order for the courtroom to clear and things to be reconfigured for the final case of the morning also we welcome a number of extras that are here with kelly as is mine and we will be delighted to meet with them after her conference after our post argument conference and anyone else is have salute we welcome to stay for that as well we don't please the court my name is robert weaver i'm here this morning with co counsel robert coyne robert dekel we are here on behalf of two brothers now one now deceased and their wives who read a very small excavation business important and after a twenty year legal battle with the bureau of reclamation were awarded forty million dollars that that legal battle nearly put them out of business and they took that ward to their lawyers and accountants and asked for their advice on what to do with it these taxpayers are unlike almost every other taxpayer you've read about in these medical cases that's especially case which was the touchstone for the tax court the bold and later this court and solace monday reviewing that case stressed over and over again the taxpayers sophistication those taxpayers themselves were ashima is that that that the the tax payers themselves were highly sophisticated here i would suggest to you the only thing that these tax payers are perhaps sophisticated in is moving a large amount of dirt from one place to another and in that sense they put we put them in the same spot but that that the starnes tax payers were which were the owners of a trucking company and what we are asking this court to do is what neither the commissioner nor the nor the tax court did to undertake the precisely cadence step by step analysis required to assess a claim of transfer reliability there are two to the nd component of the stern test which is whether or not these tax payers whether or not the commit any whether or not let me rephrase that any creditor could do what the commission are seeking to do here because that's the test it's not the i r s unique authority it has to apply to every particular creditor it in the st question there would be this i would suggest would oregon law allow or any ordinary creditor to collapse these three separate transactions on the basis of constructive knowledge at page forty one dollars of his brief the commissioner makes the bold statement that it would and cites no case the tax court looked at no case law and reached the same end the oregon supreme court has not squarely looked at collapsing in the context of the of the uniform fraudulent transfer act but that's not unusual in mid co cases the point is there is no case in oregon that gives the commissioner of thord to do what he wants well the commissioner has to make an educated guess about what oregon law they're required to look to state law on that and the majority rule by far the heavily majority rule is what the commissioner said yes so what is the basis for thinking that oregon would adopt the minority rule and not consolidate these transactions i would answer that two ways rather st of all what the tax court did here i want to be clear what the tax co did the tax court said is we predicted ohio law based on three federal cases number one then they said  a transfer act the uniform probably would transfer act is the same between oregon and ohio therefore oregon would follow our prediction on ohio it is an extremely strange well it's not that strange it's a uniform to be the majority rule all agreed and i don't quarrel with that but i want to be clear what we're talking about here here's what the commissioner wants to do wants to st go to to the to the stern rule that says state law you have to find you st of all you have to find a completely separate ground under oregon law to collapse these transactions before you ever look to move to and so yes it is uniform but that doesn't make any difference when it comes to collapsing there is no collapsing provision within hoofed it you have to find a completely separate legal authority in the state of oregon to do that and if you are successful in collapsing then you can turn to move to and the other thing the commissioner is doing here is is saying this that we are going to collapse on the basis of constructive knowledge i think the the  service still says that don't you don't even need a finding of constructive knowledge but we're going to collapse on the basis of constructive knowledge in other words they don't need to know that they're doing anything wrong to taxpayers and then we're going to cram it into that is strict liability there is no oregon case that says that in the most i'm to answer the nd part of your question judge graber oregon is a minority state oregon requires actual knowledge for collapsing we have cited numerous cases to that effect the the the supreme court here has never reviewed this calculus that th commissioner is advocating here and that wasn't done by the tax court either so are you suggesting in direct plain that a certification to the organ supreme court would be the right answer for us well i want you the subject and adopt those assume that those are still the law unless you're satisfied that the oregon supreme court would reject them and that is not the case we have a one hundred year old common law tradition here that in cases of collapsing not in this context but every other context specific intent intentional willful knowledge has been required before oregon ever allowed that to happen and they're both supreme court a court of appeals cases that say that so the and that's before you ever get to question and so the question is would oregon with oregon supreme court abandon that tradition with they now go down this road that the tax court has predicted based on a prediction of the ohio law and say it should have known kind of knowledge so i think this court has all the wherewithal a question not in to support