it please the court room our van on behalf of the appellant ten thirty two ten thirty four lexington avenue ltd well we have many arguments in our briefs for the purposes this morning your hon without abandoning in any way those arguments i would like to focus on the issue of what constitutes misconduct as that term is used in rule six the b three and show the court why what happened in this case was misconduct and therefore the rulings of the court below should be reversed we're dealing here with a chapter seven trustee he serves as i fight do sherry to the estate of the debtor this particular five do sherry was an experienced attorney and experienced trustee appointed by the office of the us trustee and he represents the interests of the unsecured creditors in the estate  my client was the largest unsecured creditor of this estate and i want the court to know that the settlement which was an issue in the court below the funds of that settlement had been held in escrow till today so that were this court to agree with our position that the k should be reversed the parties can be restored to their original position without any prejudice to anybody the salient facts in this case are under spirited one it was an adversary proceeding commenced by the us trustee read chapter seven trustee two no answer was ever interposed in the complaint to the complaint three the chapter seven trustee took no formal discovery for he took some informal discovery and then promptly entered into an agreement to settle the claim for one hundred five thousand dollars and then he made a motion to approve the claim and ultimately both the bankruptcy court and the united states district court confirmed that settlement were these arguments made to the bankruptcy court and the district court in opposition to its approval of the settlement yes your honor they were absolutely were both levels  the was there any prevention of your making the position that it was unfair about it was too low or mo who did the the bankruptcy court ever walk you from without a presentation about well the answer is no that was the contention of my client but our position is that we were impeded in making that present to that presentation and documenting it for the very reason that when we got involved in that aspect of the case and we served a proper discovery notice on the chapter seven trustee admittedly he failed to produce krrish critical and crucial documents to my client and so we were absolutely impeded establishing that the settlement was not a fair and reasonable settlement and in fact judge grossman specifically stated on the record that in his mind the settlement met the lowest standard for approval the lowest standard for approval and that was because he didn't have the salient facts before him now but just so i'm clear and i may not have heard you fully in response to judge question yes the argument you were able to articulate and argument to the backup c judge that the settlement was unfair but you you told the judge we need more impeded in making our record that is the point now the chapter seven trustee admitted on the record in the courts below both before the bankruptcy court and before judge kaplan that he did not handle the response to our demand for document production himself number one number two he had physical possession of these critical documents at the time the demand was served upon him and number three had he handled the response himself those three documents would have been produced would have been produced by him so he completely acknowledged the fact that those documents were essential documents we were entitled to them we didn't have them and his statement to the to the court below was my counsel quotes simply didn't produce and quote those documents that's all he could say about it my counsel simply did not produce those documents now i'd like to point out to the court that our courts recognize that a standard of conduct a standard of care can vary depending upon the person involved and i will illustrate with a medical malpractise case in a medical malpractise case against a general practitioner he might be found to observe to have observed a proper standard of care for what he did a specialist might be found for the exact same care to have perpetrated by practice because he's held to a much higher standard based upon his knowledge and his skill and that makes a lot of sense it makes a lot of sense because when an individual goes to a g p you don't expect the same standard of care as you do from a specialist who will agree with you that it makes sense would you continue the analogies so i got in the case of this chapter seven trustee who was an experienced attorney who is an experienced chapter seven trustee when my clients got their response back without these three critical documents they had no reason to suspect that there were any documents omitted because given the exterior the stature of this man and we did know that he wasn't personally involved in the response they expected that they had everything they should have received and they didn't  one hundred thirty thousand dollars and what my client would have bought for that hundred thirty thousand dollars was the very cause of action which was being settled my coins at that point in time believed it had a lot more value and so my client was willing to pay one hundred thirty thousand dollars to the estate to buy the course of action to prosecuted against the defendants and then x actually leads me your honor to respond now to your question to i think there may have been some form of collusion and i think the facts of this case a just that for a number of reasons number one as an experienced attorney and trustee i would as i would  expect it the chapter seven trustee to demand an answer and to take formal discovery which he did not do he quickly