legally required reserves held in trust to protect the intrinsic feet refund obligations that it owes to its residents also at the heart of the case is the practice of c c palo alto it's s so called cash management practice of transferring available funds on a very short look forward basis to its parent in chicago c c development group keeping the community in a constant state of insurance the obligations as they become j parent to the subsidiary even though the parent has told the residents there they have no legal obligation to do that the other way to look at that is that the current president injury that exists now the harm significantly increased risk of default the other present harm that exists today for that is for each of my clients is the lack of financial security they're living in a financially distressed community when they were who they were to refund or repay whatever it might be any deposit sure if i can take a moment i'd like to walk through how the reserve issue comes to play so in california we're looking at the health and safety that tragic consequences can result if a provider becomes insolvent or unable to provide responsible care this statute because it's remedial needs to be interpreted probably and in fact in seven hundred and seventy five in california that was in charge of this they all this was refundable but there but then they decided it was really repayable because the time lag  between the say all and the need to refund correct is it do i have that right x that ok so that's what they decided so what are we supposed to do with the decision of the california agency in charge of this that they think this is a repayable contract now because of that time lag ok well a couple a couple points in response to that judge job a obligation is not contingent it is absolute no matter what the that those refunds will be due to departing residence so your statement that you're just saying is that whatever the agency did the district judge would have come out the same way because it bans the statute unambiguous i ran out yet cracked but if i may on if we're going to go down the path of saying that the statute is ambiguous then we need to look at the level of deference that that agency opinion should be d given on the d s that actually flipped up the originally it's that they don't qualify as refundable contracts then they do have to keep in reserve and then they flipped again and said they don't  and you look at chevron deference and skidmore deference when it you find that the statute has ambiguous which again we don't think you need to get there but if you do need to get there or the analysis would be under the skin more the record shakedowns i had and i don't think it's my colleagues probably know the answer but i don't believe that that was a critical point to the district court but that isn't really  way that they do not have a statutorily fan dated reserve held in trust for them and they have been injured because they are now living in a financially unstable community and have significant concern that there will be defaults in the future thank you that discounted cash flows in is inappropriate but it seemed to me that in this kind of situation and the district court actually listed a number of reasons why that was exactly the right way to value this and determine insolvency and so what exactly is wrong with using that would be relying on that kind of method in this situation i didn't get why that was wrong from your filings sure and if i could unpack that a little so discounted cash flow is one of the recognized way is valid ways future projections and value of the incoming entrance fee is did look at the actuarial reports that had been prepared on behalf of the providers and did it look at and apply on the fact that the  company's projections had not come to pass so we hit the two points i want to make and i do see f analysis is not the only method that's valid in this situation so if it's not the but why why is that the question in the question if it's an if this one valid way and the district judge selected that way why why does he have to select your way i don't get what was wrong with the way he did it well because i believe that in what we prepared him submitted through our experts there was sufficient there was sufficient detail call situation where it's a close call about whether the company is solvent or insolvent c c paul also at the time we were briefing that had a negative net worth of three hundred and seventeen million dollars and inadmissible because if they can't meet their burden of proof ansal them see they have no standing to sue derivative mr mcmanus is going to follow me and take up the other issues dealing with the direct claims against the corporate defendants let me start with the threshold issue in a solvent see your valuation contact and that is the question of whether the corporation in question is  going concern here plaintiffs and not and the court found that c c palo alto was a growing concern in that regard there was no dispute about the fact that it had paid all its bills on time in full it had met every entrance fee repayment obligation on time the new entrance fees coming in were greater than the entrance fees that it was paying the terminating residence it had zero construction or operating debt it had paid off all its construction loans and returned to its parent its initial capital contribution distributed excess cash and still had at the time of the suit twenty million dollars in cash the negative net worth that council referred to is simply a gap general accounting principle entry that records distributions of excess cash to the parent company as a negative number and actually that is a indicator of financial success it means the business model was working to the extent that