decided the first dealing with the conversion which is governed underneath eleven u s c eleven twelve b as two steps are the hanks and court the first step is to determine cause by preponderance of evidence my papers have shown i don't think cause has been established by any shred of evidence much less preponderance but let's just set that aside the second step in the conversion is the comparison a comparison of the conversion value versus the comparison versus the dismissal value so you can think of it as the scales on one side we have the very the value of the conversion on the other side we have the value of  whichever one predominates should be the way the decision is made in august two thousand and fifteen the conversion was granted it was granted twenty one days before a jury trial was scheduled to start which trial had been postponed to previous times by next june and by the bank binders ready the questions were ready the lawyers were ready five months later after a reconsideration motion and after a settlement that was reached between the trustee and the bank and next  there was a settlement hearing on february tenth two thousand and sixteen now the the value of the conversion was clearly to be determined as the value of the settlement if the bank and wanted to go to the to the to the trial it would have simply waited twenty one days from of the rescheduled jury trial which was to start on february twenty nine the bank over the course of eight years took every conceivable step to avoid a trial there are over six hundred docket entries in this in the spirit court and in the bankruptcy court that's roughly four to four and a half to five docket entries per week relentlessly for eight years there were fifty five motions to convert thirty five by the bank and approximately twenty by the us trustee giving a total of about fifty four which everybody agrees  as the number now in the settlement discussions the creditors were shut out the settlement discussions occurred primarily between the trustee and the defendant now the defendants hold disputed claims those are the only claims that are disputed the creditors hold undisputed claims at the hearing on february tenth which was held concurrently with the settlement same court room same judge same party same time the settlement was agreed that its value was zero both the court said this and the trustee said this so going back to the scales for the undisputed creditors on the scales for the conversion for the disputed creditors the value of course is the elimination of a thirteen million dollar damages lawsuit so that now we should go over to the side of the scales the deals with the devalue of the dismissal the value of the dismissal was everyone knew that once it was to be just dismissed there would be the beginning of the lawsuit beginning of the trial so the dismissal value is identical to the lawsuit value and the lawsuit value in this case for liability was there was no no no no no one contested the liability at least not during the court during the course of the hearings and as far as damages are concerned ninety six percent of the damages were undisputed so in valuing a lawsuit in which there's no dispute on liability and agreement on ninety six percent of the damages the trustee came to the conclusion that it had one chance one hundred thirty three of being successful how did you get the hundred one chance in one hundred thirty three of being successful well you take the as a numerator the fifty two thousand six hundred seventy nine dollars it was agreed to for the settlement and as a denominator the damages ninety six percent of which were agreed that turns out to be three quarters of one percent on the dollar or one part one hundred thirty three how do you value a lawsuit well it's established clearly that it's done through the four factors in a and seat that is to say the probability of success of litigation which in this case had one hundred percent liability and ninety six percent damages agreement two is whether you can collect and here we're dealing with collection against  bank publicly owned three is the litigation its complexity its expense its inconvenience and its delay well the delay was nonexistent because it was to start in twenty nine in one thousand days the the the the expect the expense for the week st and state attorneys were working on a contingency basis and then a fourth factor an c factor is the interest of the creditors which are to be paramount this is consistent with the t m t decision which made it it with exceptional clarity how this is handled and t m t states quote basic to this process in every instance of course of course is not mine it's the supreme court's of course is the need to compare the terms of the compromise with the likely rewards of litigation how did the district court view this the district court said that the a n c was not a political it was very clear about this it sit at three times that is to say it affects effectively ignored the claims of the lawsuit the bankruptcy court was equally clear it said and she was unsupported and irrelevant thereby ignoring the claims that a lawsuit and see is how the lawsuit is valued and see is how the dismissal is valued so on the side of the scales over here for the value of the dismissal we don't have anything because it wasn't evaluate this is a problem this is the first problem the second problem is the settlement now the settlement was all agree was done by the four factors of the  c however which is not in agreement is there what are the criteria used to establish the four factors and how do you know when you've met the four factors well the answer to that was provided through trial which all agree but there is a condition to that and that condition is the t m t requirement that it be a fair and equitable proper and independent assessment of the  trustee made no such independent analysis why do i say this well it goes to the second way in which the four a and c factors are stablished or know whether they have been met and that is that the settlement must not fall below the lowest level that is they must not fall below the flow it's level of reasonable in us now there's a problem with  falling below the lowest level of reasonable in us helps those who have something to lose but in all instances we know there are two parties one party has something to lose another party has something to gain if we are to the not fall below the lowest level is the best case for the party who has something to lose it is the worst case for the party who has something