good morning your honor as i have two clients in this case would lark u t s a apartments l l c an asset manager for the preserve apartments in san antonio that client was sued for bre else the bankruptcy court granted relief against both of my clients despite the fact that no relief was ever sought against u t s a apartments  we believe that both of the bankruptcy courts judgments are flawed and should be reversed like to start with my first client u t s a apartments if a twenty one point one seven percent undivided interest in the reserve this was a property that was own and through a tenants in common structure as a way to get tax benefits it ends up owning twenty one percent ends up that started with one point nine seven an additional nineteen point two percent from entities that were not part of the bankruptcy proceedings and so at the time the property was sold in the time came to distribute the  its interest was twenty one point seventeen and the debtors do not dispute that how did a part of those other interest you know quire them through negotiations with the non debtor parties and there were de sell yes they were right acquired over a period from november of two thousand and fifteen to february of twenty sixteen so i would agree that three months is a relatively short period of time the tenants in common were in default other obligations to repay money advance by would lark they were in default on their payment the performance level at the time of the entire complex i'm number of notices for performance under the agreements governing the transactions and finally they escalated to the point where they initiated the call process under the declaration of call agreement that to the other tenants in common and therefore it could not have breached that duty at the bankruptcy court did find that would lark reached its fiduciary duty by the way that it handled the call process to would lark and also indemnifying against the claims of the secured lender at the time that these transactions were done there was no contract for sale the property out there and there was a risk to the tenants in common that they could be pursued for a deficiency on the note of things that are coming from the briefing is that they're not part of the nonperformance of done at the request of the tenants in common there was quite a bit of testimony as to what did with when when did they know it because apparently what happened was the attorney retained by the tenants in common had negotiated a settlement in a mediation a year earlier and it was not until october of two thousand and fifteen after they had obtained an engagement agreement signed by that they suddenly said good news we have a settlement from last year and then the money actually came in in january of two thousand and sixteen after the bankruptcies had been filed however that money in the amount of about two hundred fifty thousand dollars would not have had a material impact on the calls that were being made there were three calls made one for forty five thousand dollars one for i believe about three hundred  fifty thousand dollars and then a third larger one what would have happened is if the tax money had come in sooner the first call would not have been necessary the second call would have been reduced in the third one would have been unaffected however had these monies not come in during the bankruptcy there would have been greater shortfalls during the pendency of the bankruptcy and would lark would have had a larger administrative climb with  cannot circumstance that the initial problem was that the tenants in common requested that they bring in an independent property manager to take over from what clark and would lark agreed to that would question that property manager ran the property into the ground did not adequately maintain it paid its off its management fees at a time when the it was not paying vendor debt in so they were not able to recover from that but even under the prior manager their budgets were saying this property is not going to be able to cash flow which is why i would lark started meeting that with the tenants in common to come up with a plan to solve this cashflow problem in the fall of twenty sorting the when the property was still under the prior management in general and i know there is more testimony in the record it's not coming to me immediately but the bank the important thing is the bankruptcy judge did not file and that would lark triggered cash flow problem and in fact the cash flow shortages started when with mark was not the property manager and i thought that was sort of the narrative that was urged but that the bankruptcy  accept that ultimately the bankruptcy court you know with reference to the whole picture and your client's repeated resistance to hire buyers the thirty million plus folks he he said errors seemed to imply going to this ownership interest question and three sixty three sixty three sixty three j yes he is view i thought was it's a similar corporate structure and by not seeking these tax refunds there should never have been a call in the first place all the tenants in common were in this group that were sort of alarmed falsely and and on top of that then the none of the tenants in common  told that the appraiser that says it's worth twenty eight million is actually an interested buyer and from that sort of constellation he says especially if you u t s a didn't even sign the call agreement they couldn't have acquired the ownership interest at all right isn't that the logic and therefore give us an equitable remedy exists to treat