think your honor that is the correct reading of this court's more very reasoned decision in jackson against aber as we set out in our twenty a j letter this court in aberdeen jackson said that the knowledge of certain lower level employees who lacked control over the actionable statement could still be imputed to the company if those employees had at least as this court put it connective tissue to the actionable statements so you have to ask yourself where exactly did the district court come to decide what was the basis for departing from these well settled common law imputations in one well well let me let me just say then very quickly as we explained in our brief the standard was extrapolated from a line of so called transferee intent cases where in essence the transferee by virtue of of his control over the company stands on both sides of the transaction we are obviously not invok the transferee intent exception in this and i'll make one last point if accepted by this court the control test would work a sea change across a broad array of cases in which proof of actual intent is like was required imagine as we suggest in the brief a company like enron that engages in some improper deal with a related party but but where the knowledge an intent are siloed only within management it turns out that under nasdaq a new york stock exchange rules the order committee has to give final approval does that mean that if knowledge and intent is siloed as supreme court warned about install a prosecutor would have to decline the case if it can't prove that the audit committee shared the same wrongful intent the senior management the problem with the controlled test your honour's is that it rewards just such failures of internal controls and departs the trustee has settled with the directors and officers that you're you're saying had the requisite intent i believe that to be correct yes ok what the erie on what w did the settlement not not actually identify a theory you know i'm not sherry duty aiding and abetting the what theory did was the action pursued against the officers well there were there were a number of claims against the officers originally in the case there were breaches of fiduciary duty there were fraudulent transfer claims i cannot actually tell the court whether one or more of those claims was somehow specified in the settlement agreement candidly i didn't i was not involved in those negotiations why can't i understand i thought you might know that my no no i mean why i cause my the question i want to ask you is in this action which on this claim and others you're basically looking to claw back from innocent shareholders what more wrongdoing is it that's being and st i don't accept the premise of innocence i realize that that talking point is repeated many times on the other side streets and i understand why it's a rhetorical vantage but it isn't correct the large seems to me legally irrelevant whether or not the beneficiaries of her fraud were in on a scheme does not make the scheme any less of a fraud and it is of course sound public policy it seems to me that companies don't engage in siloing information so that the person is tasked with approving a multibillion dollar transferred to thrusts a company into bankruptcy through a fraudulent transfer can't invoke a see no evil hear no evil defense so you know i guess i guess the short answer judge reggie to your question is that although we have settled with management and the management was were the prime movers in this transaction which is of course why their intent should be should be and ollie's typically is imputed to the company it remains a fraudulent transaction for from which some eight billion dollars of money that he or  and this case in particular are entirely unique quite the opposite of mr robin suggestion that there is would be a sea change in the law let's start with the fact that this is a unique standard the standard of actual intent appears only in the us code in connection with intentional fraudulent conveyance claims and that unique lee demanding standard was adopted precisely because as judge reggie noted  the liability here is not borne by the employer you're on the basis of the employer's employee's x it's rather borne by entirely innocent transferees now i know that mr robbins has claims against the principle shareholders and that will be addressed in the next argument my clients are pension funds passive investors who simply own shares in one of the country's preeminent public companies so with the actual intent standard congress specifically distinguished the standard of liability under this statute from the other circumstances in which the intent of any and every employee is imputed to the employer the standard i want to note by the way that not only was stealth never at argued below neither was this notion of proximate cause asian or now respond what the statute does by saying actual intent of the transfer or to defraud creditors it makes it the intent of the actor with in the transfer or who effect transfer and here again another aspect of this case that unique is that were lost auction to fifty one specifies that the board must adopt a resolution recommending that the merger that distinguishes again this from any of the many types of transfers that might be covered by the intentional fraudulent conveyance that you if it's a run of the mill transfer of course many employees would have authority to do it and it would be the intent that the employee who actually did in this instance yes in this instance state law specifies that this decision was so extraordinary that it required the board to make that the board delegated to a special committee of independent directors and the special committee of independent directors here engaged independent financial advisers at