to gain so if you were to be truly impartial about this you should add in addition to the not fall below level you should add something in the nature of not rise above the highest level of reasonable in us then you have attained some degree of impartiality because if not rising above the highest level is then to the best advantage of the those who have something to gain but to the least advantage of those who have something to lose so somewhere along the line you might be able to secure an impartial decision question is so what well the the bankruptcy court in the district court give us a clear answer they have defined what the lowest level is in this in this case the lowest level is fifty two thousand six hundred seventy nine dollars and how did they arrive at the fifty two thousand six hundred seventy nine dollars well they simply asked the bank which creditors they like and that turned out to be fifty two thousand six hundred seventy nine dollars the district court said that the bankruptcy court is not required to set forth how the bank arrived at the amount of fifty two thousand six hundred seventy nine and it was similarly stated by the bankruptcy court the said the compromise does not fall below the lowest level possible level in the range of reasonableness the question is then are we seriously to believe that the fifty two thousand six hundred seventy nine it meets the t m t fair and equitable standard of being fair and equitable proper and independent assessment of the claims of the trustee thinks so bankruptcy court thinks so the district court thinks so if this is the case if this is the definition of the lowest level it is a very low level definition of the lowest level and assure to ricochet around the judicial branch for some period of time it is a stunning victory for the banks it is a stunning loss for the a stunning loss that is ill deserves for the citizens thank you thank you i understand that mr kleiner well argue first is that correct and evaluation of the litigation that mr kennedy was just speaking about this is a court litigation that was quite anomalistic lee filed in the superior court of california per the instructions of the prior bankruptcy judge judge weiss wrote and proceeded in look to documents and information related to that litigation and ultimately spoke with both counsel for the special counsel who is engaged by week street the debtor who was pursuing the litigation and  such as damages was going to be mr kennedy i reviewed a binder that i believe was over four inches thick that included much of mr kennedy's calculations as to what damages would be and it was off based on his other  based on his prior testimony under deposition was conducted weeks before the conversion of the case over two million dollars the trustee did not have a lot of confidence in this case believe it was not a particularly strong case and concluded there of mr kennedy's comments made two points that i think their response one he in his view the creditors were shut out of the settlement in two there was no independent analysis would you comment on  that let me address the second one first in terms of independent analysis the the bankruptcy court reviewed the information that was put forward by the trustee the bank next gen and by the creditors and concluded that  there was that that that they believe that this both of those courts believe that this was not a particularly strong case for the reasons that are set forth in judge johnson's opinion the how the trustee thought this was a strong case he certainly would have proceeded it it would not have made sense not to proceed because it was so close to trial but because it was so close to trial in the case was so visibly weak to both the trustee and the trustees opinion in my and we are able to sell some vacant lots that were sold in two thousand and seventeen another three hundred twenty thousand dollars in cash came into the estate from the settlement after payment of real estate taxes i think the estate   once the settlement agreement was negotiated were part of the negotiation these were confidential settlement negotiations but once a settlement was brought forth to creditors and made available to them they had an opportunity to  comment in which they did not all of them were supportive but not all of them rejected the settlement and in terms of their desired thinking this was not a particularly strong settlement under the mickey thompson case they had an opportunity to say hey we'd like to buy this litigation from the trustee the trustee has a right to sell this type of litigation no offer was made mr kennedy's brief because of the district court level certainly when at length to note unpaid petition claim is just that there is nothing that can be distributed from that to creditors they want to roll the dice they want to try and move forward with this litigation and the trustee concluded and the bankruptcy court and the district court agreed litigation was not strong enough or didn't wasn't wasn't likely to be successful and they agreed with the trustees analysis that the matter should not go to trial and that it was in trustee from from the bank i don't know if the court has any other questions i'm glad to address them thank you if not thank you  information sheet in this case has been acquired by tri counties bank but for convenience since we had three years of litigation in those first national bank it's probably easier for me to refer to them as first national bank still i want  address the conversion issue before i got there i just want to make a couple of very quick comments and mr kennedy's opening statement he made a comment that the liability the liability claims that the debtor was asserting one through the entire case sac and the offer seems to be portrayed as only fifty two thousand i think mr klein or just a civically noted it was the bank came out of pocket fifty two thousand plus  change there was over thirty five thousand in the case subject to the bank's security interest and the four vacant lots they were also subject to the bank's security interest so on its face at the time that the salomon came up we were looking at four hundred fifty thousand dollars which was a number presented by the doubter to mr kennedy is this responsible person plus fifty two thousand plus thirty five so as a significantly higher offer than we could put out going to the conversion we had raised an issue and a motion on whether or not mr kennedy has constitutional standing to bring this appeal and i just wanted to go through that