the morning or honors they please the court my name is john good child i represent four secured lenders in connection with a bankruptcy case and mary's are five minutes rebuttal please this is a case in which the bankruptcy court interpreted a consent order in a way that eliminated the need to handle a dispute over whether certain property of the bankruptcy estate was subject to or prepared to lean on the one hand versus an adequate protection lien on the other hand an adequate protection l is a kind of lien that is created during the bankruptcy case in order to compensate a secured creditor for the reduction in value of the secured creditors collateral measured as of the date the case began that last part is important or honors what's happening in this couple there isn't anything in the bankruptcy code sale is there that prohibits a secured credit or or lean over from agree to a cargo payment for chapter eleven attorneys thereby in essence giving attorneys priority over their own interest there is nothing in the bankruptcy code that prohibits that your honor in this case there was consent and that consent is embodied in a highly negotiated order issue is whether the bankruptcy court correctly interpreted that order in order to make the car valid subject to the collateral securing preposition liens versus the adequate protection and so we have no dispute over whether there could be consent in order to reduce the claim of the secured creditor or the extent to which the lien covers collateral but at the point of conversion of the case when the professionals fee applications came before the bankruptcy court it had been a year since that case had filed and you can see in the part procedural objection which is a record nine exhibit nine you can see in the in that objection that there were there were categories of property that had become how to come into that bankruptcy estate that were not in existence at the time the bankruptcy began and you can see that the that was being raised was whether those new idea of property excuse me whether those new items or property were prepared to collateral which required an examination of the u c c proceeds and arguments about how the collateral can can change from its original form into a succeeding form versus versus whether that property those those items of property that did not exist at the beginning of the bank y whether those things were subject to the new liens the adequate protection liens and the reason why that was important from my client's perspective is that the carve out the reduction of this the right the lien right the reduction of the lien right under that cash collateral order only applied to the lien asserted over property that was otherwise on inco and so that you do not you don't take the position that your final carve out language could have granted a lane across both of those categories of property right i don't dispute that at all and in fact the question is what did you do what does this line which mean all right well yes and no your honor yes the question is what does the language do but i believe the answer is for property and it is junior with respect to property as to which there was already a lien when the case began issue confronting the bankruptcy court your honor was given that i haven't paid professional fees which are a chapter eleven administrative expense and given that i have this consent worker do i really have to reach the question of whether the unpaid amount of the professional fees is senior in priority or whether it is a carve out from a junior lien that was really the issue presented by the procedural objection and in our view the court simply sidestepped that issue and instead of resolving the issue that is squarely presented in the procedural objection which was is all this new bankruptcy of state property subject to my preposition l or on the other hand is it subject to my adequate protection lead which in our view was the question instead of reaching that question the court did something extraordinary in our view the court simply said because you agreed to carve out professional fees from your adequate protection only in paragraph twelve i will not reach the dispute i will simply hold that that car about applies to the collateral irrespective of whether we're talking about preposition collateral or whether we're talking about collateral as to which the adequate protection lien attaches didn't wasn't there also discussion in the court order that said that  looked at the actual record look at it looked at extrinsic evidence and found that that had in fact that the right to collect those the spain and the chapter eleven to chapter seven alteration and that you had already made the promise yes your honor the bank and that your statements to the court supported the fact that you have already made that promise yes your honor the bankruptcy court absolutely did say those things in response perhaps two things the first is that the city of covington case even if iran or looks at it and says the rule is a little different when we're talking about cash collateral orders because of the hughes backtalk case but the first the first point is the city of covington case does not allow for a bankruptcy court to go outside the four corners of the agreement plus assuming that the that the court follows the unpublished decision in the hughes case plus some context otherwise considering court's observations the bankruptcy court with respect to generalize statements about a desire for the professionals to be paid and grafted on to that a very specific intent in the face of a really narrow and technical dispute over exactly what kind of a lien is going to be subordinated to the claim of the professionals well if the the agreement means or if the agreement itself is