something new and there's a reason for that the trustees argue vehemently against the high standard in the n b n a case as to when an arbitration request can be denied and  in part the trustee is done that based on the argument that well the n b a in a case involved a situation where the deal was over the case was over it wasn't going to affect anything unlike this case which has huge future implications since this matter was submitted by way of briefs are due for the court to the docket numbers thirteen thousand and three forty five from april twenty eighth thirteen thousand and seven sixty five from july twenty ninth quote when you read the rest of what's in there we are more than half of what there is this group of three hundred forty four that i represent another forty in a similar situation represent more than half of what's being litigated and there are only about thirty or forty claims alleging that compelling arbitration would not see the bankruptcy proceedings because largely watch left as is is your clients it matters for this reason round one as i said the n b n a standards are what i think you need to apply and they are strong they require a particular eyes look particular claims or in this instance defenses because the it's the trustees claim to subordinate we have five defenses assert and you do it on a case by case basis according to your own law in the way it's applied in the courts below it matters here that this bankruptcy is almost over because there are no there are no deal this isn't a reorganization where a chapter eleven reorganization is being delayed this isn't a situation where money's being held up because interim distributions have been made and the lion's share of money has gone out leaving aside that arbitration probably faster and you go back and beginning to litigate because we haven't even begun  discovery but there's a second part of it and why i'm focusing on the m d n a standard and why it shouldn't be disregarded for the reasons the trustee said which are which are in conflict with the idea that this case is almost over the second part of it is in the particularized inquiry here you've got what is in our view i think the trustees you a unique arbitration clause as a matter of first impression you do not have any case before you where the arbitration clause in issue said what we will arbitrate is not everything under this contract or any disputes the parties may have but we will arbitrate the possibility of subordination which means ninety nine and ninety nine percent certainly only bankruptcy is the only case where an arbitration clause is that if we get to this place makes sense that the question of subordination should be decided by finra arbitrators  core yes and the reason is and let and let's go to that because that's you keep speaking over me by the way i'm sorry that's not appropriate go ahead i didn't mean that all that you've done it three times now i just don't understand but with regard to the as i understand but i think your honour's referring to it's the argument that's been discussed in judge ramos's opinion argued by the trustee the subordination in itself is a kind of matter that deserves special treatment and there's a heavy weight against arbitration ordination as one of the key issues in any bankruptcy and isn't an abuse of discretion for the bankruptcy courts decide that that's not a matter that should be decided by finra arbitrator's but it should be decided by the bankruptcy court in the context of the entire proceedings is that an abuse of discretion i'd say it's not even abuse of discretion it's simply wrong and it's for this court to review that to know and here is my understanding of what the arguments are on the point that this is generally it's called a i guess a priority dispute whether it's subordination whether it would be the same whether it was a claim priority issue a secured a secured claim there's a at least as i understand it that argument is made however what the trustee does is act under section five ten a of the code which says if there's contractual subordination that's going to be determined according to be generally a political laws governing contracts of that type there's no unique specific bankruptcy issue so that's one part of the answer in the entire theme v any case the mint's case i think all of the law in this area is whether there is a conflict with bankruptcy code bankruptcy law bankruptcy policy and the district judge here said well five ten is a bankruptcy statute but the statute just refers the decision maker back to general legal principles which here are going to be contractual principles and there's a second point to be made i apologize for speaking  i didn't mean to short amount of time and a lot to cover i really do apologize but it's a in this circumstance i mean the general proposition has been that zero dollars will go to these claimants of their subordination it is the same result as if this was a claim dispute meaning a claim validity where that issue where the trustee was saying we we deny the validity of the contract under which you're seeking to be paid filing a proof of claim now in in the cases they cite in the way they argue it if it's simply a claim dispute meaning of validity of the claim then this  heavy bias if you will for lack of a better word against arbitration they wouldn't argue applies it's only because it's the priority question i'm sorry so you're saying that it was an abuse of discretion and it was abuse of discretion because it was incorrect as a legal matter or just not within the range of permissible decision i'm saying you could decide it's or it is an abuse of discretion but you do not need to apply an abuse of discretion standard because i believe you review that determination the gatekeeper question of whether or not there's a severe conflict with bankruptcy lawyer i believe you've reviewed excuse me you review that to note and i say that for the following reasons the us alliance case i can see some language in there that would lead one to a different conclusion if you look at the more recent n b n a case from this court and the way it's applied in the district courts and in the in the in the bankruptcy courts up the question of whether there is a severe conflict with bankruptcy the analysis of the conflict even though this has to subordination in priority which is at the essence of the bankruptcy courts function there is no severe conflict because the determinations that have to be made by an arbitrator by a court by anyone here are all matters of nothing having to do with the question of bankruptcy qua bankruptcy law there is no question that that is going to be decided that is interpreted in the code in forcing or of court jim fitzpatrick for the lehman trustee first your honour's if i could address the issue with the trustees recent report