falls montana representing the appellant westley he against the argument i have today is a very difficult argument to confine myself to the rescue record and bring the argument before this court that summary judgment was inappropriate when my client was denied discovery when judge moore other sort of trial set in contemplating discovery the most significant statement in the record found it you want to stay on the mike founded excerpt of record one fifty five is the statement under oath by mr higgins filed just needs before the summary judgment hearing he stated if i were given the conduct of some discovery i believe that i will prove by the missions of racecar of my colleague here that he acquired a controlling interest in the company through misrepresentation that he abused the corporate form that he has siphoned business assets off into his own use and has through deceptive business practices rendered four tests a shelf corporation and he's made material misrepresentation misrepresentations to the court in his pleading now judge marner would not allow the written discovery to be answered nor depositions to be taken or documents that were requested to be produced and i understand that the controversy between the cases of kidwell which seems to say once you lose your involuntary bankruptcy there is a presumption that you get awarded your fees for defending it and then the other cases the scrap metal and its progeny seem to require a totalitarian circumstances to be looked at including amongst that totality of circumstances but let me just stop we look at the good faith of the petitioning creditors in summary judgment there should be no doubt but that there is good faith here that judge marter finds that the case was well thought that there was eight to ten creditors so there's no issue but that we've got good faith on summary judgment it should be regarded that it was a close call following the compu house rationale but on the issue of the debtors misconduct and the debt or its failure to provide financial information that is the real key factual finding that we were prejudiced in we would think that the trial court would want to have all  done so then you would be entitled to discovery to prove the totality of circumstances enumerated or however we could find them and that you were denied that opportunity yes or ok but if we involuntary chapter seven congress intended that will give you that opportunity to come in early in the process but just be aware if you don't win sort of  agree and that's a little bit confusing because if he's just going to follow a street kid well that you lost there for you all the money why does he pay lip service to these other cases and the public has well because there is in the statute a provision for discretion that says may and bring them to terms but they weren't necessarily in bankruptcy attorney mike mcgrath and westy can see that these people are trying to get the bill paid so it's not an ulterior motive like kidwell kidwell that judge fisher just mentioned the judge there found that there was misrepresentation in finding the petition the second ground that judge marler dismissed the involuntary on was that we couldn't prove that the debtor was insolvent here's where i'm having a hard time keeping myself to the record but what if we could prove with discovery that when  got filed his schedule's over two hundred thousand dollars of what he represented aspect when he was loans that he lied about that there were that there was some additional debt out there that he wasn't disclosing so shouldn't be litigated in shown as mr higgins are saying here that had we gotten that discovery that there was two hundred fifty thousand dollars embezzled out of the company you lost you lost that on summary judgment no we were never allowed to get that discovery to prove to get those documents and prove that and so what happened on the merits what happened on a mass that gets that i don't know the judge i don't need to look at discovery because this case has been to the ninth circuit on whether or not judge all of abused his discretion in dismissing the involuntary he says there's a lot of documents here i don't need to look at this other issue as to the totality what a judge almost and judge wallace and dismissed the involuntary bankruptcy petition for two reasons dismissed it level and at the ninth circuit court level ok so that's behind us right that's the whole point and now here where i'm on the issue of the three days that's behind us if you go you say what if well that's that's history firm the dismissal right and we're not to challenging what judge all of them did but there's a yes you are if you say well what if no we're challenging clarify so at this point you're saying that the subject matter of the you know the crowds lot of activity in the misstatements were not your shoes that could have been raised in the chapter seven petition proceeding itself but they weren't because you never got to the you didn't have the three creditors without the three bona fide creditors you couldn't sustain the chapter seven and the i kind of understand why on the feet talib the of the circumstances yes we're getting into the behavior and the conduct of the debtor i mean we just had a chapter seven that's been thrown out and you're talking about engaging in costly discovery which is going to heat up the assets of the suppose the debtor that's what i'm trying to understand why turn a fee proceeding into a collateral the bankruptcy court then went ahead and had a twenty seven day trial and a twelve day trial to say let's look at whether or not you had some good faith grounds let's look at whether or not the get it was obvious getting us financial records right that's not under some of those cases are correct so that's again that's what