them similarly as alter egos and they don't get that twenty one percent except that  against somebody who has not been sued and i understood that from your briefings that's the essence of your argument to us there's a reversible error is that the pretty there was a procedural defect so what's the remedy  remedy is that you must follow the clear dictates of section three sixty three j and make distribution according to the interest that u t s a held at the time that the sale occurred which is twenty one point one seven percent not three point one four percent now going back to your question and just your best authority for that because that is a question i always as yes as your best authority offer says siegel the supreme court decision in two thousand and fourteen that sa that a court cannot use an equitable remedy to override a mandate of the bankruptcy code and we determine ownership as well as interests as of what point as of the time that the funds are to be distributed because section three sixty three j says upon a sale taking place the trustee shall distribute the funds to the estate into the non debtor parties according to their interests date of filing a petition is irrelevant it is your honor because the only relevance that it has is that if there were not co owners on the date of the petition you could not resort to section three i do want to go back to your comment on the bankruptcy courts find it because the bankruptcy courts and the calls would not have been necessary is wrong as a matter of math there were eight hundred thousand dollars in calls there were two hundred fifty thousand dollars of tax refunds and the tax refunds would not have eliminated the necessity for the car is that essential to your  rebuts that point further with the fact you know the alleged non disclosure that the appraisal was prepared by a third party the package that was sent to all of the tenants in common in connection with with the actual appraisal so they could read it for themselves they could get their own to price all they could contest it they had any number of avenues available to them but what they chose to do was to file bankruptcy and get the benefit of the automatic injunction and get the ability to sell the property without the joinder of all of the owners and in that way they were able to put off having to pay the  arisen over a period of time and really with u t s a which is where i've spent most of my time it's a matter of number one the bankruptcy  says they get the money as their interest it existed number two they were there was a violation of due process because there was never any suit brought against them seeking to disallow their interest but whether an attempt to bring them into the into the suit yes that was the fourth amended complaint which it was not by the by the bankruptcy court yes ok so if if we weren't a rule in your favor you're saying we would render what we could could we or would we possibly also on the terms of send it back to the to the bankruptcy court to grant that amendment and review to the matter again no i believe that having gone through the trial the bankruptcy court ruled that the amendment was untimely and that bringing in new parties at such a late date would be prejudicial and so i believe that the only course is to reverse to be prejudicial this took place after the deadline for amending pleadings had expired after the carry it for discovery had expired and a court i'm sorry and together with mr gregg who's here in the courtroom today and mr terry who was not able to be here today we represent the one thousand apple least in this appeal i listened carefully to the court's questions and response to mr safe in his argument and i agree with the court that this is a case where the bankruptcy court was focused primarily as as a starting point at least on the breaches of fiduciary duty committed by i would lark that was serving as both the property manager and the asset manager and the handling of the reserve which was the property at interest and of the property that my client's own tendency and common interests and there were multiple and to fully and accurately inform the principals including my clients of important matters including out limitation the fact that the note thirty note was in the fault this is something that came to the attention of the debtor ticks much to their surprise and alarm they refused to allow the debtor ticks to examine the books or to conduct an audit even though the documents said that that was their right to do that they would mark said without a court order you're not going to get an audit they will tell you that that's because that it was inconvenient blah blah blah but them or their reality was the relationship between the tics and would lark was contentious and adversarial almost from the very beginning there was at the same time  dynamic going on in which would lark and his sister company u t s a both of which were owned by the same man mr rosenbloom we're trying to be as it appears anyway looking at the record and the event in retrospect trying to set this situation up so that the value of the reserve would be driven into the ground the value of the ticks investment would be so severely depreciated that they would either want out or that they would need to get out of the investment and then at that point time u t s a and would lark could do whatever and  this is what they attempted to do whatever they could do to get those interest back and not have to pay for them other bridges a fiduciary duty and this goes to the issue of economy seems to have