and i were here almost three years ago a panel at that time issue a decision or a memorandum about two and a half years ago and with a lot of guidance i was impressed i mean i didn't like it that much but i was very impressed with all the guidance that that court gave to the bankruptcy judge and so when then several years later the new findings came out as i have indicated in my briefs i believe there were quite a few unaddressed issues and points that the baptists i may use that term had pointed and that to this day are unaddressed and i believe the biggest item is the issue approximate cost nothing really said about it either in her first statement of decision or in the new findings there was virtually nothing said about the issue which is as important an issue as misrepresentation or knowledge of false or the early thing else is the proximate cause and is specially in this case i think it was is a huge item and i've gone and link them my briefs about that issue there's something else in there was virtually nothing about knowledge of falsity intent to deceive the junior liens  virtually nonexistent in light of the reasons why the bank sucked down the operation and had nothing to do with loan terms it had to do with and then that in the process they discovered the second trustees and then that's when the whole thing was shut down the whole idea of these four homes being built and then someday being sold and then lots of profits being split among a lot of people why didn't that happen it happened for one reason because of the second trust deeds on that security of the lender and then they shut it down well there's a little more complicated than that and  record wasn't that the the representative from point financial testified that they were concerned about why given the budget they would need the additional funding and there was a dispute but that representative also said he was pretty concerned about how far behind they were on that schedule although your client disputed that so it wasn't just just the fact that there was another conference do you disagree well i think that was the biggest the biggest reason was the encumbrances and then when they noticed that i think they then said well wait a second they're also behind schedule and they're  also this or that and and then they made a decision using their discretion but it wasn't a kneejerk they had to default and and their representative agreed with me on that in the trial the other thing that the court did cause for a second i mean this looks to be like basically a fraud in the inducement kind of case these people testify that they would not have invested if they'd known the true facts isn't that so my view is they lost their last was when they laid out money in reliance on the false statements and after that white why do you think that happened after that really matter why it is or at be a further showing of cause well first off there has to be the false was their understanding and rosie couldn't even say who told them that coral blue was going to hold time of that that changed and when each of the plaintiffs agreed to the operating agreement they weren't going to be part of any of this unless they agreed to the terms of the operating agreement that's how they began to become people who may someday have earned some money back the agreement in the operating agreement is central here because when they have agreed to the terms and conditions of the operating agreement they gave two women were authority exclusive management authority to make the decisions about the first off the lender was already in and agreements of the operator that would really help your client at all right that agreement would be invalid because the fraud of the inducement if it was real clear that there were misrepresentations that were material that had to do with the project then like in any other fraud case i would say yes well what about the statements recording so we're kind of the reason going back to say we can't call it the bank there's one of the issues in th case is who was the lender and was it a conventional lender or other and the statement is made the allegation is made we were told it was a conventional lender which which it at indicates certain issues and in fact it was and today it's far from conventional in its lending approach it's not lending it's own money it's it's subscribe it's not a bank why is that not at material false mission or representation because the reason they gave that realizing that it was a hard money lender the reason they gave was because that th communicated to them that this was not that great of a credit worthy operation ok that's right go back to the operating agreement they agreed in that operating agreement that it was a risky operation that they had no financial history to speak of and all of that was in writing and had a time and so when they accepted the terms of that operating agreement they went in with their eyes wide open for whatever reason down the road they look backwards and go oh it was a hard money lender we want to done and if we did know that because that toll would have told us they didn't have that great a credit when they signed the operating agreement they were acknowledging right up front to become real concern that they in fact would have not done they were told in black and white they didn't have credit worthiness and they want to hadn't signed their operating agreement made their investment anyway so how were they supposed to realize any money from coral blue well they had to operate agree it has the operating agreement turned into into money since connex and owns the property it was a contractual agreement with these parties is that contract and the evidence well no i'm talking about the operating agreement no so how do you get money from connex in to coral blue coral blue doesn't own i think or blue didn't operate a thing at that generate any profits based upon that situation has existed in reality not as represented at that time you know none of these people asked my opinion about for instance  record you're our idea i look at that operating agreement and if i'm representing the investors if there had been profits i would have said ok there's a bank account over here connections bank account where all of the profits went to but we have this operating agreement which is our written agreement about what was going to happen between themselves between themselves including wickham and werner what right or asset that they have at that time that would suggest what business that they had anything of value that would be used to turn that entity into a profitable situation where the members would receive distributions the value of the promises that they were going to be there had to be something in there about splitting up profits down the road it was discretionary with women werner but when there's good faith which i hope we can warner had they finished the homes them we got three million dollars here to divvy up i would only hope if they asked me for advice i'd say split it up fairly first be sure every investor gets all their money back and then divide the rest good morning from a place a court you've read the briefs you've looked at i'm here to answer any questions i need to rehash what's in there i believe you have a very good understanding of the transaction it was a very tedious process i believe the records are from the