to start out by talking about the supreme court's decision on monday in the u s bank versus village at lake rich case because the unanimous poseur opinion of the supreme court set forth what we believe is the proper framework for analyzing the standard for view in this case spent a lot of fog about the standard of review and exactly how it should be applied in a case involving a basic question of law in fact and what the supreme court did was set forth a very clear three step test why is this a case involving a mix question of law and fact as i read the the bankruptcy courts determination in the district court it is that when a secured lender buys less than all of the unsecured claims in there and right votes in both classes that's bad faith or at least if the offer is to less yeah it doesn't offer to buy them all that's bad faith in other words that's adultery or motive as as the cases have defined it isn't that purely a question of law there's no other set of facts that the district court was balancing here it just said and the bankruptcy court said i find it to be bad faith if you buy less than all the unsecured claims and then vote both as a secured creditors in the unsecured creditors so like why would we review that excepted over that question is did novo that's what the supreme court said was the first step what is the proper legal standard is not the only way that is that the only issue in front of us i think so so i think that's what the district court said was is that it thought the bankruptcy court applied the wrong legal standard and that if it were looking at the case under what it thought were the proper proper legal standard that there weren't facts to support the bankruptcy court's decision that there was bad faith in this case but the district court was concerned that the standard of review that this court set forth in fig her did not allow the district court to review that very legal question that judge her wits identified to novo and we can review if we can so let me just break it down so that i'm i'm sure i understand your argument if we can review that question today over how we might well still have to say to the bankruptcy court that doesn't count as adultery or motive if we disagree but you can still find other reasons to find bad faith you just can't use that one is that is is that's the show in front of us isn't it that is the issue in front of this on the record of this case there were no weather facts that would indicate bad faith well perhaps but but perhaps the issue only issue really in front of us i think i'm going over review is does that does what your client did constitute bad faith and its ever disputed what your client did well that is correct it's undisputed well it's undisputed that failing to offer all the creditors in the class is evidence of bad faith but it seems to me that the district court had another issue on its mind and that was how the creditor had to approach the plan in other words it seemed as if the district the bankruptcy court was saying that the creditors approach to the plan needed to help other debtors or help fellow creditors and that to me evidence of bad faith and it's over but the focus of the inquiry it seems equally problematic you agree i agree that the bankruptcy court improperly focused on whether was required to try to benefit other creditors in the case and that that was an application of an improper legal standard because what this court said in fig here is that the test for determining bad fa does the creditor act with an ulterior motive bad faith it's a competitor it is trying to advance an agenda other than its rights as a creditor or is the creditor trying to protect its interests as a credit to protect those interests that might be bad faith right not the facts in this case but i agree that is what the second circuit case that it's been fichter should figure said that as well in fact victor contemplated the possibility that a creditor acting in good faith could have an adverse impact on other creditors in certain circumstances didn't elaborate on that that was dicta but it did contemplate that possibility because the legal test the appropriate legal test under fig for what constitutes bad faith is all teary or motive versus protecting your interest as a creditor it has nothing whatsoever to do with third parties and that's where the bankruptcy court went the wrong way on the law well inquiry the law is the bankruptcy court should have concentrated on the motive of the creditor correct correct the bankruptcy court erred as a matter of law by looking at irrelevant facts impact on third party creditors instead of looking at relevant relevant facts what the creditor and like and we were you and i missed each other at the beginning on this is that i think because the if we find that the bankruptcy court focused only on the relevant facts we probably ought not say what it might have done had there been relevant facts in front of it there may now be no other facts to suggest bad faith but the bankruptcy court never got there co find bad faith because you didn't offer to buy everybody's share if we say that's wrong as a matter of law it seems to me what we ought to be saying to the bankruptcy court is just conduct your analysis without reference to that you find something else god bless you we'll be here to review it later but it's i'm not sure the bankruptcy court ruled out all other causes it just focused only on this one i think that's correct because the lender appellants did a trial offer to put on evidence about why they chose to pick purchased some claims and not others and the bankruptcy court said i don't care i don't want to hear it i don't think it's important