good morning good morning to you i just want to say one thing you look great out there case and we will get to work the case is sixteen nineteen sixteen and sixteen eighteen ninety six greta purses at c stone hello c and misty may it please the court both the united states supreme court and this court have repeatedly held that in order that was incorrectly decided does not make that order for a day or rob the order of it cannot appeal it therefore even though this court held in the first appeal in this case that the bankruptcy court did not correctly decide the october twenty eighth order because as the stone did not appeal the october twenty eighth two thousand and eight order that order was entitle to preclude that effect in the state was there any indication in the prior appeal that you were preserving this defense your honor we preserved it in the tropics in the appeal was there any indication out i understand your arguments can you point us to any cases were a court has applied collateral stoppel when the defense was raised after the court had already declared the question to have been wrongly decided yes your honor united states student aid fund versus s and those are they are the core applied collateral stuff all even though all the confirmation a rule which we relied upon in preparing our briefs as set forth in the door system's case and frankly walker is that an ample lady does not need to raise alternative arguments on appeal and the reason for that is that you don't want to unnecessarily complicate appeals there were lots of issues in the last appeal the judge had held that the bankruptcy judge had not abused his discretion and he looked into the october twenty eighth order to interpret the aug twentieth order so he really was a strategic misjudgment your honor i mean under the rule that the court is advocating that certain types of issues if raised alternatively must be raised by the athlete would create or were no one would risk not raising everything and then you would have every alternative argument that was ever made any time during the case complicating the brief of the apple only just to make certain that if there was an error it would be you know preserved and would be presented in that  his subjective intentions with respect to the august twenty fourth or is a shorter and i guess i'm interested in knowing whether there are comparable examples of collateral estoppel being applied to a judge's subjective intentions about whether he intended to do what his order actually d this wasn't using there wasn't a motion that was filed that sought rule sixty relief either through vacation or clarification of the or the judge entered a written order incorporating his decision after extensive briefing i statements were in essence to the effect that that's not what i meant to write well and it's not as though there was an end of any ambiguity he was clarifying in the language he was trying to add a new qualification a limitation on it and if that i did not intend to preclude in the order of august twenty eighth of claims of your section five forty nine so i think what he was saying as i read his comments based on the briefing and the rest as he was saying the parties were briefing paragraph three of that water as they did in the first appeal and they were arguing that if the stone side of the case that one group that that particular provision provided that they were allowed to make this defense in the five forty nine action and he was saying i didn't intend in this language to do this and think back to how that order came to be  suppliers told the parties i am not going to foreclose litigation the parties went out into the hallway including of systems lawyers they drafted open water i doubt they thought about the with respects in the commas and all the rest of it they handed it to the judge he understood they were there were no one was misled it's not like the mendez case that was cited in your honour's first decision where you have a third party who wasn't in core a bank who's being faced with a conditional judgement for a hearing they didn't hear and wouldn't have known if the mistake and then that they litigate they turn course on the at and they come in and they say what you told us you were doing what we drafted an order to do it really didn't mean that and he says that's not what i intended here and we the accepted that is not an abuse of discretion and we went with that issue and how we resolve the case because it's an ample only we were dealing with multiple different issues raised we didn't have the space in the brief to raise every alternative argument and we thought the customer assets and that he didn't review or rely on on sentinels customer ledger doesn't that mean that the analysis that was  did is he testified that it was essentially impossible based upon the sets of books that that sentinel kept the way that it moved funds of around the way that the clearing account works where pretty much every dollar that went in that was where bony took the bank of new york took its money out to be paid on its loan went elsewhere rather than the purchase of securities that it was impossible to segregate in an episode of proof issue that they raised we think for the first time in this reply brief in this court the case they cite the tribe river case of what is a stablished under five forty one in five forty one d is once the trustee shows which we did that this account was titled and sentinels possession sentinel had legal title to it it was their burden of proof and that's the case they cited their burden of proof to prove by the preponderance of the evidence well that they had to trust is it true that james feltman did not even attempt to trace customer access he what he testified he is it's a true he didn't trace customer assets because one couldn't trace customer assets and he testified as to why mccluskey's analysis wasn't a tracing either she didn't do it either as she testified at page eleven forty four of the transcript when talking about what mr feltman did she said of course he didn't trace f c stone's money to a particular asset because that couldn't be done what she did is she said did these securities at the end when the music stopped after they had been moved around to being the bank's collateral said three fund everyplace else in the world she said these accounts were in an account called the sec one account she didn't trace either no one did it's his desk a deposition testimony in the record anywhere i don't know if it was designated into the record because neither party has tendered it to us i ike ike could not find it and i mean he testified at trial so i don't know that it would have been part of is do we have any indication as to whether the so called save three customers could have asserted