thank you it may please the court i'm chris landau and i'm here today for the appellant sykora like to reserve three minutes for rebuttal this dispute involves an elaborate lockbox system established in two thousand and nine to limit detroit's access to the casino revenues and prevent precisely what's happened here the bankruptcy court essentially none of the range meant that the revenues in the lockbox are property of the state subject to the automatic stay  you would agree though i mean let me let me kind of just cut to what i think is an industry here and you can tell me if you disagree it would seem that this is clearly property of the state it's just the  question is what are the extent of those property rights that the city enjoys and and really the dispute here is not whether it's property of the estate but whether this revenue stream should be held should be held in the i think it's a general revenues account just indefinitely or whether it should flow through the lockbox in the ordinary course is that really what we're arguing about here is i think that's a good way of putting it or to put a slightly different point on it the city retain a contingent right to receive the revenues if and when certain conditions are satisfied our real beef here is that the  bankruptcy courts holding with respect to the automatic matic say transformed that contingent right into a non contingent right to start receiving those funds automatically in other words to open the lock box and our but that would have put you in is the ordinary course lockbox scenario right not the trap scenario once the city makes the payments called for to the swap counter parties as i understand it then us bank can release funds from the general general revenues account that's that's what so it's it's the non default scenario and that's described in the collateral agreement not the default strapped being triggered and i don't think i mean but your argument is we should be in the default scenario under the collateral agreement not the non that they're strong and that's what this boils down to and i don't think there's any disagreement it's in fact the district th bankruptcy court specifically held in the eligibility order from last december fifth that there were events of default in term a nation that triggered the cash strapped future of the lockbox so i  it i'm struggling to understand why your appeal here is to the decision of the bankruptcy court that those kissing or a revenues are property of the debt yet well that that th bankruptcy court said was this is property of the debtor therefore you may not go outside the bankruptcy court and challenge that the use of it so i acting was removed to the bankruptcy court so that had been the bankruptcy court effectively said take it up here well the bankruptcy court essentially mooted that dispute by basically saying it doesn't really matter whether there was an event a default because essentially the lockbox has than that your honor i guess i might have heard inelegantly ok well i doubt and i suspect that's where i put it but certainly the the the point here is easy revenues this whole elaborate lockbox system was created precisely to keep these kind of these revenues beyond detroit's grass in exactly the circumstances and that's really the irony here that the well in the event that it was not able to to to to satisfy its financial obligations it was basically almost what had happened during that in the state of the bankruptcy with respect to the payment well the i mean we detroit has paid its swap obligations but that doesn't mean that they seem to suggest that that means somehow that they're all hunky dory the lockbox the events of default and the events of terminations that we're we're going to slam the lockbox shots are not limited to the non playing what was it just remind me i mean i've i've read this but i mean what was it that triggered the default again in your view there were several things there was an event of default which was the non gay missed a payment right as a service if a kid's right the result is a master agreement there is a cross default provision that says that that's the default under the swap agreement too and there were two separate events of terminations one was the declaration of a financial emergency and one was the point of financial manager the emergency manager those are once feuded and i think going back to just ranches earlier question subsequent events in a sense have kind of caught up with this case in the bankruptcy court i mean as you terms of the practical consequences of that i just wanted to to mention that in the subsequent proceedings that have happened in this particularly in the course of the swap settlement appeal that is coming down the pike is here as well and i realize separates the separate issues absolutely understand why you might but but today what we're here about what the bankruptcy court did right i have i have one more piece that you need to educate me on if you would just i want to understand exactly how this swap relates to to your situation so let me just walk through and correct me where i'm wrong ok we've got this two thousand and six wa contract it was for the purpose of converting floating right into a fixed right right and that was applied to the two thousand and six i think be cops that correct yes right ok but that's not all of  right right there are different swaps that apply the different comps sure so so so some of that i'm trying to understand the kind that's system in the back so i can understand where we are today so the city was making separate that then there was a two thousand and nine collateral agreement right in the collateral agreement concerned only the two thousand and six swaps correct that's again my understanding and because that was all that was floating you know certainly that the collateral agreement modified the swaps agreement i had thought i believe that the answer is that for every comps there is a corresponding swap because i i had thought about that were there any swap agreement for the two thousand and five cause i think not your honors i seen her