jumped at a one hundred five thousand dollar offer when he knew at a minimum there was a one hundred fifty thousand dollars licensing  paid there were other licensing fees which he never looked into and and they were monthly royalty paid payments made number two why didn't he take the hundred thirty thousand dollars offer it was twenty five thousand dollars more for the estate he would be out of the case my client would prosecute the case against the defendants i think the chapter seven trustee was fearful that my client would prevail in prison in pursuing the action and then he would be personally and professionally embarrassed so he had no choice at that point in time but to say no to the better economic offer for the trip for the for the creditors of the estate judge and that's why i do think there's an inference of possible collusion here w hat if any delay was there between sort of the discussion of one hundred five thousand dollars and one hundred thirty thousand dollars off when they went before a judge grossman in the bankruptcy court for the original hearing judge grossman said one should people talk and so after one hundred five thousand dollars settlement was presented to the bankruptcy court one hundred thirty thousand dollars settlement as i understand i was not part of it but as i understand it was probably four to eight weeks of  d max for that time to certainly before they came back to the bankruptcy court for further proceedings on the offer of settlement on the well the offer of settlement that was approved one o five correct  now the one thing that i do one and the size here is that when we were in the court below the court below shifted the burden of his rulings and you see it on the transcript he said why couldn't your client have taken depositions your client didn't do any discovery he said to me when your client got the response from the chapter seven trustee he made no motion to the court below to compel production of additional documents my response to that is the quote below shifted the burden of responsibility from the chapter seven trustee to my calling my client had no reason at the time to believe he hadn't gotten all of the pertinent documents and as far as discovery goes it was the chapter seven trustee who commenced the case he was responsible he represents he is that if i do cherie for the estate it was his burden to take depositions he dropped the ball not my client now because the trustee was there are essentially protecting your client's interest exactly correct he's appointed by the office of the u s trustee to service the trustee in a chapter seven case it's his job to marshal all of the assets and to make my day where there are other unsecured that are also being creditor we're we're approaching this from two different directions with respect to the relief that we're asking from this court i don't believe this court has ever ruled as to i'm going to point out your red light is ok i'll be very very few up please and we would like to hear this but just thank you your honor either this court should rule that where a chapter seven experience stress the fails to produce documents that in itself is misconduct universally i don't believe th ever ruled on that and that the party who sustains that misconduct the effects of that misconduct that's it does not have to make any further showing like how i was impaired even though i've shown you that we weren't here alternatively the court need not go that far alternatively the court can simply rule that in the circumstances of this particular case we established misconduct and therefore the reversal should take place i realize red light is on thank you your honor and you've reserved two minutes f four motion that the nine hundred nineteen motion was not what they were challenging and that they waived it so the arguments today about reasonableness and the settlement will waive by appellant below and should not be heard by this panel now on the issue of the misconduct there is simply no evidence and i want to i think what's critical is to focus on the three documents that appellant keeps talking about not one of those three documents showed any payments to the defendants in the adversary proceeding they had nothing to do with holdings they had nothing to do with f p g what they had to do with was a license agreement with management a different entity for whom there was already a settlement with which appellants had objected to the settlement that a settlement was approved over their objection and they never appealed that that was that was what the documents showed they showed payments to management not to the defendants in the adversary proceeding the settlement was perfectly reasonable trustee had eight courses of action in the adversary proceeding at the one thousand hearing he stated that there was no value to the cause of action which was the only one that they're appealing because he had no evidence that holdings had in fact received any payments to this day there was still no evidence that holdings received any payments the value was in the first five courses of action which was  preference transfers to holdings and h c g those transfers totaled approximately two hundred and thirty five thousand dollars and for that the trustee settled at one hundred and five thousand there was nothing there that was withheld there was no misconduct by the trustee i will point out that the factual findings of the quote below which is subject to a clearly erroneous stand it was that the trustee did not engage in ford or misconduct but when you say court but it's still clearly erroneous the factual findings legal findings which court of the of the bankruptcy court rather just i mean quite frankly either one here the district court agreed with the bankruptcy court that it was that there was no clearly erroneous finding