Legal Case Summary

Works versus construction, excuse me, in Ray Rare Works Corporation, I apologize. The synchroron? Yes. May it please the court. My name is Anna Sankaran with Greenberg Charig. I represent the Appellate Construction Program Group, CPG. Before we dive into the arguments in this particular case, if the court would find it helpful, I thought it might be useful to walk through the two bankruptcy statutes that are in play. The first is the preference statute, section 547B of the bankruptcy code, which allows a trustee subject to certain defenses to avoid transfers that the debt are made in the 90 days preceding bankruptcy. The purpose of the preference section is so that a trustee can seek an equality of distribution among unsecured creditors. Essentially, it allows a trustee to avoid all of the business transactions that the debtor engaged in 90 days prior to bankruptcy, despite the fact that the debtor may have received products and services in exchange for those payments that it's entitled to keep. In order to satisfy its burden, the trustee must establish six different elements to avoid a transfer. One, the transfer has to be an interest of the debtor in property. Two, the transfer has to be made. Two, or four, the benefit of a creditor. Three, the transfer is made on account of antecedent debt. Four, that the transfer was made while the debtor was insolvent. Five, that it was within the 90 days of petition date. And six, that the transfer resulted in the creditor receiving a greater distribution than it would have in a hypothetical chapter seven. Now, once a trustee has successfully avoided a transfer, we move to the second statute that's implicated, which is section 550 of the bankruptcy code. Section 550, which is a claim that's not pleaded in the trustee's complaint in this case, and was abandoned when he withdrew his motion for leave, allows a trustee to recover the avoided preferences from among others, an initial transfer, or an entity for whose benefit a transfer was made. Now, the code doesn't define what an initial transfer is, but this court adopted the legal dominion and control definition set forth by the seventh circuit, in bonded financial. That was the southeast hotel properties case. Dominion and control requires the ability to put the money to one's own use. So one cannot be considered an initial transfer if it was just a pass-through entity, if it didn't have the ability to put that money to its own use

. The rationale behind this defense is that it is inequitable to permit recovery through a pass-through entity because there was no dominion and control. One can think of an example such as a brink's truck that's delivering cash from a customer to its bank. The brink's truck is just delivering the cash. It has no authority to do what it wants with that cash. It just simply is the conduit through which the cash is transferred. There is a large body of case law that we cite in our brief that holds that entities that collect insurance premiums, for example, have a legal obligation to pass that onto the insured are considered conduits as a matter of law. Perference jurisprudence also gives us specific instructions on how preference liability should be analyzed. In the Pony Express case, the 11th Circuit instructed, when examining whether a party is a proper subject of a Section 550 claim, courts should evaluate the transaction in its entirety and make sure the conclusions are logical and equitable. The society general case also instructs that it's especially important to consider the goal of law and the effect of a particular ruling in areas of law such as bankruptcy jurisdiction that are so strongly rooted in equitable principles. CPG, like the brink's truck example I gave you, was simply a pass through entity in this case and did nothing other than take insurance premium that the debtor sent it and pass it on to the insurer or take. Let me ask you this. It's a little bit of a convoluted question which I apologize. But you have a language in the agreement between CPG and TIG that says that CPG shall be law before and shall pay. And that's notwithstanding whether a railroad gives them the money. So the second part of the question is, the creditor is defined as an entity that has a claim against the debtor that arose at the time or before the order of relief, etc. The claim then goes on to list a whole slew of things. The one thing, and I might not be right, that's what I'm asking the question. One of those claims could be a contingent liability. So if the railroad did not pay CPG, wouldn't there exist a contingent liability? And I think the answer to your question is severalfold. The first piece of the answer to your question requires us to look at the entire managing and general agency agreement and not just the Section 5.1 provision that makes it primarily liable to pass money on. That's what creates the conduit relationship, right? The requirement that the money be passed on

. But separate from that, the agreement also contains a provision that allows CPG to terminate coverage in the event of nonpayment. So there isn't necessarily a contingent liability that there's perhaps possibly an instance where coverage is not terminated when it's not paid. Well, aren't we looking at this under Texas law and the Landau versus Baltimore case seem to have some kind of language that one provision can't make the other provision worthless. Absolutely, Your Honor, and I don't think that it makes it worthless. I think you actually have to read all there are three provisions that I encourage the court to look at. And I think they can all be read in harmony. Texas contract interpretation law instructs us to look at the contract with the utilitarian purpose, understanding the business motive and what is trying to be achieved. So remember this managing general agency agreement is just one instrument in a regime to facilitate insurance coverage. In this case, there's the section that Your Honor pointed out section 5.1 that talks about primary liability that the Langdale case has similar language to. We're not disputing the fact that there is a primary liability, but there's also other provisions in the agreement that can all be read in harmony. And what happens is as the district court noticed and the bankruptcy court found that that provision is designed section 5.1 to make the managing general agent diligent in looking for whether premium has been paid and whether it's been collected, but it also has the ability to terminate coverage. So there isn't necessarily a contingent claim, but let me point your honors to a very similar situation that the bankruptcy court found useful when it decided that CPG was a mere conduit and not a creditor. It looked at the pony express case, which talks about a similar situation that your honor may be describing. In pony express, the debtor paid its insurance coverage to its broker, broker forwarded the money onto the insurer. In the interim, the debtors checked was dishonored. And so the debtor or the state of the debtor claimed that that money should be recoverable from the broker because there was a claim there or contingent claim it became a creditor at that point. The court looked at all of the factors and decided we need to step back and look at what this real transaction is and decided that the broker was a mere conduit in this case that a creditor relationship, although maybe technically was created wasn't really created because they didn't intend for the broker to become a creditor. It is the normal practice for the broker to forward premium on. There was no fee charged to the debtor for financing the premium for whatever period of time it remained unpaid. And ultimately, the pony express case, the 11th Circuit determined that that relationship should not be considered a creditor relationship

. And I think that should instruct this court as well. So looking at the agreement in its entirety, it's not just Section 5.1 that operates by itself. But also, even if it did, we need to step back from the situation, look at the whole transaction as bankruptcy law requires us to do an improperance litigation requires us to do and understand what this transaction truly is, which is CPG sending money along. Let's go back to Shelby Lau for a Shelby Lau pay language. Would you agree the bankruptcy court really didn't give us any reasoning as to why that language did not make CPG a guarantee of railway works for payment of insurance premium to TIG? I just don't see a lot of rationale for why she made that statement. I agree, Your Honor, that the bankruptcy court's decision does not contain very much of an explanation as to why it determined that the managing general agency agreement did not make CPG a guarantee. But I can explain to Your Honor several reasons why it doesn't make CPG a guarantee. Number one, as I explained, in a regular guarantee and the case law that the trustee cites with respect to liability as an entity for whose benefit. But the guarantor acknowledges its role as a guarantor. In this case, the managing general agent never agreed to indemnify the insured for its premium. Because it also had the ability to terminate coverage in the event that it didn't and slept on its rights, you know, there may be an issue there, but as we look to the pony express case, the true transaction here is one of a conduit. So you're saying it can't, let me ask you if this is correct. So you're saying it cannot be a guarantor relationship if you have a right of cancellation. Yes, Your Honor. I mean, if we look at a normal guarantee, the whole credit term that's being extended is based on the identity of the guarantor. And the guarantor doesn't have the ability to say, I don't want to do this anymore and step out. Same with the surety, which are the other types of cases that the trustee cites. But as my time is running out, I really want to draw this court to a really important issue, which is faced or posed by the district court on page 10 of its decision when it creates this dual status ruling with respect to CPG. That CPG is both a conduit and an entity for whose benefit the transfer was made. And it says that this case law or this ruling is not at odds with southeast hotel. We contend that it is because it creates a logical inconsistency that renders the conduit defense in southeast hotel, meaningless

. And remember that no one is disputing that CPG is a conduit. That was a conclusion the bankruptcy court made. The district court also made it and the trustee did not appeal that. What is it issue is can you be a conduit and an entity for whose benefit a transfer was made under section 550 of the code. That is a question of first impression. It has not been decided by any other court so far that we can determine. And the reason that we argue CPG argues that that cannot be the case is based on the very language that you're on or site to section 5.1 of the agreement is what creates the conduit relationship. We cite in re left way every conduit needs to establish a legal contractual obligation to pass the money on. If that legal contractual obligation is also the legal clause on which you can hold an entity liable as an entity for whose benefit because by making the transfer the debtor prevented you from reaching your contract essentially. Every conduit would automatically be an entity for whose benefit a transfer was made. So you might be accepted from liability as an initial transfer but you're automatically always because of that contractual right always going to be an entity for whose benefit a transfer was made. Remember the equitable principles that support the southeast decision and every other circuit that is adopted the conduit defense. It has implications not just to this particular case but well beyond interpreting this agreement in a way that was never intended because remember there is the 5.1 obligation there is the ability to terminate coverage. And then on top of that there's also a provision section 3.4 of three agreement which says this agreement should not be construed as an agreement of indemnification of the insured whether that be for claims whether it be for premium whether it be for anything. So we have to put all of that together and really understand what this transaction was about. And we contend that putting all of that together and reading the agreement as the district court did turns the situation on its head. The truth is is that CPG was a conduit. It was merely passing funds through. Everybody agreed it was a conduit

