i'm to gender sitting for the appellant l b b w i'd like to focus today of course have happy to answer any questions the court has about standing argument but i'd like to focus if i could on the merits of the dispute before you the district court granted summary judgment to the defendants on the ground that they learned that the equity tranche the preference shares as they're called in the offering materials could not sell for anything close to their part of value they received a bid to sell a lot of it for eighty eight percent of par value and then a bid to sell for sixty percent but only if the buyer could also take out short positions against some of the c d o collateral and other securities in the c d o i want your client by that my clients bought the senior notes the top three tranches of the c d o not the preference shares but the preference shares are still relevant to my client's purchases for a couple of reasons the most important reason is that the cash flows for all of the securities coming from the c security is is safe what wells fargo and fortas really learned during the course of marketing the c d o was that they could not sell these securities for near par value and the reason and then they chose to keep them on their own books and mark them down substantially ultimately to approximately fifty percent just a little bit over the reason this is important i want to stress that it is the overwhelming norm in c d o transactions that when he is sold it is sold at par and the representations that the defendants made to l b w and to all investors really indicated that this would be the case for support that this is the norm i would point you t testimony from basically every witness in the case our expert report says ordinarily c d o equity will be placed at par that's what normal investors would expect you'll find that it pays forty four eleven of the joint appendix and he further clarified in his testimony confidential appendix five forty one forty two that the behavior here was a way outside the bounds of normal banking behavior our analyst bernard held and had similar testimony and we've cited testimony also from all of their sales people saying they had not seen an instance where c d o equity was placed at less than par at the primary offering and i want to make this point explicit there is a big difference between marking down the value of a security before the closing even occurs and seeing it get marked down later in response to market developments in the secondary market this is an extremely unusual circumstance and extremely odd banking behavior and that is what makes it a material misrepresentation not to disclose in fact the signals that we are getting from the defendants signal your point is that the defendant should have disclosed the internal mark downs yes and what evidence is there in the record that that that the fan and thought the assets were in trouble sure let me at least the district court so concluded yeah let me address this in two ways and so first of all they have offered an alternative explanation for what they're doing and that i think raises nothing more than a factual question that a jury really should be able to decide here is the evidence that says the collateral was troubled and they knew it first of all just as a matter of logic ordinarily you will see that the price of an equity security corresponds to its risk there is only one source of risk in these transactions and that is the collateral if the collateral is bad you'll have more risk our witness eric hurst you'll find this in page forty four zero nine says point blank that the amount of markdown in this case could not have been attributable only to liquidity which is explanation that the other side gave it had to be attributable to credit risk in fact on the same page of the record he'll say that this would have constituted distressed credit pricing at that point in two thousand and six there's other evidence that there liquid based explanation is not true their own witnesses you'll find the pages four zero five four and two two seven nine this is uming waying and michael thompson both say in two thousand and six the market was good enough it was liquid enough so the liquidity explanation can't be right to pay taxes though that is so just to be clear it's not because they're trying to avoid taxes what happened to them first is they were unable to sell the equity their internal e mail saying we're struggling to place this equity we can't move it and then a decision is made ok let's keep it on our own books how we understand what the accounting fact i promise i'll get directly there once they decide to keep the securities on their books generally accepted accounting principles require them to market mark those assets to their market value that is to the value at which they could sell them they could not have marked those at what they try to tell you with this sort of accounting alternative explanation is basically we could have marked it at one hundred what we chose to do is not market at one hundred but just drop the mark down by the amount of our fees right there is no evidence in the record that they could have marked this to one hundred they had never sold any of it at one hundred they sold some of it eighty eight and then they got a bid to buy some of it at sixty but only in combination with short transactions are going to argue and not act that the market down alone plus the prices they were offered in their initial efforts to sell is enough to show that they knew the collateral is distressed is there and most of the collateral in this case was residential mortgage backed securities there again this is their witness uming weighing testify the you'll find this at four zero six zero that the mortgage market was starting to become shaky we saw this in our opening brief as well because teaser rates on residential mortgages were about to balloon so they had that independent reason to think the collateral was shaky beyond that that the offer that they got which said i'll buy this but only if i can short the collateral i mean if someone if a sophisticated interest situational investor in the marketplace is coming to you and saying i want to short the collateral that also sends you a signal that there may be something wrong with the collateral so those are two independent pieces of evidence but really the mark down is the big evidence and it is substantial real evidence that a jury should be allowed to evaluate against the other side's alternative explanations to be clear this is not a slam dunk evidence right this is not evidence where somebody inside was sending someone else an e mail saying look at the junky collateral that we're passing out this is not that type of deal but there is still nevertheless very compelling evidence because if you're using generally accepted accounting principles and talking about the market value of these securities there is only one thing that drives this level of a mark down and it is credit risk and there is only one source of credit risk and that is that the collateral is no good so when they can't sell this equity anything close to par they know they must know there are a lot of other issues in the case and i'm think well is really their argument