may please the court my name is michael glover and i'm the attorney for the receiver down that then if it's life insurance company that counsel table with me is ryan kalam our take i would like to reserve ten minutes of my time for  it has perhaps perhaps not but it certainly has some of the most egregious misstatements of both law and the factual record in the case the discussion of the conversion claim begins from the  m judge grants determination that in the conversion or the elements of class a conversion had in fact been met in the receiver's attempts to recover monies that by all accounts have been wrongfully misappropriated from a judge strand then moves from that platform of acknowledging through some detailed discussion that the conversion has taken place to what he characterizes as a special good faith exception to the conversion rule that special good faith exception to conversion is based upon the notion that one who takes in good faith for value even in the context of monies that have been misappropriated  is not subject to having those monies repatriated as a converter the first error in judge grants analysis is simply that the good faith for value rule as we have come to characterize it is not a group that is recognized in arizona most particularly because there is only as a state which is quite clear does not adopt the principle that good faith is ever a defense to conversion they ever heard the isolated statement  does not involve money that's never been a distinguishing characteristic but if we were to analogize this to and we're going to treat money as a separate category which i understand you're disputing and we're just talking about holder a new course what's the rule on hold a new course is not good faith it's notice that right well that would be true your honor and is there an argument about notice that is to say we have these two letters that are sent on the sixteenth of whether there was good faith or whether that was for value as we as we get to the point that discussion that says let us assume for a moment that there is a special exemption and would be adopted in arizona not standing the substantial amount of case l contrary even in that context these parties don't qualify for that protection because they don't meet the requirements of that special exception one to one to think that notice that the source of the funds wasn't after the deal was closed are there is a continuum and i think we need to parcel out the parties first if we're talking about the inventors defendants the knowledge that they would have possessed would have occurred in the first instance on the sixteenth the day after the transfer was made  they would have got the information in the form of the copies of the transfer wire transfer instructions that were directly sent to them now it does raise a number of factual issues with henschel about whether that was a written confirmation of something whether it was part of the continuum of an understanding that was what's the evidence of the continuing another would you say that the far end you have maybe long ago got the letter let's assume he did if you're saying well the fact that that was after the an answer the question because there's a continuum maybe ok you have anybody who testified that there were oral communication prior to the letters going out now your honor but let me give you some of the facts in the record that might lead a prior fact to the conclusion and i'll give you some more there their post june sixteenth as well prior to the sixteenth of june the parties had entered into the transaction the reinsurance treaty that would result in the payment of and they understood that the eighteen million dollars was going to be paid by what was going on over tomorrow here lake up to the end i you argue and they understood more they understood more that there was money coming back and at that understanding in light of the circumstances that preceded the payment of the funds to them which included the fact that resolutely the entity from whom they would receive the funds by all admissions had no money and they know that and they knew that unequivocally and they knew the prior criminal record of at least one of the resolute parties they knew that unequivocal so if you we can continue to back up at the time that the reinsurance agreed agreement and the the initial purchase  sale documents were entered into conditionally that the parties placed these instruments into escrow pending regulatory approval in the initial documentation there were many provisions designed to prevent this means so those letters if the date of the sixteenth is accurate little letter little not of been received on the sixteenth that's in all likelihood that's true unless there are some facts we have no evidence of the facsimile copy so we're willing to concede that the receipt of those may have been several days later now one other interesting observation that goes to this this overwhelming factual debate that's at play here is that the california department of insurance impose the condition upon the sale and because it was that imposed condition on sale consummated unless those conditions were met in the event that the adventists defendants received knowledge that the california department of insurance conditional provision had been violated and that the monies used to transaction was impossible it was impossible to undo it and therefore we had to live with the consequences of it and seek the remedies in the form of concepts like fraud and conversion fraudulent conveyance but if you're looking at  exposure in the state of mind in the behaviors in the knowledge in the understanding of the parties i think it's certainly relevant to you to understand that the condition imposed by the department had not been met and therefore the sale cannot  consummated additionally the department impose that condition for the same kinds of thought processes that we might go through if we were looking at this we look at