the kinds of claims and sought the sort of reserves that the say one customer sign well there wasn't anything left for them  i'm here is what i'm concerned about i'm troubled by the idea that these statutory trusts could be defeated for the benefit of secured lenders like the bank of new york  and save three customers in essence should have assets that are on nominally under the control of sentinel as a trustee be treated not as a property of the estate but as a collective set of assets that should go first to the say one in say three customers under the statutory trust round yes provides for it doesn't distinguish between how you get to your trust claim and the bankruptcy code doesn't distinguish as to how you get to your trust claim essentially what  use those rules here and so because this was a chapter eleven case and judge they all said it would have been an f c in chapter seven anyway if anything it would have been under the f c c rules and then the six three parties could have argued that they were superior because you're under the bankruptcy rules we're stuck with the priorities that are provided for in seven twenty six which would put them as unsecured creditors with the other creditors now the other unsecured creditors besides boni are de minimus their utilities are very small that they should be we can't because this court has ruled in this court decides me others so am i but they're really arguing is for you for this court to rewrite the statute and if congress wanted to do that it could have put in the cea or in the i it could have put in the bankruptcy code a rule that says whenever there is a developed nation of customer property there is a floating lien on every asset of the party that does that even in a bankruptcy proceeding and they didn't do that judge they call correctly held the lien the trust the right to segregation and it's not really a trust it's a segregation right it provides that it only to the customer's property so subtly what they're saying is they should have a lien on someone else as a trust interest on someone else's property in ca says one particular customer has no interest in any other customers property or in the house has no interest in it and so he would be creating something that jail the money is going to all of the victims and that's what powers you don't it's going to the other creditors who were in a better position to be able to protect themselves for example if you're lending money to a trustee so lady like sentinel plan provides everyone is an unsecured creditor including them i mean they talk a lot about the plan because of how the first decision came down but the plan very clearly puts all of the sec one  six three and sec for customers in the same class as this court noted in its first decision it treats them all as unsecured creditors and it sets up a dispute where the trustee really acting for the other victims here or the said for my colleagues which is the sort of language in section seven point two zero see i understand how the court might award customer property to its rightful owners what do you i think the provision means where it says the court seems to be able to award customer property to be a state i think that that provision because of the way that it was more did with the two determinations that the court needs to make that it allowed the bankruptcy court of the district court judge who was sitting basically as the bankruptcy judge and in connection with that particular issue to make a determination that it was appropriate to on later today on property wh i think to get to inequality of distribution even though as a result of bank of new york we've now been able to make you know a fifty nine percent distribution to the said threes the said one customers still have received seventy one percent seventy percent sixty nine percent kind of depends on where they were in the various sags so there is still a disparity there and that disparity i think if you applied your equitable rule you would even out that disparity that's what happens in receivership cases the uber case for example the rising tide method you equalized everybody to the same point so if you were going to fashion a new apple without regard to the confirmation order we would suggest that what the district court judge did hear with that language was to essentially provide for some further equality oh sounds like awarding some customer property to other customers beauteous state but essentially that's what they've already gotten because it wasn't their property to begin with there's no question that this was all coming along it wasn't traced and they already walked away with a seventy percent distribution of money that should have earned everyone i have one more question and i will give you the republic time and i will certainly customers asked recorded on its customer ledger was as you put it essentially meaningless it was meaningless your honor  evidence would be the various business records that were in the exhibit at trial it was the testimony of mr felton and it was the testimony of that the two business folks that worked on how they allocated the securities every night they essentially put things on one list but then they had to move things around to deal with the bank of new york and its demands for collateral ok so will made the transfer of property a state after the commencement of the bankruptcy case the second is that the transfer was not authorized by the bankruptcy code or the bankruptcy court the second element authorization he said issue in the trustees appeal here and the rest let me just i want to get something out of the way because it seems in the brief that as so you're arguing of it least unsecured creditors giving them priority in bankruptcy proceedings is this what you are arguing correct the second part of that opinion addressing count three which is essentially the deck action by the trustee concerning the reserves that was dicta yes because this court had already held with respect to in fact the court actually said that in spain you'd already healthy respect to count one that the that the transfer was authorized it didn't need to get to the second element which is property state and way back to time council on which use of the trustees appeal the resolution of that appeal it should be straightforward the court has already held for f c stone on count one it held that the trustee cannot bring a post petition avoidance cl because the bankruptcy court had authorised the post petition transfer in the case law in that area it's well established under the mandate role a lower court must sit here to a higher courts commands on remit and any issue conclusively decided on the first relevant issue here is whether the post petition transfer was authorized and all you have to do is look at