least to advise them as to whether this would render the company insolvent it got two opinions that said no it would not that the company would be able to continue to make payments after the transaction trends out about what about the what about the argument that the officers misled the special committee you with respect to morgan stanley but the allegations show otherwise there was no allegation there's no allegation in the complaint that morgan standing upon and that the company would not be able to refinance seven years later rather and this is paragraph three hundred and sixteen dollars and their stupidity six they said the quote they were unable to make a representation unquote on that question and seventeen they said based on management best understanding of the debt and loan capital markets and management's recent discussions with morgan stanley management believes it is reasonable and appropriate for b r c to assume tribune would be able to refinance and this is of course with respect to refinancing some seventy eight years into the future so there is no specific allegation  miss conduct by the officers they point out the valuation i'm sorry go ahead financial statements pursuant to financial accounting standard number one hundred and thirty three so obviously this was a question of valuation that required the application of expertise no allegation of fraud even with respect to mr robin suggestion that the complaint specifically alleges intent on the part of the officers a draw the court's attention to paragraph three hundred and seventy nine dollars which is the principal paragraph of count one which  is actual fraud count the paragraphs b and c what they allege was that the officers knew or were reckless or grossly negligent in not knowing that the l b o would render tribune  this case is not the quintessential intentional fraudulent transfer where somebody gaijin an accident knows they're going to be sued goes home and transfers the house to their child this transaction took place in the public securities market under the harsh light of day with the scrutiny of wall street analysts of very sophisticated lenders who are lining up to lend to this l b o with the investment of a very successful investor in sam's all of that sets this far apart from the types of case that mr roberts is relying on i do want to get to style because mr robin lives so heavily on it stout did not involve an actual intent standard the standard of liability addressed in style was a motivating factor now a motivating factor the courts  that was consistent with the notion of proximate cause the court went on to say that of course an injury could have many proximate causes other words there could be many multiple actors acting even perhaps with different intent that you were concerned with here at actually requires the actual intent of the debtor which suggests that is the intent of the actual decision maker that matters and the closer priem court has been very clear that when congress uses were actual which might in some respects seem super  it's doing so to to underscore that this is not supposed to be intent that is imputed to the corporation and specifically in intel and then it gets or the court distinguishes this notion of actual very instructive here in gaps are the court said that the district had no knowledge now of course the employees who was engaged in the wrongdoing did have knowledge of  wrongdoing and the dissenters in gaps or said that that was enough employees knowledge could be imputed to the district but in order for the district to have liability there they said it was not a sufficient  responded superior or a curious imputed liability rather it was necessary that it be an official decision of the recipient which required actual knowledge of an official with authority here there is no allegation that the independent directors who made up the special committee had an actual intent in fact they specifically engaged independent financial advisers who did an independent analysis and provided them with advice that the tribune would be silent after the deal to the extent that the trustee alleges that the independent financial advisers should have done a better job that does not equate to the statutory standard of actually thank you very much i thank you robin you have some rebuttal time yes thank you judge chan i'm going to try and make four or five points very quickly we lost count one for one reason only was because of the control test for amputations i did not hear mr hole were dream wire defend the proposition he did try to tell ever to minimize its consequences first by saying that actual intent only occurs in a handful of statutes relating to fraudulent transfers not so it is the legal equivalent in all material respects of every single federal felony statute on the books all of which require the same actual intent sometimes called specific intent sometimes called just plain intent but it's the same rule and in for more than a century in federal criminal prosecutions common law imputation standards of applied point to the suggestion that we did not argue the proximate cause standard below is false in our memorandum in opposition to page twenty six dollars counsel for the plaintiff specifically said that the officers intent should be imputed so long as they had a quote causal effect on the l b o age twenty six of the member as memorandum in opposition the rd point stop is supposedly irrelevant because it deals with some particular statute also faults this was the supreme court could not have been clearer that it was construing the statute as it did because it was a federal tort tort statute and therefore was governed by the background principles of in so many words that it was not applying common law principles because as as the supreme court read