it really inquiry right there he's in the record very clear so it seems to me that one can secure toward damage to other third parties as long as your motive is pure i believe that is correct your honor and it's not bad faith to be course is that there was an offer in victor to to everyone and i'm looking through the case law and i'm trying to find a case in the least at the court of appeals level in which there was an offer to fewer than everyone and nonetheless good faith was found with with in the absence of any other factors do you have one know most of the cases that we have been able to locate that actually address whether all of the creditors were approached or not it's usually mentioned in passing it's usually an opinion out of a bankruptcy court we were hoping that the mana chello realty case might have gone up and i'm not sure that it actually was appealed and my roaming through the bankruptcy court decisions which is always very pleasant  ed that at least some courts are on either side of this issue that is correct that is correct i'm asking because i haven't done my research i couldn't find any of this and since your you two are the experts on the case perhaps you can help  leisurely academic commentary on this issue not that's written i'm aware that professor cole speer at the university of oregon has been following this case and she and jeff up in seattle did a presentation on claims trading that did address this issue at the northwest bankruptcy institute within the last year or two i know they're closely watching what comes out of this because of the impact that this will have on regular claims trading in chapter eleven cases because there are a lot of trade creditors particularly in large commercial chapter eleven cases where you know you're owed fifteen hundred bucks five thousand bucks you're going to get twelve cents on the dollar you don't want to follow a big chapter eleven case for that kind of money so you sell your claim and their outfits out there out of new york and other places that buy claims and follow bankruptcy cases so they're going to be reluctant to buy claims in cases if they don't think they can act to protect those claims but there's the code contemplate claim it does it expressly contemplated i don't think the language of the code specifically does but there are certainly opinions of this court where they have acknowledged claim trading exists that they haven't necessarily criticized it and where this court has addressed the question of when you buy a claim for less than its part value how you get to assert it whether you can assert the full face value of the claim or only what you paid which the answer was face value from this court i can't remember the name of the opinion but there's certainly a recognition in the community and even acknowledgement by this court of how to apply the rules for claim trading so i would assert that that is something that is a recognized practice  you know we do have to figure out what's this mean good faith and it's an undefined term and we're kind of growing and i think you have and you make a very compelling argument but you haven't responded to what what i think he's going to say and since you're at the microphone pacific w counsel testified that he didn't seek to purchase claims that were valued at zero right right and the claims that he believed were either in insider controlled or would alert that pacific western was purchasing them so if we're talking about bad faith there's a sort of  insinuation that there was that this was sort of sneaky and since we're talking about motive you want to address that i do insider claims don't get to vote and have their votes counted under chapter eleven so there would be no purpose to buying those claims there was a lot of concern about the lee and associates claims because when associate was actually a formal agent of the debtor it had been a broker of the debtor and it may have had an obligation to take some response with with the about that and i think there was concern not only about that but also it was simply over the body that the lenders council had been given a budget to pursue the purchase of claims it was over that amount so i don't think i make very much of that fact i appreciate that it's of a budget and that and i should have read that additional fact that i think that is an disputed it's in the testimony correct but when we go to this bad faith and we're looking at really a motive what about this i don't think you build a responded to the question i thought of that they didn't want to give notice they didn't want that to be known that they were i don't think it's evidence of bad faith that you're not telling the universe what your legal strategy is i don't think that's required in a case i don't think creditors typically do that in a case accurate and to be considered at all i don't think it should be considered at all your honor to the bankruptcy interest should not result in fair disadvantaged other creditor that is exactly what the legal test may be in the northern district of georgia but it's not what figure has said that the test is here here we the central question i think the court has already has already grappled with here is whether the bankruptcy court either committed clear error or applied the wrong legal standard and in approaching this decision of designation in this situation i think there are other factors i think with respect the court is is not looking at the ficta case correctly and i want to class to be entered or not we say it's an abuse of discretion standard we say it's in abuses gretchen's standard and then we say that if they violate a legal principle it's absolutely an know