i'm trying to understand so what you're saying is that if you are in a fee motion what we should say that under the subsection one proceeding that  fair game to go into the bona fides of the debtor to decide whether or not they're bad and therefore that should affect whether you as the creditor who under one is going to have to pay the fees unless you can prove it or entitle to go into that and for twenty seven day trial on that i would hope not a twenty seventy trial but yes ok and the basic underpinning is that if there is bad faith that amounts to being a fraud on the court i would think that the court would want that sort of discovery to be allowed and you get a little hint of this by critically examining the record and let me just start to ask your investigative instincts to come alive here we are i think we're trying to be pretty lively here right now i'm watching a little bit  that there was a strong interest in a definite commitment to the debtor in a two hundred fifty thousand dollars loan and that was a representation and i think judge all of sin relied relied upon that that but for this bankruptcy there would have been a quarter million dollar loan to this business but in that same excerpt records the banker that would be getting that loan was deposed and the record he says there was no such commitment now that's we've got an interesting dynamic twist going here before we've also got questions about records mr cox is the answer brief that page five says that there's no explained on the record why he was never get he was never given access to these records all i hear you all i hear you're doing is trying to really gauge the underlying case that you lost and this judge marler pointed out  you pursued your appellate rights through two levels of appeal losing at each level soundly losing was not a close call and so i think that's in the books that's over and that's over and gone you know you lost lost yes that's where that should have been done and it's over and gone sure and then we should even if we follow that argument to its logical conclusion because we've lost our having involuntary petition dismissed what defense does the petition creditor ever have then to say he should not have to pay fees under three or three i won what did you argue to the judge he said there was an argument what was your argument after argument the court took the matter in advisement what did you argue the same thing you're arguing to us oh no i argued the same matters that are in the brief that it was a close call that there were three valid petitioning creditors and that when the decided he says here that you didn't act improperly in bringing the action but that's under the fatalities and hold that against you that's one of the fatality of circumstances test then we argued that the debtor was insolvent and that he obviously to this financial condition and that we should be allowed to get discovery into that to show and he said that's over with and you can see that and that's why i think he made a reversible error but what you're saying is that when he says the better way has been guilty of an equitable business practice  he york twenty six that has been open game for you under the quality of circumstances you should have been able to conduct discovery to prove it and that should have been a relevant factor instead of saying it was  immaterial yes and we went a little further on that if you would look at the excerpt of record one eighty two at the same time that this was going on there was a creditor named mr wilcox that was also involved in litigation showing some of the breach of the duty of this debtor and that should have also tied in with the alleged prior bankruptcy but we weren't allowed to take discovery to show so it is still that it appears to me based on what you said that this memorandum decision says after arguments and then the judge addresses one after another all the grounds that you presented to that to that judge in order to try to defeat these fees is that right and this is what he was addressing close call and be careful we've got our investigative instincts really raging i will be thank your honesty good morning my name stephen cox strong from waterfall economy to us from tucson arizona and i'm appearing today on behalf of war t also it presents to cases from the ninth circuit regarding this issue and noticeably the three cases cited are all bankruptcy court decisions there is no decision from either a district court or from this court  no i don't think you should i think that the totality of circumstances brings in such a huge ball of wax and lead against these days are getting more and more intense as to their approach to cases even though the eth have been changed to change zealous and professional or whatever i think the challenge is to come stances is too broad and what i would urge this court to adopt is something along the lines of of the three bankruptcy court cases here in the ninth circuit particularly in ready here's my question chapter seven is in voluntary the creditors as i understand of accepted well as an i q or a statement are given an opportunity to come in but the trade off was there come in early but the the fees but there are a bottle or it's the burden shifts or whatever it is but then we're left with a question well what is the bankruptcy court close to do in terms of deciding what the relevant considerations are judged marler in this case went through and as detroit pointed out checked off and dealt with the arguments that were made but he did say an equitable conduct was immaterial so should we what guidance should we be given to giving to bankruptcy courts even under your approach that says if you're going to look at the arguments of the creditors as to why fees shouldn't be awarded in this particular case as a