equitable ownership of well you got a whole lot back out of this loan right what do you first of all what do you what exactly is cooper industries trying to claim because this is a very complicated transaction i get would be both that loan in a would also be the loan that was made on the equity fund so it's based on two promissory note aspects of this transaction yes those are the transactions that established the initial loss and at that point when the principal was transferred from cooper and cooper's employee benefit plans to w g investors there would have been a loss of princip trading the joint venture was using fraudulent promotional materials that overstated the earnings that they were actually earning under the ci tradings investments and there's evidence in the record that cooper relied on those fraudulent materials in making the cooper was a creditor it was also an amp with a loan or it was both well if you were an equitable owner you could have told the receiver we have a right to get the money back well cooper had a right to get the money back but i you're right stands on no higher ground than that right of anybody else who who also got crowded in the transactions right that's true although at the time that cooper submitted the claim to receive the insurance claim had it been denied at that point and so the issue of ownership had to come up and so cooper submitted the claim to the receiver as a creditor but that doesn't mean that it wasn't also when it really really i really have a hard time with this because you know the banks issue friday on banks issue on loans all the time to people who turn out to be fraudsters and let's say it's a fraudulent auto loan because the person doesn't qualify for the loan or whatever and knowingly misrepresent his income and does the bank then and leaving aside the question of collateral but does a bank then own part of the car that was bought with the loan so where do you have a single case you talk about the breadth of the term ownership by reference to texas tax law by equitable remedies from poor fraud by sales to i mean you know all that water all this strange stuff and i didn't see a single case that treats a defrauded lending entity as the equitable owner of the funds to say nothing of the underlying property  clause that does not provide a guarantee against bad decisions and it's a guarantee against stealing your property yes that's true they have where do you have any case under one of these crime based insurance policies that allows a party that has provided a moment to recover money under them so there are three cases that we cite from the seventy ninth and tenth circuits the united pacific case the universal mortgage case are two of those examples in the portland federal case would be the third example which is in the second section of our brief and all of those courts address the question of whether there is a loss of property that is owing to at the moment that a fraudulent loan is obtained in each of those courts have said that at the time that the fraudulent sons are dispersed that there is a loss under a commercial crime insurance policy like this one so at the very least cooper lost the principal when it made the loan and cooper also retained equitable ownership of the property because it hooper didn't cooper manage to try to paper over the way in which it recovered from from the receiver in order to say you're paying us on the interest not on the principle if i'm understanding your document maybe it's only a side issue documented your last claim to the receiver and said no tell us you're paying us this eight million or whatever it is on the basis of of the interest not the so what was actually going on there is the receiver had tried to claw back twenty one million dollars in earnings that cooper had received from debbie trading cooper responded with a letter that was simply saying the receiver only has to take possession of property that is in the possession of the fraudsters this money has already been given back to cooper and so if that particular money is not in the possession of the fraudsters cooper was not saying that it didn't have an ownership interest in any of the property that was still in the fraudsters possession and in fact that's why it filed the insurance claim later to to say that it actually did have ownership in those phones and i think the word own under texas law is is very clear that it includes both legal and equitable ownership and we've cited cases from other and should they deal with other insurance policies in those courts that have address those issues and actually looked at the meaning of the word go in much the same way that cooper has here by looking at how the word is used in other contexts so for example the thousand case involves an auto insurance policy and the court there looked at the meaning of the word own by looking at a funds are disbursed due to the employee's wrongful conduct the measure is the outstanding balance due on the loan it doesn't it has nothing to do with the ownership it's lost resulting  from funds being disbursed due to the employee's wrongful conduct you think you're correct your honor in that case does not deal with the meaning of the word down that is are are alternatives you said that well and that may be something else but you did cite that in regard to the question of phone no your honor i was i was citing that as talking about cases talking about whether there is a loss with this kind of fraudulent the attains loan so even if you think that the word own require of our primary position is that cooper was an equitable owner and that's the outcome that we would like this court to take and at the because this is an insurance policy alternately cooper's interpretation only has to be reasonable what's the difference between relying on the equitable on our position and the last position so if cooper's only loss was the principle and we're talking about legal ownership and cooper would be able to recover the principle but not any of the earnings that were generated on it it's just court interprets the word own to include equitable ownership then cooper would be able to recover both the principle and any of the earnings that were generated with the principle so there's one other point that i want to make about this particular policy and why allowing equitable ownership makes particular sense in this policy so the point of commercial crime insurance is to protect against fraudulent or dishonest acts of an employee but if the policy doesn't cover equitable ownership then it wouldn't cover some of the most basic types of employee misconduct for example investors are generally only the equitable owners of book entry securities and the policy covers the theft of securit if you held that the word own didn't cover equitable ownership then that wouldn't count as a loss it's an employee went in stole the book entry securities from the insured likewise a beneficiary of it so  that that has a book entry security is generally only the equitable owner and so under national union's interpretation if the insurance employee stole the book to me you wouldn't be buying a policy that has an abstraction in it as to what the ownership i mean you're saying i own this in all senses of it it's mine and that's the reason why home insurance against inch construe this policy in the terms of equitable ownership when