the fact that they had an investment system set up and protocols for how to use the money and manage it and then they gave it away they being the adventists they simply folded on that requirement and they slowly begin to release all of the protections inherent in the original documents through the subsequent amendments those amendments by the way were not disclosed to leaders on the department of insurance who had approved earlier in march the the the california department they'll have that information the california department looks at these fact head into same ones we asked the judge to look at and said resolute has no money it has these assets these cont assets that are highly encumbered it looks like a real estate dealer to me i have a lot of concern about this lake up transaction and this incredible amount of cash that's coming in and i'll tell you what equal before you can do this deal let's be clear that the money cannot come from benefits it's a very unusual provision for a regulatory agency to impose in a transaction like this but the reason it was imposed was because of their sensitivity to the same fact patterns that led them to the conclusion that diamond benefits was ripe for pillaging if the personalities with the wrong personalities and clearly joint health ventures had that information anymore and then subsequently  not soon thereafter became aware of the fact or should have known by the facial evidence of the documents they would see that the monies indeed had come out of diamond in violation of a court order similarly along that continuum home fed was the recipient of the funds on the twenty fourth and continental bank on the sixteenth  then analyzing though for a moment the question of whether or not a special exception does exist strand made a couple of significant misstatements for one he says that of benefits does not challenge the fact that the defense gave valuable consideration acted without bad faith and receiving the funds as categorically untrue i suspect that the fact that three and a half years passed before we argued the motion and he decided it may have may have resulted in some diminish and he says you see it the statute is literal it means it has to be made by the debtor and i'm in benefits although i had knowledge it was their assets that were transferred if this was not a transaction that was made by them  unique procedural history of the case you're honored simply that continental was released from the case fairly early on as a result of what ultimately turned out to be the judge's misapplication of the law related to whether money could be inverted and when our firm got involved which was approximately six or seven years into the litigation we looked at the file and we said there's been a horrible mistake here and we were before this court a few years ago on the issue  and we were able to well we knew there had been a mistake we filed a motion for reconsideration on the issue of the conversion claim which was what the judge had ruled on we made a calculated decision that given the fact that the that the claim was stale in relation to the time the judge was ruled on it and when we were bringing up for reconsideration that was in our best interest not to be reading by not only asking for reconsideration there of the filing a complaint that with him and th add an additional charge so we thought the best interest of the client was to play conservatively to know what we thought was the clear an egregious error on the conversion count the remedy rights would ultimately be saying we were fortunate enough to get the conversion but not in front of us now and in a separate case where they are in front on a consolidated appeal on the conversion plane but only on the conversion claim that if you had ok you're on as i say i have human you may reserve  please the court joel hoxsey on behalf of continental bank as we had advised your courtroom deputy several weeks ago we have a total of twenty minutes there are a number of issues involving the other defendants besides continental the only issue before continental is the conversion issue i will hit the highlights on that although from some of your questions it appears that there may be follow up questions that are more appropriately directed to my  colleagues especially the advent of the defendant the first thing i would like to emphasize is that with respect to the summary judgment record in the appeal involving continental bank the receiver good not dispute any of the statement of facts submitted to the trial court therefore the receiver conceded that continental had entered into this settlement agreement with mr reader to pay off his  million plus dollar loan that was due and payable and in the fall of continental bank there was a specific settlement agreement pursuant to that agreement mr reeder wire transferred eight point seven seven million dollars to continental bank in accordance to the letter with the wiring structure and set forth in that settlement agreement at page seven continental it is undisputed did not know the source of the fun subject to the wire transfer other than the originators of bank was fleet bank in providence rhode island in return for the payment of this loan pursuant to the settlement agreement continental released millions of dollars worth of collateral personal guarantees and gave a full general release in favor of mr reader and his corporations and it was not for several months thereafter that continental was first put on notice of any relationship dealings between mr reader and diamond benefits life insurance company i'd like to start with judge nelson's query of the out the general rule with respect to money and conversion claims and the general rule that one who takes the money in good faith and gives valuable consideration for it is not subject to common law conversion that is the law around the country there is no case law out there to support the notion that arizona has rejected that well settled precept