noting that the bankruptcy liquidation is nearing its completion that's very different from the situation in the a case in the n b n a case the bankruptcy was concluded and the court made the finding that in fact the the underlying dispute was it was a purported class action brought by the debtor if the debtor were to recover those funds would not even have come into the estate and so is this court correctly noted that had essentially no connection to the underlying bankruptcy and therefore arbitration was appropriate here the issue of whether or not these claims are subordinated does affect the entire estate and in fact affects the rights of all of the other creditors to receive a distribution prior to any subordinated creditors so the issue here while it is true that as a chronological matter we are hopefully nearing the end of the day at the end of the liquidation the situation very different from m b i a because the entire state is in fact affected by a ruling on subordination of mr fitzpatrick if subordination is the basis of the conflict is there really a bright line rule in your view that when there is  either a bankruptcy and subordination is that issue in the context of arbiter ability that there's just a bright line rule that one will not allow the the arbitration to proceed or is it a test that has to do with size word severe conflict she recognized certainly a conflict and recited several bases for that but do you believe that she appropriately applied the standard of severe conflict yes yes your honor so to address your questions in order first of all on the question of whether there's a bright line and candidly thought a lot about that i think i've i don't think i want to say the words bright line because this court in n b n a has clearly said it's a case by case analysis but when you have an issue like subordination including contractual subordination as this court specifically addressed in the best products case in the context of contractual subordination under five ten and called it an integral and historic bankruptcy function set it's hard to imagine a function more at the heart of the bankruptcy code whether it's a bright line or not i can't i actually can't imagine a situation in which a subordinate should subordination issue like this would be appropriately sent to arbitration it's possible that there's a fact pattern i'm not imagining but i certainly do think that under this court's precedent in best products of five ten a dispute doesn't belong in arbitration and of course as the lower courts noted that's only one issue there's also the issue of the identity of the debtor and the effect of a rejected executor or a contract which also way further would submit in favor of bankruptcy court and ultimately district court and potentially second circuit adjudication rather than arbitration your honor with respect to the second your honor second question i do believe the bankruptcy  court despite not using the term severe i i confess i hadn't noticed that i'll take your eyes word for it without reviewing the appendix but without using that word i think the essence of the court's determination was very clear that her honor was considering this is severe conflict  that she noted in fact the best products case and just how very central issues of subordination are to the code and made the finding that sending that issue as well as identity of the debtor and executive order contract issues which she stated  in this case is one of congressional intent and i think the supreme court made that clear in this year's inverses mcmahon case where it noted of course the federal arbitration acts mandate in favor of arbitration but also noted that that can be overridden by a contrary congressional command and noted that congress is intent can take the form of an inherent conflict between arbitration and the statutes underlying purpose the reason i highlight that it's an issue of congressional intent is first to respond to this issue that there was a lot of a lot of briefing on about the purported narrowness of the arbitration clause at issue or the narrow to be tailored nature of the arbitration clause i would note as a as an initial matter that we don't agree with that interpretation of the arbitration clause i actually think it's better read to apply to all of section nine which is titled subordination provisions many of which deal with the operations of an ongoing broker dealer a non insolvent broker dealer and and the a political entity of securities regulations to that which it would make sense arbitrate for and for an operating broker dealer by then the new york stock exchange now finra so i think the arbitration clause is broader than that but again more to the point it really doesn't matter how much the parties want to arbitrate or how badly they want to arbitrate even if it was just in the interest of the bankruptcy because the parties intent doesn't matter here other than for the threshold determination that the arbitration clause applies which we don't dispute but beyond that the issue of whether the arbitration acts mandate overridden here is an issue of congressional intent between the federal arbitration act and the code and as to whether or not that congressional intent is present this court has also already addressed that issue in the u s line's decision and has held that in bankruptcy setting congressional intent to permit a bankruptcy court to enjoin arbitration is sufficiently clear to override even international arbitration agreements where the policy it's not disputed the policy in favor of arbitration is even greater than it is here with a domestic a rbitration agreement nonetheless this court has held that congressional intent is there to allow bankruptcy courts to enjoin arbitration the fourth circuit in the white mountain case has similar language congress intended sent to centralize disputes about a debtor's assets and legal obligations in the bankruptcy courts arbitration is inconsistent with centralized decision making because permitting an arbitrator to decide a core issue would make better creditor rights contingent upon an arbitrator ruling rather than the ruling of the bankruptcy judge assigned to hear the debtors case but doesn't that argument actually suggest that whenever you've got a conflict between the f a a and the bankruptcy code the bankruptcy code will always win and in fact the law has developed differently first to look to see if there's a conflict between the two and even in the event of a conflict you have to ask the second question which is is that conflict severe so otherwise it would be the case going back to our earlier question of subordination there'd be a bright line rule but similarly even putting aside subordination one of the points that the bankruptcy court raised below and focused so much upon was priority and priority