by the bankruptcy court on conduct by the trustee and went so far as to himself i believe find that there was no misconduct by the trustee and you saw in the record that was created in the district court based on the record that was created in the original bankruptcy court i mean based on the record in the bankruptcy court and also based on the argument on the ninety twenty four motion in the district court because you must remember on top of the fact that these documents did not relate to the cause of action at issue because they didn't show any monies to the actual defendants in the adversary proceeding in addition what appellant keeps voiding mentioning is that they had information about payments to management the defendant not in the adversary proceeding but in the prior proceeding that had been settled showing that in fact they knew in two thousand and twelve two years before the motion on the nine hundred nineteen that management was a party to license agreements and had received clearly had received funds they  to the tune of one hundred no that had nothing to do with holdings this was management this was pay our management not a party to this proceeding they are made what the trustees of course of action was was that that holdings as a fifty percent owner of management must have been unjustly enrich basically a veil piercing theory the courts below have both found there was no evidence for passing that was submitted and that the only evidence was that management receive funds but that is not what's at issue here the issue is where the holdings was unjustly enrich not whether management management was settled out orally of them holdings and was never to but that was not holdings at the ninety twenty four hearing in front of the district court judge they admitted that they knew about payments earlier than the payments that were at issue  that the documents showed payments in two thousand and seven they admitted that they knew about payments that management had received in two thousand and eight and two thousand and nine and yet they had not raised those payments to the bankruptcy court at the time of the settlement they had not taken any discovery and the courts below i want to raise this issue that the courts below somehow shifted the burden the quotes below did not shift the burden there was no burden on the trustee there was necessary not necessarily a burden on the appellant either with the courts below found though was that the appellant couldn't come forward with a sixty two or sixty three claim when the appellant had information and chose to forgo any right to take discovery the trustee had an exchange of information before settling was satisfied their holdings had was well them prosecute on your behalf this claim against holdings which the trustee did not want to do more importantly and one of the reasons that the bankruptcy court denied this was when the bankruptcy court found that the bankruptcy court said that one of his concerns was the trustee settlement had holdings which had a seven hundred twenty thousand dollars claim against the debt as a state which there was  to whether that claim was secured unsecured certainly if it was secured it would have had priority but there was apparently a dispute everyone called it apparently secured so it's unclear because it was never developed because holdings was willing to waive that claim which it claim was secured seven hundred twenty thousand dollars claim waiving it as part of the settlement it was not going to be waived if the if the appellant bought the claim from the trustee and then it would have had to be fought as to whether or not that seven hundred twenty thousand dollars claim was part of the estate and the judge was concerned the bankruptcy court judge was concerned because they were basically the appellant's idea was that they were going to treat holdings differently as a creditor and not guarantee them the same a proportion of a payout as they would guarantee all the other creditors and the court said how do you bifurcate the unsecured creditors and pay one group and pay one group one in another group something else and that was a major concern and the response of appellants counsel at the time was i would have to speak with my client so he came to the one thousand hearing not even prepared to treat a credit of the same as all the other creditors this was a major reason that the court found that that the settlement offer was not acceptable we also would argue that that has been waived that that the appellant admitted at the ninety twenty four hearing before the bankruptcy court that they had waived in ninet nineteen motion objections and that therefore that is not actually properly on appeal to the court because once way below they can't read now at the second circuit they waived it they admitted they waived it to the district court  i think that they also are making this argument really for the first time on appeal that a different standard applies because a fiduciary is involved and i think it's first of all they argue below merely that that there was no law as to whether or not under sixty will sixty three they had to show that the contract prevented the moving party from fully and fairly presenting its case but obviously the law in the circuit is quite clear there was no decision in the circuit that supports appellants argument that it's not the correct stand it they haven't cited any legal precedent in any federal court to support a heightened standard for due sherry because there is none in fact to the contrary at least two other circuit courts in cases involved allege trustee fraud not even misconduct before i have applied the same standard as they apply in other sixty three cases and be happy to provide those cases because they really didn't make that argument clear until they reply brief so we