the  facts in the rule fifty six record before your honor's here the cases upon which the receiver relies and there are five of them you have the focal point have all case markel patent chips penske and safeway stores in one of those five cases do you have the elements of receipt in good faith and giving valuable consideration that was certainly not the case in patent even though four of those five cases involve money that was not the case in patent which was the arizona supreme court case in one thousand nine hundred seventy eight where you had the savings and loan thinking in good faith that it could exercise a due on sale clause and therefore thought in good faith it had the legal right to take the plaintiff's two thousand dollar  savings account which had been posted for collateral on which pursuant to the collateral agreement was due to be released back to the borrower after two years after two years they didn't release it their argument  defense of conversion was that they felt that their due on sale clause was enforceable the courts later determined that that was not the law in arizona and therefore they could be held liable for conversion the most important case i believe is the markle case which was handed down in one thousand nine hundred sixty eight by the arizona supreme court in last situation you have trans america title serving as an escrow agent and you had a battle between the first deceit and the second wife of the deceit in the first wife claim that she had a constructive trust interest in the eventual sale proceeds from a piece of real property pursuant to a divorce settlement wife number two had entered into an agreement with the asteroid in claiming that when the land was sold she was intitled to the proceeds the asteroid would have been put on notice by wife number one that she had this constructive trust none the less she allowed the escrow agent allowed the dispersement of the funds to go to wife number two and in that chasing the in the discussion the arizona supreme court cited to pomeroy's work on equity jurisprudence and stated that the in equity the court can reach property beyond the original wrongdoer until there is a good faith purchaser for value it was in the central issue in that case but there was a discussion in reliance on pomeroy more importantly and it did not come up in the receiver's discussion we think the trial court was wrong and determining that diamond benefits had a legal right to immediate possession and control of the funds in the fleet account on august twenty ninth two thousand  literally at the same time within days of when judge duran issued his order granting summary judgment in the case involving the adventists and f b i so the arizona court of appeals handed down the universal marketing case and in that case you had a situation where where the point of universal marketing had really relied on a fellow named wentzell as sort of an informal escrow agent he had a general checking account at bank of america they wired fifty thousand dollars into this fellow's account and the thinking was that eventually when still would help them buy a business and he would inject those fifty thousand dollars into this new business but along comes the bank one judgment creditor to wesel it garnished the funds in the account universal marketing put bank one on noticed that it was really very money they said and when still was merely an escrow agent informally and bank one said we don't care thanks took the money they got sued for conversion they wanted the trial court and it was affirmed by the court of appeals that said in that situation it was a general checking account similar to what we have with the fleet account in that situation the and to tea with the immediate right to the funds was bank of america and not universal marketing and therefore there was no common law conversion benefits and it's completely consistent with the information that came from the party that we negotiated or the home fed negotiated on behalf of reader their attorney changed at us and told the accounting office or home fact that the money would be the source of the money would be a loan from an insurance company we had no notice beyond that there's no question the fact that the home fed acted in complete good faith throughout the entire transaction but with respect to  to inconvenience we would submit that the this court sure the firm not only on the ground relied on by the district court but i'm five alternative grounds and unless the receiver overcomes all six of those grounds time that i have the issue as to who the consideration needs to go to certainly we believe that there are normal and natural reading of the what's called the savings precede that where he deals with a conveyance made by the better without fair consideration so i believe that the court can certainly interpret that statute as allowing consideration to parties other than the  brief that indicates that even if you were to conclude that the exception in one forty four one thousand nine hundred apply and even if you conclude that the the transfer would otherwise be a fraudulent conveyance conveyance market case is that when you are a purchaser or in and of the terms of twenty six thirty six if you're a bonafide holder for value the focus is on whether back and then getting nothing but there is an additional layer because of who these plaintiffs are they are insurance receivers they are appointed by the state court pursuant to state insurance statutes and one of the statutes d in this article now the article doesn't go on to define exactly what a bonafide holder is but there's ample law and again that he cited throughout our brief and even even in the  again on that ground alone it was an alternative ground it was raised below it's fairly presented and supported by the record this court should affirm is there anything about the fact that the money was going to the individual corporate officer who had some kind of duty towards his