levin versus miller defendants miller and ellen jerk who were the c e o and c f o respectively of the company on the trustees claim that they breached their fiduciary duties to the company by not providing the company's board of directors with an analysis by qualified restructuring professionals of the increase in asset value the company could achieve by a timely bankruptcy filing before a seventy one seventy six point fifteen million dollars income tax refund was transferred by the company to its failing bank subsidiaries in june two zero zero nine one of the alternatives available in this country to a company in dire financial straits is to take advantage of the bankruptcy process what's a distressed firms decision makers have a clear understanding about achievable in a bankruptcy setting they can make an informed decision about the course of action it's in the firm's best decision to best interest to follow in addition to the other advantages they can offer for bankruptcy has the salutary effect of preventing asset grabbing and ensures the creditors of the slate level of priority are treated like without an awareness of what a severely impaired firms that would you would be in a bankruptcy setting its decision makers are in no position to contrast the value contrasts that value with the firm's value as a foundering going concern under such circumstances there is a considerable risk that the decision makers will make an informed decisions that sacrifice that you are the trustee smits that genuine disputes material fact exist about whether that incurred occurred in this case and whether defendant smeller and ellen sure are responsible for it in particular there are genuine disputes about whether an informed liquidation analysis was information that the company's directors needed to perform their fiduciary duties to the company and whether the defendants had a responsibility to obtain and provide it when there is no evidence that the directors ever instructed that they had no interest in considering such information actually the undisputed evidence establishes that the board put the fate of this holding company in the hands of roger cohen from softening cromwell and was not looking for bankruptcy advice from the officers your honor it i mean it hired the premier law firm in the country to advise it on its regulatory obligations to keep the subsidiary banks afloat as well as  you know other due diligence fiduciary obligation as the board had to the holding company and he used the advice it was getting from the south side council to direct the affairs in this very fraught time period and was telling the defendant officers to do what the board was directing them to do which is to follow the plan that it had devised for keeping the subsidiary banks afloat in consultation with outside counsel so i don't know how the officers could be liable for a breach of fiduciary duty under these circumstances they were taking their orders from board and the board was the directors as was recognized in the district court's opinion made it clear that they were interested in any alternatives that might be available to deal with the dire situation that the company found itself in in fact they owe on a number of the kill you not alternatives that conflicted with the goal of keeping the banks afloat to make the tarp long possible they weren't looking for those kinds of alternatives they were they were singularly focused on keeping the banks afloat to make that tarp application viable as long a shot as that was obligations these two officers are owed to their principle as agents that are and your argument depends on you know a chain with so many links to make it speculative that the board would have behaved differently and put the company into bankruptcy sooner than it did and including a speculative argument about whether there's a viable basis for the holding company to keep the entire tax refund which is the subject of you know dispute in the bankruptcy community and among bankruptcy courts especially where there is a tax allocation agreement as there is that required sharing in other words precluded the holding company from keeping the the tax return so i mean something so many links in your chain have to fall in your favor as to make it an incredibly impossible fiduciary duty claim that you are the one after the company filed for bankruptcy it's undisputed in the record that the trusting in bankruptcy was able to negotiate with the f b i actually to receive a substantial portion compromises happen all the time in litigation and particularly bankruptcy workouts that's not an argument for compromise is the name of the game and that sort of situation you've got limited assets you've got to divide it up that's not assist you know us and a concession that you had a slam dunk argument and the trust or the two officer should have recognized that it's it's far from a slam dunk legal argument it's a disputed issue in bankruptcy law a disputed issue right and what's a purely speculative whether it would have been a viable had the company been placed into bankruptcy sooner and particularly in light of the undisputed evidence at the board put the fate of the company essentially in the hands of the outside legal counsel that was devising a plan to make tarp application viable in this as i said a very fraught environment it's our contention that there is at least a genuine issue of material fact about whether there was any realistic prospect that the banks which is vive by the make june two overnight period given principles manifested orders essentially orders may be too strong a word but it's clearly the board manifested an intent to put the company on this path of trying to save the subsidiary banks your head of the board the manifest intent and made it clear throughout this period and to argue that that these two officers had a fiduciary obligation to suggest an earlier bankruptcy and are liable for not doing so it's really just an implausible basis for a fiduciary duty claim you know honor is it it's not clear that the board manifested a desire not to receive any information about what advantages the company might be able to achieve  bankruptcy scenario once it did become clear as it had by may of two zero nine that the banks were not going to survive and there is evidence in the record that the directors were continually searching for alternatives and asking if there were other alternatives that were available that management had not identified and alternative s that would allow the company in the banks to survive is going concerns outside counsel that the directors could not were not required to and could not favor the interests of the banks depositors over the interests of the company and its other stakeholders and that if they did that that could expose the company the directors and the officers to legal liability it's not at all clear that if this alternative had been made available the existence of this alternative had been most make known to the directors that the directors w have decided that even though there is an alternative the to vailable for maximizing value for the company that they were going to continue to manage head to say that officers of a parent corporation or directors of a parent corporation can manage the situation for the benefit of creditors  serious regulatory obligations to under both state and federal regulators and they were being ordered to protect the depositors know the and does it and that the board of the holding company did not have an obligation under federal law to protect the depositories of the banks the board of the holding company had the do sherry duties to the holding company to manage the holding company in the best interests of the holding cup and they and its stake holders and even the district court acknowledge that that would that the