court there was probably about six months of submission to the bankruptcy court and multiple hearings on the matter the reason we're here is because the first decision which your honor was on that panel was wholly deficient brought in issues of breach of fiduciary that weren't even addressed it just it was what it was and i mean at the end of the day what we have is an investment that was based on this representations and omissions the deal fell through twelve months later because the loan was in default can we stop you on that word emissions that one of the concerns i have i think we all have about the findings is there aren't really any findings that would support explicitly any way i do to disclose if there's an emission if they have a duty to disclose to back that up is there are the findings that would would support the imposition of a duty to disclose but i believe in any business transaction you have where one person has knowledge of the information and the others don't you have that duty you know again we have a finding about time my predecessor i believe i believe the duties in implied in the finding that were come with aware of the fact and that he didn't disclose it and that the i have ours in the roche a relied upon that fact again if we if we look back to one other important fact i know this was discussed and one of your questions to mr anderson regarding the conventional loan or hard money the evidence is in the record and it's discussed in examination about why the defendant or there's been a company's didn't go with sun west bank which was a twenty month twenty one month loan at libor twenty three months so significantly more than the one they went with and you know at the end of the day i don't think any one of us if we knew that you had to build these two homes get them on the market and sell them within twelve months would have given our money that's it that is an important fact that the investors had a right to know just as they had a right to know  very beginning of it the defendants mr working on this one or had one thing in mind which is basing to make a profit without any money they went into this transaction with seven hundred fifty thousand dollars to in essence build what was that it cost and thirteen million dollars and they relied on everybody else and remember if you look at the timing or as steve was going to come of that a four hundred thousand dollars they'd already have three extensions to their purchase on the property because it can come up with a book of funding getting that deal and they did everything they could not to tell them what do they do they took money the grand tours of houses to show how great they are you know and you have mr wickham at the end of the day who unfortunately has a problem telling the truth you know twice on his statements of financial affairs the bankruptcy court omits five hundred thousand dollars tells the bankruptcy court his declaration they successful builder making over a half a million dollars before this transaction took place when that wasn't true you know one problem after another at the end of the day the judge heard this saw it determined that these were material material facts that any reasonable vessel want to know she felt that they should have disclosed that information to him and didn't to what extent do we have  any blanks that we see well to the extent that it is the noble from the c m point of the conclusions of the law which you're asking about regarding whether or not there's a duty with without that i guess we can send it back down for one more time regarding you no specific finding as to whether she found there was a duty to disclose that raise the question is it is it a question of law or a question of fact the existence of a do you disclose is not a question of large question of fact i don't i think it i think you can find as a hybrid i think the first part of it comes down to whether or not the fact is material and that's a finding that the judge did find these were material facts and at that point in time if they are material facts then the party who has the information has to disclose it i want to tell you my role as i know it's not a role as you don't know any different i have a duty to tell you that i w i want you to lend me a million dollars to buy this property obeid away if i don't get it built in a year we're losing everything i did he tell you that that's just common decency i didn't happen you indicated that  their missions these were missions of facts that anybody would want to know i kind of begs the question why the question wasn't asked these the record supports in france strongly that your clients knew there was financing out there and they placed tremendous significance on the fact that it was conventional war in the words of mr rhodes who was a regular there is no finding as to what that meant there's no finding that a one year loan at this stage of the development was irregular so why why does the objective nature of that save your clients when they did not ask those questions that any reasonable person ask well i think it also goes to tally the circumstances you brought up i believe the issue regarding the ownership structure dealing with coral blue this whole thing was presented at this as grand plan and they were sold a bill of goods and told me that commercial financing they were shown great pictures of things they were told all these great things in the height of the market you know it's not the obligation necessarily to be a sophisticated investor and to do  it there was many questions that should have been asked on this deal that at least i asked and those these are not fisk investors they were told something they believed that they didn't know what questions to ask is that a blank check for everything  though i think had they been told this information that by the way we're not going to put the property in the name of the l l c so the elysee is really a shell means nothing by the way we're going to take all the money we get we're going to co mingle our other accounts so there isn't that i was in the second or third line i forgot which again i guess i would have to say that you're responsible for what you sign and read but i can tell you that they didn't appreciate that and so an excuse but it is a reality of it there are a lot of documentaries in front of these people just as you have two separate operating humans one with different numbers of them one of the others we take a look at the second core of the investment you know how do they create a second coral blue when all these other members of color the wonder or remembers that these are documents for an across the place they think these are legal they think this is proper for the ignorant they not exercise the best judgment probably but that doesn't relieve was that the difference between a mission and representation then because a fair representation has to be justifiable to lie and so there's some some inquiry there a mission maybe you get to rely on materiality but it  responsibility come where where is it that these are unsophisticated versus these are blinding greedy and i'm not who knows if your clients are but where is the ostrich in this in this continu where you just turn a blind eye and the loss happens and now you were defrauded because you were unsophisticated but i think if we take that position rewarding the fraudster for basically