it your honor but i my answer to that is i that would be my fallback i suppose as opposed to affirming this but as i have said i think that this court did novo based upon the two paragraphs in the tax court opinion that did the entire legal analysis of oregon law i think that this court could say that was clear that was  looking at this to novo so i'm not opposed to that but i'm not seeking that if that's fair oregon is not a constructive knowledge state and it's fair for the court to assume that cushman is an important case in this analysis to predict that the oregon supreme court would now collapse on the basis of construction constructive knowledge what it never has done so before would mean as i said to abandon this one hundred year old tradition cushman rejected objective knowledge as sufficient to establish liability under moved that is a very compelling case it has been on the books for twenty five years and i would suggest judge time she did that tend to she meant that in fact if warrick and supreme court was going to reverse cushman it had twenty five years to do so i think you can assume that oregon is going to go along with everything that's been going on for the last one hundred years now let's assume that oregon is a constructive knowledge state on what basis to the tax court find it there were really two it said that they had these taxpayers were warned by their lawyers while the williamson wyatt and they were also warned by the their accounting firm price waterhouse coopers on both counts the tax court committed clear error and i wanted to turn to that now but before i want to be clear about what this knowledge has to  you know and and the best definition of that you can find in store and said footnote five which recites an important piece of authority here which is further guidance on these intermediary transactions in in in two thousand and eight by the i r s and what they said is when we're looking to deny the tax treatment that the tax payers are looking for in these intermediate cases the one thing we want to know is did the taxpayers know that the taxes would not be paid that's the critical fact that no to be fair also says no or should have known but because oregon is a actual knowledge state that doesn't apply here i would suggest even if it was should have known there was no way that they should have known what these four train people were about to do because for tree and repeatedly lied to the taxpayers and to their court i think what they testified to i thought the tax court's findings were that they were warned in some right fashion about this or here's what they were warned about  pricewaterhouse all they ever said was after they discovered this two thousand and one dash sixteen advice they said that this could be similar or is similar to one of those transactions that's number one then i think the other accountant webber that was dempsey i for spoke of but weber said that i told the taxpayer pick were me i wouldn't do it now all of that twenty years mack was mostly dormant because it was tied up with this bureau of reclamation case and that impacted its bonding ability and in march of two that they received finally an award of forty million  by that time richard marshall had suffered a debilitating stroke and so john marshall took this to their longtime accountant and the marshals were at a crossroads at that point they were in their sixt richard was not coming back and the question was do we try to start up again because we've been and he kept with this or bonding associated with this litigation or not and so mr dempsey came up with a number of options such as converting it to a sub s refreshing the net operating loss or even selling the stock and so john marshall was thinking about that when unsolicited distinction from many of the cases unsolicited four different approaches him and he goes back to dempsey mr dempsey does a pros and cons memo that is recycled repeatedly in our briefing because it's important none of those pros and cons talked about tax avoidance tax shelters or any of the kind of things that's a trick try curry cheap i'm pronouncing that right and that and even in sloan the facts there were contrary to that there was no approach to to avoid taxes yes minimisation might be part of this but that was not his motivation cancer before you run out of time i want to ask you because you passed over the is being supported and the tax court found that mr hornik or discuss the risk of transfer the liability with the marshals after receiving a legal internal legal mammal that said that they would likely be considered transferees for tax purposes do you do you dispute that that is supported by substantial evidence i dispute that there is question the sentence says that mr hornik or discussed the risks of transfer liability with the marsh with the marshals after having reviewed this internal memo is that supported by substantial evidence that is supported by substantial evidence but i say i would suggest to you that that is not a warning to him to please don't do this this is a listed transaction the documents really are the lawyers don't generally tell people not to do it they tell him what the r not the same as saying we never said anything additional in our conversations except at the end what they are saying about that letter from  that letter at the end of the end of it says it's intended to remind your clients of a few of the more significant issues arising from the transactions it doesn't purport to be a complete laundry list of everything that but your honor here's what it says we're told that says we're aware of no facts suggesting that for trained is going to act illegally the risk of any creditor including government creditors even bringing a claim against you is minimal these three transactions are consistent with the snappish law so for them to say well gee