they could pay all their bills and still send the parent company some cash distributions which of course is what a subsidiary is in business to do and in light of those undisputed facts it was ludicrous ludicrous from the start to claim that this company is in financial distress or insolvent so if you have a going concern the valuation or solvent see analysis is a discounted cash flow analysis which looks at the cast generation of the corporation discounts it to present value included in that was the ground lease obligations and how that that changed over time there were sixty years left on the ground at the time of this valuation and what a discounted cash flow does is it results in a fair market value balance sheet when counsel says that a balance sheet analysis proper she forgets to tell you that it's a balance sheet analysis of fair market value not the numbers on a gap sheet in fact a very case is that she refers to from delaware the quadrant cases say you don't give weight to the gap balance you would just those values the fair market value what her experts failed to do among the many calculation mistakes that they made was to take into account the present value of the cast the goodwill the intangible assets of of going concern which make it more valuable than the sum of its parts and what the district court did here in rejecting the failure to produce a proper analysis or the other types of analysis comparable company or market value which are also allowed which they didn't even attempt to do was one hundred percent proper and is supported by cases we cited in our brief like in re med diversified in live bay v mention one other thing counsel said well they had to look to the parent from time to time for fun every operating company has a  line of credit that from time to time it calls upon when short term needs exceed their projections here our client had a parent company it didn't need a line of credit so in relevance in a solvent city analysis and finally council talked about the actuarial study the failure the actuarial study found our client in compliance except for one test the one test was a test in which it looked at out go ing and currencies without taking into account incoming and the a discounted cash flow analysis looks at incoming as well as outgoing and milliman who conducted that solvent see analysis wrote a letter i record it was taken into account by the district court judge which said you should not consider this study to be any evidence of solid and see your insolvency and judge  at that into account in rejecting their evidence so there is simply no way that you could find that he abused his discretion in making the determination in fact the company defend us and as the last guy in line i don't have a lot to say but i would like to talk about two things st the absence of a private right of action for cases like this and secondly the lack of standing up for the players to even be in federal court continuing to carry tyrant communities which we call c i s you see our cities are one of the most highly regulated industries in the state of california and the agency charged with overseeing this industry is the department of social services abbreviated d s s starting with health and safety code section seventeen s some two hundred and fifty dollars pages of tax and who knows how many regulations covering every aspect of a c c r c and just to give a few examples before c c r seeking begin operations  has to get a certificate of authority from the agency before offers any contract to a resident that asked of the approved he has to make disclosures to the agency disclosures to the residence reports on a regular basis both to the agency and the residence and submit annually and audited financial statements overseas every aspect of operations and they intervene in the interests of the residents a time if it believes their health and safety requires to do so and i refer you to a section one thousand seven hundred and ninety three point two one where there are like twenty two instances listed where the department ma act the enforcement of the statute and regulations isn't trusted to the department and california attorney general there is only one section of this comprehensive sta repayable contract i don't we don't think it matters and on that point it like to say that because there may be some confusion here judge devil addresses this issue of page sixteen and is concerned even if it's a repayable contract then they don't have to maintain the reserve that's correct right yes and then therefore their claims basically fall apart correct absolutely  colleagues comments bear some consideration in that i don't understand i don't understand why you just can't answer yes to that if it's a refund of all contract they're required to make the reserve provided for  standing i mean they allege essentially that you that you had an obligate assuming that it's a refundable contract the plaintiffs allege that you had an obligation to maintain a reserve and then as i understand it that you essentially abandoned that by not maintaining it and therefore under the statute there is a remedy for them there's a cause of action and when you look at standing it provides there's a statutory basis for their claim which conduct and i don't i don't see how he read that into that particular statute well i mean i think you put your finger on the heart of the matter whether this constitutes fantasy of the community and its contractual obligations or correct thank you or if contractual obligations i don't think that it does and you want to that's but see that's what i mean that they don't they may never be able to prove their claim well i think that just that you don't even belong here in federal court on this claim that it's one of the grounds a judge down