good morning ladies and gentlemen you can see two of us here and i wanted to make sure that you all knew that judge rove is also with us by video so you'll be able to see her from the podium when you're there you have any problems with video obviously let us know morning your honor is a may please the court the district court arrogant held that the ethanol producers that were collectively referring to as glacial lakes were entitled to keep accepting all the benefits of their contracts with without performing their own obligations after evan teen breached that was an error because under new york law once evan teen breached glacial lakes had a choice it could either terminate the contracts right then and su complete breach or could affirm them by continuing to accept their benefits and super partial bridge but your opponents argue that new york doesn't regard this as the kind of claim that you could raise that in fact it's not a doctrine that can be deployed essentially defensively they do argue that your honor and they're in correct we've cited six cases in our briefs between the opening and reply where the courts applied the doctrine in exactly this posture where the of the new york court of appeals cases in here and i'm not aware of any fitting this factual scenario here our best case on this is the second circuit cases they are films vs marble case and in that case it was the scenario because marvel was the alleged first preacher it allegedly breached the distribution by allowing someone else to distribute video cassettes when it was exclusive it then brought a claim and it was consolidated it doesn't show up in the caption of the case but at page eight forty seven it recognizes that marvel sued after marvel first breached the air p films continued accepting the benefits by licensing and then it refused to pay its royalties marvel in this case was allowed to super  awarded damages and it reflects that in the open and it was also given an accounting which led to more damages the second circuit opinion doesn't say how much damages it said but it said they were very substantial so the second circuit is dead on point here and then we've cited five district court cases you're right all the rest are federal district court cases spanning about thirty years but every single one of them fits this fact pattern not a set but fundamentally in new york before you get to remedy you've got to show that as claim to if you were performing and that's what didn't happen so i guess i'm just going to say to alert you to the first set of questions i have relates to that the second set of questions i have relates to how that order so what let me start with liability first and then i've said that just the fact of the cases proves that we're actually right about this but there are two more things on this one is the absence of any authority on the other side and the second is just the logic of the doctor logical to see this is a case where you breach the contract by failing to make the true up payments and so the contract is breached the contract is over and now  using these rail cars in the absence of any contractual right to use them wouldn't that be a better theory for you because then you could actually look at quantum erowid you could look at  but you can't do if there's a contract there's a contract those equitable theories are unavailable no no you're correct on that your honor that if there's a contract point of merit isn't available in this wasn't ever pleaded out or litigated is this quantum merit the reason this is it is because as i've said new york law is very clear that once one party breached the other party has a choice they can either terminate right then or they can accept but if they accept then the contracts in force so let me turn to logic here and this is what the new york courts have said across a variety of they said this is an either or either the contract is in force and binding or it's not if it's binding if you affirm it and keep accepting the benefits then you have to perform and they've said that again and again that even though you are you're free to just not perform i mean that seems strange to no no your honor though the way this works at my best reading of these cases in the doctrine is that once you're in this world worse or people are performing some obligations or not others but there are none of them is rejecting the contract at that point what the court has to do is it becomes an element by element in duty by duty so for example if evan teen had not performed on the rail car portion of this if it hadn't let them use the rail cars then of course it couldn't sue them for not paying it but it didn't perform on that element and that's the way that you know and this is where severability and partial performance sometimes overlap in these cases but you know the e s p n case we cite were e s p n and baseball had a mix up over the broadcast rights for baseball and football people were breaching on both sides either way as in what the court did as it hit sort of through on sort of a duty by duty issue and said who performed on this and who can super breach an order damages on some elements it's one side and some on the other side but but here i'd go back to this fundamental principle it's an either or either the contracts there or it's not and the cases are very very clear that once you accept after a first breach you're saying the contract is still there now they claim that this can only be asserted defensively right they cite no authority for it not there's not a single case that holds that in new york that they have cited or i found on my own and they cite three treatises on this but