ambiguous and doesn't bind corrupts the law to rise review beyond the direct language of the statute so that you look at the record yes your honor but here there was no why here is it am i correct that this the final cash collateral order doesn't contain provisions that specifically discussed the carve out as it pertains to prepare titian cash collateral your honor as to your first question yes if there were a finding of ambiguity i agree the bankruptcy court could go behind lint would you also concede that silence on an issue makes the cut makes the agreement ambiguous no i would not agree with that that actually is covered in some of the cases that were then wouldn't the natural course be to look beyond the contract to determine the intent of the parties in the language that exists in the contract your honor i do agree that it's would be natural in this case however your honor there is a very specific language set of language in paragraph twelve that says exactly to what they carve out applies and it is in the beginning of paragraph twelve your honor it says soley on account of the adequate protection obligations the lenders are granted following liens rights and benefits and then in the following subsections the references to carve out apply only to those rights code created under paragraph twelve there is nothing in paragraph twelve that talks about the lien that existed as of the petition date paragraph it's there reference is my memory correct that there is reference to chapter seven yes there is you're on to the trustee yes absolutely how can you how can you exclude the entire provision based on your argument if the provision itself addresses the right of chapter seven into t's to be paid you your honor with respect we're not doing that what we're saying your honour's is that in a chapter seven in this chapter seven the court simply should have followed the order as written and as written well of exams here's my struggle if it is if it's not specified in the which as i noted earlier and to the line which also includes references to payment for chapter seven activities then why would that not be evidence that it would enable the payment for the professional fees in the co that that arise for the timely time that in the chapter seven proceedings because the chapter says eleven proceedings no longer exist your honor i i agree with you but in this case in section twelve the references to chapter seven refer to the adequate protection leads in other words the references to chapter seven are completely consistent with our argument what we're saying is the payment from the professionals needed to be car out from the adequate protection security interest not from the prepositions curie interest all of the references to chapter seven are as to the adequate protection liens and with respect to the only standalone section twenty c in the cash collateral order that one works in favor of the lenders your honor if it's not a provision that allows the payment of the fees after the chapter seven for us the payment of fees after the chapter seven simply had to be paid out of a carve out from the lien on the adequate protection collateral and that issue what was prepositioned collateral versus what was adequate protection of collateral that issue was before the bankruptcy court and were simply asking for remained so that the bankruptcy court can make a decision about which collateral was  lien so that the right order of priority as reflected in the agreement of the parties can prevail or you are you taking issue with this language from your own bankruptcy ridge and which is moreover usually with the lenders can send cash collateral orders often include a car route or payment of professional fees however section three sixty three c two is clear absent consent or court order and here in our case we have got a court order consent of the lenders apparently absent consent or court or the trustee may not use carriage collateral for any purpose including the payment of administrative expenses we are not all we are saying is that the consent here was set forth in a highly negotiated warder and that the order should have been enforced as written in order embody the agreement of the parties so that the bankruptcy court would have had to have reached the issue of which liens attached to which of the collateral that is set forth in that listing of a state property that is and the procedural objection interpret its own cash collateral order and obviously the order as mr rich i was referring to is the final cash collateral order which includes a professional fee carve out i want to kind of make sure we i get to where we are now there were in terms of the briefing the in in their reply brief the appellant agreed that the carve out does apply in chapter seven in page seven they say let there be no doubt east coast miner agrees that the carve out does not terminate upon conversion to chapter seven and we raised in our brief paragraph twenty c of the cat of the cash glad order makes it clear that if it applies in the chapter eleven it applies in chapter seven so nothing evaporates for the only issue before this court with that concession is that does the  order extend to the pre partition collateral of the looking river lenders and it unequivocally does before i get to that i want to mention it's important just reference to different types of liens when you have assumed a secured lender in a bankruptcy certainly on everything all assets everything is covered there so there's a so called adequate protection when you can get an a in a bankruptcy which says if there's diminution in value of your collateral you can get a lien on on something else that you didn't have a lien on in this case that when you assert a lien on everything there's nothing that doesn't