. The southeast hotel and the conduit defense is rendered meaningless as a result of the district court's reading of the Managing General Agency agreement. Well don't you think the district court was essentially making a policy argument that says that the trustees should be able to get anything and everything and get his hands on. That's what he did. Well I think that's what trustees generally attempt to do for the good of the unsecured cutters in the case. I think in this particular case the district court isolated one particular provision in the agreement in favor of the trustees reading without taking into account these other provisions and the actual scheme. And I think that what is very important to look at I mean the court specifically said it doesn't find its conclusion contradictory to southeast hotel which I think if you step back the benefit that is measured in entity for whose benefit of transfer is made has to be something more than not breaching your obligation to pass the money on. It has to be something more than that the brings truck that brings the money across it's not going to do that pro bono it's going to get some benefit for doing it but other than that it had no ability to decide where that money went same with CPG it is undisputed that it put the money in its trust account. I just want to make sure I understand the structure of your argument so you're saying if we agreed that the transfers weren't recoverable under 550 that we don't have to address 547 is that what you're saying? I think it's in two parts you know 550 first of all was not pleaded but let's resolve this you know case from 2001. Yes but structurally how are you how are you putting this to us you're arguing both and I'm trying to understand whether we need to reach both of them in order to decide the case if we're ready to agree with you. Okay and my I'm at time may I suppose the answer is short so your honor I think the answer to the question is there's two elements one in 547 be in one in 550 that relate very closely so one of the elements of 547 be which is can the transfer be avoided is is the defendant a creditor of the debtor or an entity for his benefit and then that same analysis is used an entity for his benefit in 550 but I think that to answer your honors question you can resolve the 550 question it's not recoverable from some of the CPG we don't really care if it's avoidable or not you can't recover it from CPG you're not a party whose pot we can reach into correct because it was a mere conduit. Okay thank you thank you your honor. Mr. Guttman. May I please the court say government on behalf of the litigation trust of real works corporation. This is not where I intended to start my argument in fact I found the conduit argument to be almost species but the court seems to have taken an interest in it and therefore I will address it first then maybe it'll be the only thing I address section 5.1 of this agreement actually says a lot more than hey we have to pass the money on for conduit. It says the agent shall be liable for an angel pay to company all net premiums attributable to policies produced here under whether or not such premiums have been collected by agent less commissions they don't even have to have the money to have liability. Okay so to say that their only obligation is not to breach their agreement to pass on the premiums is incorrect that's not the obligation. I'm not trying to understand how that has anything to do with anything. A right to cancellation doesn't mean you don't have a contingent. We can answer for nonpayment instead of paying for the money you owe in other words if there is no policy there's nothing due in knowing to TIG is there. It depends when they cancel the contingent claim that we're talking about in this case arises by virtue of step one 5

.1. So there's sort of a possibility of a claim when they issue the policy the contingent claim comes into existence at that moment in time. If they cancel the policy there may be no avoidable payment because they did it by canceling the policy so rail works does not make a payment to TIG. So of course there's no preference but they didn't cancel any policy here that doesn't change the fact that there is a contingent claim and in fact the money was paid here. So the contingent claim was satisfied or reduced strangely enough they although they would drew their proof of claim there's still a claim in the bankruptcy case by somebody in connection with this insurance. We look at the procedural trail but that's not really important that they filed a claim even after these payments were made. I'm not saying they have the claim they would drew it from themselves and there's another related entity that has the claim all I'm saying is that nobody canceled any policies. There were payments made. I don't think that's the point at least as I understand that that's the point that you're opposing counsel's making. She's saying that you don't have a guarantee under Texas law if you aren't unqualifiedly guaranteeing the payment. If you have a right to simply cancel the policy that means canceling the indebtedness doesn't it? Let me answer that in two steps number one guarantee is not the word in the bankruptcy code benefit. I understand she's talking about the Texas law there and the I understand that but we're talking about federal bankruptcy law here which talks about benefit as we cited in our brief. There are all kinds of benefits. How was it made for CPG's benefit CPG wasn't extending the insurance coverage. CPG had an absolute obligation to TIG for every penny of premium that was outstanding. If it didn't cancel the pot it didn't get it couldn't cancel the policy by the time these were paid that insurance coverage had been granted if you look at judgment. I think her point counsel is that it's an issue of law as to whether you can have irrespective of the facts of this case. And maybe I'm misunderstanding her but can you have a guarantee relationship arise when the party who is the punitive guarantor has the right to cancel the indebtedness that he or she or it is guaranteeing. Again there's two answers to that number one. They didn't they did not and therefore the indebtedness arose it wasn't paid timely that's in judge Schneider's opinion it wasn't paid timely and therefore when it was paid it was already outstanding that's number one. Number two. The right to cancel is not unique to this even under a guarantee if somebody guarantees a bank loan that's on a line of credit they can cancel their guarantee before the money is expended lend out a million dollars today and before they can lend the next million the the guarantor says I'm done I've left the company take me off the hook he's on the hook for the million that was lent he's off the hook going forward just a matter who the check was made out to no it could have been paid directly

. The key to the right to the black led to tig cpg still the fact that this case was made out to tig was it now no it was made out to cpg it was made it OK but it could have been paid directly to the court. And then it doesn't matter it doesn't matter what all that matters are the underlying facts which are true and a guarantee case and get shorty cases responsible officer cases there's even a case we didn't get to cite it because it came out as the briefing was happened here. a call in Ray Vasu out of California, 499, bankruptcy, 864, 2013 case, where the payments to a senior mortgage, which then made equity available for the junior mortgage to attach to because now there was equity since some of the senior had been paid off, that's a preference too. These are all cases of benefit. All you need for benefit is, in this case, the reduction of the contingent claim, which as Judge Floyd pointed out, is the standard because you are a creditor if you hold a claim, you have a claim, if you have a contingent claim, an equitable claim, any type of claim. And CPG had that claim against real works as a result of Texas law, or I think Judge Bordara actually said it's marital law, but they're pretty much the same, because they had a right of, not restitution, but a right of reimbursement or subrogation against real works. If real works had not made those payments that were due in payable, and the insurance had already been expended, if real works hadn't made that, CPG was on the hook under 5.1. They didn't have to receive the money first for that to happen, and any right to had to cancel the insurance to get rid of that claim accruing, they didn't exercise for whatever reason. All these cases, they cite, pony express, and all these insurance cases, that's not the issue here. Those cases do deal with conduit liability. The question in those cases is, the money passed through the broker's hand, or in this case the general, the managing agent's hand, and the trustee went after them simply because they touched the money. You apply southeast hotel properties to that, no legal naming and control, because they only touched the money in order to pass it on to the insurance company. None of those cases dealt with an issue where you essentially have a guarantee or some independent obligation of the middleman to make sure those premiums get paid beyond the contractual obligation to pass it on. This isn't a contractual liability. It's inequitable claim because they have a right of reimbursement from real works because they agreed with TIG to make sure those payments got paid even they'd never got paid. Okay, let's back it up a little bit. It sounds to me like the foundation, the absolute utter bedrock foundation of your claim is that this was a guarantee. Well, it doesn't have to be guarantee. Let's talk about for instance, this court's decision in remarative. Okay, so you're saying that's not the foundation of your case? The foundation of the case is benefit. The benefit in this case is very similar

. Okay, well, it's there to be guaranteed in this case if the payment was already made. The preference arises by virtue of the satisfaction of the outstanding death. There has to be a creditor relationship, doesn't there? There is. And so yes, but you're saying there is even though payment was made. That's the point. Judge Schneider has Judge Bridalgoer pointed out made that Judge Bridalgoer pointed out Judge Schneider's mistake. Every preference case involves a payment. If the no payment is made, you don't have a preference. It's the satisfaction of the liability that creates a preference. If it wasn't satisfied, you have no preference. You have a claim. What happened here is very simple. Railworks made this payment. Railworks had gone into bankruptcy without making this payment. CPG would have had to pay that money to TIG. That's the benefit. Very similar to guarantee, but guarantee is not the magic word here. That's the reason I said no guarantee. It is, the benefit is the bedrock of the case. That's true. If you look at in remarative, this court's case on benefit, it had nothing to do with a guarantee. He had somebody who made a fraudulent conveyance, and in the process of making that fraudulent conveyance, the money passed through the hands of a company owned by his wife

. The trusty sued the wife and said she got the benefit of this fraudulently conveyed company passing through hands. It was then transferred back out to him. And the trusty sued the wife. And this court didn't say, oh, those are the facts. No guarantee, I guess she wins. She, in fact, won, but it's because there was no benefit. Right. Now, did railworks have to make the payment for the benefit? Does it have to be intended for the benefit of CPG? Or you're saying it's just enough that it was an incidental benefit? Because certainly, railworks didn't intend it for the benefit of CPG. They intended it to get insurance coverage. So you're saying incidental beneficiary is sufficient to be a beneficiary under the bankruptcy code, and do you have authority for that? Again, referring to Meredith, the court said that the determinative inquiry is whether to defend and actually receive the benefit from the transfer. And the quote is, debtors' subjective intent to benefit an entity is not determinative of the question of whether the entity is the entity. Is it OK to be an incidental beneficiary? Is that happening? Absolutely. Again, the tour is the same thing. They make this big deal again about the guarantee. The guarantee is not intended to be benefited when the principal of the Gore pays the bank. It can be, but it doesn't have to be in the responsible officer cases. The intended beneficiary doesn't have to be the responsible officer when the debtor makes a tax payment. In the other case, we've said it about the vendors with their factor of receivables. They weren't the intended beneficiaries of the payments. In all of these cases, the benefit is just that there is a benefit. And across the board, there is no need for a guarantee. And again, I think we mentioned just one of the briefs