indulging your characterization which i don't quarrel with about that record hey this might be like one of these listed transactions or intermediary transactions but that meant nothing after they had done all this due diligence all of the parties all of that all the due diligence that was done by schwab did you want to say find a rebuttal time you say five minutes now you're down to a minute now if approximately when i do want to say that thank you good morning and ma'am please the court my name is nora bringer and i represent the commissioner in this appeal this case involves transferee liability or shareholders after they engaged in a maaco transaction that stripped assets and cash out of their company and left the company unable to pay its federal tax liabilities this court has recently decided to other cases regarding transfer the liability of shareholders following a moko transaction it's the nd opinion and sloan and the opinion in turkey and both cases this court ruled in favor of the commissioner this case is not meaningfully distinguishable from those cases all three of this is the one the one distinction is that those did not arise under oregon law yes that's correct and so what is your position with respect to the question whether oregon law would collapse these transactions well i'd like to say one thing before we get to that particular question if i may or honor which is that the oregon u f t a explicitly instructs that it shall be applied and construed to make uniform the law among the states and acting it was the provision of the law that the marshals ignore in their briefs but that or again lawmakers were clear that cases from other states should be relevant in determining what the oregon u f t a means the government's position is that under oregon law this transaction can be collapsed without regard to the parties knowledge or specifically states that it incorporates those i could of all principles and in oregon and those included the substance over farm principle now the tax word stated that under oregon law the transaction would be collapsed because the marshals had at least constructed knowledge but we cite a number of cases from oregon looking at the substance rather than the form of a transaction and in some of those cases there's no discussion at all of what the parties knew or intended with respect to discussing collapsing the transaction or in those cases looking to the substance of what happened rather than the former no organ case that either party has cited states that knowledge or constructive knowledge is required to apply the substance over form doctrine to recast a transaction and indeed to a circuit court of the th and six circuits in the feldman case which apply the wisconsin uniform fraudulent transfer act and the th circuit and billy f talk a trust which we recently brought to the court's attention through letter applying the tennessee version of the u s d a again thinking about the fact that the oregon you have team mandates that the law be applied to encourage you to formally among the states we suggest that those cases are informative and the correct way to approach the question in this case the federal cases were constructed knowledge was required deeble sallis monday and the like all stem from the uniform fraudulent conveyance act which as we explained in our brief a precursor to the u f t a that was an act in oregon and more explicitly in fact explicitly considers the transferees knowledge and intent the us t a does not do so but even if constructive knowledge was required the tech support did not air much less clearly air and finding that the marshals had at least constructive knowledge here the only factual finding that the marshal's timely attempt challenges clear error that is in their opening brief is the tax words finding that the lawyers for price waterhouse coopers advised them that the transaction was risky but those factual findings are well supported by the record with respect if you don't you see the checks were found that the accountants told john marshall that the transaction was similar to a list a transaction or a tax shelter explain to him what a list of transaction was and try to discourage him from proceeding with the sale that's based directly on testimony in the two trials in this case which we say in our brief transaction and the chances that it could be challenged by the i r s the marshals ignore the tax words findings that mr weber advised john not to do the proposed stock sale and as discussed earlier quoting again from the testimony speaking in my opinion i wouldn't take the press john marshall also admitted the mr dempsey never advised him to do the transaction that's also in the trial testimony with respect to the lawyers from swa did indeed find that mr horner warned each of the marshals about the rest of transferee liability if mack failed to pay its debts which of course is what happened here that's supported by the trial testimony as well but there are other factors here that you not involve the marshal's advisors for example the price for mack was inflated which john marshall knew and the rest should have known there are e mails and testimony showing that the price offered was millions of dollars above the net value of the company after taxes john marshall also knew that the purchase price was based on the buyer essex and max splitting max tax liability as the tax where it wrote in the trick archie case that's the icing on the cake jon also knew that the buyer intended to upset max taxes with the high these those low value assets and he was leery about that plan now these factors are very similar to what this court premium was paid over the net value of the company and it was calculated based on the estimated taxes the company owed at the time of the sale and that the buyer provided little information regarding how it planned to eliminate