transactions whatever this panel says it's critical that you provide guidance to the community so that this issue can be dealt with intelligently as it stands today the only guidance in the ninth circuit is the mind that works majority the practical impact of all them whether you choose to accept it or reject it in olden what the second circuit did in one nine hundred forty four was to conclude that the landlord security deposit should be  applied against the landlords kept playing in bankruptcy the landlord is limited to a one year rent claim the old indecision applied the security deposit against that your honor in order to understand the tremendous practical impact of this consider today's leasing market in san francisco annual rent for an office space maybe thirty dollars a square foot but a landlord may be expected to fund forty dollars a square foot of ten means is that on day one of a lease in san francisco today the landlord may have loaned more than his maximum claim in the bankruptcy case just on the ten improvement allowance without even addressing the landlord can receive as collateral for at least obligations no matter how fast the extension of credit you understand there is no policy or purpose served by this you know that your argument makes sense to me so in light of that what are we do to market script i was actually quite clear from congress well your honor i guess i do disagree i think what was quite clear from congress was the purpose of the cap was not to swamp bankruptcy estates with large unsecured landlord claims i recognize that the legislative history reference is old and but i think that the way it plays out is to say that somehow this one class of commercial activity can never it is you have to look to contracts with minors or contracts for illegal purposes to find something that can't be collateralized like this and i don't see anything in the legislative intent that suggests the congress felt that way about landlords but passing that whether you accept oldham and i would point out that only one circuit court of appeal has ever applied old and up until this panel in the in the sixty years  and alter their relationship and your honor that is exactly where this appeal takes us a letter of credit is clearly a species of third party guarantee and the systems case discussed it as such and as a third party guarantee it doesn't come into play with the bankruptcy cap what the bankruptcy caps sentence is take the landlord's claim a of the commencement of the bankruptcy case and limited to one year's rent there is no provision that suggest that if he has any other source of recovery whether from a guarantor or from a letter of credit that would further reduce the cla now your honor but in the current your case they didn't suggest that every letter of credit which is a third party instrument would somehow escape classification as a security deposit is not correct suggesting simply because it's a third party instrument that it's not per se then property of the state and that is a proposition that's acceptable but then don't you have to really look at what the nature of the instrument is and the fact that it's a third party instrument isn't really the deciding factor we want to i guess i disagree because well that's a group that is that is security deposit in terms of a bankruptcy analysis meaning something very specific secured debt in the bankruptcy context is a critical issue which is well established both by the code and by case law and secured that means he's secured creditor has an interest in deposit that is cash given to the landlord there is secure that the landlord is holding say a million dollars of cash in which he has a million dollar interest and the debtor has a million dollar interest in letter of the security deposit ought to mean and only is only understandable in the olden context as property of the debtor now the debtor could post blackett her as collateral tickling and that would be property of the debtor in which the landlord has an interest and the debtor has an interest in that secured debt for the purposes of the five as the sec but when the tenant post a letter of credit the case was very clear that the bankruptcy estate has no interest in that letter of credit and it's equally clear that the landlord has no interest in whatever was given to the bank to secure that letter of credit so there is not secure a debt for the purpose of the five of six the dynamics are changed totally and completely they're never go back to the way a work was that maybe the result of this courtroom maybe but it's not the same kind of economic impact that you were talking about at the beginning was it would not the same kind of economic impact that you were talking about at the beginning if we say that there simply can never along more than one year if they can they can do anything they want ok you know anything i want anyone can do anything foolish that they'd like to know when the reason we're not going to stop them but if they want to be foolish that's their business let me do you think that the law should go out and make the main building here in san francisco and you make a lease for a dollar that's stupid perhaps i could address the issue with the said was that if the collateral would come back to the debtor but for the existence of a pleasure security then it is a security deposit for the purposes of this analysis that is they say let's look to the impact and if there is money that would come back however it comes back then it's secure debt it's a security deposit and the and the old analysis should apply well your honor i submit that that analysis is unworkable in practice and analytically unsound if you take our case there's a million dollars of letter of credit what if it had been secured by five hundred thousand dollars of cash is that mean that five hundred thousand dollars is the impact of the security deposit for the