that the company was not legally compulsion under federal law for the directors or the other or the company to have to do that the board with legally obligated the holding companies making the outlook and it to be a source of strength to the subsidiary banks that's the  legal principle in this domain and to ensure adequate capitalization and that's what the board's goal was and that's what the regulatory  auditors were requiring the board to do they were consulting with both outside counsel and adored all along the way all along the way until there was no statutory basis for the source of strength doctrine compelling a holding company to infuse its assets into failing banks subsidiaries and the district judge recognized that her regulation about the regulators were imposing that requirement public imposing that expectation regulators couldn't impose that requirement on the directors of the holding whether or not they could it's beside the point the press the the bottom line is that it's undisputed that they did and the board was at hearing two what it understood to be its regulatory obligations imposed by the state and federal regulators that were breathing down its neck and working with outside counsel to devise a plan to keep the subsidiaries afloat and and that's all that's necessary here to defeat your claim whether the regulators were right to make that a requirement or an expectation is a separate question if if the board had been advised by bankruptcy counsel with experience in bank holding company bankruptcy's who are bankruptcy counsel the board would have been advised that if the board put the company into bankruptcy that would be the end of any pressure on the board to downstream company's assets into the failing bank subsidiaries it would have been a perfect solution for the board it would have been the board would have been entirely insulated by the filing of the bankruptcy case under which a trust again bankruptcy would take over the company a and take over the administration of the company's assets and secure to the to the bankruptcy of state the benefit of the value of the estates claims to ownership of the tax  recognized the core undisputed facts in this case are dispositive and i'd like to make three refocus on three main points the first is that the officers and the undisputed facts followed that the direction of the independent board of directors who developed their own business judgment relying on the advice of its independent counsel mr cohen from some of the crime well and the advice of regulators secondly the trustee has failed to identify any information based on evidence in the record that ought to have been provided to the board of directors and then third neither the parent company nor its shareholders were harmed by transferring the tax refund that came in at the parent level down to the subsidiary bank as a result of a preexisting obligation that even the trustee recognizes existed so undisputed facts it was an independent board hiring who went out and hired on their own when the nation's top lawyers in banking to advise him specifically on producers duties they expected the officers to follow the advice the parent company's own ten k filings that they they believed the doctrine to be enforceable and if they advise creditors and investors alike if we are called upon to be a source of financial strength to our banks even we don't think we capitalization what was happening with the tarp application and then my final point on this area is that a disputed fact is that the lead outside director mr odd and we include his affidavit  our supplemental pen ducks but he says i read all through the count two claims and each one of these actions was taken at the direction of the board we did we had directed the office to do this based on the advice of counsel and the regulators and we did this because we thought this is going to avoid the most widespread harm in the trustee talks about maximizing value guys not the standard in indiana for the the best interest of the corporation and that's been our our business general statute allows the board to take into consideration all sorts of constituencies including customers including the communities where its offices are located and to say that the depositors of the conics customers and so it was appropriate then for the board not only to listen to regulators but also to kick in consideration what regulators are saying a liquidity crisis or capitalization crisis would have on depositors particularly deposit first is at the may seventh meeting leading up to that the taxi and this is where the board met independently with its regulators the trustee says that the the the board told the officers minutes and that's at page three eighty nine of the appendix two pages earlier peachtree seven the board had just been talking about who are the stakeholders and they said for example those are the telling the officers this for example take care of the positives make sure you get them from an uninsured status to an insured status while we're managing this crisis the second point i want to make is the that there was an absence of any evidence that of information at the board that the officer should have provided to the board the only that information identified as some legal abstract argument you know th were in flux and bankruptcy courts about how tax allocation agreements were to be to be treated in a bank the context but there's no evidence of the record about what the trustee claims should have been provided  to our clients gone out and hired yet another bankruptcy professional they potentially could open themselves up to claims of corporate wastes first expending valuable resources during a distressed time hiring somebody somebody that the board simply had no interest in hearing about and it puts the officers in a very untenable situation because i'll remind the court in the original complaint that the bank the trustee brought it included one count for this very issue of unnecessarily hiring a consultant and wasting corporate money on outside consultants so the officers are counted in a damned if i do damned  over others and as as a holding company rather regardless of whether it was cell phones or insolvent it was never going to be able to hold on to that seventy six million dollars that came in as a tax and because of the trustee in this there is a tax fund theory and said corporate fiduciaries over their duties to the corporation and its shareholders not to creditors and the reason why is because it puts them in this untenable situation where at some point the interest of  shareholder and the interest of the creditor are going to be divergent and what's what's a corporate fiduciary to do and that's exact this is this case actually illustrates that because think about it if if the holding company is never going to be able to hold on that money anyway if the sperm is insolvent it's never going to go to shareholders right so why not send it down to the subsidiary bank in the hopes that even if there's a one percent chance that the tarp application is going to be approved why not send that down to the bank on the off chance that that one percent happens and that the charkha case be approved and least we've saved the company the only harm is to creditors and in the law is very clear there is no duty to creditors far as railing conduct in this case what should they have done i mean if the trustees claim goes forward and there's liability for following your board and following regulators i don't think it's a kind of message you want to send in the next case officers ought to be ignoring regulators and providing information to their board that they're not interested and that would go contrary to the throat for all these reasons we request the court to firm summary judgment thank you thank you thanks to both