the taxes liability could magically would magically relieve the parties of their duty to inquire and here at the marshals at the very least had a duty to ask more questions now all of this goes to  the knowledge or constructive knowledge of the marshals had on their own but oregon law also imputes knowledge of agents to their principles is not necessary but certainly here that provides more support for the tax court's finding of constructive knowledge and for a lack of clear error in that finding i'll point out that the oregon you have to explicitly incorporates equitable principles including the law relating to principle and agent we cite a number of organs from court cases that show that in oregon knowledge of the principle or knowledge of the agent is imputed to the principal the idea is that the marshals and not the federal treasury bear the risk that their agents will know something important and not tell them we've already discussed a number of things that the agency knew but i'll add one more this is from the tax court's opinion at forty or excerpts of record forty but peter if you see new for trend in particular i'd use similar tactics to shelter income and to avoid taxes and so for peter do you see the fact that fortran was involved heightened their concern about this transaction so with the transaction collapse the marshals are subsequently liable under the constructive fraud provisions there's no dispute that the claim for federal taxes a rose before the transfer the marshall mack received a less than the reasonably equivalent value for the transfer the marshall's got nine million dollars more than mack was worth and mack was unquestionably insolvent after the s under federal law under section six thousand nine hundred and one dollars of the internal revenue code now that analysis looks at both objective factors was their business purpose and subjective factors are i'm sorry objective factors was there economic substance and subjective factors was there a business purpose the tax rate here found that there was neither present in this transaction and those are factual findings reviewed for clear air or there were no economic effects to this transaction other than creating a lo but that refers in context to max tackling tax liability the marshals kept all of the non cash assets and their newly formed and to those are the hard to value assets so there was no uncomfortable family negotiations avoided with respect to valuing transaction otherwise only moved cash around and then divide it equally between the marshals that could have happened in a straight liquidation of the company in which case mack would have paid  the marshals raise a couple of issues through the end of their brief but i'd like to briefly address the eat the st is with respect to the amount of max tax liability the only issue raised on appeal is with respect to net operating losses that they claim matt could have used in two thousand and three but the marshals don't specify much less produce evidence to show what losses allegedly qualify they don't substantiate t three by that point the marshals had use of mack's assets that should have been available to pay its taxes they were transferees under both federal and state law by the date that max taxes were due and money was due from them as transferees at that point under oregon law after all as we explained in our brief money is do you even if no claim has been made when the i r s sent the notice as a transfer liability  to the new entity and with respect to the marshals themselves as we explained in our brief oregon law limits transfer the liability to the value of the assets transferred the total of twenty eight million eight hundred thousand dollars the i r s can collect from those assets only  from the working backwards from the interest of the calculation there is more than enough evidence in the record of the net operating loss that we've just seen by the court's attention to our briefs there on the question of pre notice interest i oregon law is that if you don't know that until such time as the debt is due i r s had six years after we notified them in our own tax returns of what we had done here to go after them under a regular collapsing theory waited in two thousand and nine to give us notice it is just a matter of common sense and fairness that we should not be responsible for that tax for that interest if we never knew that it was  that it was owed i would tell you that anything pricewaterhouse did is the clips by those tax returns prepared signed and indorsed by pricewaterhouse in which they said this is legal and bonafide we are telling you out of an abundance of caution the i r s what we have done here not because we've done anything wrong but just because we want to let you know that that was the advice dempsey got from his his front office it was it was not it was to do the deal and disclose and when they disclosed that distinguish these tax payers from every other one in the smithville case no tax cheat says to the i r s com audit me i probably did something wrong here so i think that eclipses everything and i think that the tax court didn't pay any attention to that and i think they minimize that letter that is they say standard letter that a lawyer would do at the end to say here is what i have been telling you all along and that's what mitch warner said and i'm just about out of time here priam but i would just say this you know the question on these things is would further inquiry even if this was an inquiry no to state would further inquiry lead these taxpayers who i guess they're suggesting should be in nd guessing their lawyers would lead them to discover that these taxes would never be paid would a reasonable inquiry lead to more knowledge that would tell you that taxes would not be paid and that the answer to that is clearly no fortran was lying to everybody