how the trustee is framing the issue to determine that's correct the trustee is essentially arguing that the bankruptcy court did not authorize the post petition transfer because the backups the court clarified its order authorizing the post petition transfer one year later by it's october twenty eighth order and it's that october twenty eighth order which is subsequent that orders entitle to collateral effect well the problem with this argument is that this court has already conclusively decided the authorization issue in s c stones favor the starting point there is a last line of this court's opinion that line states the judgment of the district court it's reversed in the cases remain handed to the district court for further proceedings consistent with this opinion so the relevant inquiry becomes what further proceedings consistent with this opinion relating to authorisation  were contained in that seat in the first f c stone appellate decision well the review of the attending establishes that this court could not have been any more clear on the issue in fact it stated as holding on four separate occasions i'm not going read all phone but i'll go through to the first one on page shot two forty five of the published opinion the post petition transfer of three hundred million was authorized by the back of c court that authorization beings at the post petition transfer cannot be avoided and the express terms of eleven u s c section five forty nine act repeated that this court repeated that same holding later on page two hundred five then on page two fifty five and then finally on page two fifty eight for the final and for time the score stated we conclude then that the bankruptcy court authorized the post petition transfer within the meeting of eleven u s c section five forty nine the trustee therefore cannot avoid the transfer this court cannot have been any more explicit the post petition transfer was authorized and that lutes short on cash for its customers and creditors the bankruptcy court had to make that decision under extraordinary pressure i've read those transcripts as well i don't know i don't remember whether you were there were some of your your your colleagues and that that decision had to be made very fast with huge consequences should what if what if the court had said wait a minute i need of a couple of days to think about that and then to see stone and other companies would have been shorting your own customers right made that point that it was a no brainer if the authorization order had not been entered numerous f c m's would have failed and that could i had fixed extreme and significant collateral damage to the markets on the whole on page fifty two of your brief you say the following the c f t c is made clear that any securities that are maintained in a customer segregated account the property of future customers what does it mean for funds that to be maintained in a customer account how long do they have to have been segregated for this presumption to apply they don't have to be segregated for any amount of time is the point and in time when the analysis is done if they're in that account at that point in time they are presumptively cea trust assets and as the  position and that's the position that the just record should have adopted if it would have adopted its presumption that it said it would of been the first opinion and if we accept your argument that funds should be presumed to belong to segment one customers how do you think that  trust at ca trust assets so council suppose the bankruptcy filing had come a couple of weeks earlier before the massive transfer of property from say three  accounts do you see any reason the say three customers could not have made in essence the same arguments that you have been making it's possible that they cut although they certainly couldn't well and they could make the tracing arguments as well if they could trace are their assets to those accounts well is there any reason why in this sort of a situation where we've got both ca and investment advisor act  accounts with statutory trusts imposed why you shouldn't just treat all those folks as equal i understand the plan here is step who has stepped in but go back to live the time of filing the time of crisis essence divide that money fairly that property fairly among the customers with accounts no i don't think so i think the assets that are actually in the account she got it whoever's account that is it in this case it was could i also ask you what you think the language giving the district judge a bankruptcy judge discretion in seven point twenty c i or your lease giving some power to take customer property and assign it to the estate went with that's intended to address sure i don't think it gives the district court any discretion what does it do i understand what you think it doesn't do i want you to tell us what you think its there for what it does is it strictly is a boots and suspenders language relating to the determination of whether the property in the reserves is cut is property of state and if you look at the starting point if you look at seven point two twenty eight and if you look through the entire section the only determination that's explicitly mentioned is and is a determination of properly estate the first line seven twenty eight pending a determination by the court whether the assets held in the saying one properly estate reserved say to proper the estate so right from the get go the only determination that's being made is proper the estate not some discretion question or a determination that would allow the judge to do what he  seven and twenty see want the same thing in the first line in the of that the court determines that the per property in any of the crop of the estate reserves is not properly estate sections four point four four point five the plant shall be deemed modified to provide the what what power should does the judge have to distribute customer property to the estate customer prop customer well that depends on the customer property is just property that should have been held by sentinel for its customers that determination is is is made by the sections of the plant sections four point four four point five of the plant they provide that customer shots share pro rata with unsecured creditors and all property including truck customer property sections four point five a four point five c provide that this program to general distribution scheme is subject to section seven point twenty which is the one we just talked about section seven point two twenty that sets up the reserves section twenty seven point twenty eight one that's the second one reserve that we've been talking about section seven point twenty c that's and that's the provision that i just read provides that if the