i can't answer that was i can look when i sit down but my understanding has always that the all the certificates were floating and that there were corresponding swaps for for the corresponding certificates basically to make them as you said at the outset from a fixed rate such as from floating rate certificates default under the swaps which then triggers the the lockbox to close that's in the section that's in the is the master agreement it's cross reference if you go back to the collateral damage that's defined as an event of of a default so basically by missing that cops payment that caused the lockbox to start trapping under the collateral agreement even though there was no missing of a swamp payment let me ask you quickly six ordinarily if it's a party takes the position that somebody's not the owner of property it would be obvious to the well i guess the point is your honor and exclusive focus on ownership misses the point that we're talking about sticks in the bundle in a sense they've alienated some of the most fundamental attributes of ownership which is the right to possession and control to access those that basically said we are but they're there meaning many many situations in which a party continues to own property that gives it gives up the right to control it in a given that you can have you can  the owner i think that's why we rely so heavily on the escrow cases which whether the answer is there's no competing right but the answer is that you ownership is in a sense in space as i believe is the word that is used in some of the new york cases that in a sense they have the grants war has the ownership but in a sense they have alienated some of the most fundamental aspects of their earlier argument has to be well yeah the cities are but the city has allowed its ownership rights to be so limited that it's no longer the owner for purposes of the the within the bankruptcy code if you don't you know at the collateral of dream and in specifically section five point eight it doesn't seem to me that it is automatic i mean that section i'll just read previously for purposes of the custodian the bank determining the amount or timing of payments to be made under this article five the custody in may rely upon the written notice delivered by either counter party with your client is not one  to the occurrence of any and then we'll just say default and so why isn't the best reading of this that the trap is not automatic but that upon an event of default one of the swap counter parties if they so choose can invoke this this fairly draconian remedy and direct the bank give the bank notice to trap now i mean that that seems to make sense linguistically it also would seem to make sense economically because in that event the swat counter parties could work out some remedy short of something so draconian with the city which i believe they in fact have done and so why isn't that the best reading that it's not automatic and as i'm sure you know it's not automatic you start getting in trouble with the stay once there's finally your honor first of all we triggered this before the respectfully with your initial statement that the premise of our argument is that this is ok well that's why i'm asking right so tell me why you know i think this is what you read says the custodian may rely right doesn't it doesn't suggest that that is the only  basis that's that basically says yeah if somebody comes the custodian so he may rely is there any other language that says the custodian has an affirmative duty to impose the trap and please don't shake your head at the counsel table it's distracting and you'll have  term that the custodian is is has an affirmative duty to impose the trap upon an event of default is wrong we think it's automatic under section five point four it just says when payments from general receipts of account prohibited no payment shall be made to the city from the receipt sub account on or after the occurrence of a termination event that doesn't say you know upon notice by the counter parties so i think the notice by counterparty may be a way to trigger but i think mike  for as i read it seems to signal that it's automatic that's a helpful answer but under the under the hey in july english alter that i'm sorry i just want to understand your argument completely i'm sorry  another quest well i mean the only thing i want to ask is why are you entitled to do this and i think that's having said that i'll rely just in that i appreciate the opportunity here to do this and the the the bankruptcy court suggested in the other side sort of argues that we have no rights under the collateral agreement and that that's the beginning of the end of the story i think it's we said in our required brief that we filed just last friday that kind of misses the entire structure of the collateral agreement doesn't purport to be some free standing agreement that exists independent of everything else to the contrary the collateral or in price terms says this in section fourteen point fourteen this is part of this overall network of agreements and it talks about insurance rights it talks about things like that so the thing that the point is we don't need the rights to flow from the collateral agreements because we are ready have the rights that flow under the preexisting contracted ministration agreement which is a kind of me section nine point two that specifically says that an insurer i'm sorry what agreement are we talking about this is called the contracted ministration agreement and this was in the bankruptcy court as a document number three sixty six dash five kathleen include in that it just to me is a kind of practical common sense growing you agree that there are separate swat payments from cops pregnant there is a default on a cop payment right and you want to come the end and go after a lot locks it's designed to ensure a pint on the swap right and they're on tracks only so i'm struggling a little bit with how like that your honor i'd prefer you to be is a master agreement which is document three sixty six dash four from the bankruptcy court document docket and that's