is  the central aspect of any bankruptcy proceeding particularly liquidation and as a result one would think that relying upon priority alone would not get you to the level of a severe conflict yes yes yes so first of all if if if the decisions hadn't gone any further than what i just read sure they would they would suggest that but of course this court's precedent does make clear that the question then becomes ok there's congress congress intent is there to allow the bankruptcy court to enjoin arbitration but when when is that done and it's clear that this court has applied a two part test for that the first part is whether the matter is core in the second is whether or not there's a severe conflict and here as we've laid out in the briefing as both courts we'd submit correctly there's no question that the matters are core the issue of subordination the issue of the identity of the debtor and the effect of rejection of an executive or a contract but similarly sending those matters to an arbitrator would present a severe conflict with the purposes of the bankruptcy code because for one reason as the bankruptcy court focused on below congress has decreed that differently situated creditors be treated differently and that's a core function of the bankruptcy code a bankruptcy court to make that determination section five zero seven lays out the priority of claims five ten a makes contractual subordination enforceable in bankruptcy there's a statute that requires the trustee to take that into account when making the determination so we'd submit those those code sections all make clear that congress intended issues like this that are again as this court of hell has held that historic and integrity bankruptcy court functions to be determined by the bankruptcy court and not an arbitrator and that that would be a severe conflict to send it anywhere else and circle circling back to something that mr scroller was saying and that you lead off with which is the current state of play one thing that the bankruptcy court really focused on also was the complexity of the action and the six years that the estate actually the proceeding had been underway to what extent are those concerns now lessened i don't think they are lessened your hon because when you have an issue like subordination what you're really addressing again is the is the right of all other general creditors who are not subordinated to receive distribution in full to the extent possible before any of the subordinated creditors receive  distribution and the general the general estate is still open and there are still many thousands of general creditors whose this is who this issue will affect and so you know while well again we are optimistic that we are moving toward the end of the liquidation that that require a determination of a bankruptcy code provision or a bankruptcy law principle or and they the province of bankruptcy but let me try to go through them quickly it's only a few minutes first set forth in your answer they are all set forth in the briefs but one of them a couple of them to serve some special attention that there are provisions in the contract that say lehman had to right the ship is as we've put it in a different sort of papers to  one fifty seven motion that if the net capital requirements as dictated by the f c c are breached lehman had to take certain actions that would protect our clients now the valukas report which i hope none of you ever have to read for your sanity's sake as long and complex as it is makes a strong case that these new capital requirements were breached daily and as a consequence there would be a material breach that's a determination that has nothing to do with bankruptcy law that's an interpretation of the contract and it's a huge issue the second issue is the one that's gotten so much attention is the in the use of the word advisedly in certain places successor in the party's contract the use of the word successor as we argue it does not apply it requires the conclusion that if there is a corporate successor under new york state law to shearson lehman the party that made the hundred five the subordination provisions don't reach any future iterations of the company now the bankruptcy judge said after in the decision from the bench that's going to make me decide the identity debtor and i'm sorry but that is just not the case there's no question who the identity of the debtor is the identity of the debtor is the lehman brothers inc there's no issue about that the issue that's presented is a contract interpretation question within the four four corners of that one thousand nine hundred five agreement what did those parties do to say or not say if i'm wrong this subordination clause has limits it doesn't affect anything else in the bankruptcy it doesn't affect anything about what's been done in the last eight years in the bankruptcy it's simply determining what did the parties intend to be the reach of the subordination clause and that's a matter of contract law the courts in looking at your answer on looking at the appendix page eight fifty six and your second defense really focuses on this issue but it really digs down into whether or not there's a material difference between shearson and the current entity which strikes me as precisely within the four corners of identifying the debtor to the extent that any of the debts would preceded the current entity it's not a den of find the debtor it's identifying for the purposes of the subordination clause whether or it's assessing whether there are three lines of cases in new york the deal with the concept of corporate successorship none of them mean it's a different corporate entity for purposes of the debtor in the context of this bankruptcy that there is a successor is a term of art and as it's used in those each of those three lines of cases and i think we would prevail under age it is simply a determination of whether or not there was a substantial enough change in the constitution of the debtor in one sense or another a dispute between the parties for these purposes whether shearson and l b i or the same entity whether they are the same entity or for what purpose subordinate for purposes of the contractual subordination clause yes but only for that purpose in any re other respect resolved in the bankruptcy proceeding it should not because a court or an arbitrator deciding that issue is going to be looking to the question of what does the word successor mean under new york state law there's no bankruptcy principle involved in that it doesn't implicate other broader issues there are there are a horde of other creditors here or potential creditors saying my rights of change because of this it's a referral it's entirely peripheral to the bankruptcy which is almost concluded it is a contract question it is what was the extent of what those