[00:00:01] Speaker 00:
Good morning, Your Honor.

[00:00:02] Speaker 00:
It's Dale Kachkalotis on behalf of Ladera.

[00:00:05] Speaker 00:
I will try to save seven minutes for rebuttal.

[00:00:10] Speaker 00:
I'm going to start with the contract interpretation issue in this case, because if you agree with me that the inter-creditor agreement does not entitle Hall to Ladera's title insurance, then Hall's entire cross-appeal is moot, and you don't even need to reach my argument that Hall failed to adequately disclose its damages computation.

[00:00:30] Speaker 00:
Hall's cross appeal in this case rather highlights the absurdity of its position.

[00:00:35] Speaker 00:
Not only is Hall trying to treat Ladera and Ladera's title insurers as essentially guarantors of Hall's senior loan to the borrower, but Hall is also asking the court to determine a mechanism whereby Hall can negotiate with Old Republic, the title insurer, directly to obtain Ladera's title insurance.

[00:00:54] Speaker 00:
I think the very fact that Hall is requesting that makes it clear that

[00:00:58] Speaker 00:
There is no mechanism spelled out for that in the inter-creditor agreement.

[00:01:02] Speaker 00:
And that's because the inter-creditor agreement was never intended to give Hall a right to Ladera's title insurance.

[00:01:09] Speaker 00:
So unlike property insurance, Hall wasn't named beneficiary on all the property insurance documents, and it does have a right to, you know, negotiate with the property insurer directly.

[00:01:19] Speaker 00:
But it was never named as a beneficiary of Ladera's title insurance.

[00:01:22] Speaker 00:
And it never even requested to be named as a beneficiary because Hall had his own title insurance.

[00:01:28] Speaker 01:
And in fact... Did any loan documents between Ladera and Hall or the borrower require Ladera to buy any title insurance?

[00:01:42] Speaker 00:
No.

[00:01:43] Speaker 01:
There wouldn't be any reason they would care?

[00:01:44] Speaker 00:
No, Ladera bought title insurance to protect itself.

[00:01:47] Speaker 00:
And that's exactly our problem with what Hall is trying to get in this case.

[00:01:53] Speaker 00:
So Hall had its own title insurance, right?

[00:01:57] Speaker 00:
And it lost its own lawsuit against Old Republic because coverage for prior mechanics liens were specifically excluded from Hall's policy.

[00:02:06] Speaker 00:
And I submit that's precisely because Hall knew about Penta's prior construction work on the property.

[00:02:12] Speaker 00:
And the Fifth Circuit called Hall a real chutzpah for even bringing the lawsuit against Old Republic.

[00:02:18] Speaker 00:
I submit there are even more of a chutzpah in this case for turning around and suing Ladera for Ladera's title insurance policy.

[00:02:25] Speaker 00:
I think it's telling in this case.

[00:02:26] Speaker 00:
I researched this issue to death.

[00:02:28] Speaker 00:
I haven't seen a single case cited by Hall.

[00:02:31] Speaker 00:
I haven't found a single case in which a court has held that a senior lender is entitled to a junior lender's title insurance under an inter-creditor agreement.

[00:02:41] Speaker 00:
and I think that would establish terrible precedent in the lending industry.

[00:02:44] Speaker 00:
There would be no incentive for a junior lender to ever go purchase its own title insurance.

[00:02:49] Speaker 01:
Well, it would all, I mean, the question, it would easily be solvable by explicit contractual language, right?

[00:02:57] Speaker 00:
I would grant you that.

[00:02:58] Speaker 00:
If there were, and I think that's the other problem in this case, Hall drafted the intercredit agreement.

[00:03:03] Speaker 00:
It's over 30 pages, single spaced, and Hall can't point to a single reference where it says the word title insurance.

[00:03:08] Speaker 00:
let alone a provision in titling hall to Ladair's title insurance.

[00:03:12] Speaker 04:
Well, it says junior lenders shall release insurance proceeds and condemnation awards to be applied to the restoration of the property or to payment of the indebtedness.