didn't so fraud fraud on the court and all the circumstances the second circuit is held you still have to show you were your ability to fully and fairly present your case was interfered with and there's no basis to find that a different standard applies and as i mentioned that was waived by the appellant below i note that in their apply brief they cite to a section of their brief to the bankruptcy court judge to claim that it wasn't waive but that section the brief specifically says the general rule doesn't require this not that it this should be a special rule for the fiduciary and therefore again we argued that that claim was waived under the appellant stand it proposed ended any misconduct by a fiduciary even if it's unrelated to the order at issue and we would argue that's exactly the situation here it's unrelated to the order at issue would require relief from the order that interpretation has no basis in the war and requires the court to ignore the public policy which favors finalmente in judgment and under the full under the interference fully and fairly present your case standard appellant can't meet that they cannot show that because the three documents at issue a only showed payments to management a distinct corporate entity from holdings which was the party to the adversary proceeding and it doesn't and moreover they had similar information about payments to management two years earlier they admitted that to the district court they further admitted to the district court that had they exercise due diligence they would have had these documents earlier those admissions are fatal to their case and i note that at the one thousand hearing they actually referenced license agreements that management had so they cannot claim that there was anything that the trustee hid from them that somehow vented them from fully and fairly presenting their case there was no payments to holdings and and all know that the district as a district court held in a prior case the catskill case also cited an op reeves there was no interference if the evidence is cumulative in significant or marginal relevance that's exactly what's here just because the trustee agreed that the document should have been produced does not mean that they were relevant to the motion there's certainly a different standard for what should be produced was in response to request then what is actually relevant to the motion and that and the appellant has been conflating those two arguments i would just like to say because they spent so much time and i know my time is up and if i could just have that in their papers  a lot of time on the trustee statement of the one thousand nine hundred hearing that his quote his information is that those payments would not made and i want to just point out the question and he was answering at the time and the question was given in response to a question concerning the value of the cause of action and the eighth course of action allege that holdings had been unjustly enriched so an answer that there was no payments was clearly a reference to holdings and that's how the bankruptcy court interpreted the answer but even if you can interpret it as to mean management there would have been no reliance by the appellant because they new management had received payments and they known it since two thousand and twelve when management gave them that information so that couldn't have been any thing about the trustee statement the quotes below found it was a misleading they found it was an accurate statement first of all but it couldn't have been misleading under any circumstance and just very briefly and sixty two more or less the same reasons the sixty three this was not new evidence they knew about management it didn't relate to holdings and their admission at the district court that with due diligence they could have uncovered it themselves is evidence that they cannot meet the sixty to stand it court there's no dispute as to all the things i mentioned about the chapter seven trustee and what he didn't do he never took depositions discovery he quickly ran into a settlement and tried to get it through that's undisputed there was a wire transfer made the monies went into the debtors account and in fact  it was and we dealt with that at length and i began to repeat the arguments but you can't just do a wire to somebody's account without knowing the why transfer instructions clearly the licensee an issue we wanted those monies into the dead is account and only later was it transferred out it's in it's inexcusable it just doesn't tie in and with respect to the purchase of the cause of action if my client purchased the cause of action it wasn't that he was going to pursue it on behalf of the trustee he was going to buy and own the course of action the trustee and the estate were out of the case they were selling a course of action for one hundred thirty thousand dollars if my client go zippo or five hundred thousand dollars it would belong to my client that's what he was buying and that's what is so important about this they the unfortunately we keep hearing presentations that don't accord with the facts what was there a waiver of some claims by the other party in the settlement there was your honor but again if they participated in that excellent question if they participated in the distribution of one hundred thirty that would only have hurt my coin my point was prepared to take that risk because we were the largest creditor of the other creditors amounts would rather nominal so yes the little the other unsecured credit is would had to give a portion of the money up because of that settlement but they would be one hundred thirty being distributed not a hundred by they would still have come out ahead or another twenty five thousand sachar your honor thank you very much thank you both will reserve decision