matter of the court's discretion what is the structure what are the factors that should be taken into account you're saying don't go totality of the circumstances just shifting the burden back to the creditors doesn't give  structure just says ok now they get a chance to argue but what is it that they're supposed to argue i agree i agree with you completely and the answer is just say we look to the totality of the circumstances is too broad but the guidance that i think should be provided to bankruptcy courts and to lead against is not unlike what set forth in the scrap metal case where the court says at page one sixty seven i believe at two thirty three bankruptcy  they could show that there was fraud on the bankruptcy court this line about two hundred thousand dollars of assets that would be within the bankruptcy and that would be proper misconduct would be subject to i disagree with him completely the the litigation in this case was first handled by other counsel on behalf of mr higgins and mr higgins was represented by mr mcgrath out of the national park for him in tucson  we had a petition involuntary bankruptcy i filed an answer on behalf of the debtor and motion to dismiss that matter went to a full blown trial we had numerous depositions we had production of documents piles of documents going both ways  we had ten witnesses and seventeen declarations as judge also likely use they were all declarations that all witnesses had to be present for cross examination which they were we ended up with seven hundred pages of record and that was on the first appeal before this court i don't see any diversion of assets mr scott thought that he had a two hundred fifty thousand dollars commitment for an ascii a loan through a bank in tucson upon deposition of the mr scott that's what he testified on upon deposition of  bank or the banker said there was no commitment we talked about it and yes the s b a was providing us the proper paperwork but we had committed to that and frankly that didn't surprise me i mean the bank doesn't want to be committed until they've got the documents all signed up in the mor after acquiring evidence that couldn't have been acquired before before you let any further discovery take place would that be the kind of thing we should be looking to  would be would come up afterwards and that event yes that would be something that you would look into the difference in this case is that nothing raised by the petitioning creditors was any have any relevan be held off until the dismissal was that was a final order and that took over two years to get and so once we got to that point and i went back to judge marler now because judge also passed legal fees if you look at section three or three i want this is not this is not awarded of fees and costs per se this is an award of damages and so when you don't know what the damages are and you've gone through that process we know it wasn't broken down and nobody requested to be broken down i would estimate somewhere between eight and ten thousand dollars for appeal and if this court's going to trim that out i just want to be done right in this case be remanded  but you would say that that it would turn on whether the the law the state governs because some states little thing california in contract actions  to justify your justification as to why that the attorney species not be awarded to the debtor i don't think it should be the broad any or any anything goes deal but it should be something that has to do with the involuntary proceedings was i suppose that the bankruptcy judge could control discovery very rigidly because because my concern over totality fest is that once you open up the  equitable conduct an equitable conduct that there not be a circumstance where the losing creditor then uses the opposition as a way to hammer the a sta get the whole thing all over again and that's what we want to avoid especially in this case where there was so much put in the first time around and that's why i think that the could well case was was on target with the award of fees is the norm once you have met the requirements of the statute and then the  i think that it's clear that judge marler get apply excuse me did approach this case in such a way that he considered all the things that were raised by the petitioning creditors and he said is that ri i did look at the agreement to form corporation it's sort of record one thirty two there's no provision for the recovery of attorneys fees under contract but to get discovery to show that there has been fraud perpetrated on the court the discovery that we requested would be quite simple quite simplified for example and here i'm asking you to be the detective again mr cox in his answer brief that page five says there is no prior bankruptcy by race got mr higgins in his affidavit excerpt a record ninety page ninety seven talks about a prior pattern of a bankruptcy that's something that should be looked into and here your honor says i hope i do not offend anybody but if you look at this voluminous record mr scott in the context of the record he has a rule eleven motions against creditors against non parties against lawyers he so the waterfront of anybody involved with this you have in the record this fellow wilcox litigation of another person that claims to be victimized by him there's and here's where please stop me if i'm i think you're getting bogged in the details counsel well what if what i would like to say is the discovery has been done this fellows who go there are competent people that have taken the discovery and so i would like to just be able to put into the record the prior bankruptcy the tax returns the proof of what's happened enough and i can show that what i'm saying what i'm asking for can be shown the court was made a victim of by mr scott and