[00:03:22] Speaker 04:
So that seems to touch all insurance proceeds.

[00:03:27] Speaker 00:
Well, I disagree.

[00:03:29] Speaker 00:
I think if you read that provision as a whole, to be applied to the restoration of the property, that's not what title insurance does.

[00:03:36] Speaker 00:
I mean, to me, this is a classic property insurance provision.

[00:03:40] Speaker 04:
And if you read the rest of the sentence... Or to the payment of indebtedness, yeah.

[00:03:44] Speaker 00:
Yeah, but there's nothing in Ladera's title insurance that goes to paying the indebtedness of borrower's loan to Hall, which is what the indebtedness... It's not limited to...

[00:03:55] Speaker 00:
It says, or to payment of the indebtedness evidenced and secured by the senior loan documents.

[00:04:02] Speaker 00:
That is the indebtedness to Hall.

[00:04:04] Speaker 00:
And there's nothing in our title insurance that goes to that.

[00:04:08] Speaker 00:
And I think Hall concedes that in their reply brief.

[00:04:12] Speaker 00:
And if you go on, that sentence says, in the same manner as senior lender, so that no conflicts are created.

[00:04:18] Speaker 00:
Again, to me, this is a classic property insurance provision where

[00:04:22] Speaker 00:
the senior lender, junior lender, and the borrower all have an interest in the property insurance.

[00:04:27] Speaker 00:
And Hall is basically saying, we get to decide how to apply that if we want to restore the property or if we want to use it to pay off our loan.

[00:04:35] Speaker 00:
But we get to decide that.

[00:04:36] Speaker 00:
But if you continue in that paragraph, it talks about all proceeds of such insurance related to the property.

[00:04:44] Speaker 00:
I mean, it's all about property insurance.

[00:04:48] Speaker 03:
And I think... Hold on, back up on that.

[00:04:51] Speaker 03:
Title insurance is related to the property.

[00:04:55] Speaker 00:
Well, yeah, I think this gets into Hall's other argument.

[00:04:58] Speaker 00:
I guess it's related in kind of a butt force sense.

[00:05:02] Speaker 00:
I think this paragraph itself, you know, talking about replacing any part of the property or restoring the property, is describing property insurance.

[00:05:11] Speaker 00:
I admit we wouldn't have title insurance if we didn't, you know, have the junior loan.

[00:05:18] Speaker 00:
But I don't think that payment of title insurance somehow pays down the junior loan.

[00:05:24] Speaker 00:
I'll address this point.

[00:05:27] Speaker 04:
Why couldn't it have been contemplated that title insurance of the junior lender would have been used to pay down the indebtedness of the senior lender?

[00:05:35] Speaker 04:
I mean, as I read this document, it's basically the whole point is that the senior lender gets paid whole first before the junior gets paid anything.

[00:05:45] Speaker 04:
That's the intent of the report.

[00:05:47] Speaker 00:
I agree with that by the borrower.

[00:05:49] Speaker 00:
And if you look at this agreement, it's signed by Hall, Ladera, and the borrower.

[00:05:53] Speaker 00:
It's not signed by the title insurer.

[00:05:55] Speaker 00:
And so when it says Hall shall be paid first before any payment is made on account of the junior debt, the only possible person that can bind is the borrower, Hall and Ladera, right?

[00:06:06] Speaker 00:
Yes.

[00:06:06] Speaker 00:
Old Republic never agreed to this, and they're not named on our policy with Old Republic.

[00:06:13] Speaker 00:
What I'll say is,

[00:06:14] Speaker 00:
Yes, our policy with Old Republic says, I guess, our title insurance is capped at the amount of indebtedness of the junior loan.

[00:06:24] Speaker 00:
And so if the borrower had made any payments on the junior loan, which it never did, but if it had, that would diminish what our title insurer pays us.

[00:06:34] Speaker 00:
But the converse is not true.

[00:06:35] Speaker 00:
Nothing in Ladera's contract with the borrower says, if we somehow get a title insurance payment, that reduces what you owe to us.

[00:06:44] Speaker 00:
That's just simply not the case, because title insurance is something fundamentally different.