happen nothing at least not being asserted in theory there could in theory be something perhaps that comes out of the sky but adequate protection here it's important to know the scope of that when this adequate protection which is what the appellant say is the only thing carved out of the of the of the professional fees is a lien when you assert a blanket lien means it attaches to either nothing or virtually nothing and the banks a court addressed that in his opinion to say i suppose a pair of twelve he was in her fourteen we would even be here today twelve years not something that intro paragraph it is about the leans the claims they get the the possible rights they may have based on diminution their collateral twelve b which happens to be the definition of doesn't speak anything they get that something that effect that something the pelleas get into a they they're not getting anything from twelve twelve years with their giving and twelve it's important twelve e in terms of does it cover does it extend the pre partition collateral twelve the definition of cover up and the banks occur in this report both relied on this includes one hundred fifty thousand dollar investigation budget for the creditors committee paid from cash collateral that's in twelve feet it's in the definition of the carve out it's actually in the on page twenty of the order towards the end of twelve it's in the provided however an amount equal to the under fifty thousand dollar investigation budget you can't pay up yet that's payable from cash collateral you aren't paying that from adequate protection when you're paying it in the use of cash collateral in paragraph ten it's part of the  required that those fees be paid or else the case is dismissed it's tetra parm to take appellant's argument you would have to to accept the fact that the us office the united states trustee was a substantial risk of nonpayment if that wasn't  get to that this is a standard professional fee carve out also mention the look of a manager steve substantial benefits of this final cash collateral or this isn't just we give a carve out and we let you use cash they receive waivers of claims they receive stipulations rights to to exercise upon their collateral upon certain events a number of of important provisions that they bogan foreign argued foreign from the court so not only is twelve and again i think the investigation budget alone is enough but the but the but the record as a whole is important to show that extends to the proposition collateral of the looking reform lenders and the court was well within its rights to do so we counsel mention used the term consent order and suggests in their briefing that perhaps there is not it is part of that that there is not deference to the bankruptcy court that this court shouldn't give deference it should be of no standard in terms of the the interpretation  that's not the law here the dow corning case the congo case those are both decisions of this court applying it into opening a chapter eleven plan related order in bankruptcy orders are drafted by the court they were viewed by the by the the judge the banks judge the bags judge makes changes the court that the parties come together there's no standard on which this court tries to put its finger to its mouth in terms of how much did the court draft that order was it fifty percent or twenty five percent seventy five percent there's no law they haven't  standard when it steps right on and looks at the parties intent in the context of the bankruptcy superseding and there is talk of this being contract interpretation so so give me your  eagles view of what that means in a bankruptcy proceedings educate us because i'm struggling with whether we treat this is if it's a contract and then we say let's look at the language first clear on it where the court having been involved both in oversight of an interview of order separately then consider that part of the entire body of each written document and what is your best case for saying that there's this slightly distinguishable way of addressing the problem thank your honor yes i think i think there is i think you look at the language and you look at the record the whole i think that when you're talking about it the best when you talk to bankers there's multiple orders and i want to get to make sure i get to  because it's really important here but there are multiple orders that in that in the case that are ultimately touched on the issue so you look at the language if you also if the banks judge who's familiar with the entire proceeding they are entitled to look at the record of the hall because other things are going to touch the lead up to the negotiation of a plan in the terms of atlanta designed wage bob reading would appear to be completely clear does the court then still stand by and look at that order in the context of being other workers in bank i think sometimes it would not but if it's if it's game if it's dispositive which i think in this case it is you would still look at it as well i mean i think you would look at missions of the parties you would look at the order i think you'd want to get to the issue here in terms of why that's important in the dip but way i think that the language is clear clear in our favor based on the investigation budget it's clear that's paid off in cash collateral that's pre partition collateral you get to the deporter in this case the did cash collateral means in a bank is that you can use cash the debtor can use cash in the borrowing the cash collateral served by the the appellant's but at some point in the case they need to borrow the debtors needed borrowing and they got it from a company called porter capital and political capital made loans secured by accounts preposition collateral the dip lender