briefly because this case has i guess i would say facts that support our argument that there is no constitutional standing has no injury at the time of the conversion motion the only asset in the case was the lawsuit and as we pointed out in our brave  act conversion after was converted the lawsuit was not affected because mr homeless at the chapter seven trustee had a fiduciary obligation to the estate and i think has been mentioned in many pleadings here and he could choose to proceed with  litigation mr kennedy did not have any property interests that were affected by the conversion order he may have had a claim in the case but at the conversion there was no change there was alteration to his rights there's no alteration of the creditors rights we simply went from mr kennedy as if i do sherry to mr hellman said as if i didn't share so that's why we think that the motion should be granted on lack of constitutional or lack of standing and i realize that's so that's still presented in our brief second going to the conversion i think the t that mr kennedy advocates is not the appropriate way to decide whether or not the court had the basis to convert or dismiss the case statute the statute says that the court can convert or dismiss the case for cause obviously there are in this situation there had to be a finding for cause and we presented that all throughout the reason and looking a judge johnson's order which went into great detail was that mr kennedy at that point in time was prosecuting the lawsuit only for his own personal benefit not just think of the benefit to creditors and this is pointed out in the record numerous times we raised it in the motion to convert and the hampton fact the hampton factors that we presented listed the grounds for which court can find cause the statute is not limited to simply the examples given is the attorney for the chatter even provided this information and his declaration submitted to the court well we have and we also have a number of hearings on these issues both on the debtor's motion to dismiss its case and on the banks motion to convert and as the issue came up through those time periods that this was a breach of trying to show you duty at no point did the debtor come in and say ok give me a give me a mandatory settlement conference let me sit down and have a someone conference with the bank want me make a counteroffer to the bank so when you're looking at the evidence the preponderance of the evidence here w got is all the evidence on the bank side said we made a proposal we made numerous a proposal they were verified in open chord and despite having numerous opportunities the debtor never came forward and said i pocket mr kennedy's the sole owner of the l l c debt or entity so that was the reason that we ended up with judge johnson finding that it was appropriate to convert or just miss the case that also like to point out in terms of cause being shown the debtor filed a motion to dismiss prior to the bank's motion to the bank second motion to convert which the debtor said we think there's grounds to dismiss this case because and they for five different factors including insolvent unable to pay administrative claims so that's on the record also if you're looking for a basis for the court to reach in the bankruptcy court to find cause to reach a decision that converted and one other issue which i which i'd like to point out in the support of the trustees the settlement issue is in the state court and this is also mr smith's and flyman order he originally agreed to  the costs of that litigation and that didn't happen so trial counsel for the debtor in a state court did not fund the litigation none of the creditors came up there's nothing in the record to say they offered to fund the litigation and they didn't offer to pay for experts and when the issue was presented in the bankruptcy court with the settlement on the record i noticed to all the creditors no one came in at that point and said we'd like to buy this so i think if you look at all the overall factors a there's there's efficient evidence of that satisfies the preponderance of evidence standard that judge johnson was correct in deciding that cause existed to convert or dismiss and then for the reasons that we also pointed out in the brief he was correct deciding to convert the case to chapter seven and i don't believe that mr kennedy on his appeal has mr kennedy you have two and a half minutes for  speaking to do tourney's the trial the lead trial attorney mr kleiner spoke to him for twenty minutes for a case that have been going on for eight years and for the assistant to him he spoke to about forty minutes that's it as far as the as far as the the the creditors in fact did offer to relinquish all of their claims in the bankruptcy court which is over three million dollars and then have them all tried in the superior in the superior court so in fact they did make a proposal they made a proposal of well over three million dollars by by accident all of their claims from the bankruptcy court years after that so it wasn't in front of anybody at the time that the consideration or the settlement was occurring and as far as the plan is concerned plan was never heard the plan was set up to be heard on january seventh we set a hearing for october eighth and the case was converted on in september but i think it was ten days before we had the first chance to get a plan and that's a violation of that's an abuse of discretion  pointed out there by opposing papers as far as what they authenticated the bank never made an authenticated settlement offer if you look at the papers the only authentic a good offer comes from the week's street attorney  which he commented that they made an offer that's it there was never anything to cater offer besides that between this occurred between the settlement conference on july twenty third and the motion to convert which was september twenty third was a very active period there was a motion to dismiss there was a motion to convert and there was a plan that was of that was that was the that was occupied my all of my time which i have to spend in order to come to speed on all of this in order to prepare those documents there was no argument about that thank you very much thank you i'd like to think all parties and their counsel for argument in both cases that were consolidated for argument the cases of kennedy versus weeks three seventeen dash five one five four you need eight and kennedy versus weeks three seventeen six one six zero four seven are now submitted thank you