those treatises none of those tre oh i can you hear me now we can hear right now i can judge ruben or i couldn't before we can't hear you but there's a problem here just a minute can you hear me now i heard that yes can you hear me now yes why that was a joke oh ho why don't you try asking it judge over so because occasionally we do hear you i question was whether well my question was that the defendant's actions at issue under the contract of course are its continued use of the real cars after app and hines breach but how can we be certain that the use of the as it had that both under the original distribution agreements and then under the terminations were they specifically numbered railcars i seem to remember an attachment to a contract yes there were both in the terminations agreements and there they were specifically numbered line them up and in the time they had they had that's what gave evidence in the negotiating leverage it had to do the deal and that's why it was there to assign it absentee and had the rights to them and had to agree to assign all of these rail cars for union tank and the others over and it did so that was part of the terms of the contract and so under this situation you know i don't if if they had terminated this contract entirely i think what would have happened is a rig would have reverted back to the distribution agreements but that's certainly not lakes wanted to be because then it had to keep paying commissions to aventura in and it had to pay for the rail cars there so it couldn't go back there you know that's why and the other thing that's happening right now is you know this is all happening in january february march of  nine when the market is crashing everything is going to pieces glacial lakes was on a very tight cash flow and it couldn't afford not to have real cards so that's what was beyond the subsequent drove their decision to affirm and keep doing it they thought legally they had the right to affirm and keep using those without honoring their own but that's just wrong under new york law as i was saying to your honor's that you know glacial lakes doesn't cite any authority whatsoever for the proposition that this is only defensive the treatises that sites are about the pleading the election of remedy is as a pleading matter and not limited the contract says what do you do at the beginning when somebody is pleading inconsistent theories generally but why isn't this implicit though when you look at cases that say things like the non breaching party must choose between two remedies to me that suggests that the non breaching party is either the plaintiff or perhaps a counterclaim plaintive which as far as i'm concerned is much the same thing it doesn't say anything about when somebody breaches a contract and there are sued for breach of contract they get to direct the the remedy in a in a way that's favorable to themselves you know i'm i'm not sure if i'm following entirely your honor but in all of these cases that we've cited the six ones that i listed here including the second circuit there are people suing and both there's a contract there or not if there is then everybody is bound to perform and they're liable to be held subject for breach on each of their own obligations that they didn't perform that's why do you think there should have been a counter claim against you then for the true up money that you until the past amounts were received it it does not in any way indicate an intent to terminate the contract or to i or leak in which case  the use of the railcars could be considered an action that is independent of that contract and rather between the defendants and u but then if you keep performing you affirm it it's the conduct that controls and like i said the same thing happened there because marvel said it was terminating but then they are he kept accepting the benefits and it kept going and then an e s p n versus baseball there was a claim terminations but they kept accepting the benefits there so that the conduct controls in this and so that they could they could say you know demand performance under this but once they kept accepting the railcars that that control is a matter of york law let me turn your honor to the second set of issues here because if there is liability one set of damages just follows with it because the amounts are undisputed and no issue has been preserved that's that's the commission's first since you're true about payments that's the commissions and then there's part of it is that there are a sublease real car payments that were due and not paid before adding t and went into bankruptcy and so those are part of that charge so all of that is is that just follows along but the the bigger portion of the damages is this the amount that came from union tank the two point three million that that's exactly right and and also that you know much of it at all the facts are in dispute it's undisputed that there was a breach because glacial lakes had a duty to pay the leas didn't and it had a duty to get a complete release for absentee in from union tank and it didn't and then once union tank sued it had a duty to indemnify and it didn't do that either all of that's on speed and the amounts are undisputed because it was stock that was paid out in the valuation is conceded so so what your opponents argue there as you know i suppose there are you know it doesn't matter one hundred thousand shares of stock and they're going to be divided up among the creditors in the bankruptcy according to the amount of the debt in the various classes and so your opponents say what's it to avon's hien if you t c has two point three million whatever that