we'll start with the first case on the calendar levy versus the young don't institute thank you good morning writers may please the court michael praying for the why defendants have reserved two minutes for rebuttal the parties are a seventy issues on appeal i'm intending to address only two issues today but we'd be happy to answer any questions regarding the other five i thought there was six but the first issue that i'd like to address is whether the district court erred when it failed to consider and analyze the federal commonlaw defense  contracting foresman if this court were to agree with why we don't believe that the court needs to address five other issues that were raised on appeal that are initially dependent upon a finding that the federal common law does not stand in the way to of the contract there is one issue that the parties raised on appeal that is not dependent upon that initial finding and that is done regarding the nine hundred ninety two insurance policies and whether those one thousand nine hundred two insurance policies are assets of the service that's the second issue i'd like to address today going back to the first issue on whether the public policy defense aren't aren't they in his name the one thousand nine hundred two policies are your honor in his name and i'm happy to take that issue up first that are those policies that life policies that can be tapped for assets as they accumulate that is correct your honor they are they policies were purchased that he got he was running a charity and he was going to be in the ninety percentile of compensation from people who operate or who have executive responsibility for charities or private companies of that size but in addition he also and i also funded five insurance policies that why i procured those policies to fund its obligations to s participants it was done at a time when the serp did not have a bank serving as a trustee there were two individual serving as a trustee what a bank serves it's a trustee it usually takes the policies in its own name what we have though is a twenty five year history between the parties which showed that the nine hundred ninety two insurance policies were not worth levy's assets but assets of the serve in fact before the district court from whether they were assets of the serve or not assume assume that they were his assets they they were acquired because he received that as compensation and i think the question that judge jake excess and that i would want to pursue is it didn't seem to me that that was taking into account in assessing the reasonableness of hayes what i'll call salary payments when he's also receiving a significant insurance policies i might write about you are policy what the average payments were but we did argue before a danger of payments what we did argue before the district court your honor was that those nine hundred ninety two insurance policies were never part of any compensation study that was done to reflect le personal compensation over the years there's no dispute over that these were always considered only to be assets of the company so there is not a standard by which any compensation consultant signed off on the nine hundred ninety two insurance policies as being reasonable compensation for levy and then before the district court your honor they made three arguments conceding that the nine hundred ninety two insurance policies were assets of the cert they counted the nine hundred ninety two insurance policies as assets of the serp to determine that the had like three million dollars life insurance and they do separate policies and well that's a different and separate obligation to pay considered as and ensuring that that he would get at least ninety percent of right in essentially what the what has happened is mr levy has received five million dollars in retirement benefits and he's seeking between the server and the p t an additional fourteen or twenty million dollars of benefits on top of the five that he's already received i mean he certainly believes that charity begins at home that may be true your honor but we do believe that the public policy defense that we have asserted under the federal common law stands in the way to the contract and force me and the district court did not analyze that federal law defense we have a new york that that that presumably oversees charities in this state here it's not clear whether this is excessive compensation and that's it's not even clear whether it's excessive pumpers compensation and the internal revenue code much much less under  casual common law theory in that argument was rejected both in ties or steel and by the seventh circuit in castello that the contract is not to be need to be intrinsically illegal on its face it's whether the performance of the contract would violate a common would violate the law and kaiser steel the supreme court was clear this says if the court were to order the defendant to undertake performance in a way that would violate the common law the public policy flat out bars and force meant there's no way in the pros and cons that point it's only once we get past the point of whether the court's order would require to take the part of the defendant to undertake unlawful conduct then we start balancing equities and we understand the you want us to find federal common law to effectively be what stated in the second restatement of contracts did i understand you correctly your honor are the first argument is that under kaiser steel  been willing to accept that argument but the internal revenue service your honor rule that it could not pursue levy because of the grandfathering of the only tool that it has available to it it did not agree that the compensation was reasonable sounds like you want to sort of a back door private right of action and the internal revenue code which be a very expensive prospect again another issue that was directly addressed by the supreme court  steel kaiser steele said that providing a public policy is an affirmative defense is not an alternative affirmative remedy contrary to the will of carders but we're in a curious position here i mean you're basically saying we entered into this contract with this gentleman who worked for us for decades but now we don't want to now we want you to say that what we did was against public policy what we both did your honor unknowingly did and then we unknowingly unknowingly did we what did you not know about the fact that you were paying him over six hundred thousand dollars and giving him insurance cost insurance contracts worth millions we did not know your honor that reported to us for the first time in two thousand and eleven that that was the case and that was after the end why g s office she's been awful and had not made any inquiry up until that point in which you certainly could have done i mean you were deciding what to pay someone and you made no inquiry into why these were reasonable payments at that the standard what was being done at the time your honor is that the reason  compensation test for purposes of intermediate sanctions these two programs were not included in that because there grandfathered assuming we were persuaded whether under common law on your policy whatever that  except expert evidence what is a reasonable level of compensation to be paid additional compensation to be paid when looking backwards over decades and you can you can certainly look at the compensation studies if you actually did retain people