cited for dismissing their complaint he also standing no harm route and then he reserves he had the claims regarding fraudulent transfer and the derivative claims and those he went on and dealt with well that's correct let me turn to the question of standing there because if you look at the allegations of the complaint there are no allegations that there has ever been a failure of payment there's no law there entitle to a certain level of security and that security is missing and i don't mean security in a technical sense and this means that they are intitled to have this piece of mind th been a problem with this community and i don't expect that there ever will be and it's in order to have standing you know if you have to have any legislation of legislation to create the right but it has to create a private right of action and i take it judge pires is not might not convinced by judge doubtless comment or mine about the full application of responsibility walking away from the community fair enough but the point here is even if you say well they have a right and they have a private right of action which we question there's no concrete harm here and simply not complying with that one provision which we've agreed which accomplished people who are living in a lovely facility with enjoying all the benefits that's why i have to say we talk about you know abdicating responsibility for abandoning their community nothing could be further from the truth this is all thriving community that's providing a nice life for these people and there's been absolutely no as i say harm actual imminent threat and or otherwise short if i may any harm here is speculative conjectural hypothetical it's not a substantial one based on i'm pretty facts and if you could  specter of harm here it could it could certainly not be said to be certainly impending in fact and certainly not intended but i'm reminded of something the footnotes and clapper case where the court characterized the concerns the players there as based on their subjective fears and with respect i submit the same applies here as the oldest person on this call i'm sympathetic to the worries of these players that said we live in a country which is still subject to the rule of law they have never be so however sympathetic we may be to this their case it's not one that belongs in federal court i let me can i just interrupt you for once i have eleven minor procedural kind of question for you relates to the letter by the department of social services is that and i think i found a letter in my in my i pad record here and what it appears is that in august the twenty six team after judge but it looks like it came after judge dava was ruling there was a letter of then there was a response by the general counsel from the parent i think it was according to this letter maybe even from the c c thalassa as well where there's an exchange it goes back and forth and eventually they make this letter they offer this letter and they say you know we said one thing once before but now that we're looking at it again this looks like it's probably a repayable numerous letters going back and forth there were meetings with the plaintiffs and at the end of the day they concluded as the agency charged for the responsibility of regulating this care center that there was not a problem that it was a permit these residents to enforce their contracts in a court of law this of course with ignore the comprehensive scheme the statute they go on to say otherwise parlance and all other and if this sort were to exceed to the plate this request not only would it be rewriting two hundred and fifty plus pages of a statute that the california legislature acted but it will also be opening the doors of federal court houses up and know ok thank you and i think you're out of town so we'll thousand dollars transfer and some of those transfers were specifically because you need to repay entrance fees and cause by the state what it briefly required there be a reserve for community very specialized type of retirement community where residents are wrapping up in many cases most of their life savings in order to enter this community there's a lot at stake for these residents  what i've heard listening this morning is more of the theme that the residents here which is just trust us we've always paid well we'll always be in the future but no our parent doesn't owe you any legal obligation so there's been a a separation and assets and liabilities and a separation of the responsibility to repay the residents here you you you construe abandonment to mean any their king all off or failure to comply with any element of the agreement between the parties  as opposed to the abandonment of the facility correct we believe that the language is broader than just walking away from a c c r c because the language talks about a band and that  because it offers a final contract if it did that it wouldn't need to keep or is are but it does now and again i go back and empathize that we were not asking for a tortured reading of whether these contracts arguing because these funds are repairable that makes them refundable that you're you know it's not there's a reason why they're refundable is that stop every one of these residents must be paid their entrance fee this isn't a situation where it's completely contingent on whether particular unit itself and five years ten years twenty years  and i'd like to use my remaining few seconds to just recycle chris this argument to what we're dealing with here we're dealing with a home of a population of seniors on a remedial statute your time is up and thank you thank you council we appreciate your arguments this morning in your willingness to participate in our virtual court and that concludes our argument for this case cases submitted