[00:06:49] Speaker 00:
It doesn't ensure payments.

[00:06:51] Speaker 00:
It's not even a mortgage guarantee policy.

[00:06:55] Speaker 00:
It doesn't ensure payments on the underlying loan.

[00:06:58] Speaker 00:
It ensures the priority of our lien position.

[00:07:02] Speaker 00:
It was meant to ensure that we had a second place priority, which in this case, I mean, I think the equities are

[00:07:11] Speaker 00:
especially egregious here because Hall knew about Penta's prior work on the property.

[00:07:16] Speaker 00:
Ladera didn't.

[00:07:18] Speaker 00:
Hall knowingly accepted that risk and included and was the drafter of provisions in the contract saying that no work of any kind had been done on the property.

[00:07:27] Speaker 00:
And that's what Ladera relied on.

[00:07:30] Speaker 00:
And this is my issue with the summary judgment ruling in this case is Judge Jones, the district court basically said,

[00:07:38] Speaker 00:
you need to rely on these red flags instead of the contract language itself.

[00:07:42] Speaker 00:
Well, here we had the contract language that we were relying on.

[00:07:46] Speaker 00:
All the case law that I found in Texas says, yes, of course, you can't rely on an oral representation that contradicts the written language.

[00:07:53] Speaker 00:
And there's case law saying, what was so important to you was this specific provision you should have included in the contract.

[00:08:01] Speaker 00:
Well, here, the contract, I mean, what we relied on was in the contract multiple times.

[00:08:05] Speaker 00:
It said no work of any kind has been done on the property, especially by Penta.

[00:08:10] Speaker 00:
And that was material to Ladera because that representation made us think there was no possible prior lien by Penta.

[00:08:18] Speaker 00:
When in fact there was, and Hall knew about it, and Hall was the one who chose and the borrower's bankruptcy, Hall thought Penta's position was strong enough that it entered a settlement with them, paid

[00:08:30] Speaker 00:
Penta basically is full lean about.

[00:08:32] Speaker 00:
Hall took the rest of the money and Ladera was left nothing.

[00:08:35] Speaker 01:
Could I ask you a couple of questions to follow up on that?

[00:08:38] Speaker 01:
What was the extent of Penta's lean at the time of the closing of the loans versus the later default?

[00:08:50] Speaker 00:
I think at most it was like $130,000 something.

[00:08:54] Speaker 01:
That's the one number we see in the spreadsheet.

[00:08:57] Speaker 00:
Right.

[00:08:58] Speaker 00:
I don't even think the spreadsheet shows that clearly.

[00:09:01] Speaker 00:
The reason why Judge Jones said, you should have looked at this spreadsheet, but the spreadsheet lists PENTA under

[00:09:12] Speaker 00:
construction design.

[00:09:14] Speaker 01:
I don't want to get tied up in those factual disputes about the counterclaims, but I want to understand how the lien grew from minimal work up to eight, six, seven, eight million dollars.

[00:09:28] Speaker 00:
Seven, eight million dollars.

[00:09:29] Speaker 00:
Yeah, they got over eight million in the bank residue because Penta was the general contractor.

[00:09:33] Speaker 01:
So that gives them priority for their intervening.

[00:09:36] Speaker 00:
Right.

[00:09:36] Speaker 00:
They tied back the later work to this.

[00:09:38] Speaker 00:
And I'm saying that's why it's particularly important to us that

[00:09:42] Speaker 00:
The spreadsheet and the memorandum the district court relied on didn't say Penta had done.

[00:09:47] Speaker 00:
It said, yeah, this boiler room had been replaced and some work, but we didn't know it was Penta.

[00:09:52] Speaker 00:
So if it was any other contractor, low-level contractor, we're thinking a minimum lien that could have been paid off easily.

[00:09:59] Speaker 00:
The only way it ballooned into $8 million was because it was pending the general contract.

[00:10:04] Speaker 04:
That's an interesting point.

[00:10:06] Speaker 04:
You're suggesting that even if they knew there was some construction done by someone, no one would have known that it would have been on the hook for $9 million.