whether this level of compensation was reasonable heaven knows what they were thinking but they said it is the historical compensation studies did not address the serp in the l a p d the first report that did that was the mercer report and upon getting  in two thousand and eleven is when we cease the payments so you want us to sign slater hand on that issue a holding that allows other comparable organizations to go back and take a look back at things and decide whether they've overpaid their their senior executives know your i don't slings are unreasonable i don't understand back to what draggy was asking how it is that you want us to do anything having not received a determination from the i r s that determination because it cannot go against levy under its regulatory mechanism we human rights are still only says the district court has to consider the defense it doesn't say that this is mandatory and you're presenting district court and this score with with a very complicated situation so we can consider it but you can consider the fact that the i r s hasn't acted on it no new york state hasn't acted on it we've considered it we don't want to act we don't want to get into this morass mess that you've all of created what why isn't that an appropriate exercise of discretion the supreme court and kaiser steel said a federal court has a duty to did not conduct the analysis of whether the federal common law applies it only applied the new york law federal the new york law defense and we believe that that is their thank only dispute the fact to establish though was part of the compensation he received and as far as i understand it that was not factored into an assessment of whether he's total compensation package exceeded the bounds of reasonable this we disagree or honor first of all as a matter of law under section forty nine fifty eight pursuant to the i r s ruling that the life insurance policies at issue were grandfathered in because they were purchased long before forty forty nine fifty eight was enact and as a matter of law there grandfathered in but we have a decision here that because the six hundred plus thousand dollars a year he was receiving a salary was at the ninetieth percentile of compensation it couldn't be said that it was on reasonable as a matter of law but that placement of him at the ninetieth percentile did not take into account that he was also receiving the benefit of millions of dollars in insurance considered i don't agree that that without factual searching your honor that the record recognizes several compensation reports and legal opinions which reflect the fact that dr levy's total compensation was reviewed all compensation all all with respect to the one thousand nine hundred two insurance policies in particular why is actuary the person who brokered the purchase of the insurance companies testified that those insurance policies were purchased for dr levy at the time of purchase why i am dr levy and the insurance company and the compensation consultants and lawyers were on notice of dr  compensation your honor on notice of it did they conclude that his compensation so augment it would be at the ninetieth percentile of compensation for executives similarly situated the answer is they conclude yes yes is the answer in including the insurance policies when the lawyers are going about millions of dollars i mean by a charity the answer is yes that they looked at the total compensation i want to answer your question with particularity the the the reports and the legal opinions use slightly different wording when describing the total compensation but there's no qualification in the review there's an analysis that the court that the compensation consultants engaged in and that the lawyers engaged in in terms of determining what is reasonable and there are two different standards i have to why i campaigned for two years to try to cause them to take action concluded that when dr levy's compensation met the intermediate sanction safe harbor they closed the book on the question meaning your honour's are raising the question whether notwithstanding the fact that dr levy's compensation met intermediate sanctions is it nonetheless perhaps an reasonable the i r s said we're not interested the same goes with the new york attorney general's office who reviewed dr levy's compensation who reviewed the compensation reports who reviewed the legal opinions and notwithstanding your honour's personal perception that the compensation may be rich recognize that it was within the best band of reasonable that's that's what everyone recognized based upon the high level legal opinions and the compensation reports that were granted in the district court recognized that hindsight regret is insufficient to unwind these transactions with respect to the public policies issues at stake kaiser is in a political first of all why i waive the argument that the that the federal common law is somehow distinct from new york state law when they argued at the lower court level on three different occasions essentially the there was a unified body of case law your honour's are aware that there was an initial summary judgment decision in objection to the district court after the report and recommendation by magistrate net burn was raised and then subsequently one year later they tried to revisit the issue in a second summary judgment motion raised by the plaintiffs in all three instances why i knew collected to raise the distinction that they raise on appeal that was waived they offer no justification for the new found argument with respect to the new found argument your honor judge reggie recognized the distinction that kaiser applies which is that in this particular it kaiser says that contract if you're going to have any sort of a bright line rule the contract has to be voidable under the statute though that was a sherman act violation where the contract would be void that's not what we have here what we have here is actually a comprehensive regulatory scheme that provides for graduated taxation in the event of a violation hardly the type of mallam and say violation that appellants wish to assert to the contrary is malum prohibitum in which case at most the court needs to engage in a pro con analysis of course the second point in kaiser is also renders this issue in kaiser says the statute has to be designed to protect the individual who is asserting it because kaiser doesn't want a party using the issue of the leg illegality as a sword rather than a shield it specifically includes language that they don't want a party to get something for nothing that is exactly what y wants to do with the seventy four year old man that we represent on this appeal was entitled to his retirement benefits and to enjoy his golden years in public policy when weighing the pros and cons of enforcement unilateral contract with respect to a receive benefits strongly supports and foresman it is a unilateral contract dr levy performed it for almost forty years he was fully vested in his benefits it's a risk the benefits contract which means that if the court were going to contemplate divestment it would have to strictly scrutinize any kind of diet best meant why i was using the illegality defense as a sword not a shield there's a comprehensive regulatory scheme at issue here in which the s and the new york attorney general's office are vested with the right the right and obligation to police this conduct in those situations there is absolutely