being creative and for you not meeting your element i believe when you have an omission the obligation of the duty belongs to the to the party who has failed to represent that field or provide that you can't ask what you don't know one of the problems the first time we had this was that we have different transactions and one of the things we will choir whereas you can't simply take this bundle of stuff and say frau and there's been some attempt to parse it out but going back to the connection point so we have first transaction we have the second transaction with a different person and then we have this sort of unusual transaction where i don't think there's any omission regarding title there because they provided a trustee that says who owns the property so that's not an omission at that point in time are you are you i don't think are you arguing that if i hand you a document that on its believe i'm not resting on the issue of title i think that's a point to demonstrate the lack of rassinier truthfulness from the cannot see any for parties i think the issue comes down to the house of cards there was a misrepresentation our omission of some information the parties needed to know the minute that they handed that money there believing that there's a national finance there believing what does that mean that is a first of all you agree that there's no know that there is no evidence that that your investors knew that so i believe not within the record before you but there was testimony at depositions that they threw up making things that but they still had to make payments if they invest in coral blue or conventional lending they still had to make interest payments because they would suggest conventional money one acquire monthly interest well actually this is just which the payments are taking from the amount of money borrowed so there this loan at twelve months failed in the story in twelve months this loan failed they defaulted because houses are not not sold and they didn't pay the bill and that's what happened and nobody was told by the way you have twelve months to build two multimillion dollar homes get them on the market and sell them that's it in a nutshell all these other things go alternate in the day after the credibility tired what took place in the transaction but was it a reasonable to expect i mean there's nothing in a record it's unreasonable to build the house in a year that goes to the points where are there still wholesomeness i believe this work can testify that he wasn't worried about it because he was expecting they would refinance  counsel before you thought it was like most of all broke my problem is that they didn't sit in this work on the two homes they went and off to marry they went every place else so i mean who knows what would have happened but the reality comes down to it as if i'm being told that look by the way you're going to put in this money and we've got to do all these in twelve months and if we don't we don't sell them in twelve months if we don't get our money back and pay this five million dollars payment we lose everything i want to know that and i think you would too and that's immaterial f and that's a fact within the knowledge of mr wickham that he didn't disclose the players testify they had multiple meetings with them he testified that he didn't talk about any of the loan terms yeah right you know that everything else you know wasn't in the material regarding the ownership of connection recordable you know we set that aside we looked at one fact only twelve months at the end of the day so i'm going to you've got a few seconds but so where is it that they understood what the loan terms were when they invested because that seems to be something that anybody would want to know before they gave money over as to what the terms were given that they knew that there was financing ahead of them i believe that's where you tie in the statement regarding financial financing and the implications that were made by that again you have to take everything into to tally you know they go through these grand tours these twenty million dollar homes that the builder built there they're told all these great things going to happen and they said don't worry that we have conventional financing  a first got involved the loan was in place it close shortly thereafter they got the operating agreements and agreed to the terms of the operating agreement among  said they gave exclusive authority to would come in warner to determine things like what lender and everything else about managing the project they had their eyes wide open and they said we are going to do it and it also says you have received all the information that you need to make this decision that's an english in the operating agreement they signed it and said we agree so is it yours is it your position that if there were any bonafide material fact having to do with the project than then i think that would be a problem but that isn't the case here the project here was not a loan the project here was and whatever that meant in terms of interest rate or whatever else it didn't collapse because there wasn't quite enough money in the very beginning to fund the entire thing and isn't way collapsed it didn't collapse because it was a balloon payment end of that twelve month period they were in the process it wasn't a drop dead moment when that twelve month period terminated they were working out they re five because everybody wanted this thing to succeed everybody wanted the homes to be completed including the lender the only reason why this collapsed is because of the second trust can don't even know about this was a letter to joel werner that telling him that we are defaulting this loan not because you guys are behind schedule no we're defaulting on the loan and freezing the money operating agreement where they made certain agreements and he asked you whether that would have obviated the effect of actual fraud fact in that statement she said in a fraudulent statement what would have been its impact on otherwise would meet the standard of a fraudulent on mission well the problem in this case is that the operating agreement gives exclusive manager with forty two working men warner to make decisions all decisions regarding the project so that they aren't asked and they don't divulge unless there's a duty to and i don't see that there was ever here a duty on their part to do that i would take the position if you're asking me a very hypothetically that's what i have a good line life position would be did you read the operating agreement did you not give complete authority to these men to decide which way this boat is going to go oh yes we did but we didn't know but you didn't have to invest here and you didn't have to do anything with these people but they said these are the rules and this is what you've got to agree to and if you do maybe you need to check us out better before you handle all that money but they were fine doing it anyway the lender was fine loaning them the money they didn't have any qualms about it even though they're a little under funded they still did it because they thought it was a good situation and there were another probably twenty five investors as well who also decided this was all a good situation and after all when's the last time orange county had a collapse that wasn't a good situation for real estate development