title six summary title nine which was the subject matter of  said specifically we do not have a warrant in this case to apply common law principles they have been foreclosed this case is entirely different this case is like staub where the background principles of applied for one hundred years in every context should have been applied here and the flash point i'll make is that if the court nevertheless adopts the control test on the basis of which our count one was dismissed we believe for the reasons we stated in our brief that we've alleged that the special committee did in fact have the requisite intent but we think the imputation standard is so plainly false that the court need not reach that issue and i thank the underlings intentional misconduct so that if you know someone with the requisite intent to misled his manager his managers analogy to p he misleads the o unintentionally the c e o misleads the board unintentionally and the board goes through with some project do you agree that you would attribute liability to the cut the corporation or the company in those circumstances or is there a limiting principle to your argument i think i think your honor has identified a challenge in this body of law that's persisted for a long time and that  has spawned a surprisingly large volume of ten year pieces in law reviews mercifully this case requires no such limiting principle in this case it's the c e o and the c f o who carried out the fraud who who lied to who read you know who created a full set of projections covered them up until step one closed you know lied to the valuation firm we don't have to look very far down the food chain to the person in the mail room this is the guy at the top and i just don't know of a single case in which the c e o's wrongful intent has not been imputed to the company even when you're putting the company in corporate jail and so i i recognize that there may be limiting principles and i just don't think the court needs to wrestle with where the line is because we're way over the line your honor in this case officers and directors in violation of delaware law the district court dismissed that claim on the grounds that the trustee had not sufficiently alleged insolvency at step one of the transaction that holding rests on two independently reversible mistakes about a controlling delaware law which everyone including the district court understood to control the inquiry the st error has to do with the collapsing two steps it's our submission and then let me just say the district court recognized and agreed that we shall and we sufficiently allege insolvency it step two but held that the step two debt could not be considered in assessing solvency at step one so the st error is with respect to whether these two steps should be collapsed in the district court's view the delaware law doesn't permit collapsing unless the nd step was quote certain to occur after the st step now pelleas tell the court that the district court didn't actually apply a certainty test for collapsing but frankly there's just no other real way to read ages fourteen to fifteen of the court's opinion this is what the court said quote even after step one closed it was never certain but step two would occur and lest anyone miss the import the court italics was the word certain the court then reiterated the point on the next page step to the court said quote never became inevitable and for good measure the court then contrast that the l b o the tribune l b o with the transaction in sabine in which the district court said the nd transaction quote could not have been stopped or reversed no one before the court this morning will defend a certainty test for collapsing under delaware law the correct test has been set out in no fewer than four recent delaware cases a pair of two thousand and nineteen decisions by vice chancellor laster williams field services and p w p team decision of vice chancellor bouchard in corrigan's new enterprises associates these cases and others make clear that there are three alternative and independently sufficient tests for collapsing none of which require certainty and we need all of them we certainly meet the so called end result test no one can seriously i want to ask it a different question please i mean the collapsing  breach by management we would have to show that they were fiduciary in their own right but if i if i did have to defend the proposition that they were to do shares in their own right i would point to the following allegations in the complaint that they showing that they held thirty three percent of the shares and four of eleven board seats that they threatened management that if it didn't take prompt action to arrest the losses of stock value they'd lose their jobs by the way the shareholders say a thirty two page thirty two of their brief that the complaint provides no specifics on that thread and they cite joint appendix three hundred but they failed to read the whole complaint paragraph one hundred and thirty two on twenty five quotes mr steinhardt the trustee for the chandler trust and a board member threatening quote possible changes in tribunes management and quote if nothing was done to enhance stock value but to get back to the point you have wanted well ok i apologize then let's just say that the we believe we've met all three tests each of it which is independently sufficient the end result test the interdependence test here the district court constrained by this court's decision and pereira from twenty five years ago thought that delaware cashflow solve insolvency law requires doesn't permit a district court to look to debts that are yet to mature that may have been true when pereira said that twenty five years ago although frankly i doubt it but it is absolutely not true now there are already