corporation that did or should have put your client on i want us that it  circumstance i don't believe there's anything suspicious with respect to the transaction involving home federal you have a group of debtors that were in the vault and they negotiated a discount they negotiated soley through the attorney acting on behalf morning given the discussion of this point perhaps the best use of my crimes to talk about exactly what is there is that in the record on the questions that have already surface first of all there is absolutely all so now we're getting back to the question that was there evidence that shows you are not it's ok but now i think there are other questions about whose money this was and so forth i want to get to that in a moment the requirement would be satisfied if your client had notice at the time  really in front of us was not a legal question but the question because i believe there is a good faith element to conversion when you're dealing with money and i think i think the judge grant correctly recognized that but on those facts about is there or is there not a fact issues surrounding good faith there is nothing nothing in the record that indicates that joint health ventures at venice health system were asked or diamond pre sale something let me get it this way that transfer of that money took place on june fifteenth as you seem those two letters are dated june sixteenth there is no indication that those letters were seen on or before june fifteenth so was there a notice after the fact well that's not even clear that those letters were sent and who they went to what address but let's assume that they worse that mr longo didn't get them it's clearly under any deal my position is is that they're good faith is measured at the time of the transfer of the funds and at that time there was no knowledge that's right now let me go through those two letters because there is more to it than those mean after the transaction he is told by others and then mr west make sure that the purchase money was received at our bank in california called the bank in the that we got paid that's what he did he found out that they were paying now mr longo as he testified to absolutely nothing about convictions and where that payment came from knew nothing about laycock knew nothing about the fleet bank knew nothing to the friends actually he had one task and one task only was to find out whether that money went into that account that's what he did well you don't like him but that doesn't make sense to me in a way as to why he would be a c c on this letter that is to say he's a c c a letter between two different people so it doesn't sound as though this letter is a response from from calling him the that would have been in the record and it's not this rebel was asking acting on behalf of christopher and this these are people engaged in criminal activities i don't know what kind of after it's they get but it seems to me two out of nine now how becomes an officer he becomes the president and chairman of the board on the sixteenth so when you talk about the corporate insider or principal making the transaction on fifteen the receipt of the wake up money and the sending that out in the fifteenth they get it on the fourteenth they send it out on the fifteenth it's been done by christopher for christopher he's not dining at that point in time we have the company and he's never been an officer director the most that they could do i realize this is slightly different than it is with the other defendants because all transfers were later and could question posed to him slightly different but what i'm saying is that us when the transfer goes out on the fifteenth christopher is christopher the criminal christopher is not diamond and there's zero evidence of anything conquering the record not but that's not the issue in front of us on this particular point the issue is what did you know or what did your client know or have noticed when that money was transferred and if for example your client knew precisely what you're trying to persuade me otherwise christopher is doing there's an extra legal way he's looting the company and a four million dollars is being paid because mr christopher is behaving illegally well that's conversion so i mean what you're saying now is neither here or there on   resolute submitted to the regulators a financial statement that showed a negative net worth this is this notion that they have no money now what that that financial statements will show that they had a negative network because  did not put on their contingent note given the resolute there were one hundred million dollars they were contingent in the sense that they would be pulled back if the company didn't buy diamond in that narrow sense the accountants say you can't reflect statements they put in and no to the statement that they don't put it in the state that's one thing the regulators look at that and said all right this is not is the resolute has no money they're not behind it in any event resolute had a matter a days before gone out and bought a significantly larger insurance company in rhode island and paid for that so it had purchased a large one the regulators knew substantial net worth so what was resolute to be what were the principles behind it in terms of assets and so forth all of that have been examined by the regulators all of that indicate that they had where with  probably should then have at least the same same degree of suspicion and that's just different knowledge right but there's some reason for concern expressed by california and you know that no no i think what happened there's no way that you knew that california had put that condition reason to know that when we met you know that california has imposed this condition and you know you've got a crook who's one of the purchasers with no reason to suspect us we knew that charles christopher thirteen years earlier was not a crook thirteen years later had been subjected to a wiretap