called events of terminate of default and terminations events  fourteen point fourteen it talks about the agreements that it's modifying that remain in effect and it was first activities that section forty fourteen of the collateral agreement so sorry about this with the note that this has a cross default that links under the cops to the swaps and then the contract in this ration agreement section nine point two and section six point nine point two specifically give us the right to direct and control the actions of the swap in light of your questions to concepts and perhaps you can direct me as to which would be more helpful to you i seem to detect from your question that we are talking about on the one hand in forstmann of the collateral agreement and on the other hand just the scope of the protections arising on the commencement of a chapter nine case in bankruptcy those protection us i mean the issue before us is the in the day when the the agreements are relevant in terms of defining the interest but the big picture issue before us to there was a major default under this law that the thought was the failure of sin kwara to be credit worthy that default threatens that a with an acceleration of its obligations under the swap to prevent that consequence the city provided separate credit support to the swap bank account of parties that separate credit support was the collateral  must be that the labeling of and core as a third party been a fishery in the in a separate agreement some pag is that right and to this agreement is that is that your understanding or is this something different that's my understanding of their argument but i would suggest your honor that we need parties wanted someone to be a third party beneficiary they express link provided for they didn't do if i want to support for that it's in the transcript of aug twenty one that's what i call a secondary source secondary source is there any primary material that shows that something about some out when these parties wanted to incorporate my reference they were very specific and in our briefly cited multiple examples where that was actually done here we're talking about and i think this gets back to your point judge and there was a lack of credit the city provided collateral the city entered into a garden variety secured financing well let me stop you there because i mean usually with a security agreement and here i'm speaking i guess generally not just ones that relate to catch the the that or the landy does third party taking possession of the cash you're saying it's it's a classic cash security yes you know the range and i think that's consistent with provisions of your dream and i also have wanted to point out another answer to your question on the duties of the c'sap'n before you step into that it does the record not reflecting i remembering th i thought that was in accordance with your argument one of the default provisions which is why the city had to come in and offer its casino revenue is because one of  city of detroit in february of two thousand and thirteen there was an additional to file when the governor appointed mr or as the emergency financial manager or at the end of march what i mean while we're on the specific point on what is your response to mr landau's point about section five point four of the collateral agreement which i brought the wrong pile of doc primary doc i brought her arguments for not having  so i don't have that section in front of me but as he read it it did sound arguably like the default that automatically puts the trap in  you're reading a five point eight i think it's accurate and i think it's even more supported by all of the provisions of section twelve of the collateral agreement section twelve belstaff exactly what rights and responsibilities that custodian have and frankly absent a written instruction it is not protected in doing anything so i believe that was the intent of the parties as made obvious through five point eight in conjunction with such article twelve in particular twelve point two the duties and responsibilities of the custodian why would they have to repeat that if hypothetically section five point four some other section said in the event of a default all revenues shall be trapped in the general revenue account period why would they have to repeat and section act damages in section twelve and the custodian is not liable for any action taken or omitted as long as it's relying on the instruction of the counter parties who are the secure parties thinking about the way this agreement words to that section also i would spend a minute on section twelve that's also the provision other obvious position that we believe is absolutely contrary to common sense and the fundamental premise in escrow is there is no competing party if you look through this entire agree cannot point to one section which direct delivery of this property to any server part why does it matter i mean if it is after all cares if it's an escrow i mean are we just focused on what were the rights regardless of what label we put on on the package what were the city's rights as of the date or filing and is what's in corey's arguing now with that the fact it changed to them in violation of state i mean why do we have to worry about the label of escrow i think we only worry about it because right now think or state from taking any action to alter the ordinary course absolutely from the court it could go no one is saying it couldn't go to the bankruptcy court and secretly from the stats but one fact that's turned troubling here and i hesitate to raise it as a  response but the entire issue of sing chorus right to enforce the collateral agreement is the subject of another decision by the bankruptcy court in which sin kora the foreigners i understand that that opinion it's on appeal but those matters have already been fully briefed in a separate proceeding back to what's here today is the city is receiving its tax revenues every day or two weeks in every month as it has since the collateral grammont was put in place that has only been interrupted for a short period when there