no basis to it to insinuate into the statute some kind of private right of action by a medical doctor no your honor what's his doctorate in i believe it's in social services he's spent a lifetime in the industry and had formed a company he had was third man in  company that had three employees and a budget of two hundred fifty thousand dollars and when he was finished with the company and upon retirement it had more than five thousand employees and an operating budget of two hundred seventy five million dollars approximately in the industry he is the gold standard of what a c e o can do to raise the profile improve the benefits and serve the public company that then had to pay the team eighteen million because of over charges we are nothing were fined nothing and were given full releases what why i did is they made a strategic plan to to settle that action and try to take it out of the hides of the senior executives improperly then they engaged in elegant scheme which your honor is fully well aware because you've read the briefs where they where they endeavored to throw the executives under the bus they threatened all of them most of them capitulated because they were still employed and wanted to maintain a job at kids on whose watch the bills were submitted your honor those bills were submitted after they act case but why don't you get bring it back to the contract that we have well i think the public policy issue  i raised it resolves the question wholly there is no bright line rule rule that applies here why i waive the argument anyway and on a pro con analysis it's overwhelmingly in favor of enforcement of the unilateral contract particularly when arista benefits are general's office are standing by ready to regulate this issue if they feel that they should they have never done so and why has no independent right to challenge the compensation at this juncture if your honour's have no further questions with respect to the  i think that point of view disregards the terms of the contract entirely your honor and it would be prejudicial to the counterpart to the contract in this case the serpent officiers at this point it would be if you're seeking relief in equity it depends which which item we're dollars that's that's a five o two a three claim that's in equity the five o two a one b claims which are for the purchase of the commercial in new ity and also for in foresman of the surf which would require the return of the funds as well that's at law so the contract is quite clear why i took money from the surplus ten million dollars that it was not allowed to take now your honor they weren't allowed period end of story the serp is ironclad about that the security that it provides for participants in beneficiary once the money is put in there why i did not have an absolute obligation to fund the survey but once it went in there it had an obligation not to touch it and once we prove that they  can i assume that the charity itself would have would have suffered sanctions at the hands of the attorney general no i don't believe you can assume that at all they didn't have to pay  notice that they were concerned about why i's ability to perform their services while this settlement decree was was in place why i had five years to pay off the eighteen million dollars settlement  so they had no obligation to accelerate five years period why the the concerns about early alert were that why i might not be able to perform and mr moran testified in early alert effect contributions there were there i don't believe that there was any testimony in the record that suggests be practical about this i mean if a charity is under surveillance because of misconduct isn't that likely to interfere with the flow of voluntary contributions when coupled with i understand that that would be a factor the flipside of that factor is that they remained a best in class service provider based upon the leadership at y i don't think that the law recognized in any way that that that factor as part of the analysis the plain fact is that why i was not on the brink of insolvency there was no analysis done that should their contributions be reduced to x they would be insolvent what they did is they took a lump sum and transferred it over precisely because what they wanted to do is furtively and illegally impose the obligation of the settlement upon the executives thank you going back to the public policy defense you know it's important to recognize that the plaintiffs never put forth any arguments before the district court regarding the federal common law defense and the but the point is you didn't just see how they were distinguishable and yet you're before us saying that they knew that the district court urging considering new york law at all right but my point is i don't i'm not sure  ere counsel is wrong in saying that in the district court you didn't distinguish between the two but if your honor they came back with a set of arguments regarding new york law it would be somewhat unusual for the point in the district court that the standard for federal common law was different from the standards of new york law your honor the issue never came up in the district court because the fed the plaintiffs never addressed the federal law it would be it would be public policy and did you tell the court look under federal common law this is the standard under new york law this is the standard we urge you to apply federal common law you know your honor what we said is we appl that the district court heard in applying new york law and thinking that was the same as any federal common law why is that not waive your honor this isn't a recipient which is governed by federal law we reckon we first and foremost said the common law that is the second circuit's decision in galileo i'm looking at that before the district court you argued that new york and federal law overlapped to form a unified body of defense we did not your honor we're weary did you argue that they were not the same i mean i've asked now three times and i i have not heard that yet so i'm going to assume that you did not the distinction was not made in that regard what we argued was that there were two basis upon which to deny the contract enforcement federal and new york the plaintiffs only addressed new york and then the court only addressed new york and we think we have preserved the issue for appeal if it if it need to get decided then the court should vacate the ruling and remained it to the district court for consideration of the federal carve a lot of fence and we do believe that even if you're applying a pros and cons analysis the focus here is on the strength of the public policy and those that public policy is clearly set forth in the code and the n p c provision us the charity makes filings every year correct but if we do make filings with disclosures yes and it these of a quarter of a billion dollar a year charity we do yes your honor we do a set forth who are the trustees of the of the organization identify them with their affiliation yes and and the same with the executive compensation committee  subset of the board but they don't not specifically identified as such not even with an asterisk i want you to file with the court within one week just the pages of those disclosures containing the names of the  of the trustees and affiliations beginning at the beginning of ninety two and ending and five beginning of ninety two and five and these are the nine ninety reports that are filed by