that's not provided explicitly in the bargain porn agreed policy you know stem of course yes your hon are two responses that first under texas law when courts are constraining and insurance policy the policy has to be strictly construed in favor of the insured so ultimately cooper's interpretation of the word of the ass to be reasonable and every single time the question about what the word owing means has come up under texas law the courts have held that it includes both legal and equitable ownership so at the very least we think we have established that the word alone is a reasonable interpretation well know your your example and i'm so mad i'm there a lot there are other issues in this case so maybe i hope you're not i hope the chief will say you're not waving my questions about some of the other issues but your example about the book entries is contradicted in this very policy because there's an exclusion for losses for which cooper is legally liable wri exclusion for which they're legal in other words cooper would be covered by this policy for the action of the employee who takes an inventor of take some of the property belongs to a third party they super would know is not in his head you just you didn't argue with it it's very plain so your hypothetical is no good will your honor i think you could also look at the example of a formal trust so if a trust own in that in that context would need to cover equitable ownership otherwise the trustee could steal the trust beneficiaries will but i say it doesn't insure against your own illegality illegal conduct that's  open aren't thank you all right mr davis i'm not precision anything that you might not plain say but this is a little bit of a strange animal here at least for me go  same clause this interest covered clause and the whole point of that case was they were they were tripping own they were tripping the word hole but the idea in that case was that this clause was restrictive it was designed to not expand coverage to cover all types of interest in property it was designed to restrict that coverage what was precise time but oh no you talk about loss or what oh it's the same commercial crime policy is simply a fidelity bond so it guarantees the faceless of of employees so basically the whole idea here is that if you take my property the paradigm for as as as as your honor said this is not to cover the dishonest sex of the insured it's not to deal with fraud committed against a third party by the employee it's the fraud of the employee committed against the and how do you explain the united states and thank tenth circuit case the united pacific tenth circuit case as you correctly said does not deal with ownership but i will concede that there is a split in the case law the loan you don't have to get there to this recording everything reached that issue it doesn't even doesn't matter in ownership one where the other as you correctly pointed out but what it but but but there is that split so you know i would suggest to you that in this case and under these factors the that there was no loss at all until there was a default especially when you're seeking a claim like here for lost profits they're not case not against the lynch case again the lynch case is you cannot take the coverage of the policy and extended by implication or a large by construction and that's exactly what they're trying to do here there's not a single case out there that says it's a delhi policies or ever meant to include equable interests because that's an abstraction as you said that's a construct well if this is not an equitable interest we don't have to deal with it right correct if  of coverage if they cannot prove that condition there is no coverage and you don't have to go any further you don't have to consider is the crux of the issues raised on the cross of but the sake of the discussion it's body does seem odd to get a term like own isn't defined in the policy but of course we get a lot of cases where things aren't clearly spelled out notwithstanding but given  cases or whatever other context to figure out what only means well that's a fair point your honor you can't define every term in the contract yeah but i mean that's gonna that's not like a way out of her away i term but i think holder has no ownership interest and in the property that loan money for the for the person to purchase and that's the point you know you know just because you're a lender and you loan money and some goes out and buys that as a thing you don't own the thing you have this secured interest maybe if you if you properly protected yourself but you don't own the thing so to answer your question judge stuart that you know it really i think you say that in a in an insurance policy of any kind you're supposed to look at the common meaning of the term the import principles into the policy you're not supposed to look at the tax code you're not supposed to look at you know airport ordinances to determine what's covered and what's not you're supposed to determine the plain meaning that's why people buy these policies the plain meaning you can you imagine with the application with let's lights in the same sure it's it's a covered all the beneficial interest that someone might construe out in the world you can't nobody would write this policy you insurance which is tied to the jury it must be an unstated assumption in there that somehow the bank had a right to make a claim on the bonding question well it's not it's of it because the legal issue is there is whether because because i would create a split with the tenth circuit would it not not are well we're we're we're arguing that they can't recover the last principle for lots of other reasons including ownership but the that you don't  partnership fund that was used to buy and sell safina doesn't matter what you make the loan for if it's a well you're saying you're purchasing an interest in a promissory note is that what you're saying i'm also saying that the tip that you know it is the case is not the only case on the subject and and other opinions mostly pains to say there's a loss at the time give me an example of one sided in your brief i'm sorry i don't remember it's ok i can i cannot give you i did not write that down in various ways but but this up i know you were alluding to this argument but to me it was not systematically made so if you would like to i don't want to waste your time because you have a couple other interesting exclusion but conflating two two subjects there the second is that wasn't even ruled on by the district court the third the third the third thing i would say is that there are cases that suggest that you know the loss of  something in other words i make a loan i foreclose on the collateral i take the property back i have a loss for i may not have a loss the parent but what happens with the collateral if that doesn't mean i own it at the point before i for e on the property becomes my property again that there's a whole process there right let it go out the door and it's gone and what i own or promissory notes i don't own that property and so until many other things happen and it's this and in this case you're not with the exception of a million dollars you're not dealing with loss principle you're dealing with lost profits that's the that's the main part of their claim so that if it goes back that would be it but it shouldn't go back