. The work guarantee, at least in any of the avoidance sections, is not even in the bankruptcy code of voice. No, just one. I'm sorry. No need. Go ahead. How about distinguished appellate counsel's analogy to the brink's truck? So again, in that type of case where you simply have this obligation to take the stack of cash and pass it on, you are fulfilling your duty, as she said, and you're not creating a claim because you'd have to breach your obligation. There's no claim there. But here, 5.1 doesn't say you have to pass what you get. It goes much beyond that. It says whether or not such premiums have been collected. The liability arises by the fact that premiums are due, not by the fact that premiums are paid. So the cash never goes into the brink's truck. In this liability case, the liability arises before the money even gets to the truck. And that's why this operates essentially like a guarantee, but not important that it be called a guarantee. It's just important that they are reducing their liability under this provision. So you can get 100% of the money from the... The 100% of the 75%, yes, as we've carved out the commissions because that's excluded from 5.1. Judge Breddarr analyzed this case exactly as it should have been analyzed. None of the bank votes go. The preference statute is essentially a no-fault strict liability statute. Other... So don't ever be a conduit or look out. What would be the entity for his benefit? You can be a conduit. That's... Are there cases that deal with dual status? There aren't any cases because... So we'd be saying for the first time that you can be both a mere conduit and a initial transferee for... No, no, no. An initial... This board has said as it's heavy or other. You cannot be in an initial transferee and a conduit

. None of the bank votes go. The preference statute is essentially a no-fault strict liability statute. Other... So don't ever be a conduit or look out. What would be the entity for his benefit? You can be a conduit. That's... Are there cases that deal with dual status? There aren't any cases because... So we'd be saying for the first time that you can be both a mere conduit and a initial transferee for... No, no, no. An initial... This board has said as it's heavy or other. You cannot be in an initial transferee and a conduit. If you're an initial... Well, you can be because a conduit doesn't make any sense in this context as you can be a beneficiary and a conduit. And that comes back to my statement earlier that if the payment had gone straight to TIG, which is essentially their argument because they're saying they were conduits, so it's really as if it never touched their hands, just passed through them. But if the check had been written to TIG, they still be liable as a beneficiary. That's the law. No different than if a debtor writes a check to the bank, the guarantors liable, the guarantor doesn't have to touch the money. If in the southeast Hotel Property Case, the conduit issue was not raised as a defense. What this court actually did in that case was the trustee sued the second person to touch it, to touch the money. And that person said, hey, wait a second, I'm a subsequent transferee under 558, two of the bankruptcy code, and I have certain defenses that an initial transferee doesn't have. That's what happened in southeast. Why, I guess sort of the elephant in the room here is why didn't you go after TIG? There are the ones who got the money. There are a number of reasons I was not, I'm the trustee in the case. I was not counsel at this level. There's nothing in this record at all as to why they chose to go against the conduit. There's nothing in the record, and there's nothing we've got the money. We're not required to. The trustee has the choice, and all the cases say that. The trustee may go after one or the other. Right, I'm just asking whether the record shows it, because it's certainly curious. The record doesn't show, I can venture a guess, the check was written to CPG

. If you're an initial... Well, you can be because a conduit doesn't make any sense in this context as you can be a beneficiary and a conduit. And that comes back to my statement earlier that if the payment had gone straight to TIG, which is essentially their argument because they're saying they were conduits, so it's really as if it never touched their hands, just passed through them. But if the check had been written to TIG, they still be liable as a beneficiary. That's the law. No different than if a debtor writes a check to the bank, the guarantors liable, the guarantor doesn't have to touch the money. If in the southeast Hotel Property Case, the conduit issue was not raised as a defense. What this court actually did in that case was the trustee sued the second person to touch it, to touch the money. And that person said, hey, wait a second, I'm a subsequent transferee under 558, two of the bankruptcy code, and I have certain defenses that an initial transferee doesn't have. That's what happened in southeast. Why, I guess sort of the elephant in the room here is why didn't you go after TIG? There are the ones who got the money. There are a number of reasons I was not, I'm the trustee in the case. I was not counsel at this level. There's nothing in this record at all as to why they chose to go against the conduit. There's nothing in the record, and there's nothing we've got the money. We're not required to. The trustee has the choice, and all the cases say that. The trustee may go after one or the other. Right, I'm just asking whether the record shows it, because it's certainly curious. The record doesn't show, I can venture a guess, the check was written to CPG. But again, it could have been written to TIG. That's not, it doesn't make a difference. But what I was going to end with the southeast hotel case is so the trustee sued the second person to touch the money. This court came up with the legal dominion and control test in that case. And what they did was turn the second guy into the initial transferee. So it's not really so much a defense as a legal fiction. This court and every other one has said, just because you touched the money, that's not enough to make you an initial transferee. Well, CPG put the money into a trust account. Did it not? It did. How does that affect the analysis? Not at all. Again, conduit and beneficiary just aren't related concepts. There's nothing about, they didn't have to touch the money. What they did by putting it through the trust account is they made it as if they didn't touch the money. It says if that check was written to TIG directly, they are still liable as a beneficiary of that transfer. There is no case that says otherwise. The big issue in this was back in the early, I think was 89 or early 90s, the depreciate case out of the seventh circuit. The seventh circuit took another step and said, the insider preference provisions would take a preference back a whole year or instead of just 90 days. If you use this analysis, you have the benefit to the guarantor who may, who if he's an insider, has one year liability, and then you can go after again, either party of the transferee or the beneficiary, or in that case, they didn't reverse. Benefit to guarantor, go after the transferee, the bank who's not an insider for a whole year. And that's what the seventh circuit did. The bankruptcy code's been amended twice since to fix that problem because Congress says, we can only go after insiders for preferences for one year. Everybody else gets 90 days

. But again, it could have been written to TIG. That's not, it doesn't make a difference. But what I was going to end with the southeast hotel case is so the trustee sued the second person to touch the money. This court came up with the legal dominion and control test in that case. And what they did was turn the second guy into the initial transferee. So it's not really so much a defense as a legal fiction. This court and every other one has said, just because you touched the money, that's not enough to make you an initial transferee. Well, CPG put the money into a trust account. Did it not? It did. How does that affect the analysis? Not at all. Again, conduit and beneficiary just aren't related concepts. There's nothing about, they didn't have to touch the money. What they did by putting it through the trust account is they made it as if they didn't touch the money. It says if that check was written to TIG directly, they are still liable as a beneficiary of that transfer. There is no case that says otherwise. The big issue in this was back in the early, I think was 89 or early 90s, the depreciate case out of the seventh circuit. The seventh circuit took another step and said, the insider preference provisions would take a preference back a whole year or instead of just 90 days. If you use this analysis, you have the benefit to the guarantor who may, who if he's an insider, has one year liability, and then you can go after again, either party of the transferee or the beneficiary, or in that case, they didn't reverse. Benefit to guarantor, go after the transferee, the bank who's not an insider for a whole year. And that's what the seventh circuit did. The bankruptcy code's been amended twice since to fix that problem because Congress says, we can only go after insiders for preferences for one year. Everybody else gets 90 days. But here, this is a 90 day issue. No court has ever disagreed with this analysis other than Judge Schneider. But no court has ever disagreed with this analysis. If you are a beneficiary, you are liable just as if you're the transferee. And you're saying you don't know who the checklist made out to? I do know it was made out to CPG. Oh, you see the right guessing that it was made out, I thought. I'm sorry. No, no, no, I was guessing that the reason why CPG was sued, rather than TIG or both of them together, that check was written out. You have to remember, the trustee, myself in this case, I didn't come into this case till long after Railworks case had been filed, we received a whole bunch of records and the instruction to bring the appropriate avoidance actions, some were fraudulent conveyances, some were preferences, there were over 400 lawsuits filed. So, you know, we didn't have the personal knowledge, everybody with the personal knowledge, which is why the whole issue with the, whether the TIG is the creditor under 547, B1, or whether CPG is the contingent creditor, there's no prejudice, which is what you need under Rule 15, if you use the TIG as creditor issue, because it's not in the complaint, but Judge Bordard said it's there. The whole issue of prejudice, there's no prejudice, they had all the records, they had all the witnesses, they had all the documents. The trustee had very, very little, Railworks went on, it was a confirmed chapter 11 case in which the debtor actually survived, that only happened to about 10% of chapter 11 cases. So, Railworks went on with its business, it's still operating today. The trustee was left with a lot of litigation rights. So, we went through the records we had, we conferred with Railworks, we brought these lawsuits, but they had all the records from day one, they were involved in the transaction, and there's nothing that would be any different by the time the lawsuit was brought. 5.1 says what it says, the payment had been made, they were overdue, the benefit was conferred by virtue of those payments, and the preference happened. So, there's really nothing that changed in the 10 years of litigation. I think one thing you have an answer though, and I'd like to give you an opportunity to answer, was that your opposing counsel has pointed us to the section of the party's contract that it was not an agreement for indemnification of the insured. Does that, that is the agreement between TIG and CPG? Does that make a difference in the analysis or not, and if so, why not? It doesn't make a difference. Judge Bredor essentially adopted our argument, so it's in his opinion. Right, but I'm not asking