turned out to be a number of shares versus somebody else you still were going to have that many shares outstanding there were still going to be whatever dilution or non dilution there was and maybe one creditor would have a gripe about that allocation the why is that effect i haven't seen it yet you're right they very effectively say that arguments about how this should be distributed among haven't tuned its creditors and sure holders wipe out the injury altogether i think that sleight of hand because the undisputed facts there are over on the side is going on every day and they have a duty to pay some crew people group of people on the side and they didn't do it well they didn't do it but they gave them stock as under the supervision of the bankruptcy court indemnified there'd still be the same number of shares of stock outstanding other companies would have had just hardly a hundred cents on the dollar resolution of the bankruptcy your that's entirely correct your honor but what would have happened had glacial expat ahead of time is that  team would have been better off because it's not worth would have been higher yes it still would have gone through bankruptcy but all of its creditors would have got more value by the amount that it paid because it would have had more assets compared to its liabilities that's that's the injury honor is that you know it i have this legal right to this minute ways they can get it well it was down the line you're looking at you're looking down the line well your honor and that's another thing that yes the glacial lakes we're still having problems with this i think i understand your question your honor judge over there about this is the timing thing this you know we're pursuing it later rather than that and and also that the timing doesn't matter had had we gotten the money then we clearly would have been better off if we get the money now we're clearly going to do it if given all of it away to somebody it's just that some of the people you were giving it to would have gotten more but we would have given the stock away yes those were going to be our owners but the money would have this claim belongs to at and t and it has the contract it has the right to sue this is not a claim by the creditors of the shareholders and then in the bankruptcy the claim was assigned to evidence seen to come out the other end in the creditors all agreed with that any o ne of those creditors they could have bought that claim or glacially could have settled it or they could have objected to evan team getting it but they didn't so the legal right belongs to ave t and it's advantageous legal right right now in terms of the value if it sues right now  it obviously is better off it gets the money but its creditors are better off too because evan teen is now worth more and the creditors now shareholders enjoy that value so so everybody and that's why i said this the fight in this case is about whether money is going to come from contract they breached it they had that duty and you just there's no way to argue out of avenue team being better off it gets the damage as it's related to everything else is this argument about how you allocate it isn't really the shareholders claim no it's it was the party to the contract and it got it assigned to it in bankruptcy and glacial lakes didn't object to that it just preserve that suff rights and the creditors didn't object to that they agreed it went to evan team there's no dispute this is evan teens and now where's the money going to come it's going to come to evan t and it's not going to get paid to the shareholders directly they get the indirect benefit so it's really not the stop you're arguing about it's the preservation of the cause of action for post bankruptcy well there's the preservation which is conceded but the real issue is injury under new york law that's a question of new york state law is what happened here and injury sure was we were in total the money and we didn't get it that's as clear and easy an injury as you get and all of this about where it goes it's just sleight of hand trying to say moving it from one bucket to another but ultimately that can't dispute who owns the claim and where the money is coming to preserve the rest of my time for rebuttal ok thank you  case you use the real car is free your honor i think there's there's two responses to that question one is legal and the other is factual from a legal standpoint  the sort of equitable question that i think you're getting at there's a there's another side to that coin that the district court did not pick up on or discussed in this opinion and that is the fact that evan teen at the same time that my clients were in fact using real cars that they are claiming for the use of the real cars and skew is larger well that you know it's a factual question who owes home but it seems to me you have these both companies having what appear to be valid claims against the other the only the only thing that remains to be done is to seven off the claim see who assumes the fact that if my clients hadn't been using the railcars one that adams heene would have wanted them back which is not established that's nowhere in the record because the reality was adam teen wanted to get out of this relationship with my some return to u t c we don't know what would have happened if you had not decided to use them in me it looks as if you had your case and you a did too because you did was you enjoyed all the remaining benefits of the contract with no liability for any default of viewers and still suing the first party for its initial breach and i i really i'm very i'm a bit unclear because you didn't