whether she did it in order to make sure that i kept my piece and queues are what she did it nonetheless was bad faith i understand to be abuse of discretion but if they apply the wrong legal standard there's no question there's an abuses in it i think it's very if in fact as fichter laid out that the mere fact that the creditor perches additional claims for protecting his own existing claim does not demonstrate bad faith or ulterior motive which is exactly what it says and does not by itself well i understand what it says so the court says it is enough the bankruptcy court said that's enough that's the ultimate on bad faith i think you're overly narrowly reading what the bankruptcy court say well let's look at it a little bit different then it seems to me that the bankruptcy court on the other hand said you've got to worry about the effect of your actions on other creditors and in fact was talking about in re pleasant hill partners and statement but it seems to me the victor is just the opposite fichter doesn't say anything about the effect on other creditors fichter talks about we're talking about the motive of the creditor we're not talking about its effect on others we're talking about the motive of the creditor itself if i did that wrong then  all sorts of data points this case that case all these different types of cases that are all very specific very peculiar facts and they're each really limited to their own facts and at the end of that sort of background the fichter court said at the end of the day this is really a question left up to the bankruptcy judge but what if the bankruptcy judge considers it in appropriate factor so let's assume the bankruptcy judge has seven factors which he looks at zero as i find good faith and one of them is that the debtor is hispanic we would say that's improper factor negative relied on that yeah take it back and try again and see if you  the other factors whether or not you would you might still fight bad faith if here reading fichter the way judge smith suggests we were to hold that it cannot be bad faith too but simply because you bought less then the entire unsecured class which is the only which is one of the facts of what to district court relied here shouldn't we then say don't know that's not an appropriate legal factor for the bankruptcy court take it back and ask if you those kinds of bright lines but that's my question to see you think fichter doesn't stand for the proposition that it is not bad faith to purchase claims simply to protect your own position in the bankruptcy i do not know what you know th are you talking when you know goes on and on on the one hand this on the one hand that and then the case is in short the concept of good faith is a fluid one and no single factor can be said to him except and demand an ultimate result nor must a single set of factors be considered it's always necessary to keep in mind the difference between a creditor self interest as a creditor and a motive which is ulterior to the purpose of protecting the creditors interests that's true life and that's the  in those other cases every unsecured creditors was offered the same deal by this character and that's not what happened here so i'm not going to consider i'm not considering that i'm going to have the designation motion i'm leaving out the next sentence and that says if you had offered to buy every claim including mr munson including mr gleason including the big ones that would have been different but that's not what happened so that's what i'm looking at it seems to me that that was that was the first event and that's you have to put that in the context that it was given the the court was being asked to basically cancel the confirmation hearing we can just deal with as a as a question of law the designation issue because this court this this creditor was acting to protect its own secured claim and the the lender here was making the position taking the position that that by as a matter of law cannot constitute a court take the position that as a matter of what the motive of the creditor was because it said the fact you didn't buy all the classroom at least try to buy all the classes all i need to know that this record did not say that the business of the bankruptcy court to say where the district court court took six hours of testimony about every aspect of this plan and you're right the judge resisted having the lenders counsel take the stand a kind of an extraordinary situation in my experience but but old all of this record desi tells me is that if the designation doesn't go through and to play it is not confirmed that it's possible down the road unsecured creditors might not get paid oh the unsecured creditors get paid no no not at all but i guess i'm trying to figure out what language you want me to look at are you having trying to get back to your question your honor i want to look at here the bankruptcy court did law that means that one must buy all the unsecured claims in order not to show bad faith that's not the lesson the lesson is that it is that there isn't a bright line here where you're on base because you might argue that but my worry is that the bankruptcy court went at it in the wrong way and that's why i giving you those questions it seems to me the bankruptcy court when added as to its effect on others and rather than the motive of the creditor and victor is all about motive of the creditor and therefore it seems the bankruptcy card stands started out wrong i'm more than willing to give them the benefit of the doubt if they're going to apply it right but if they're going to go totally which i think they did in this situation on the effect of the credit on the creditors and