alone provides that were in the senior position up but it came up here so the court said well the courts are going to look at the at the record and see where their statements were the other representations that inform what was supposed to be going on here and i think the most the most striking one is the own words the river lenders when they were seeking the right to credit did they were saying all the great things they did in the case which would allow them to have the right to submit a credit bid on the assets and they made a statement in that restaurant saying pursuant to the final cash collateral order looking river lenders consented to the debtors use a very collateral to fund the cost of expenses a minister in the chapter eleven cases including without limitation a carve out for the fees of professional firms for team by the debtor seems to me their collateral not adequate i'm thinking of maybe something that you're opposing counsel has already referenced but app remembered that there was in the record a time in which your client agree to pay professional in the context of saying that we want these professionals to continue to work so that they can value the assets and arrange them for sale is that not also in the record yes your honor there is something what could they have managed if you aren't standing there telling the court we need their services we will benefit from their services and so we're going to your honor oh as a mom i don't see how when they seek the fees that they agreed to in order to go forward you're saying they're not dialed in your honor i'd like to misunderstand mckay's i'd like to answer both questions  good judgment paragraph ten of the cash collateral order is where my clients the lenders allowed for the professionals to be paid it's respectfully it's not correct that that the lenders simply went along through the case one of the professionals to work and then turned around and pulled the rug out that looks like on the surface i do appreciate that your honor because we focused on what happened after the case converted to chapter seven but that's probably my fault i should remind the court during the entirety of the chapter eleven case there was a budget the professionals were paid the budget had line items for the professionals and in fact in this goes to your point just tranche that right before the conversion of the case there were two times in which that budget was expanded to make it so that the professionals could be paid here and so we're not talking about a situation in which my client is taking the position the professionals who should receive no payment and we're talking about a situation in which after the case converts to chapter seven and the professionals are asking for money some of which exceeds those budgets whether we get to skip over the question that is set forth in the cash collateral order which is do the professional fees are they superior in all respects to every lien that the lenders assert whether it's a preposition leaner inadequate protection lean or do we follow the text of the order which is that the carve out is from the adequate protection lean that's what paragraph twelve says and respectfully the bankruptcy court simply skipped over the question and assumed that the cash collateral order and the agreement which sit which in which is set no but your honor it's interesting that the other side is that because in general it's the assumption that professional fees will be paid off the top along with trust because everyone before has assumed that the lined wage of these carve outs mean that attorneys who work two point four million dollars worth a ton get paid for iran and that's certainly possible but i looking at the case law i think the more plausible explanation is that every single one of these cash collateral orders is highly negotiated and they're all different is the car that very distinct minder standing well i know it lists the dollar figures and the particular pot in this case but my understanding in reining was that the car that was a fairly standard provision and tracked fairly that is that an accurate and if it is tell me what about your car valid draws that distinction it is inaccurate your honor and i say that with respect if you look at the cases that were cited about cash collateral orders they're all vastly different they all provide for a kind of carve out a way for professionals to be paid under certain circumstances but look at nuclear imaging in nuclear imaging the carve out was pursuant to a budget and the budget exempted the professional fees from the collateral in the pennsylvania case but here your your contract doesn't exempt them right it just your argument earlier was that it limit that this is beyond budget right not that i want to provide for some of the professional fees in question here or beyond budget that's true what i'm saying is that carve out applies to a particular kind of lean because all of these cash collateral orders are different so to your point your honor it's not that the idea of a carve out is something that's bespoke that's not true the idea of providing for professional fees is something that's in the law it's in the cases it is fairly court main when you said we want the part we are willing to engage in this agreement and continue because we need the professional services in order to muster the assets and figure out how to sell them we need their professional assistance what does that mane if it doesn't mane that you will then be paid it means that we consented to the use of cash collateral for the and expenses associated with selling the assets that's true your honor but that's not what's before the court today what's before the court today is what happened after well have all of those fees then actually been paid