. But here, this is a 90 day issue. No court has ever disagreed with this analysis other than Judge Schneider. But no court has ever disagreed with this analysis. If you are a beneficiary, you are liable just as if you're the transferee. And you're saying you don't know who the checklist made out to? I do know it was made out to CPG. Oh, you see the right guessing that it was made out, I thought. I'm sorry. No, no, no, I was guessing that the reason why CPG was sued, rather than TIG or both of them together, that check was written out. You have to remember, the trustee, myself in this case, I didn't come into this case till long after Railworks case had been filed, we received a whole bunch of records and the instruction to bring the appropriate avoidance actions, some were fraudulent conveyances, some were preferences, there were over 400 lawsuits filed. So, you know, we didn't have the personal knowledge, everybody with the personal knowledge, which is why the whole issue with the, whether the TIG is the creditor under 547, B1, or whether CPG is the contingent creditor, there's no prejudice, which is what you need under Rule 15, if you use the TIG as creditor issue, because it's not in the complaint, but Judge Bordard said it's there. The whole issue of prejudice, there's no prejudice, they had all the records, they had all the witnesses, they had all the documents. The trustee had very, very little, Railworks went on, it was a confirmed chapter 11 case in which the debtor actually survived, that only happened to about 10% of chapter 11 cases. So, Railworks went on with its business, it's still operating today. The trustee was left with a lot of litigation rights. So, we went through the records we had, we conferred with Railworks, we brought these lawsuits, but they had all the records from day one, they were involved in the transaction, and there's nothing that would be any different by the time the lawsuit was brought. 5.1 says what it says, the payment had been made, they were overdue, the benefit was conferred by virtue of those payments, and the preference happened. So, there's really nothing that changed in the 10 years of litigation. I think one thing you have an answer though, and I'd like to give you an opportunity to answer, was that your opposing counsel has pointed us to the section of the party's contract that it was not an agreement for indemnification of the insured. Does that, that is the agreement between TIG and CPG? Does that make a difference in the analysis or not, and if so, why not? It doesn't make a difference. Judge Bredor essentially adopted our argument, so it's in his opinion. Right, but I'm not asking. Well, that was our arguments, I will say it again, that doesn't, it's not in the right section of the agreement to mean what they say it means, it's not at odds with 5.1, and anyhow, doesn't mean that. If you read what it says, this is not a counter-tractor of an agreement of indemnity of insured, all that means is that they are not the insurance company. If you look at the broad power they had, they'd mention some of it. Who is they? CPG. They had to write to cancel policies. They also had to write to issue policies. They essentially acted on behalf of TIG for just about everything, other than the premiums ultimately went to TIG, and the insurance company did what it did, and if there was a claim, the insurance company had to pay it. But they were, for all intents and purposes, the face of TIG in these insurance transactions, this says, don't get carried away, anybody who wants to bring a claim against our insured, CPG is not the insurance company. It's not an agreement of indemnity of insured. We're not going to provide any, CPG doesn't provide any insurance to an insured, to a insured. That has to come back to TIG. Let me ask you just one other question that I don't think that you've answered in your presentation. And that is, if you look at the language of Section 547, that talks about the avoidance of the transfer, and lists the conditions to or for the benefit of a creditor, for or on account of an antecedent debt owed by the debtor. Okay, owed by the debtor to whom? Well, it's owed by the debtor. Does it have to owe it to the same creditor? Let me break that down. That particular provision, of course, talking about owed, I've seen that owed, owed, is not in contention. That's already been at the beginning. Right, right. But let me answer what I think the court is asking. There is a relationship between 547 B1, two were for the benefit of a creditor, and 547 B5, that allows such creditor to receive more than that creditor would receive in a liquidation case. And it sandwiches the rest of the provisions

. Well, that was our arguments, I will say it again, that doesn't, it's not in the right section of the agreement to mean what they say it means, it's not at odds with 5.1, and anyhow, doesn't mean that. If you read what it says, this is not a counter-tractor of an agreement of indemnity of insured, all that means is that they are not the insurance company. If you look at the broad power they had, they'd mention some of it. Who is they? CPG. They had to write to cancel policies. They also had to write to issue policies. They essentially acted on behalf of TIG for just about everything, other than the premiums ultimately went to TIG, and the insurance company did what it did, and if there was a claim, the insurance company had to pay it. But they were, for all intents and purposes, the face of TIG in these insurance transactions, this says, don't get carried away, anybody who wants to bring a claim against our insured, CPG is not the insurance company. It's not an agreement of indemnity of insured. We're not going to provide any, CPG doesn't provide any insurance to an insured, to a insured. That has to come back to TIG. Let me ask you just one other question that I don't think that you've answered in your presentation. And that is, if you look at the language of Section 547, that talks about the avoidance of the transfer, and lists the conditions to or for the benefit of a creditor, for or on account of an antecedent debt owed by the debtor. Okay, owed by the debtor to whom? Well, it's owed by the debtor. Does it have to owe it to the same creditor? Let me break that down. That particular provision, of course, talking about owed, I've seen that owed, owed, is not in contention. That's already been at the beginning. Right, right. But let me answer what I think the court is asking. There is a relationship between 547 B1, two were for the benefit of a creditor, and 547 B5, that allows such creditor to receive more than that creditor would receive in a liquidation case. And it sandwiches the rest of the provisions. So any reference to the creditor, we're always dealing with the same creditor in the analysis. So you can analyze this as if TIG is the creditor throughout that section, and every element fits perfectly. Or you can analyze it as a CPG is the creditor. And as soon as you recognize that it is a creditor because of the held disc contingent claim that we've talked about, then it also fits right in line every single section. But it has to be the same creditor with regard to each element, isn't that correct? Correct, but either way works. This is a type of preference claim where you have two ways to improve it. Either TIG straight through, then you go to 550, and you can recover, or CPG is the creditor straight through, and then you go to 550 and you can recover. This can be proven on either one, CPG or TIG. Thank you. Thank you. Could you touch that question? Thank you. Okay, thank you. Thank you. Mr. Governor. Thank you, Ron. For a title. Thank you, Your Honor. Just wanted to address a few of the points raised by the questions to the app Helee. One of the questions that Your Honor asked was, was there anything in the record as to why TIG and not CPG was sued? And there is something in the record, and I think it's just notable to raise during the deposition of the 30b6 witness, which was the trustee himself. He testified that before filing the complaint, he knew of no contractual relationship between railworks and CPG, did no investigation into the business history between CPG and railworks, and did not review railworks books and records to determine even whether CPG was a creditor. I think his contention that that's who the check was written to was probably correct

. So any reference to the creditor, we're always dealing with the same creditor in the analysis. So you can analyze this as if TIG is the creditor throughout that section, and every element fits perfectly. Or you can analyze it as a CPG is the creditor. And as soon as you recognize that it is a creditor because of the held disc contingent claim that we've talked about, then it also fits right in line every single section. But it has to be the same creditor with regard to each element, isn't that correct? Correct, but either way works. This is a type of preference claim where you have two ways to improve it. Either TIG straight through, then you go to 550, and you can recover, or CPG is the creditor straight through, and then you go to 550 and you can recover. This can be proven on either one, CPG or TIG. Thank you. Thank you. Could you touch that question? Thank you. Okay, thank you. Thank you. Mr. Governor. Thank you, Ron. For a title. Thank you, Your Honor. Just wanted to address a few of the points raised by the questions to the app Helee. One of the questions that Your Honor asked was, was there anything in the record as to why TIG and not CPG was sued? And there is something in the record, and I think it's just notable to raise during the deposition of the 30b6 witness, which was the trustee himself. He testified that before filing the complaint, he knew of no contractual relationship between railworks and CPG, did no investigation into the business history between CPG and railworks, and did not review railworks books and records to determine even whether CPG was a creditor. I think his contention that that's who the check was written to was probably correct. That's the record 221-722-24. But I wanted to just note that for the record. To fall back on the point that Your Honor was just asking about, does 547-B have to relate to the same creditor? And we cite case law in our brief Miller versus Steinberg on that point, and yes, it does. The district court incorrectly allowed the trustee to switch between creditors, that the entity who was the creditor was TIG because it was owed the insurance premiums. And remember what the complaint alleges, Your Honor, in paragraphs 11 and paragraphs 15. The complaint doesn't just say the transfer was made to any creditor. It says, at all relevant times, CPG was a creditor of the debtor. And it alleges this twice in paragraphs 11 and 15. The trustee sought to amend his complaint to change that and make it broader to encompass the theory that he's arguing now based on Section 5.1, but he withdrew that motion. And under the law that we cite, that constitutes abandoning those theories. Iqbal and Twambley require more for pleading standards. And again, Section 550 is not pleaded at all, not the primary facial elements, let alone a single fact to support those elements. I mean, let me ask one question. And that's gonna be it. I like your brings analysis, but what he is saying is that, and I would like to answer to this question, had this payment not been made to you? Would you have had to go find the money and pay the next group down the line? So, yeah, there's two answers to that question. If the policies had not been covered to not been permitted. If this specific payment that they're trying to get back had not been specifically paid to you, would you have had to specifically pay it to the next group? And we don't know because this didn't happen. If CPG didn't take an action to terminate coverage at some point, I think there is some period of time that there was coverage before the payment came. So, yes, that it would have had to do that, but again, maybe not to the same extent. But the other thing to look at in that same situation, the same exact circumstances is what arose in the Pony Express case, right? That premium came was granted to ensure then the debtors checked balanced. So, there was this money that was fronted by the broker to the insurer, doesn't that create a claim? The 11th Circuit looked at those facts, very similar to our case and concluded no