because again you don't own it under any of those theories until there's a fork until there's an actual event that triggers o to move on to a couple other issues since i have a limited amount of time and i do have across appeal i assume you want me to address it so in this instance again to judge jones  question at the outset what is the loss here i don't want to bore you with the facts but what i do want to understand is that they don't have a loss this is a case where they're claiming an interest they're seeking lost profits when they've already recovered millions and millions of dollars from a from a money in money out perspective cooper got back forty two million more than it put in because it was a what they call the net winner in the pon that's fact in the second the second fact is even if you make these distinctions they like to make between the legitimate funds and the illegitimate funds let's just talk about the so called illegitimate funds on the illegitimate side of ledger they made twenty one million dollars and and got everything back from the receiver and they're probably going to get it all back from the receiver by the way before that's over with but except for one million dollars they got a twenty million dollar net gain they don't have a loss in this case it doesn't exist this is a case where they are just and i i don't want he wasn't indicted there was never a finding of fraud by him etc he is the employee he in his company is the deemed to be the employee under my policy not not green would not watch the district court imputed greet with the wal well suppose the plants had filed suit against carter as well as the other fellows under arrest what's the likelihood in your view that they would not have been considered a i don't disagree with that but the district court found that they wouldn't have been dealing with the be a c m but for the nature of these deals that were a presented by the other two fellows who but and so i'm saying reasoning isn't accurate because a breach of sedition duty is not dishonest conduct per se and because you heard it has to i agree with you that this was a joint venture seems to me that would have to go to a trial i don't see how you could i mean the fact that the receiver that two of them went to prison and had the horse farm and all that business and carter didn't doesn't you know doesn't seem to me to am i am saying that it wasn't committed by carter and there's no evidence it was everybody agrees yes he presented the marketing materials jointly he did know that some of the marketing materials were refre he didn't know who was from the east coast carter was in santa barbara california these these guys are marketing people based upon different levels of understanding about was all but the whole point is they have been in business together in some form or fashion for about policy says committed by not legally liable so again yes as a joint venture you could argue he's legally liable maybe not as a matter of law but you can argue that he was legally liable they knew or should have known  indirect last six where i think you have the most opportunity potentially to prevail is the indirect loss exclusion but the interaction loss exclusion in this case direct result of quote your inability to realize in town that you would have realized had there been the loss close quote hoopers claim for lost profits has to be rejected that's a clear exclusion was going to be able to return to all of the investors and at the outset the receiver was much less bullish on what has been returned so there was a big claim for loss principle at one point at the beginning of this case that's what we thought this case was about my bottom line on the cross appeal is i don't think they can recover lost profits into the indirect loss exclusion period i don't think they have a loss period i don't think i take your honour's point about questions a factor that would be the worst the loan son's directly from cooper so the principle is not excluded the last principle would not be excluded under the indirect laws as for the earnings this quarter dress that question d j services and d j services the court said that the theft of property that the insured own is a direct loss so if you reach the cross appeal issue on the equitable or on the earnings portion you would have had to have concluded that cooper did own those earnings so that wouldn't qualify as a indirect loss it would be a direct loss it would be a theft of profits that belongs to cooper so the indirect loss exclusion doesn't apply to either the principal or the earnings  just want to briefly touch on the ownership point so national union has said that there is a split on when a loss occurs whether it's when the funds are dispersed or whether there's a default  cases that actually say that there's a split and even if there is under texas law the policy has to be strictly construed in favor of the insured so if there's a split on that question and there are multiple reasonable readings of what the word loss means then then cooper wins and cooper can recover it's lost principle and cooper is absolutely trying to recover the lost principal there's more than a million dollars on the bond fund that cooper hasn't recovered and cooper is certainly still seeking that so that is still an issue that this court could address in the last two hundred fifty thousand yes your honor but but cooper is still free from ever refers to the one million well it only barely refers to that near you you keep briefing case in terms of seventeen profits and its lost profits is still over a million dollars at this point earth lost its last principle what do you say about their moral hazard argument so again you can address not under both the the principle and the earnings on the principle there's no moral hazard involved because cooper would not be in any way benefitting from a ponzi scheme just by making a loan cooper would have lost the principle at the moment that it made the loan and there are no earnings to talk about as for the earnings themselves cooper is only seeking its portion of the legitimate earnings it's not my cooper is taking funds that belongs to somebody else cooper just wants the money that w g trading actually invested on its behalf and the profits that trading made real investments and the receiver determined that it earned approximately five hundred eighty four million dollars in real earnings hooper is only asking for its portion of those legitimate earnings and even if cooper gets that cooper has still been hurt in this case because trading would have had a lot more money to invest if greenwood and walsh hadn't been stealing funds if greenwood and walsh had invested that money they would have made even more than they did and cooper would have received even more in earnings than it did so cooper is not being greedy it's trying to get back money on behalf of its employee benefit plans that were legitimately earned in that belong to the plans the last point i want to make about equitable ownership  we were talking earlier about the situation in which a trustee steals trust property that is actually this policy this policy covers trustees it defines the term employee to include trustees and would cover the trustees fest of trust property again and again and excluded actions for which you are legally liable and this doesn't insure against a crime