gone down and and would lock by virtue of having u t s a did have almost a veto they could steinman your clients and then therefore arguably runs into the fiduciary duty breaches but that none of that gets me to how can you t s a be disgorged of ownership interest today that choir's from parties that gave over their their interests that's the sort of the hardest question and i think them starting point there is it first of all that u t s a was not discord of ownership interest it's important to note that at the time of the petition day which is the relevant data under that day or we ascertain the interests you know the ownership interests as we would see him out it would make sense to me that we would figure out who are the owners as of that date but it wouldn't necessarily mean that others couldn't see their ownership to u t s a later all the way up until the sale right for purposes of determining if i can other section three sixty three jay does not specify the date as in which a kona co owners interest in property is determined section three sixty three eight guys is to look to petition day but why would that just be to it so we know the full array of owners rather than deciding whether it's three percent or twenty one percent i mean they do arm's length negotiations and the others that were in arbitration made that route they kept on the petition date t s a on one point nine seven percent right when it was time to pay on the note and do other things as i was content to have one point nine seven percent when there was some thought that they could cash in on a larger interest and following all of the demands that were made for the calls that were made u t s a decided it would be beneficial to try to gather up for virtually nothing of the interest of owners who didn't want to fight unlike the debtor techs didn't want to fight more part of the state court litigation and so on  day because it had already been sold to eris all of the interests in the reserves have carried humans pardon me know my up my argument is this that the bankruptcy court did not take you to usas property did not settle up with you to say right how much of the money went to the debtor tax and then this category of nineteen point nine team percent as well as to u t s a so u t s a in the end ended up with three point one four percent of the proceeds of the proceeds the bankruptcy court was making and in ram decision regarding how to distribute sale proceeds that were property of the bankruptcy estate as it was within its exclusive and ram jurisdiction to make those sorts of determinations forfeit all of its fees except for those things that it actually advanced by way of cash advances to help the reserve and in addition its affiliate u is not going to be able to benefit from this gathering up of all these interests at the last minute which would not have happened but for what larks breaches of fiduciary duty did you seek a construct of trust seeking to be paid it wanted to be paid to any one point whatever it was percent it wanted to benefit fully from these interests that it acquired  that question i think that it was  fiduciary duty but for the seriously flawed and one could easily believe deliberately seriously flawed suffer not c b r e appraisal that fail to take into consideration all manner of details and facts that would have changed a twenty eight point one appraisal less than zero appraisal to something much more realistic that w afforded the techs some return on their investments that's really you know the threat to exercise the power of attorney and take their property without any more ado all of these things that were being done the tactics that were being engaged in by word lark and u t s and make no mistake they were in lockstep is sort of hard we can talk about them technically being legally separate entities and and in many respects they are in an important respects they were treated as legally separate entities but when push came to shove harold rosen was in charge of u t s a and harold rosenblum was in charge of wood larkin there's no way that he couldn't have known both instances what the what was actually going on it was like i mean to justify a constructive or trust that was never requested against a party that was never named your theory is that there had court action the bankruptcy there were removed all of the state court action to the bankruptcy court the entire sale process in which there were multiple offers to purchase the property for sums well in excess of the set in motion all of these consequences one of the things that was a consequence of happened but for would larks breaches of fiduciary duty and what judge king is saying is a you cannot come in here u t s a because and use the the declaration of as a way to gather up all these properties which you shouldn't have been able to gather up as you did in the first place because you were never a signatory to that to that document you're not going to be able to do that and also you're not going to benefit from your affiliates breach of recovered and equitably distributed not recovered but that transaction essence is going to be set aside or is going to be disregarded and the proposed proceeds will now be distributed to the debtor tax  and the non that are techs who receive some distributions prior to that i don't see what i wouldn't go all the way back to them i don't see why that your clients would get any of that money was never their ownership interest i'm sorry why even if you theory had a legal basis and even if you t s a had been on notice they could defend against this