. That's the record 221-722-24. But I wanted to just note that for the record. To fall back on the point that Your Honor was just asking about, does 547-B have to relate to the same creditor? And we cite case law in our brief Miller versus Steinberg on that point, and yes, it does. The district court incorrectly allowed the trustee to switch between creditors, that the entity who was the creditor was TIG because it was owed the insurance premiums. And remember what the complaint alleges, Your Honor, in paragraphs 11 and paragraphs 15. The complaint doesn't just say the transfer was made to any creditor. It says, at all relevant times, CPG was a creditor of the debtor. And it alleges this twice in paragraphs 11 and 15. The trustee sought to amend his complaint to change that and make it broader to encompass the theory that he's arguing now based on Section 5.1, but he withdrew that motion. And under the law that we cite, that constitutes abandoning those theories. Iqbal and Twambley require more for pleading standards. And again, Section 550 is not pleaded at all, not the primary facial elements, let alone a single fact to support those elements. I mean, let me ask one question. And that's gonna be it. I like your brings analysis, but what he is saying is that, and I would like to answer to this question, had this payment not been made to you? Would you have had to go find the money and pay the next group down the line? So, yeah, there's two answers to that question. If the policies had not been covered to not been permitted. If this specific payment that they're trying to get back had not been specifically paid to you, would you have had to specifically pay it to the next group? And we don't know because this didn't happen. If CPG didn't take an action to terminate coverage at some point, I think there is some period of time that there was coverage before the payment came. So, yes, that it would have had to do that, but again, maybe not to the same extent. But the other thing to look at in that same situation, the same exact circumstances is what arose in the Pony Express case, right? That premium came was granted to ensure then the debtors checked balanced. So, there was this money that was fronted by the broker to the insurer, doesn't that create a claim? The 11th Circuit looked at those facts, very similar to our case and concluded no. We step back, we look at what this transaction really was. CPG was a mere conduit. And remember, that is not in dispute. The bankruptcy court who looks at preferences every day determined that CPG was a conduit. The district court agreed CPG is a conduit. And third, it was not appealed. And going back to the brinks analogy that you were talking about. So, every conduit has the contractual obligation or a liability to pass that money on. Sometimes it might be only if you get it, you're required to pass it on, or whether you get it, you're required to pass it. But his difference is that in the brinks truck, that you're actually given the funds and you pass it on. And what he is saying is that, unlike the brinks truck, if you don't get the money, you still have to pass up. And that's what he's arguing. I understand that. And I think the answer to that is twofold. One is looking at the hypothetical situation. We can't look at that. You're reliable to pay it whether or not you get it. But to look at the legal relationship, though, don't you? You have to look at the legal relationship and that next clause, section 1.2e of the Managing General Agency Agreement, which allows you to terminate coverage. And I'm not asking your owners to look at any extra-contractual information, but just for your owner's background, so you understand how the transaction works. And you probably experience this with your own insurance coverage. You get paid for, build for premium in advance of the coverage being applicable

. We step back, we look at what this transaction really was. CPG was a mere conduit. And remember, that is not in dispute. The bankruptcy court who looks at preferences every day determined that CPG was a conduit. The district court agreed CPG is a conduit. And third, it was not appealed. And going back to the brinks analogy that you were talking about. So, every conduit has the contractual obligation or a liability to pass that money on. Sometimes it might be only if you get it, you're required to pass it on, or whether you get it, you're required to pass it. But his difference is that in the brinks truck, that you're actually given the funds and you pass it on. And what he is saying is that, unlike the brinks truck, if you don't get the money, you still have to pass up. And that's what he's arguing. I understand that. And I think the answer to that is twofold. One is looking at the hypothetical situation. We can't look at that. You're reliable to pay it whether or not you get it. But to look at the legal relationship, though, don't you? You have to look at the legal relationship and that next clause, section 1.2e of the Managing General Agency Agreement, which allows you to terminate coverage. And I'm not asking your owners to look at any extra-contractual information, but just for your owner's background, so you understand how the transaction works. And you probably experience this with your own insurance coverage. You get paid for, build for premium in advance of the coverage being applicable. And so if payment doesn't come in, it'll get terminated generally speaking. This is hypothetically. It'll get terminated before coverage periods begins to run. In some cases, it might not. In that case, what I encourage your owners to look at is the Pony Express case, which is incredibly similar to the case we have. And again, the last point is to really understand that allowing a conduit, that we've all agreed that CPG is a conduit, to also be an entity for whose benefit turned southeast on its head. And I don't think that that was what was intended by this circuit or any other circuit who has adopted that equitable defense. Well, would you agree that the trustee essentially, the second alternative theory under Section 551, that's where he went. That's what he argued in his briefs. It's not what he alleged in his complaint. It's also specifically what he abandoned when he moved for leave to amend, but I agree with your honor. He argued at least part of that. He also argued that TIG was the creditor and tried to interchange, who can satisfy which elements of a 547B claim? All right, thank you very much. We'll ask the clerk to adjourn. Court will come down to the recalculate.