already yes all of the things that your opposing counsel and for doing the work that you told the court you wanted them to do your representation in substance your honor you don't want to play it right your honor that's where we are it is we would like for the bankruptcy court to decide which of the bankruptcy estate assets are subject to the preposition liens versus the ad take a lien on everything when you're not done you lean on everything you can because you're in vikrant city because they can't afford to pay their debts so there's you under your argument there will be nothing left to pay them isn't  honor snot accurate because this bankruptcy is highly contentious there are lots of causes of action out there we are not fully administered in the chapter seven what we're saying is the bankruptcy court should have short circuited the process of letting the case play out and having the professionals be subject to payment out of the assets that they were entitled to and instead of that the bankruptcy court simply allowed the professionals to basically take money out of the estate before all of the dust settled and everyone took their chairs were not and if the dust settles and there are other causes of bash and collecting from other people that this debtor then won't that then accrue to the lenders benefit because it will replenish the pot of the estate in order to have the lender paid no your honor it won't and that's because under the highly negotiated terms of the cash collateral order the causes of action are exempted your honor what we're talking weight then where go it would become property of the chapter seven estate my clients would have a lien on them that's the issue you're on right there it's it's that now looking back over the last three years our view is the professionals should have been chapter eleven administrative expenses just like every other chapter eleven admin expense and they should have waited pursuant to the terms of this water until there were there was adequate property to pay them and all we're complaining about is that the bankruptcy quirke short circuited that entirely and said i'm going to interpret this order to allow you to be paid from from property as to which there's a lien without resolving whether the lien in question is a preposition lien or an adequate protection lien it's the issue your honor with respect is not whether circle lean over everything it's actually two issues your honor first is as to that we don't assert a lien over everything we agree that there are certain things that are going to happen in this bankruptcy including litigation claims or for which we don't have a lien number one and number two there was a negotiated border that set forth the circumstances under which professional fees were out of a lien and that kind of lien matters khowar is that we have an overarching lien on all the lended materials and if professionals want to be paid then they fall into the risk pool of whether there were actually risk and here the professionals negotiated for less risk than a typical chapter eleven administrative creditor because because they actually do have a carve out from an adequate protection  it would be ace it would be a miscarriage of interpret in the quarter however to say that they also have a carve out over a lien on prepared to preposition collaterally pre partition lien and so they improve their position a little but not so far as to eliminate the issue that was really presented to the bankruptcy court which was whether all this new property that it come into the chapters and whether all that new property whether that was really prepared to collateral because of the u c c rules or whether it was new property as to which the lenders might have certain adequate protection lien but they didn't have a pre partition lien and in our view that is the crucial difference because of the language  so it's like you know trying to put together something that you don't know anything about i understand your area difficult for article three judges at the court of appeals level to understand all th groups but we'll do our best do appreciate it you know the nuclear imaging case which is cited by by the trustee in the professionals it gives a good example of how each one of these cases is different you'll see your honour's that in that case the professionals agreed that the carve out only covered a little bit of what they were seeking but the core of it was limited and it was a carve out from the collateral and then there was a whole bunch of other fees out there and that it that you best case for signing that you are not right using an entirely new argument that that is the case law that governs the type of argument that you where your honor i think it's kind of a yes or either rich or best case or it's not got a better one tell me on the issue that your honor has raised i think the best authority for it is that in the procedural objection we we raised explicitly that the case had converted to chapter seven and that the cash collateral order should be interpreted on its terms and that with respect to the way very much i think that's the best on the point of does a carve out  mean the same thing in every bankruptcy case and doesn't that somehow dispose of this the best thing to do is to look at the three cases that have been cited by the parties about how cash collateral orders work and just note how different they are and that's that's the nuclear imaging case is that pennsylvania case but here he is the conceptual purpose of that type of carpet of course it's displaying from time to time but  then you would not doubt that the conceptual purpose of the carve out is to shoot the professional phrase and it did and this order does do that the question is how far does it go and he thank you