they've started out wrong this is not that this is we're supposed to see if the motive of the creditors of the creditor itself is to do it for to get some untoward advantage or to get something that they shouldn't have gotten but then i think they're probably there again saying just failing to offer all the creditors in the class is not enough and the bankruptcy court didn't say that a bankruptcy court didn't rely just on that factor but as she was very clear to state it was a huge factor well i think it forgive me for interrupting but that's what i would just keep trying to say when i get over it i've already read you the passages that convinced me that  sounded like a very truncated this is what she relied on but then i'm on the e r to forty five she says to me it's a huge factor that kind of implies that there was something else but where do i see the something else something else is all of the elements that all the cross currents and parties and elements of a bankruptcy case the interest rate mean the fact that this is a full payment case something the district court found to be ever markable fact and the bankruptcy court did to really have it may be a wonderful plan like describing to be fair i want to have a chance for you to respond it sounds like you're identifying other factors the court would have relied upon and i'm just trying to see if there's any indication the record that that happened that there were that those other factors  were considered and i see this place where it's a huge factor that he factor in liquidation the court made specific findings in the liquidation unsecured creditors would get zero does that matter that matters because we're really having a secured credit or playing with a return of unsecured creditors and these but in particular the unsecured creditors who did not get an offer from this from this whatever it is a strange question but why why do you care this without any case law doesn't help me just a little strange to say the real problem with this plan is the unsecured creditors don't do nor get bought out and they are the debtor and you really don't have an interest in whether they all get bought out other then your ability to cram down a plan on the secured credit or sure and just judge that this familiar with this from the lake ridge case and have a much larger on secured class than was president in that case which i think was five thousand dollars or seven and to be fair you infighter we don't appear to have the unsecured creditors up there either but it's just a strange circumstance to me that's why a courtesy is an odd environment and there are many statutory  to case law common law equitable kind of things happening there are many elements that a bankruptcy court has to manage in dealing with all these folks and i think that's what the fichter court was talking about when it said when all is said and done they must approach each good faith determination with the purse to sasabe i had to go to my thesaurus just from the data of it informed practical experience in dealing with bankruptcy and their creditors so this is  me ask the question we've been asking in a slightly different fashion let's assume that the bankruptcy court believed that under fichter it was required to fire bad faith because the entire class  it was automatically bad faith if you didn't buy out the entire n sync that would be legally or i mean i don't think the bankruptcy court did that in fact i think the bankruptcy court said it's not per se a all to judge smith's question about you know how this works in abuse of discretion and i think this is one of the things that village at lake ridge did for us in one of the notes no seven the court said in addition an appellate court mu correct any legal error infecting the bankruptcy courts decision so if the bankruptcy court somehow misunderstood the nature of the arm's length inquiry which was the legal test in that case or if it devise some novel multi factor test for addressing that issue an appellate court should applied to novo review so that's true even in a case where they decide that clear error is the ultimate standard to apply to application of walk to the facts if you can the legal test wrong get that point that's correct the second thing i wanted to address in counsel's argument was the question of the bankruptcy courts informed practical experience because while we courts are very experienced and used to dealing with bankruptcy cases they do have to make decisions based on evidence and facts on the record and informed practical experience cannot substitute for a lack of facts in the record and in this case trial counsel did ask the bankruptcy court to make findings on issues of good faith and motive in the bankruptcy court refused to do that so while we do have findings of fact about things like which claims were purchased and what interest rate was appropriate and so forth we really don't have findings of fact that can be reviewed on the question of motive in this case and about that in this point where the bankruptcy court says it's a huge factory and seems to infer that there were other factors taken into consideration and you heard his response do you want to i can't see anywhere in the record where there is a finding of fact that would indicate there was any other factor on motive while the bankruptcy court may have thought it was a huge factor i think from this record it was the only factor especially since they didn't make any findings that is correct your honor all right thank you very much this case one six three five four three zero has submitted and thank you counsel both of you for your fine arguments and we're adjourned for the week thank you very much th