Works versus construction, excuse me, in Ray Rare Works Corporation, I apologize. The synchroron? Yes. May it please the court. My name is Anna Sankaran with Greenberg Charig. I represent the Appellate Construction Program Group, CPG. Before we dive into the arguments in this particular case, if the court would find it helpful, I thought it might be useful to walk through the two bankruptcy statutes that are in play. The first is the preference statute, section 547B of the bankruptcy code, which allows a trustee subject to certain defenses to avoid transfers that the debt are made in the 90 days preceding bankruptcy. The purpose of the preference section is so that a trustee can seek an equality of distribution among unsecured creditors. Essentially, it allows a trustee to avoid all of the business transactions that the debtor engaged in 90 days prior to bankruptcy, despite the fact that the debtor may have received products and services in exchange for those payments that it's entitled to keep. In order to satisfy its burden, the trustee must establish six different elements to avoid a transfer. One, the transfer has to be an interest of the debtor in property. Two, the transfer has to be made. Two, or four, the benefit of a creditor. Three, the transfer is made on account of antecedent debt. Four, that the transfer was made while the debtor was insolvent. Five, that it was within the 90 days of petition date. And six, that the transfer resulted in the creditor receiving a greater distribution than it would have in a hypothetical chapter seven. Now, once a trustee has successfully avoided a transfer, we move to the second statute that's implicated, which is section 550 of the bankruptcy code. Section 550, which is a claim that's not pleaded in the trustee's complaint in this case, and was abandoned when he withdrew his motion for leave, allows a trustee to recover the avoided preferences from among others, an initial transfer, or an entity for whose benefit a transfer was made. Now, the code doesn't define what an initial transfer is, but this court adopted the legal dominion and control definition set forth by the seventh circuit, in bonded financial. That was the southeast hotel properties case. Dominion and control requires the ability to put the money to one's own use. So one cannot be considered an initial transfer if it was just a pass-through entity, if it didn't have the ability to put that money to its own use. The rationale behind this defense is that it is inequitable to permit recovery through a pass-through entity because there was no dominion and control. One can think of an example such as a brink's truck that's delivering cash from a customer to its bank. The brink's truck is just delivering the cash. It has no authority to do what it wants with that cash. It just simply is the conduit through which the cash is transferred. There is a large body of case law that we cite in our brief that holds that entities that collect insurance premiums, for example, have a legal obligation to pass that onto the insured are considered conduits as a matter of law. Perference jurisprudence also gives us specific instructions on how preference liability should be analyzed. In the Pony Express case, the 11th Circuit instructed, when examining whether a party is a proper subject of a Section 550 claim, courts should evaluate the transaction in its entirety and make sure the conclusions are logical and equitable. The society general case also instructs that it's especially important to consider the goal of law and the effect of a particular ruling in areas of law such as bankruptcy jurisdiction that are so strongly rooted in equitable principles. CPG, like the brink's truck example I gave you, was simply a pass through entity in this case and did nothing other than take insurance premium that the debtor sent it and pass it on to the insurer or take. Let me ask you this. It's a little bit of a convoluted question which I apologize. But you have a language in the agreement between CPG and TIG that says that CPG shall be law before and shall pay. And that's notwithstanding whether a railroad gives them the money. So the second part of the question is, the creditor is defined as an entity that has a claim against the debtor that arose at the time or before the order of relief, etc. The claim then goes on to list a whole slew of things. The one thing, and I might not be right, that's what I'm asking the question. One of those claims could be a contingent liability. So if the railroad did not pay CPG, wouldn't there exist a contingent liability? And I think the answer to your question is severalfold. The first piece of the answer to your question requires us to look at the entire managing and general agency agreement and not just the Section 5.1 provision that makes it primarily liable to pass money on. That's what creates the conduit relationship, right? The requirement that the money be passed on. But separate from that, the agreement also contains a provision that allows CPG to terminate coverage in the event of nonpayment. So there isn't necessarily a contingent liability that there's perhaps possibly an instance where coverage is not terminated when it's not paid. Well, aren't we looking at this under Texas law and the Landau versus Baltimore case seem to have some kind of language that one provision can't make the other provision worthless. Absolutely, Your Honor, and I don't think that it makes it worthless. I think you actually have to read all there are three provisions that I encourage the court to look at. And I think they can all be read in harmony. Texas contract interpretation law instructs us to look at the contract with the utilitarian purpose, understanding the business motive and what is trying to be achieved. So remember this managing general agency agreement is just one instrument in a regime to facilitate insurance coverage. In this case, there's the section that Your Honor pointed out section 5.1 that talks about primary liability that the Langdale case has similar language to. We're not disputing the fact that there is a primary liability, but there's also other provisions in the agreement that can all be read in harmony. And what happens is as the district court noticed and the bankruptcy court found that that provision is designed section 5.1 to make the managing general agent diligent in looking for whether premium has been paid and whether it's been collected, but it also has the ability to terminate coverage. So there isn't necessarily a contingent claim, but let me point your honors to a very similar situation that the bankruptcy court found useful when it decided that CPG was a mere conduit and not a creditor. It looked at the pony express case, which talks about a similar situation that your honor may be describing. In pony express, the debtor paid its insurance coverage to its broker, broker forwarded the money onto the insurer. In the interim, the debtors checked was dishonored. And so the debtor or the state of the debtor claimed that that money should be recoverable from the broker because there was a claim there or contingent claim it became a creditor at that point. The court looked at all of the factors and decided we need to step back and look at what this real transaction is and decided that the broker was a mere conduit in this case that a creditor relationship, although maybe technically was created wasn't really created because they didn't intend for the broker to become a creditor. It is the normal practice for the broker to forward premium on. There was no fee charged to the debtor for financing the premium for whatever period of time it remained unpaid. And ultimately, the pony express case, the 11th Circuit determined that that relationship should not be considered a creditor relationship. And I think that should instruct this court as well. So looking at the agreement in its entirety, it's not just Section 5.1 that operates by itself. But also, even if it did, we need to step back from the situation, look at the whole transaction as bankruptcy law requires us to do an improperance litigation requires us to do and understand what this transaction truly is, which is CPG sending money along. Let's go back to Shelby Lau for a Shelby Lau pay language. Would you agree the bankruptcy court really didn't give us any reasoning as to why that language did not make CPG a guarantee of railway works for payment of insurance premium to TIG? I just don't see a lot of rationale for why she made that statement. I agree, Your Honor, that the bankruptcy court's decision does not contain very much of an explanation as to why it determined that the managing general agency agreement did not make CPG a guarantee. But I can explain to Your Honor several reasons why it doesn't make CPG a guarantee. Number one, as I explained, in a regular guarantee and the case law that the trustee cites with respect to liability as an entity for whose benefit. But the guarantor acknowledges its role as a guarantor. In this case, the managing general agent never agreed to indemnify the insured for its premium. Because it also had the ability to terminate coverage in the event that it didn't and slept on its rights, you know, there may be an issue there, but as we look to the pony express case, the true transaction here is one of a conduit. So you're saying it can't, let me ask you if this is correct. So you're saying it cannot be a guarantor relationship if you have a right of cancellation. Yes, Your Honor. I mean, if we look at a normal guarantee, the whole credit term that's being extended is based on the identity of the guarantor. And the guarantor doesn't have the ability to say, I don't want to do this anymore and step out. Same with the surety, which are the other types of cases that the trustee cites. But as my time is running out, I really want to draw this court to a really important issue, which is faced or posed by the district court on page 10 of its decision when it creates this dual status ruling with respect to CPG. That CPG is both a conduit and an entity for whose benefit the transfer was made. And it says that this case law or this ruling is not at odds with southeast hotel. We contend that it is because it creates a logical inconsistency that renders the conduit defense in southeast hotel, meaningless. And remember that no one is disputing that CPG is a conduit. That was a conclusion the bankruptcy court made. The district court also made it and the trustee did not appeal that. What is it issue is can you be a conduit and an entity for whose benefit a transfer was made under section 550 of the code. That is a question of first impression. It has not been decided by any other court so far that we can determine. And the reason that we argue CPG argues that that cannot be the case is based on the very language that you're on or site to section 5.1 of the agreement is what creates the conduit relationship. We cite in re left way every conduit needs to establish a legal contractual obligation to pass the money on. If that legal contractual obligation is also the legal clause on which you can hold an entity liable as an entity for whose benefit because by making the transfer the debtor prevented you from reaching your contract essentially. Every conduit would automatically be an entity for whose benefit a transfer was made. So you might be accepted from liability as an initial transfer but you're automatically always because of that contractual right always going to be an entity for whose benefit a transfer was made. Remember the equitable principles that support the southeast decision and every other circuit that is adopted the conduit defense. It has implications not just to this particular case but well beyond interpreting this agreement in a way that was never intended because remember there is the 5.1 obligation there is the ability to terminate coverage. And then on top of that there's also a provision section 3.4 of three agreement which says this agreement should not be construed as an agreement of indemnification of the insured whether that be for claims whether it be for premium whether it be for anything. So we have to put all of that together and really understand what this transaction was about. And we contend that putting all of that together and reading the agreement as the district court did turns the situation on its head. The truth is is that CPG was a conduit. It was merely passing funds through. Everybody agreed it was a conduit. The southeast hotel and the conduit defense is rendered meaningless as a result of the district court's reading of the Managing General Agency agreement. Well don't you think the district court was essentially making a policy argument that says that the trustees should be able to get anything and everything and get his hands on. That's what he did. Well I think that's what trustees generally attempt to do for the good of the unsecured cutters in the case. I think in this particular case the district court isolated one particular provision in the agreement in favor of the trustees reading without taking into account these other provisions and the actual scheme. And I think that what is very important to look at I mean the court specifically said it doesn't find its conclusion contradictory to southeast hotel which I think if you step back the benefit that is measured in entity for whose benefit of transfer is made has to be something more than not breaching your obligation to pass the money on. It has to be something more than that the brings truck that brings the money across it's not going to do that pro bono it's going to get some benefit for doing it but other than that it had no ability to decide where that money went same with CPG it is undisputed that it put the money in its trust account. I just want to make sure I understand the structure of your argument so you're saying if we agreed that the transfers weren't recoverable under 550 that we don't have to address 547 is that what you're saying? I think it's in two parts you know 550 