same provisions elsewhere but when we get to what the lower courts did and the principles upon which they they apply now we're dealing with more universal principles of agency imputation apparent  well not really your honor it's a question of when you say j l h is aware if the board of directors as a body is aware i think we have to get to that you know what does that mean for a company to be aware we have well does it have to be the board of directors as opposed to a high ranking official in jail each like the president yeah i think that i think that's not sufficient because the president under the bylaws doesn't have the authority to consent or bind the company in the in the area of corporate law and banks are very familiar with this you would change resolutions from the board of directors to support loans or pledges because it is common knowledge that presidents often do not have that authority so if somebody without the authority has the knowledge i would submit that's not sufficient now but when dealing with it why couldn't we understand had no knowledge they had no idea that he had any position with jail h as a matter of fact they claimed to have not known the challenge was a separate company when they when they arranged this  and well the way it works with all captive insurance companies when you first formed the captive which is a separate regulated company of course the parent company put some money into that  and then premiums are paid that build up over a period of years and yes those premiums do come from the parent company and but that is the whole essence and nature of of a captive for example to the really landing if i'm not mistaken something like twenty five million dollars it's not going to do that willy nilly it wants some security and for that security did it  not the money and that jail aged the posit ten million dollars in its bank i think we need to back up your honor this well correct my mistaken impression that you are you you are not entirely mistaken but i need to correct something this was the renewal of an unsecured line of credit they had previously land this amount of money totally unsecured there's record evidence that the parties all considered this new loan to have been unsecured although for legal reasons the lower courts disregarded that but so to suggest that somehow what cobia wasn't lending this kind of money with collateral is contrary to the facts and the prior relationship for years they lent this money without being two officers of w well homes executed that loan agreement mr stone moore did not execute that with then he executed the letter no question about it there after he executed two letters which renewed the line of captive insurance company you have to set aside certain capital you are strictly regulated by the insurance department in this particular case it was the arizona department of insurance that required that monitor your capital and remember not one penny of that money was ever touched where where where we're talking about who could have touched it had they chosen to touch it and none of that ever happened the money came out of that account and you restate it whether or not officers  all that were mistaken but there is no question that some of the names on that account and as we point out if we recall the critical part of that deposit account wasn't signed how do you overcome the question th homes you do not imputed to some other company for whom they may also be a principal or an agent but in that regard was a stem are acting on behalf of j l h now when everyone who signed documents for responsible for the life of my california what have i california because civil code twenty three thirty two it talks about knowledge between principle and agent flow in both ways now you you said you california  get involved in negotiations and it's just this comes out of nowhere it's the agency principles that apply or not based on a duty to report they are based that standard has never been adopted anywhere the the it to the other entity unless he was acting on behalf of that entity at the time and there is no evidence in this case that anyone acted on behalf of jale h and everybody testified to the contrary and when you see what that how they they signed soley as officers or agents of w l home how do you distinguish the natural gas case out of california nine hundred seventy six isn't is are those facts somewhat similar i i don't know if you were there but yeah i'm not holmes put it could withdraw funds in that account however for the benefit of general h there's nothing in that document which lets you prep pledged it down for example if you have signing authority on behalf of one corporation yes you can go take the money out but you can't do it for pay your homework and you can't do it for the wrong purposes so yes they do have the control but they're doing so only when they act on behalf of jailing that's fine but why isn't this efficient for us control it's not sufficient for use and control because when you're dealing with a deposit account i would submit to you that the bank knows whose account is they know it's not it's not in the name of the loan debt or it's in the name of someone else with a different name a different tax id number under those circumstances use and control requires the consent or permission of that third party you don't have us control with a deposit account otherwise if you're if you're go back to the principles upon which use and control was valid it was because the possession of of equipment or crops and the use of lender pledge as collateral to induce a loan defaults on the loan and then says it wasn't our collateral to pledge where is it mr corey correct that stone had no authority to pledge that ten million dollar deposit because there was there was no consent formal consent with impunity consent and the way that they're arguing the doctrine it would erase the whole notion of imputed consent if you have to have a resolution the board of directors or why should in so far as w i holmes was the party to the loan agreement but at some point when you have the president of an entity even though he's acting no officially on behalf of another entity doing and then they actually make it happen after the loan agreement was executed within a couple weeks that account was was set up in not amount of ten million dollars which he had arranged as part of the negotiations and which is case of the eleventh circuit says exactly that and secondly even if you don't immediately impute the consent to jail it's insurance by the fact that mr they're clearly on notice the notice is clear to them and yet they remain silent they didn't take any action to say that and they ratified by their silence exactly right and that's it that's actually another otherwise the board of trustees of notice of this they they were on notice certainly by the the agency lawyer we discussed in our papers they were definitely on notice through mr stillmore and the reality here is that of it is to serve as basically a savings vehicle for the parent to on a regular basis put in money that then can can be available because w l holmes had a one million dollars deductible on its third party insurance  period was there any money taken out or were deposited in that account out of that account no and and we believe that that's consistent with the requirement in the loan agreement that that minimum balance jail each insurance called deposit account or something like that and then it and it defines it as the j l h account in a minimum balance of ten million dollars and it also was what about the timing was it was there any how much the proximity of the granting of the loan in the deposit made was we talk about that