property in the reserves is not properly a state then the distribution schemes sect in sections four point four four point five they don't apply in reserve the property should be distributed to the rightful owners which in this case would be the s receive priority over the reserves without putting forth any evidence of phone or ship aside from the fact that the securities were in your account when sentinel filed bankruptcy that your argument the point that f c stone is making is that the district court should have adopted some tracing presumption and we we say that the most logical presumption at least in our view is the presumption set forth by the c f t c now is that the only presumption that the district court could have adopted no just a quirk of adopted another any others presumption to do the same to reach the same purpose so i think it's a long way of saying no  understand and if we agree with you that the district court's reasons for rejecting this miss call skis expert testimony were flawed do we have to re man the case there are facts that are sufficient in the record for this court to enter judgment on the tracing issue alone which would resolve all of these issues which you have you know well how do you respond about you know tracing ok first oh you took it there's a lot to bite off her your honor first of all it's clear that mr feldman didn't trace and he didn't try to trace in your you'll be able to find those citations in the record the fact is mr feltman when he customer assets he didn't even know what it was mr feltman relied strictly on the trade bought or and that's not sufficient to do in analysis of tracing because this is digging in groups seven of second one so if you look at the trade blotter you can't trace because different entities within the say what within second life had different poole's and that's the within the group seven customer pool so the fact is mr feldman didn't trace and if you look through the papers you'll also see that miss mccluskey did ok first she looked at the central state of purchase ok  then she looked at the key point which is the the date of allocation and the gate of allocation was when for instance f c style would would transfer cash into a customer segregated account at that moment there was an allocation exchange and then cash went out not until there was that allocation exchange to the casco out so that was the relevant purchase and i realize i'm digging into the weeds and then from that moment on least in its first opinion made a number of legal errors relating the tracing that often affected it as well and you should know that in a second opinion the district court stated that an understanding of sentence repo business wasn't true either those securities were owned by the repo counter parties which is what happens in every reproach transaction and finally the dischord believe that the interest on the repo securities went to the bank of new york this statement is the oddest statement of all because the back of the york was not even a repub counterpart the interest on the security is what's a satchel which once again is customary in the industry so that the number of errors that were committed relating to tracing  but what do we do with the fact that interest allocations seem to to each of those accounts seem to have been quite arbitrary ok well i think that issue is off the table in this case because  trustees expert mr feldman on the let me get the specifically said with respect to interest that central made a significant attempt to match interest accrued and all allocated to customer accounts to actual earnings the security of security reflected for customers in the citation or ca sixteen sixty one and seventeen ninety nine that admission should be binding so talking about interest in history feltman said that almost all of that part was accurate as well so now you're talking about even snow for off on the top well into the very thin ok you could have to wrap it ended back the order was already declared to be wrong and the courts and sorry your to sue can procedure bound by collateral estoppel so the supreme court has held that the fact that an orders already been declared wrong can be used in the play with regard to your question about right now they were said three party they had investors that lost money there were parties that failed as a result of the fact that all of the available assets were cleaned out for the said mormons right before the bankruptcy and the trustee had to work through litigation and other means to get any funds to be able to pay the other so i think that right now as the rule stands judge squires thought he was doing rough justice by allowing the ability to bring money back into the estate if there was something wrong with what he was being told the parties all understood that we were there including f c stone and now the rule of law is well if the parties dress the order in a way that can be read a different way you're out of luck and that money stays where it shouldn't have gone because it is judged they will correctly found it was a game of musical chairs wherever it ended up had this case ended on july thirtieth the said three these would be the one standing here saying they're in the supreme concession and it will be the said ones who weren't so i think you have to resort back to what congress did under the bankruptcy code and in the chapter eleven case like this with cunningham be brown which has been on the books since one nine hundred twenty four no one's over ruled that congress could have legislated it out of existence when it enacted the code in the presumption is if it didn't do that bankruptcy law survived it's been applied post code this court's applied it in other context that was really the way to go to proceed here is is to do a church they built it just to do a quality with what funds remained with regard to mr feldman's testimony cage c a one zero one one of their appendix they quote a portion of his expert report and that indicates what i was saying is that his testimony was that you can't trace because of the nature of what you are doing to trace and i would just suggest judge they all sat know your honor because he explained why what she was doing wasn't tracing and they admit it they say the only way they can trace without a presumption that the farms in the account the name on the account controls which the case law that we cite rejects without a presumption of the lowest intermediate balance well without a presumption that anything that goes back ian was tempted rectify the fraud without those presumptions she said you could never trace and so even if she was the only expert the court could have rejected her testimony she said you cannot correlate the dollars and with the particular security she says she said that