argue to us that your actions in using the rail cars were independent from the contract or an attempt at  mitigation or are consistent with having terminated the contract so it seems to me at this point but you know i'm very happy to hear saying that my clients were in breach for failing to pay for these railcars avin teen was likewise in breach of its contract with the union ten car but they offered the offset they when they first failed to make a true up they said you know we're willing to forgo our right to collect this one point two five million from you and to the extent it was an offset so what was it really a something for nothing well and that's a good question your honor at and i think the fact that the parties discussed an offset with each other at the point in time when they did and this issue came up in early march of two thousand and nine there was an exchange of e mails between avenue in and my clients the records  at docket numbers twenty five dash eight and twenty five dash nine were evan teen as it is affirmatively reaching out to my clients and proposing what is in essence of a new agreement to offset or they say net out the amounts that are owed from one side to the other and vice versa absolutely the same time that e mail comes from from your client saying basically we don't have to pay them anything as long as they're in breach honor i think it's like we're challenging sure my clients continued to hold out hope and i think all parties did that absentee and would ultimately make the payments that were due the true up payments that were due to my clients everyone wanted this agreement continue forward and for all parties to perform i don't think there's any question about that i think there is a sadness about well well the fact is your honor approximately i mean we honor i think it's also helpful to keep in mind the relative amounts that were in dispute that were owed from one side to the other at that point in time because again this is a period of about six weeks in between when adam teen to your opponent's effort to show that the obligations under the contractor did visible i'm actually quite skeptical about that based on everything that you've been saying and everything he said but in fact it was really just one big agreement to to disentangle these two companies and what i'm looking at it you've quoted here it's quarter on page eight of your opponent's opening brief where the person from glaci no obligation to make these rail car payments that's just sort of out of the blue i mean that's that's the hypothetical judge posner was just giving you we just decided not to pay that's true your honor that's that is what my client said in response to that question so in the could i track i go back to my other point another way of looking at this is if the contract was completely over at the moment that advantage in sales to make the eight hundred ninety seven thousand and some payment at that point there's got to be some unjust enrichment claim because there's no contract and you'd still have to pay them so i don't know that that makes you much better off your honor i think the fact that my clients continued to be in touch with evan teen in the weeks following evan teens breach and continued to ask one payment would be received is evidence enough that neither side understood that the that the terminations agreements had been terminated themselves as a result of a continue to enjoy the benefits of a contract but could not be held responsible for any of its contractual obligations that's a great question and this is an important point that i want to be sure to emphasize this morning this goes to the election of remedies dr and that in science and relies upon it in an attempt to excuse its own lack of performance in this case now probably that the case that's most heavily cited and discussed by adding teen in its briefs is the e s p n decision and i want to draw the court's attention in particular to page for a one of that case cases this is a case where there were claims running in both directions and so i think sometimes in this context it is hard to sort out exactly how the doctrine of election of remedies being applied and so the court in the e s p n case goes through the analysis in both directions because it appears that it was raised as an affirmative defense by both sides the court finds that e s p n did as a matter of law reaches contract with major league baseball but then it gets to an important section at page four a one the court says that e s p n self help in other words the exactly the type of action that adam team is complaining about my clients having taken in this case e s p n self help amounts to nothing more than a breach and the court says my ruling that u s p s breach the agreement does a matter of law eliminates the need to prove the third element of a breach of contract action breach by the other side but the court goes on  say in order to maintain a breach of contract claim however baseball must also prove the second element listed above performance of the contract and there was a fact dispute that supported patent each in this was willing to make these true up payments but on the other hand it also had a right i think to could understand why should be allowed to use these real cars and pay them for them again your honor i do want to come back and emphasize the point that at the same time evanston is complaining about my clients having received the benefit of these real cars evan seen to make this one payment as a ticket to use all of these rail cars four hundred thirty three of them or whatever the number one for in seventy four hundred seventy three of them