series of cases from delaware but let me just point to one of them the delaware bankruptcy court applying delaware insolvency said in two thousand and eight in re tell a globe point blank quote the cash flow test forward looking in the sense that it is not enough to be able to meet current obligations the st the firm must be able to meet its future obligations as well i'd also cite production resources quadroon structured products which e courts are obligated to defer to state court constructions of their own law even in the face of a contrary panel decision such as pereira and to that i cite yes wrote this delaware l any guidance as to how far out we look to see if debt obligations are going to be payable i have not seen anything that states your honor a judge reggie a hard and fast view on that but again this case doesn't call upon the court to draw a terribly bright line for one thing the district court flatly refused to look at even a debt that would come due the next day because that because the court thought that's what pereira required the court to do the nd thing is this was a debt that was highly likely to come due as we allege in the complaint in multiple two closed in december and then the company was catapulted into bankruptcy within the within the following twelve months i'm sorry but also did inform our consideration of this that transaction cast from the outset to achieve a certain result nothing could be plainer than that step two was essential to the very rationale of this deal step two doesn't clo company doesn't become a subchapter s company it doesn't become entitled potentially to claim a one billion dollars in tax benefits which sam's ilse company is alleged to have said publicly was the only rationale for this transaction making even a lick of sense merit merit i just ask you to explain that a little more because my concern is is that i thought step one achieved one of the princip objectives which was getting cash into the hands of shareholders which it did to a significant degree even if step to what was never approved and never consummated so in that sense foundations wanted off the ski slope as early as possible that's why they asked for an early payout as a step one transaction i grant that but i don't think that changes the analysis under delaware collapsing well delaware collapsing law asks among other things was the transaction cast from the outset to achieve certain purposes this transaction the only rationale for the the the overwhelming rational the only way it made sense to the merging entity was to achieve what step two permitted if step two doesn't happen there's no subchapter s half of the shares are still publicly traded the company doesn't go private sam still doesn't own it his entire rationale for doing this deal evaporates yes it's true in step one some of the trust and foundations got a big payday that's why they wanted a two step transaction but again the fundamental attributes of collapsing law in delaware make clear to stop step two from happening long after step one so i don't take into disagreeing with the just records understanding of how these transactions operated instead of just arguing back the district court applied the wrong  that delaware law would allow courts to collapse transactions even when they are in substance distinct baksh and so long as they were both intended to further but it sort of single and middle that's just not the way delaware collapse law because all sorts of strategic corporate objective require multiple different transactions and steps along the way to accomplish that with the end result formulation is asking the same thing as being factors and it's really every other doctrine which is what is the substance of the transaction do they have independent substance can they stand alone even if they're related to each other could they stay alone do you understand what they're accomplishing what the parties were intending accomplish even if both don't happen or are they touch that they only are designed to accomplish one and only one result and if one doesn't go forward the other basically couldn't go forward would have to designed and intended to be able to stand even especially sided as a matter of law a mission murphy how is that decided to matter of the law sure i think you know i get intended for that purpose i think the reason it can be decided as a matter of law is because the trust the phone was not some sort of formality to try to disguise what was really one transaction what but would rather because of what your honor noted earlier shareholders wanted a transaction up front that would give them the opportunity to get that all you even if  those are his own allegations now i'd point you to paragraph one hundred and forty nine and two for the complaint where the trustee is alleging that it was because the foundations and trust had concerns about the l b o that they wanted basically a strategy that said you know put your money where your mouth is it give us something upfront that protect us against that risk so i think you can decide that matter a lot here because there really doesn't seem to be any dispute about that just the tip about you have obligated yourself to pay money in the event something comes to pass it's just that whatever that trigger is may not yet have come to pass that is not how these transactions restructure tribute did not have an obligation to proceed with step two it couldn't have an obligation to proceed with debt to at the time duck one because it could not proceed with step two unless and until it obtained things like independent government agency approval and right to payment but the trigger hasn't happened they're asking you to take into the solvency analysis a debt that tribune had not taken on that one and might never have taken on at once