finding of a been found wiretap had been disclosed christopher was not to be the princip of resolute or sale diamond at the time that was disclosed to everybody the arizona regulators the california regulators in us and yet that transaction was approved all the way through now what happened yeah i think it's worth taking a moment to see this because arizona regulators of california prove that and we're going forward with this transaction and everybody we have to understand is this within four days of the closing carlton burke christopher is to be gaiman and is resolute that's the representation everyone ok four days beforehand she is we moved from resolute and christopher comes in and takes over there is no evidence instruction that said send the money to a fleet account my clients knew nothing about the fleet account they knew nothing about late being told send the money to leave account knew nothing about that knew nothing about the account knew nothing about longo it testifies to significant memory lapses and that having really any clear recollection of whether he received the letters or did not receive the letters he couldn't really recall and so on and so forth quite predictable actually since mr longo works  knowledge before of the moment of the transfer well it would begin again with the original development of the purchase and sale and the conditions imposed at that time to ensure the the same tittie in the integrity  that everybody knew were going to be transferred and so there was an investment committee established and certain rules and requirements for how you hold that money because the funds coming in from policyholders is rather sacred it's a trust fund this actually all of those conditions again were given away systematically over the period of time when it was held in escrow those conditions were given away this was the beginning of an acknowledgement that the adventists desire to get out of diamond benefits and and get away that contractual relationship at the time the event is controlled the company and i want to reiterate again also that the conditional approval is one of six conditions the sale hadn't yet occurred at the time of transfer with me it was simply a part of a continuum do you agree or disagree with the assertion that there was no evidence that the defendants knew about specifically about christopher coming in on june town  situation where christopher was this unknown very shadowy figure in the background he was a prominent player and whether or not he was going to be the president of diamond benefits or a major player at the holding company level is almost immaterial they knew that christopher was negotiating the late cut deal very unorthodox situation where you have somebody who you don't know who's involved in some real estate enterprise with this mr reed or you're going to allow them to negotiate reinsurance treating worth twenty eight million dollars significantly dwarfing the size of the business you crescent we have on your books you're going to bind yourself to that obligation on the strength of his negotiation on the terms of that deal and then and you're going to find the company therefore if the deal doesn't go through your stock on june fourteenth i think they clearly not only knew that mr christopher was prominent but they relied upon him and then the goetia of the transaction which by anybody's account was going to result in an enormous infusion of cash for cash strapped company and enormous a fusion of cash that could be used certainly the california department was a possibility by unscrupulous investors in the event that there weren't some protections in place i think one of the fundamental questions you really have to ask in looking at this is this question of kind of good faith behaviors and knowledge and well what can we assume they knew or did not know is why wouldn't the adventists have simply asked the question of whether the conditions have been  gets you well i guess the best way to look at is this your honor if you were to enter into a contract with another party that had terms he would probably want to satisfy yourself that the terms of that contract have been met before you relinquish what it is that you have and that you received what it i get it's just ironic to me that they're selling an insurance company worth tens of millions of dollars with all these but you shared responsibilities and the one thing they did not think to follow up on is this question of whether they were the recipient of funds out of the line and then if it is not just the the the two letters by the way there's also a third instrument which is the bank advice to the senate on june twenty fourth to this west and that clearly has an indication  at the purchase price paid start out of commission and then because of additional amendments ends up just under four million dollars for this company correct that's correct is there any indication in the record that that was a particularly advantages price from the standpoint of adventists well i don't know what i'm after is there some reason why they wouldn't want to have known if there was a problem about where that money was coming from yes the short answer is arizona regulators didn't did approve this transaction they forgot to mention one point which was that the record that they put it on was incomplete it wasn't the same record that california was looking at california had the best perspective of the transaction and they said this scares us a little bit concern to you did you make this argument that summary judgment to judge crandall that there might have been some reason that this purchase price was all of valuing the asset that was being bought and therefore the sellers might have been slightly encouraged not to look too closely at the other mines coming from what we did and quite a bit more than that actually this whole this whole concept of the adventist wanting to get off of this risk get out of this line of business and having this