was a notice from some car right now the automatic stay and on the date the city file that was the case it was getting those revenues every day whining pool process parties can seek relief from it if they're not adequately protected here it's hard to imagine a situation when the revenues victim into this account are four times the monthly payment and we have seen crop whose total liability should the banks ever terminate the swap is capped a twenty seven million to us back imposed a trap us bank imposes the trap city then files you would agree that after the filing the city does not then have those funds liberated it's really depends on whether the trap legally as an initial matter whether there was a legal right to impose the trap and what was the status quo as to the date or filing that the deaders ability to act is more typically absolutely limited bowzer things like what actions that the bankruptcy court will approve and not approve that it is by the be the automatic stay that would preclude the payment of the slot can or parties if anything precluded that it would seem to be the action of the bankruptcy court is that correct or incorrect i'm hesitating because the slot counter parties have always been paid timely never miss payne and nobody has ever gone to ask the just the bankruptcy court for permission to kno in bankruptcy that is an exception you can use a lot or you can pay a secured creditors so the bankruptcy does the city is i will to continue to pass out of funds other than the funds that  and think about what happened in jefferson county there you had all the assets of the county sewer system all the cash collected was in the possession and control of the receiver of pointed by the secured creditors under whiting reliance on whiting pools and the automatic stay jefferson county removed the receiver got their property but did have to adequately protect the secured land or so if the situation here had been i think that question was a more fundamental and axel was that just goes t understanding of what was going on in this case and i think you probably threw the question but are there other questions for the owner i'm just checking the deception twelve point three relative to the right to the custody and is simply put the provisions they are relate to to representatives and actions of the counterparty that your position and not my ability we have quite a lot we talk about four hundred million dollars in liability when you and what is the agreement in chorus total exposure with respect to the swaps contract which is what we're talking about is  at twenty seven million for the swap contract which is what we're on right my impression is that that is much greater than that that we're talking about somewhere around one hundred million on that but i don't have that at my fingertips thought we can submit a supplemental letter just to clarify exactly how that shook out i politics for that still end up i know you have the three points at this but i've got to ask you a question i mean i still make my three points after your question it's open the lock box is the automatic stay there i don't think there's any question that that was those effect that was the whole point of this ruling that the lines it why is it the automatic stay is in fact what's occurring here is that there is compliance with the triggered the three hundred million in terminations payments and it didn't what it can trigger is different from what it does and so what you have here is their words instead default they didn't trigger a determination payment that was the whole reason that we had the deals going on that we have now so what you've got is an agreement that isn't being fulfilled the payments are being made a lot can't make that go forward and the only thing that the study does is prevent close and other than the other than that chiarello which expired by its terms the lockbox would be closed it's the t r o it's me it's that it's the automatic stay that is upsetting the status quo and keeping the lock box open the idea that something is any real that it was collateral agreement as opposed to preexisting rights under the earlier agreements under which we can then see what well that's wanted to point to was basically the point we're just discussing that the automatics they he r is what actually is forcing open the lock box and keeping it open and lying all this money to go into the estate so that other than that it would be closed under the automatic tracking for visions and three is that we are very grateful to be here today to make these arguments we know that took action by your honour's our you and i just want to have a number for the number four question i'm on section five point four of the collateral section b subsection they say is no payment shall be made to the city from the general receipts of account on or after a qualified hedge event unless and until one the city annexed the corella to have supplemental appropriation which we've been told is going on to the finance director delivers to the cuzco the in the counter parties certification that such supplemental appropriation has been dul except as otherwise permitted by subsection b i don't think there's been any determination that subsection b is what has been fulfilled well you know what you're saying is it is a trap is a trap forever easy you can't pay yet you are trapped until what happens this happens on one of us and then they tells you what the and latest is and i'm sure stood your opposing counsel to say say the city provides the supplemental appropriation it provides the appropriation delivers it to the custody and in the amounts required by the agreement in that what happened no that this is a different this is like a complete cure or of everything this is not just the payment under under the under the swamp like what do the payments that have been made here will certainly lack of  the the payment of a cop has not been cured of the certificate and again that is an event that crossed the falls under the swamp it's a little hard to know how they fall under the certificates the participation might affect his