purposes of the mayan conclusion and therefore five hundred thousand dollars reduces the landlord's kept and the other five hundred thousand doesn't what is the security deposit is what if the letter of credit is supported by collateral of more uncertain value for example a lien on a patent there's the court tried to value the collateral in order to determine the impact in order to reduce the rambler it's count what if for example as in this case unsecured claims against the bankruptcy  estate are going to pay one hundred cents on the dollar plus interest then do we have a situation where the five hundred thousand dollars of cash security deposit has a five hundred thousand dollar impact but the five hundred thousand dollars of unsecured claim reimbursement also has a five hundred thousand dollar impact how is a court supposed to analyze this take the saying problems in the fact pattern of p p i the only the only circuit court decision to go apparently this way that's filed and the debtor says we have to reduce the landlord's claim by the draw he took one letter of credit well there's many years to come why does this make sense where the third circuit says well the landlord got that money but then the bank cattle reimbursement right and so there's a claim there and if we don't reduce the landlords claim by the straw that happened years ago well then they'll be multiple claims there and the cap will be evaded well if you take the exact same an network court but what i'd like to suggest is that as a basis for decision it's a very imprudent one there may be there may be contractual rights there may be just subrogation  an all or nothing proposition in other words we wouldn't go into these various nuances but if you have and a third party instrument in a number of south that would not qualify as a security impacts through various different parties to try to find some connection with the estate if it secured debt which is a concept that every bankruptcy attorney in every bank of sea judge understands it gets applied against the claim and that i agree is just the way the law works but if it's not secured debt if it's a right against a third party whether it's a letter of credit whether it's a guarantee whether it's a third party class or whatever this this court should leave it alone and i submit that the final example is and the bankruptcy court will now be faced with a claim that's bigger than the landlord cap and if you follow p p i what that means is that we have to go to the landlord and make him give back to the bankruptcy estate or to the million dollar kept claiming there was a one million dollar whether of credit it was three million dollars the plane being on the captain we believe that we can apply the letter of credit against the three million dollars the bankruptcy court applied it against the two making i understand i'm just trying to secured claim i'm paid and under their theory the landlord has nothing left and there's a million dollars of cash sitting there that will go to equity perhaps i can reserve the rest of my time the landlord so that's my understanding of that if you're honest this is not a case of a landlord being losing the benefit of his bargain or being deprived of an extra credit enhanced meant that if the landlord got five hundred thousand dollars from the process a lot of credit then that would be applied to the cap i guess he's saying that if you got an extra five hundred no it is not it is carried over into the in the new statute into the new statute which is a good point if if congress wanted to change this law i had a perfect opportunity at this point in time to do that  that collateralized the letter of credit the letter of credit must be treated as a security deposit and the proceeds applied against the cap the landlord essentially is arguing that it is the issuer of the l c that should bear the brunt of the i don't have much more to add i'm here has many questions but i believe that the independence principle is not at issue here and of the communities application the landlord receives its two million dollars cap claimed the debtors and state the state  only to the amount of the cap and the issuer the letter of credit received that security council just before you leave exactly where is the reference to the c d you talked about in the  and i think that however you decide this you need to come to grips with the analytical framework now mr franklin talks about how the landlords claims divided into a secured portion  interest in a letter of credit and under five zero six eight it's very clear that the debtor has to have an interest in the clavicle in order for it to be secured debt again mr franklin wanders through what happens if the letter of that works you have to come to grips with not the easy case where there's a million dollars of cash and so we'll just sort of pretend that it's all the same a secured debt and treated as property of the state you have to tell us what happens if there's only half a million dollars of cash what happens to the other half a million dollars what happens if there is a letter of credit for forty two times the rest what happens if there's a guarantee for two times the rent are we really going to take money away from the letter of credit and give it back to the bankruptcy estate where we're really going to take money away from a collection on the guarantor and give it to the bankruptcy estate so as to preserve this count your honor so i submit that the only intellect sound way to says you determine the cap on the date of the bankruptcy filing that's two million dollars file to just not say go look and see if there's any other sources of recovery in fact the case was very clear that where there is a guarantee you don't apply it to five zero to be sent through others i submit that you can't just take the loose sort of approach that was argued by mr franklin and say well it's kind of like secured