depends on you being hyper technical and ignoring all practical reality so if you're willing to walk that road with them i can give you the technical explanation for why we when i don't think you should ignore reality here's how this starts the claim is held by l b b w luxemburg which at all times was a wholly owned subsidiary of a german parent company the german parent company decides in two thousand and fourteen let's get rid of this candy shell between us and the assets and liabilities of the luxembourg business let's take that away and ever merger by absorption the other side's argument is that somehow in this process of just elim of going from directly from indirectly owning those assets to directly owning them the german entity just discarded this claim somehow just threw away pending litigation for no reason there is no legal impediment to keeping the claim well the german entity is represented by great lawyers you know they filed the articles we'll find all the evidence on pages thirty one and thirty two of our opening brief that we've cited the other side cites no evidence so their description of what must have happened is is silly candidly there is no reason a bank would do what they say we did now if you think nevertheless maybe this was waived because there was an objection to the magistrate judge's report then that's the sort of technical explanation and there too i think we must win because as we have explained the magistrate judge was deciding a permissive substitution motion in the course of deciding that motion the magistrate judge did not find as a matter of fact that no transfer of interest to the german entity had occurred the magistrate judge merely found that the evidence as presented in connection with the substitution motions did not carry that burden stay before you or you can substitute in the new party now the question of course is did a transfer of interest occur the magistrate judge did not find to the contrary he just found that for purposes of the substitution motion we hadn't carried that part and the technical point i want to make is that summary judgment is different they have to show that no reasonable fact finder could find in our favor on this question but we are the only side who cited any evidence and our evidence is on point and explicit and clear it says that all of the assets and liabilities of the subsidiary were transferred to the german parent including specifically this litigation and these are affidavits from two lawyers and the articles of merger themselves and so i just don't understand how on a summary judgment standard you could find that no transfer of interest occurred there just isn't a basis in the record for that fin stand no standing here we just this is just a capacity this is a capacity issue and to do answer that question further there are cases in this context dealing with dissolve corporations that have used standing principles so i think we cite a case from the court of claims called i believe it's mao that was the united states united states versus mather and i think the language that's used in that case dealing with an analogous dissolve corporation is language of standing that there's no article three standing and certainly the district court in dealing with what he was confronted with which is a dissolve corporation that no longer existed a magistrate judge on two occasions finding the purported transfer has not been established and no objection has been taken to that finding the district court concluded there is no one in front of me who can get relief because the only entity that is appearing before me no longer exists it seems obvious and i think the word was also used to believe silly but almost one hundred years ago in oklahoma natural gas the supreme court addressed an analogous situation right in that case after the lower court proceedings while the case was on appeal to the supreme court the name plaintiff had dissolved it had disappeared and here's what and here's what the supreme court said there and that's what's important is not silly it's not technical it's fundamental you can't have an action proceeding on the basis of an entity that doesn't exist it's analogous to the death of a natural person something else then needs to happen through twenty five can't breathe life into a dead corporation what route twenty five can do is if there has been a transfer have that transfer re be the substituted party they knew that they tried that twice they failed twice now they would have to score to continue the beef analogy conclude that that was a nothing burger but it doesn't matter what the magistrate judge did they could simply ignore the magistrate judge rule seventy two says they can't just ignore the magistrate judge they made their submissions of evidence to the magistrate judge he made a ruling he said you have sought substitution but you haven't established the predicate for rule twenty five you haven't shown me that these claims were transferred now let's get back into my colleague said reality well we know one thing post financial crisis a lot of banks failed a lot of financial institutions field a lot of claims were transferred some weren't this lots of cases if you look at the new york state courts and appellate courts and indeed even some of the federal courts here there are repeated discussions of was the claim properly transferred by the entity that was allegedly harmed to some successor entity and sometimes those claims were properly transferred sometimes they won't work among the evidence we submitted the magistrate judge was the stock contrast between what was being suggested in the motion and what the thirty six witnesses testified to under oath the thirty six witness for l b w testified under oath yes there was a schedule of transferred assets specifically schedule out transfer of assets and liabilities which was done in the merger agreement it's not an agreement governed by new york law it's not agreement governed by delaware law they claim it's governed by german law they didn't satisfy the magistrate judge as to why that a lot of jargon c d o cases tend to have a larger audience but let's get to one really basic point they'll cite to a lot of places about a lot of things what they cannot cite to your satisfaction is any representation ever made by any defendant to the market value the market value of the preference shares the offering circular makes very clear they have a par value of one penny one penny they have an aggregate liquidation value of a thousand but aggregated aggregate liquidation value is a defined term in the offering circular it means something very specific that when you liquidate the assets of the c d o these preference shares are entitled to up to one thousand dollars eight is a schedule that l r o i l b b w receives prior to closing it lists a price for every security except for the preference shares there is no price listed for the  that's entirely consistent with the offering circular which says the initial purchasers walk over and for those who are buying all the securities of the first instance for the full value of the c d o the c d o gets every last penny it's entitled to get and then some so no matter as to when the mark happened when the mark was taken on