first of all was not pleaded but let's resolve this you know case from 2001. Yes but structurally how are you how are you putting this to us you're arguing both and I'm trying to understand whether we need to reach both of them in order to decide the case if we're ready to agree with you. Okay and my I'm at time may I suppose the answer is short so your honor I think the answer to the question is there's two elements one in 547 be in one in 550 that relate very closely so one of the elements of 547 be which is can the transfer be avoided is is the defendant a creditor of the debtor or an entity for his benefit and then that same analysis is used an entity for his benefit in 550 but I think that to answer your honors question you can resolve the 550 question it's not recoverable from some of the CPG we don't really care if it's avoidable or not you can't recover it from CPG you're not a party whose pot we can reach into correct because it was a mere conduit. Okay thank you thank you your honor. Mr. Guttman. May I please the court say government on behalf of the litigation trust of real works corporation. This is not where I intended to start my argument in fact I found the conduit argument to be almost species but the court seems to have taken an interest in it and therefore I will address it first then maybe it'll be the only thing I address section 5.1 of this agreement actually says a lot more than hey we have to pass the money on for conduit. It says the agent shall be liable for an angel pay to company all net premiums attributable to policies produced here under whether or not such premiums have been collected by agent less commissions they don't even have to have the money to have liability. Okay so to say that their only obligation is not to breach their agreement to pass on the premiums is incorrect that's not the obligation. I'm not trying to understand how that has anything to do with anything. A right to cancellation doesn't mean you don't have a contingent. We can answer for nonpayment instead of paying for the money you owe in other words if there is no policy there's nothing due in knowing to TIG is there. It depends when they cancel the contingent claim that we're talking about in this case arises by virtue of step one 5.1. So there's sort of a possibility of a claim when they issue the policy the contingent claim comes into existence at that moment in time. If they cancel the policy there may be no avoidable payment because they did it by canceling the policy so rail works does not make a payment to TIG. So of course there's no preference but they didn't cancel any policy here that doesn't change the fact that there is a contingent claim and in fact the money was paid here. So the contingent claim was satisfied or reduced strangely enough they although they would drew their proof of claim there's still a claim in the bankruptcy case by somebody in connection with this insurance. We look at the procedural trail but that's not really important that they filed a claim even after these payments were made. I'm not saying they have the claim they would drew it from themselves and there's another related entity that has the claim all I'm saying is that nobody canceled any policies. There were payments made. I don't think that's the point at least as I understand that that's the point that you're opposing counsel's making. She's saying that you don't have a guarantee under Texas law if you aren't unqualifiedly guaranteeing the payment. If you have a right to simply cancel the policy that means canceling the indebtedness doesn't it? Let me answer that in two steps number one guarantee is not the word in the bankruptcy code benefit. I understand she's talking about the Texas law there and the I understand that but we're talking about federal bankruptcy law here which talks about benefit as we cited in our brief. There are all kinds of benefits. How was it made for CPG's benefit CPG wasn't extending the insurance coverage. CPG had an absolute obligation to TIG for every penny of premium that was outstanding. If it didn't cancel the pot it didn't get it couldn't cancel the policy by the time these were paid that insurance coverage had been granted if you look at judgment. I think her point counsel is that it's an issue of law as to whether you can have irrespective of the facts of this case. And maybe I'm misunderstanding her but can you have a guarantee relationship arise when the party who is the punitive guarantor has the right to cancel the indebtedness that he or she or it is guaranteeing. Again there's two answers to that number one. They didn't they did not and therefore the indebtedness arose it wasn't paid timely that's in judge Schneider's opinion it wasn't paid timely and therefore when it was paid it was already outstanding that's number one. Number two. The right to cancel is not unique to this even under a guarantee if somebody guarantees a bank loan that's on a line of credit they can cancel their guarantee before the money is expended lend out a million dollars today and before they can lend the next million the the guarantor says I'm done I've left the company take me off the hook he's on the hook for the million that was lent he's off the hook going forward just a matter who the check was made out to no it could have been paid directly. The key to the right to the black led to tig cpg still the fact that this case was made out to tig was it now no it was made out to cpg it was made it OK but it could have been paid directly to the court. And then it doesn't matter it doesn't matter what all that matters are the underlying facts which are true and a guarantee case and get shorty cases responsible officer cases there's even a case we didn't get to cite it because it came out as the briefing was happened here. a call in Ray Vasu out of California, 499, bankruptcy, 864, 2013 case, where the payments to a senior mortgage, which then made equity available for the junior mortgage to attach to because now there was equity since some of the senior had been paid off, that's a preference too. These are all cases of benefit. All you need for benefit is, in this case, the reduction of the contingent claim, which as Judge Floyd pointed out, is the standard because you are a creditor if you hold a claim, you have a claim, if you have a contingent claim, an equitable claim, any type of claim. And CPG had that claim against real works as a result of Texas law, or I think Judge Bordara actually said it's marital law, but they're pretty much the same, because they had a right of, not restitution, but a right of reimbursement or subrogation against real works. If real works had not made those payments that were due in payable, and the insurance had already been expended, if real works hadn't made that, CPG was on the hook under 5.1. They didn't have to receive the money first for that to happen, and any right to had to cancel the insurance to get rid of that claim accruing, they didn't exercise for whatever reason. All these cases, they cite, pony express, and all these insurance cases, that's not the issue here. Those cases do deal with conduit liability. The question in those cases is, the money passed through the broker's hand, or in this case the general, the managing agent's hand, and the trustee went after them simply because they touched the money. You apply southeast hotel properties to that, no legal naming and control, because they only touched the money in order to pass it on to the insurance company. None of those cases dealt with an issue where you essentially have a guarantee or some independent obligation of the middleman to make sure those premiums get paid beyond the contractual obligation to pass it on. This isn't a contractual liability. It's inequitable claim because they have a right of reimbursement from real works because they agreed with TIG to make sure those payments got paid even they'd never got paid. Okay, let's back it up a little bit. It sounds to me like the foundation, the absolute utter bedrock foundation of your claim is that this was a guarantee. Well, it doesn't have to be guarantee. Let's talk about for instance, this court's decision in remarative. Okay, so you're saying that's not the foundation of your case? The foundation of the case is benefit. The benefit in this case is very similar. Okay, well, it's there to be guaranteed in this case if the payment was already made. The preference arises by virtue of the satisfaction of the outstanding death. There has to be a creditor relationship, doesn't there? There is. And so yes, but you're saying there is even though payment was made. That's the point. Judge Schneider has Judge Bridalgoer pointed out made that Judge Bridalgoer pointed out Judge Schneider's mistake. Every preference case involves a payment. If the no payment is made, you don't have a preference. It's the satisfaction of the liability that creates a preference. If it wasn't satisfied, you have no preference. You have a claim. What happened here is very simple. Railworks made this payment. Railworks had gone into bankruptcy without making this payment. CPG would have had to pay that money to TIG. That's the benefit. Very similar to guarantee, but guarantee is not the magic word here. That's the reason I said no guarantee. It is, the benefit is the bedrock of the case. That's true. If you look at in remarative, this court's case on benefit, it had nothing to do with a guarantee. He had somebody who made a fraudulent conveyance, and in the process of making that fraudulent conveyance, the money passed through the hands of a company owned by his wife. The trusty sued the wife and said she got the benefit of this fraudulently conveyed company passing through hands. It was then transferred back out to him. And the trusty sued the wife. And this court didn't say, oh, those are the facts. No guarantee, I guess she wins. She, in fact, won, but it's because there was no benefit. Right. Now, did railworks have to make the payment for the benefit? Does it have to be intended for the benefit of CPG? Or you're saying it's just enough that it was an incidental benefit? Because certainly, railworks didn't intend it for the benefit of CPG. They intended it to get insurance coverage. So you're saying incidental beneficiary is sufficient to be a beneficiary under the bankruptcy code, and do you have authority for that? Again, referring to Meredith, the court said that the determinative inquiry is whether to defend and actually receive the benefit from the transfer. And the quote is, debtors' subjective intent to benefit an entity is not determinative of the question of whether the entity is the entity. Is it OK to be an incidental beneficiary? Is that happening? Absolutely. Again, the tour is the same thing. They make this big deal again about the guarantee. The guarantee is not intended to be benefited when the principal of the Gore pays the bank. It can be, but it doesn't have to be in the responsible officer cases. The intended beneficiary doesn't have to be the responsible officer when the debtor makes a tax payment. In the other case, we've said it about the vendors with their factor of receivables. They weren't the intended beneficiaries of the payments. In all of these cases, the benefit is just that there is a benefit. And across the board, there is no need for a guarantee. And again, I think we mentioned just one of the briefs. The work guarantee, at least in any of the avoidance sections, is not even in the bankruptcy code of voice. No, just one. I'm sorry. No need. Go ahead. How about distinguished appellate counsel's analogy to the brink's truck? So again, in that type of case where you simply have this obligation to take the stack of cash and pass it on, you are fulfilling your duty, as she said, and you're not creating a claim because you'd have to breach your obligation. There's no claim there. But here, 5.1 doesn't say you have to pass what you get. It goes much beyond that. It says whether or not such premiums have been collected. The liability arises by the fact that premiums are due, not by the fact that premiums are paid. So the cash never goes into the brink's truck. In this liability case, the liability arises before the money even gets to the truck. And that's why this operates essentially like a guarantee, but not important that it be called a guarantee. It's just important that they are reducing their liability under this provision. So you can get 100% of the money from the... The 100% of the 75%, yes, as we've carved out the commissions because that's excluded from 5.1. Judge Breddarr analyzed this case exactly as it should have been analyzed. None of the bank votes go. The preference statute is essentially a no-fault strict liability statute. Other... So don't ever be a conduit or look out. What would be the entity for his benefit? You can be a conduit. That's... Are there cases that deal with dual status? There aren't any cases because... So we'd be saying for the first time that you can be both a mere conduit and a initial transferee for... No, no, no. An initial... This board has said as it's heavy or other. You cannot be in an initial transferee and a conduit. If you're an initial... Well, you can be because a conduit doesn't make any sense in this context as you can be a beneficiary and a conduit. And that comes back to my statement earlier that if the payment had gone straight to TIG, which is essentially their argument because they're saying they were conduits, so it's really as if it never touched their hands, just passed through them. But if the check had been written to TIG, they still be liable as a beneficiary. That's the law. No different than if a debtor writes a check to the bank, the guarantors liable, the guarantor doesn't have to touch the money. If in the southeast Hotel Property Case, the conduit issue was not raised as a defense. What this court actually did in that case was the trustee sued the second person to touch it, to touch the money. And that person said, hey, wait a second, I'm a subsequent transferee under 