theory why would any of this nineteen percent go pro rata why wouldn't it all go back to the parties that gave up and gave it to them that are here in this case parties saddled with u t s right but on your theory what's the what's the logic that it would go to your clients that that that that money that was the product of the and and therefore what are we going to do with it we're going to distribute it equally or a pro rata and u t s a will get some portion of that along with the techs who remain  involved and that was the backseat courts equitable distribution it was not made under one hundred five of the one five case law is not relevant this is not contrary using one of five to circumvent other  provisions of the bankruptcy code this is an equitable remedy that is available under texas law when there is a breach of fiduciary duty and under the circumstances that transaction leads to would block not u t s a even though we say they're the same owner and yet u t s a was not given an opportunity to at least respond because they were not allowed into the proceedings should may have at least had an opportunity to respond to this there even if it's a good theory and it's it's correct they were given an opportunity to even participate in the proceedings  i'm happy to have connections with the person that controls the lights so i would like to answer your question if i may all of these cases were tried together in a single trial under the adversary rules the counsel for u t s a represented would lark as well it's not a question that they didn't have an opportunity to respond is not a question that if they were protected by the at all try to peace and long before the trial there was an agreement that the bankruptcy judge would make the determination of how to distribute the sale proceeds so all of that was on the table this this is really not and would lark acting as would lark under the name what mark there are also all kinds of agreements that that these determinations would be made by the bankruptcy court following the trials and i'm way past my time thank you murray stated that the whole chain of events was set in motion by would larkspur reach a fiduciary duty but that's not true the chain of events was set in motion by the tenants in common failure to fund the operating expenses of the reserve which would lark then advanced as allowed under the agreement and which judge king found or necessary amounts for the operation of the property which benefited the property these were sophisticated investors who were taking advantage of a tax incentivised ownership structure and the owners that testified said that they knew that failure to respond to cash calls could result in the loss of their interests no i didn't want to come back to one thing on the bridge for the sherry beauty because there are two things that the bankruptcy court found that constituted a breach of fiduciary duty first was not getting the at the lower income tax refunds faster and the evidence showed that would lark got them as soon as they became aware of them after the lawyer that was handling it signed client so that their fee would be protected as to the appraisal there is there are a number of findings by the bankruptcy court as to how the appraisal was flawed and m said that this uprising was so bad that would lark must have you wanted to use it to drive out the tenants in common there are two problems with this what is the appraisal was consistent with other valu purchase the property for twenty nine million dollars in so with our could not look at a third party appraisal for twenty eight point one billion dollars and say this is so shocking that it must be wrong  now the bankruptcy court erred when it made findings that the a price of was flawed there was no expert testimony provided that the appraisal was wrong or how the appraisal would have and that is the result of the tenants in common having a year in bankruptcy to market the property and to improve the value and that is the thing is the found that in that time your clients kept opposing the hire offers the bankruptcy court did find that but that's not exactly correct but all of these points where you're saying not exactly correct these are findings we would have to conclude are clearly erroneous are these arguments of yours necessary for you to prevail i don't think so i mean i think the point is the bankruptcy court made findings as to in a price on without any competent testimony there was nothing to support those findings now as far as the what the i believe what the bankruptcy court specifically testified was that b ankruptcy court to testify specifically found was that would lark was not much help in the sales process we disagreed with that but the problem that came up was there was one  initial party that would lark had bad experience with and had a history of free trading deals and so with lark objected to that sale and when a real purchaser the one that actually consummated the transaction for more money heiress i came on board with darkseid bright we wanted all we wanted to save real sale not a pretend one i had just one question legally as to the bankruptcy court's authority to to reduce the twenty one percent opposing counsel cited as your best case to morocco decision could you respond to that yes the decision is not on point it refers to determining it as of the petition date however that was not material to the court's decision instead you look at section three sixty three just a which says that the distribution should be made after a sale and i rely on the bankruptcy code as my best