the on the shares retained on walkovers books that doesn't harm the c d o at all it has no impact on the c d o the c d o was a one point five billion dollars c d o at closing going back to this point but they claim at times that there is a misrepresentation as to market value and i submit to you if you look at the evidence they cite you in the record it simply doesn't support any such representation no representation was made about market value because the equity shares are inherently the most risky part of capital structure instead what was told to investors is we the initial purchasers walk over and ford is going to buy these securities they fulfilled that requirement they bought every single security and then they carried the risk of being able to place the securities in the market but it is not a misrepresentation case can it be an emissions case and i submit to you it can't not in this instance where you have a sophisticated buyer who specifically represents in the offering circular that is not relying generally on walkover and for this for investment advice as to the soundness of this investment not acting as a fiduciary this is not a mom and pop investment where you can say there's an obligation to disclose and the securities laws don't apply here there's no obligation to disclose under dealing with retail customers on the finra rules doesn't apply here this is an investment for the rarefied sophisticated investor  relationship absolutely not that there has to be the knowing missions disclose a material fact and the fact must be that the collateral is distressed and they say the fact of the markdown itself and the  difficulty in placing the shares in the market these initial forays in the market is enough to create an issue of fact on that point to show that it and not to create an issue of fact as to whether your client knew collateral was distressed and knowingly conceal that back so i submit to you you are that's a false issue that's presented by the plaintiffs and here's why help me understand but they suggest as they could have been other reasons for the collateral being marked down and they talk about their expert who says well in ordinary cases it only happens of the collateral to spread distress that's why the equities market down but in this case and that was in fact the for counting purposes when the transaction closed they were obligated to purchase all the securities that's what initial purchasers do it's like an underwriter except in a private context they take that risk on their books and then they have to get it off their books by selling it to other investors well they knew going in that have trouble placing the equity because of liquidity issues not because there was back a lateral there's not a single scrap of evidence of the people deciding to put the mark believed this was because the collateral was poor degrading  and the proof of the thing the district judge said is in the pudding when they believed that they were going to get a higher set of investment banking fees to offset those fees they took a lower mark when they realised that the income was actually going to be lower they raise them on that was what motivated walkover to mark down and and frankly you are going back to the question you started with this is a market that's occurring on the bottom five point five million of a one point five billion dollar deal when they the  plaintiffs considered this investment they asked walkover to run a scenario with thirty percent losses on the collateral pool thirty percent or one point five billion that would've wiped out lots of tranche is well below their investment and they still thought this  that makes it risky just inherently and therefore you have to individually negotiate transactions with potential investors as to at what price they're willing to bear that risk and you'll see the discussion in the evidence below it's it's the yield what might what am i getting in this transaction for taking on that risk so my getting a twenty percent return those kinds of numbers people talked about because this was the riskiest part of the collapse of the structure and the price would be negotiated based on getting the yield that investor expected that's what made it difficult to place that's the liquidity issue the fact the matter is the offering circular said over and over again there is no market for any of these securities and there's no guarantee that the market will develop for any of these that's the nature of the you know on on standing do you agree that the plaintiff because it's a dissolved corporation has no capacity i want to be really clear about this we have conceded below that the plaintiff has no capacity to file a new lawsuit nobody has made an argument either way about whether the plaintiff has the power under luxemburg law to maintain this existing lawsuit mr thomas said this point is undisputed argument by law i'm sorry if you make an argument below that there's a difference between continuing a lawsuit and starting a new lawsuit that was not the basis of the argument the capacity argument we made below in the district court concluded that your client has no capacity to sue and therefore you have to show a transfer so just to be clear for summary judgment purposes where the defendant bears the burden to show your entitlement to relief there is no action found that l b b w have failed to make a sufficient showing a transfer that is correct and you then appeal now that is correct so how can we hear that now so because we have so there is a narrow exception which would allow you directly to hear an appeal on the substitution issue we've talked about it's the spruce case about dealing with manifest injustice and if you agree with me about the practical points that i made for why this would be a silly way to look at this then you should just grant our substitution motion assuming you don't want to do that assuming you want to just consider this in a summary judgment posture i don't think that the fact that we didn't appeal the magistrate judge's ruling on the substitution motion forecloses us from making any arguments about their failure to carry their summary judgment burden because it is an entirely different burden these are discrete questions under discrete burdens of proof and as i noted we are the only party that is plied you with any evidence in the appeal mr thomas cites some evidence he talks a schedule of liabilities and things like that none of that is in their briefs on appeal all of it is only evidence is on page thirty one and thirty two of our brief where we explain to you the evidence that shows that a transfer in fact occurred under any choice judge is finding that we didn't carry our burden in one case i want to make it really clear they might have a better argument if the magistrate judge had affirmatively found as a matter of fact that no transfer occurred and we let that slide the magistrate judge didn't find that the magistrate judge simply said that we hadn't proved his satisfaction that the transfer did occur effectively leaving the question open on summary judgment you can't rely on the leaving it open as a reason why no reasonable fact finder could find in our favor if there are any questions about the merits i'd love to