558, two of the bankruptcy code, and I have certain defenses that an initial transferee doesn't have. That's what happened in southeast. Why, I guess sort of the elephant in the room here is why didn't you go after TIG? There are the ones who got the money. There are a number of reasons I was not, I'm the trustee in the case. I was not counsel at this level. There's nothing in this record at all as to why they chose to go against the conduit. There's nothing in the record, and there's nothing we've got the money. We're not required to. The trustee has the choice, and all the cases say that. The trustee may go after one or the other. Right, I'm just asking whether the record shows it, because it's certainly curious. The record doesn't show, I can venture a guess, the check was written to CPG. But again, it could have been written to TIG. That's not, it doesn't make a difference. But what I was going to end with the southeast hotel case is so the trustee sued the second person to touch the money. This court came up with the legal dominion and control test in that case. And what they did was turn the second guy into the initial transferee. So it's not really so much a defense as a legal fiction. This court and every other one has said, just because you touched the money, that's not enough to make you an initial transferee. Well, CPG put the money into a trust account. Did it not? It did. How does that affect the analysis? Not at all. Again, conduit and beneficiary just aren't related concepts. There's nothing about, they didn't have to touch the money. What they did by putting it through the trust account is they made it as if they didn't touch the money. It says if that check was written to TIG directly, they are still liable as a beneficiary of that transfer. There is no case that says otherwise. The big issue in this was back in the early, I think was 89 or early 90s, the depreciate case out of the seventh circuit. The seventh circuit took another step and said, the insider preference provisions would take a preference back a whole year or instead of just 90 days. If you use this analysis, you have the benefit to the guarantor who may, who if he's an insider, has one year liability, and then you can go after again, either party of the transferee or the beneficiary, or in that case, they didn't reverse. Benefit to guarantor, go after the transferee, the bank who's not an insider for a whole year. And that's what the seventh circuit did. The bankruptcy code's been amended twice since to fix that problem because Congress says, we can only go after insiders for preferences for one year. Everybody else gets 90 days. But here, this is a 90 day issue. No court has ever disagreed with this analysis other than Judge Schneider. But no court has ever disagreed with this analysis. If you are a beneficiary, you are liable just as if you're the transferee. And you're saying you don't know who the checklist made out to? I do know it was made out to CPG. Oh, you see the right guessing that it was made out, I thought. I'm sorry. No, no, no, I was guessing that the reason why CPG was sued, rather than TIG or both of them together, that check was written out. You have to remember, the trustee, myself in this case, I didn't come into this case till long after Railworks case had been filed, we received a whole bunch of records and the instruction to bring the appropriate avoidance actions, some were fraudulent conveyances, some were preferences, there were over 400 lawsuits filed. So, you know, we didn't have the personal knowledge, everybody with the personal knowledge, which is why the whole issue with the, whether the TIG is the creditor under 547, B1, or whether CPG is the contingent creditor, there's no prejudice, which is what you need under Rule 15, if you use the TIG as creditor issue, because it's not in the complaint, but Judge Bordard said it's there. The whole issue of prejudice, there's no prejudice, they had all the records, they had all the witnesses, they had all the documents. The trustee had very, very little, Railworks went on, it was a confirmed chapter 11 case in which the debtor actually survived, that only happened to about 10% of chapter 11 cases. So, Railworks went on with its business, it's still operating today. The trustee was left with a lot of litigation rights. So, we went through the records we had, we conferred with Railworks, we brought these lawsuits, but they had all the records from day one, they were involved in the transaction, and there's nothing that would be any different by the time the lawsuit was brought. 5.1 says what it says, the payment had been made, they were overdue, the benefit was conferred by virtue of those payments, and the preference happened. So, there's really nothing that changed in the 10 years of litigation. I think one thing you have an answer though, and I'd like to give you an opportunity to answer, was that your opposing counsel has pointed us to the section of the party's contract that it was not an agreement for indemnification of the insured. Does that, that is the agreement between TIG and CPG? Does that make a difference in the analysis or not, and if so, why not? It doesn't make a difference. Judge Bredor essentially adopted our argument, so it's in his opinion. Right, but I'm not asking. Well, that was our arguments, I will say it again, that doesn't, it's not in the right section of the agreement to mean what they say it means, it's not at odds with 5.1, and anyhow, doesn't mean that. If you read what it says, this is not a counter-tractor of an agreement of indemnity of insured, all that means is that they are not the insurance company. If you look at the broad power they had, they'd mention some of it. Who is they? CPG. They had to write to cancel policies. They also had to write to issue policies. They essentially acted on behalf of TIG for just about everything, other than the premiums ultimately went to TIG, and the insurance company did what it did, and if there was a claim, the insurance company had to pay it. But they were, for all intents and purposes, the face of TIG in these insurance transactions, this says, don't get carried away, anybody who wants to bring a claim against our insured, CPG is not the insurance company. It's not an agreement of indemnity of insured. We're not going to provide any, CPG doesn't provide any insurance to an insured, to a insured. That has to come back to TIG. Let me ask you just one other question that I don't think that you've answered in your presentation. And that is, if you look at the language of Section 547, that talks about the avoidance of the transfer, and lists the conditions to or for the benefit of a creditor, for or on account of an antecedent debt owed by the debtor. Okay, owed by the debtor to whom? Well, it's owed by the debtor. Does it have to owe it to the same creditor? Let me break that down. That particular provision, of course, talking about owed, I've seen that owed, owed, is not in contention. That's already been at the beginning. Right, right. But let me answer what I think the court is asking. There is a relationship between 547 B1, two were for the benefit of a creditor, and 547 B5, that allows such creditor to receive more than that creditor would receive in a liquidation case. And it sandwiches the rest of the provisions. So any reference to the creditor, we're always dealing with the same creditor in the analysis. So you can analyze this as if TIG is the creditor throughout that section, and every element fits perfectly. Or you can analyze it as a CPG is the creditor. And as soon as you recognize that it is a creditor because of the held disc contingent claim that we've talked about, then it also fits right in line every single section. But it has to be the same creditor with regard to each element, isn't that correct? Correct, but either way works. This is a type of preference claim where you have two ways to improve it. Either TIG straight through, then you go to 550, and you can recover, or CPG is the creditor straight through, and then you go to 550 and you can recover. This can be proven on either one, CPG or TIG. Thank you. Thank you. Could you touch that question? Thank you. Okay, thank you. Thank you. Mr. Governor. Thank you, Ron. For a title. Thank you, Your Honor. Just wanted to address a few of the points raised by the questions to the app Helee. One of the questions that Your Honor asked was, was there anything in the record as to why TIG and not CPG was sued? And there is something in the record, and I think it's just notable to raise during the deposition of the 30b6 witness, which was the trustee himself. He testified that before filing the complaint, he knew of no contractual relationship between railworks and CPG, did no investigation into the business history between CPG and railworks, and did not review railworks books and records to determine even whether CPG was a creditor. I think his contention that that's who the check was written to was probably correct. That's the record 221-722-24. But I wanted to just note that for the record. To fall back on the point that Your Honor was just asking about, does 547-B have to relate to the same creditor? And we cite case law in our brief Miller versus Steinberg on that point, and yes, it does. The district court incorrectly allowed the trustee to switch between creditors, that the entity who was the creditor was TIG because it was owed the insurance premiums. And remember what the complaint alleges, Your Honor, in paragraphs 11 and paragraphs 15. The complaint doesn't just say the transfer was made to any creditor. It says, at all relevant times, CPG was a creditor of the debtor. And it alleges this twice in paragraphs 11 and 15. The trustee sought to amend his complaint to change that and make it broader to encompass the theory that he's arguing now based on Section 5.1, but he withdrew that motion. And under the law that we cite, that constitutes abandoning those theories. Iqbal and Twambley require more for pleading standards. And again, Section 550 is not pleaded at all, not the primary facial elements, let alone a single fact to support those elements. I mean, let me ask one question. And that's gonna be it. I like your brings analysis, but what he is saying is that, and I would like to answer to this question, had this payment not been made to you? Would you have had to go find the money and pay the next group down the line? So, yeah, there's two answers to that question. If the policies had not been covered to not been permitted. If this specific payment that they're trying to get back had not been specifically paid to you, would you have had to specifically pay it to the next group? And we don't know because this didn't happen. If CPG didn't take an action to terminate coverage at some point, I think there is some period of time that there was coverage before the payment came. So, yes, that it would have had to do that, but again, maybe not to the same extent. But the other thing to look at in that same situation, the same exact circumstances is what arose in the Pony Express case, right? That premium came was granted to ensure then the debtors checked balanced. So, there was this money that was fronted by the broker to the insurer, doesn't that create a claim? The 11th Circuit looked at those facts, very similar to our case and concluded no. We step back, we look at what this transaction really was. CPG was a mere conduit. And remember, that is not in dispute. The bankruptcy court who looks at preferences every day determined that CPG was a conduit. The district court agreed CPG is a conduit. And third, it was not appealed. And going back to the brinks analogy that you were talking about. So, every conduit has the contractual obligation or a liability to pass that money on. Sometimes it might be only if you get it, you're required to pass it on, or whether you get it, you're required to pass it. But his difference is that in the brinks truck, that you're actually given the funds and you pass it on. And what he is saying is that, unlike the brinks truck, if you don't get the money, you still have to pass up. And that's what he's arguing. I understand that. And I think the answer to that is twofold. One is looking at the hypothetical situation. We can't look at that. You're reliable to pay it whether or not you get it. But to look at the legal relationship, though, don't you? You have to look at the legal relationship and that next clause, section 1.2e of the Managing General Agency Agreement, which allows you to terminate coverage. And I'm not asking your owners to look at any extra-contractual information, but just for your owner's background, so you understand how the transaction works. And you probably experience this with your own insurance coverage. You get paid for, build for premium in advance of the coverage being applicable. And so if payment doesn't come in, it'll get terminated generally speaking. This is hypothetically. It'll get terminated before coverage periods begins to run. In some cases, it might not. In that case, what I encourage your owners to look at is the Pony Express case, which is incredibly similar to the case we have. And again, the last point is to really understand that allowing a conduit, that we've all agreed that CPG is a conduit, to also be an entity for whose benefit turned southeast on its head. And I don't think that that was what was intended by this circuit or any other circuit who has adopted that equitable defense. Well, would you agree that the trustee essentially, the second alternative theory under Section 551, that's where he went. That's what he argued in his briefs. It's not what he alleged in his complaint. It's also specifically what he abandoned when he moved for leave to amend, but I agree with your honor. He argued at least part of that. He also argued that TIG was the creditor and tried to interchange, who can satisfy which elements of a 547B claim? All right, thank you very much. We'll ask the clerk to adjourn. Court will come down to the recalculate