and there's just no support in any of these cases that th case there's no other way to read pages fourteen and fifteen and understandably i did not hear mr murphy defend that proposition it is not defendable under delaware collapsing will the cases that i've cited make perfectly clear that step two did not need to be certain in order to be collapsed and the best case i can offer is williams field services from two thousand and one teen by vice chancellor last or where the nd step in that transaction the so called for collapsing under delaware law judge vice chancellor laster collapse the transactions we have alleged abundant reasons why these are a single integrated transaction but i would call the court keep you know to separate the forest from the trees we lost the cash flow solvency issue what step one by virtue of nothing other than the force of pereira which judge sullivan understood understandably thought for bad him to look at future debt perera is no longer good law if it ever was i've cited a series of cases including in my arguments morning that make abundantly clear that delaware law doesn't look to future debts in calculating in determining whether or not a solvency test has been satisfied pereira thought otherwise it was wrong then you were if you were increasing the burden on the company so there was no benefit to the company to take you will have greater debt and higher rates so that that would not occur to the benefit and it did nothing it did nothing to help abet breaches of producer duty although the district court cited the stewart case it did not apply the fiduciary exception to force not case which was adopted by the delaware supreme court as morgan stanley and b r c acknowledged in the group and merrill lynch which served as arm's length nonfat to syria advisors that solicited the different parties interested in purchasing tribune and advised tribune as to those beds the trustees claims fail as a matter of law now mr lack this morning focuses exclusively on the claims for aiding and abetting breaches of the two siri duties and for professional malpractise and so i'll focus on those claims this morning on those claims the district court correctly held that the claims were subject to  doctrine and could not be saved by the adverse interest exception that exception applies only where the alleged misconduct soley benefits the participating corporate insiders the trustees reliance on a different exception the insider exception is forfeited and also acts merit delaware law has never extended that exception beyond quasi fiduciary such as auditor's to non citizen area advisors such as apple ease now on the adverse interest exception that exception applies where as an objective matter the participating corporate insiders were acting solely to advance their own personal interest rather than that of the corporation itself in footnote four of his brief the trustee concedes that a short term benefit can be sufficient to satisfy that standard and there's no dispute here about the relevant facts if you look at the chart on page thirty four  trustees brief which is taken in turn from the complaint itself that chart makes clear that the three hundred million dollars in new capital that was injected into tribune was used for among other purposes paying off preexisting debts and also repurchasing share those are sufficient benefits that constitute corporate benefit at a minimum those benefits illustrate that this was not a transaction where the insiders were acting solely to advance their own personal financial interest there's a good reason to do this exception applies only to cases involving fast or and puzzlement or similar misconduct  lacker argues that the payment to the lenders resulted in an increased debt burden on the company but of course that's always true of a leveraged buyout and it illustrates that if the trustees argument were accepted here any leverage buyout would be subject to the adverse interest exception on the insider produced theory exception we point out that the reliance on that exception is forfeited because the trustee made no effort to invoke that exception or to rely on stewart even though it down almost four years before the district court's ruling on the motion to dismiss but in any event that exception is plainly and applicable here in stewart the court said that the insider fiduciary exception applies only the enemies that occupy a position of trust within the borders of the corporation but here at police were acting as outside and visors and not just any sort of outside advisors they were operating at an arm's length and their engagement agreement took pains to make clear that they potentially had a conflict of interest by virtue of their involvement in the lending aspects of this transaction as well and so extending the insider exception to these circumstances would go further than the doe records have to go after corporate insiders who have engaged in wrongdoing unless the court has any questions we would ask but the judgment as to citi group and merrill the firm thank you thank you from your colleagues creditors are a serious damning admissions in the papers that were submitted in the release by the trustee in which they candidly met that they are seeking damages quote where the benefit of the creditors and i think nevertheless judge cote was plainly aware of it because she started that repeated cleon her opinion and therefore there was no forfeiture no wavering though in fairness in raising this argument on appeal especially because in the district court a similar argument in the payments to the cash deal when there is an existing shareholders none of that money ended up going into the benefit of the company itself at all because more cash went out that went in and also with respect to re re purchasing