sure the loan was finally executed in la december two thousand and seven around christmas time and the account was set up and all of this is in the record in undisputed around mid january of two thousand and eight and so there was a very close proximity the long was executed and then w all homes went ahead and complied with its obligation to set up that account and and funded in the exact amount of ten million dollars but but arizona law also required this kind of a count to be set up right no arizona law didn't captive insurance company in arizona law there are certain regulations that apply to the cap to ensure they're less onerous and then regulations that apply to insurers that have numerous policyholders because the only party that is ultimately at risk is the parent company which is which is set up and controls the captive and again the w l holmes's absolute control over jail each insurance is undisputed here that that's something that they pounce and never disputed testimony from the controller of holmes that anybody who needed to do that would have to talk to him the reality is who is him the controller of holmes james chang ok the reality is that  part of the promise of the appellant's case here is that jail each insurance had this independent decision making ability it was separately incorporated yes w holmes did that because there are certain tax advantages accounting advantages to separately incorporating captive but it didn't have any independent decision making ability it was absolutely controlled by w all homes three of the directors were top  homes officers including mr stumm are the other two were representatives of a on insurance which was just the administrator the captive manager that's required by arizona law and so this was simply an appendage of w l home so that it had no independent decision making ability and so that the notion that jail each insurance didn't consent to this or even was against it which was suggested in the appellant's paper papers it just doesn't make any sense how could insure a us which is controlled by the homes absolutely controlled how could it be against something that w all that that the district court did not address our first point which is that given the undisputed absolute control that w i homes exercise or jail it's insurance and in fact jail each insurance described itself in filings at the arizona department of insurance as an asset of w l holmes so holmes owns jail h insurance absolutely controls it and how does it not control an asset that's held in the name of insurance the bankruptcy court didn't address that point as to specific control and in fact counsel just conceded here on the record that holmes did have control over the jail each account and he says use and control isn't enough that you know you have to have consent as well that that's just not the case law provides either using control or consent is is sufficient  what's the effect of arizona law here is this just a red herring right it is your honor even if they're if they're violating arizona law isn't just their license isn't that all that would be lost exactly and  bankruptcy court addressed that issue with reference to the the coronet case out of california which says that if a loan somehow violates a statute the  borrower doesn't just get off scot free because of that and the consequence or jail each insurance would have been revenue revocation of of the license and maybe some fines it certainly wouldn't be fair to penalize because they went and didn't lie with their out with patients and or under arizona insurance law and i would add that in the loan agreement they'll be well homes covenanted that it was going to meet all of the applicable laws and regulations to make that loan agreement fully effective if you knew you were dealing with a totally different party a totally different depository went why he would not be given the amount of money involved ten million dollars when we just wor it's maybe it should have done not but ultimately that the u c c definition of rights doesn't doesn't turn on that it could have gone and gotten an additional signature  the collateral interest because ultimately what what the decision is here is where the borrower has defaulted and you have three parties involved in london the borrower and the owner of the collateral somebody has to lose either the lender loses out the security interest is held to be invalid or the owner of the collateral loses out if the security interest is valid and so it really comes down to i think the fairness principles that underlie this provision of the u c c which way is it fair to go and if you if you think about what the outcome would be here if lacombe were to lose this money goes right back to w the bank refused it ultimately goes back to the bankruptcy estate and i would submit that if jael each insurance had any independence whatsoever from w arms it would have separate counsel in this case and it would have a claim against up why didn't you pledge our money but thank you but let me first address your honor's question about the california statute and patient both ways i missed it initially but we did cover that in our  appeals in california rejected that interpretation and said that is not what the statute means it does not need to take from for example and he's acting on behalf of the principle so therefore it has imputed up to principle no debate over that and but it does not then get imputed back from that principle to other agents and then further imputed to the principles of other principles of that asian and that's what happened here we have to remember that there is no evidence that still more had actual knowledge of the pledge everything is inferred and imputed he testified he did not but the fact that he signed alone letters which don't mention the pledge and don't mention j l h they mentioned the agreement that's being renewed and shown to be that's that's just put your head in the sand not not at all he binds j not responsible for anything in the original loan he even read it no w r holmes is responsible remember he's acting on behalf of gubbio home so so his conduct is imputed to be all signed to a ten million dollar collateral corrected not not not me he cites only loan letters which refer to another agreement which has the reference he didn't read the other great was he not aware that the bank required the transfer of an account or ten million dollars before he can withdraw before the twenty five million dollar loan can be approved no testimony is to the contrary as a matter of fact what he thought was going on this money the account sure i just heard mr lee's argument that the controller of holmes was the one who could sign checks out of the ten million dollars well there were there were a number of people who could sign checks he may have been one of them there were about six or seven the answer is yes as far as as far as i'm concerned you don't have a use in control to pledge the account for some other entity you're acting on behalf of j l s you may have to use and control if you're acting  time we need to step back and we need to think about all of the parent subsidiary relationships parent and wholly owned subsidiaries parents always control hoeing own subsidiaries they appoint the officers they appoint the directors but a lot maintains that very important distinction and that is the same whether you're a captive insurance subsidiary or any other subsidiary and you have to pay meticulous attention to on behalf people are acting otherwise subsidiaries will always be liable for the parent and parent will always be liable for the subsidiary and that is not the long thank you so much thank you very much this will be thank you both