for free and  was actually something that didn't get that evan could have offset and you still would have owed it money as of that point in time your honor that's not actually correct and i think this is where i think it's important to keep in mind the relative amounts that were due from on how did you know there at the time at the payment that was missed was eight hundred ninety seven thousand five hundred twenty two dollars fifty nine cents right to payments but they added up to that  believe the two payments added up to about nine hundred ninety two thousand to my clients well close closing of eight hundred ninety or so i don't i don't think it was quite that high but but anyway the fee for the foregone sales revenue was one point two five million so even if we use your number glacial still owed absentee money plus you know the sublease of these rail cars they were an asset evan team may have used them some other way but you just thought well you know what get honor at the time that these payments were missed by adding a teen and again this was about february twenty third the next payments that would have been do one of the contracts where the terminations fees on march first and the amount of fifty thousand dollars from each of my clients to at and t and as i said my clients continued to hold out hope that adam team would ultimately perform and would make the true up payments and that all that all the parties could continue on their way as they had originally agreed to but that's not what happened because six weeks later they expecting that they would then pay for the rail cars yes i mean it's a crazy decision your honor i think it's important to keep in mind though that are you anything for using real each of the yes under the circumstances it is you clear you know you must write the agreement called for the terminations payment or pardon me the true up payments for the ethanol to be made in the ordinary course that they would have been under the debt to the person who gave it the mother yes because i think the other side of that is the fact that it if we're going to consider that unethical then i think at the same time we have to consider  an ethical that evan teen receive the benefit of a million dollars worth of ethanol from my clients that they otherwise would have been able to sell on the open market to another party that they never they were willing to pay for it in the form of the offset that's the existence that's the problem if the contract was over glacial legs wouldn't have had any right to use the railcars because if that right stamps only from the existence of the contract so  put it to have its cake and eat it too your honor two things in response to that one i think this this would potentially be a different case if at this point in time my clients were continuing to receive additional railcars from avin team of the issue but here what you're doing it seems to me is you're essentially arguing that once our app and team breached the contract its rights to enforce the contractor totally terminated by your rights to enjoy the benefits of the contract remain totally intact and that is i think both on ethical and an equitable your honor two things in response that one avenue teen has never argued that this is a case where sod off should be applied what evan number twenty five dash eight in the record even at the time one advantage in propose a set off acknowledge and by virtue of the proposal in that in that document that that that would be something outside of the the scope of the party's agreement that would require a new assent from my clients even when it made that proposal it understood first of all it understood that that was not a part of the agreement and that's that's a very important the other companies equipment for nothing well the important thing to keep in mind here is that these rail cars did not actually belong to adam teen i think this would be a different has the right to use them and it's a leases i don't think that matters too much well  it's important that he wasn't able to assign them to some completely different company in the united states they had of just like all leases of equipment they had the right while at the same time that my clients were were holding out and did not make did not make these sublease payments to two afghan teen and teen didn't make the payments to uniontown car for those same rail cars that's reflected in third exhibit dash two in the record i'm not sure that's your client's problem i think that i mean of course seventeen says it would have if they got the proper payments from you they would have turned the right over to  paragraph four it's in the appendix at age twenty eight there is no such thing these were just ordinary payments and so they netted out finally in terms of controlling the railcars had this actually been terminated it would revert back to the root the other distribution agreements those distribution agreements it's docket twenty five dash two in the lower court record paragraph six under that glacial ex had the same duty if it terminated the distribution agreement it had an obligation to pay for the railcars that can hold harmless so it would do them no good to try to back out of this contract that's why they did what they did they use the railcars their firm in the place we should be as netting out your honour's didn't have any questions about the injury issue in the other argument tonight i think we've covered their ground you know our reasons for why the claim belongs to ave tienen any issues about distribution were resolved by the bankruptcy plan in the objection so unless your owners have further questions i w