[00:10:14] Speaker 00:
Exactly.

[00:10:15] Speaker 00:
But Hall did know that.

[00:10:16] Speaker 01:
So a couple of other things to clean up.

[00:10:21] Speaker 01:
The record, where does the record show the junior debt having been extinguished?

[00:10:25] Speaker 01:
That's something you assert in your briefs.

[00:10:26] Speaker 01:
Is that in the final bankruptcy order?

[00:10:29] Speaker 00:
Yeah, confirmation of the bankruptcy plan.

[00:10:31] Speaker 00:
My point there is just that any payment we received now.

[00:10:36] Speaker 01:
If you'd bear with me for just another moment, I want to understand how some of the different issues here relate to each other.

[00:10:42] Speaker 01:
Suppose, for example, we disagree with you about

[00:10:46] Speaker 01:
the terms of the inter-creditor agreement, but we agree that there would be factual issues on your counterclaims.

[00:10:55] Speaker 01:
Then we need to send things back for a trial that could effectively negate the claim under the inter-creditor agreement, correct?

[00:11:03] Speaker 00:
Correct.

[00:11:03] Speaker 01:
Reverse envy mapping.

[00:11:06] Speaker 01:
This is a really a question for both sides, but does anybody see any viable legal theory for?

[00:11:14] Speaker 01:
Splitting the title insurance 50-50 no, I perfectly well understand why the district judge did what he did But no and as much here It's all or nothing as much as I would hate to have hall get more money.

[00:11:27] Speaker 00:
I think there's no legally defensible

[00:11:30] Speaker 00:
argument to uphold the district.

[00:11:31] Speaker 00:
Either they get our title insurance or they don't, but there's no word.

[00:11:36] Speaker 01:
Has Old Republic paid in, like on an inter pleader or anything like that?

[00:11:41] Speaker 01:
No.

[00:11:41] Speaker 01:
Okay.

[00:11:41] Speaker 01:
All right.

[00:11:43] Speaker 01:
Thank you.

[00:11:44] Speaker 00:
Okay.

[00:11:47] Speaker 00:
So I'll just touch on

[00:11:53] Speaker 00:
I think we hit the point that Old Republic was not a party to the inter-creditor agreement, and the inter-creditor agreement itself doesn't mention title insurance.

[00:12:03] Speaker 00:
Now, my second argument, even if you disagree with me on the interpretation of the inter-creditor agreement, Hall itself pled as damages that they were entitled to Lidaire's title insurance up to the amount that Hall was made whole.

[00:12:19] Speaker 00:
That's my other problem in this case.

[00:12:21] Speaker 00:
The only solid numbers I have is Hall admitted and sworn testimony that it dispersed under $20 million.

[00:12:27] Speaker 00:
How much under?

[00:12:28] Speaker 00:
I still don't know.

[00:12:29] Speaker 00:
But under $20 million, it admits that it was paid over $27.4 million in the bankruptcy.

[00:12:35] Speaker 00:
So you do the math, but by my math, you know, they've not only been repaid what they lent, but they've made a handsome profit as well.

[00:12:42] Speaker 00:
To the extent they're claiming interest and fees

[00:12:45] Speaker 00:
and penalties that they're entitled to more than that.

[00:12:49] Speaker 00:
At a minimum, my client was entitled to see the spreadsheet, the documents supporting that, supporting what was added back into that loan.

[00:12:57] Speaker 00:
We know from testimony that millions of dollars of attorney's fees were put into the principal of the loan and then accrued interest on that.

[00:13:05] Speaker 00:
But we didn't see all the invoices for what those attorney's fees were for.

[00:13:10] Speaker 00:
For limited ones, we did see they had included fees against the guarantors in a separate lawsuit.

[00:13:15] Speaker 00:
things that should never have been included in this case, and I'm saying under Rule 26, I mean, they're the ones who listed this in their initial disclosure as damages.

[00:13:26] Speaker 00:
I'm saying they had to provide a computation of what they were owed, and they had to provide documents to us where we could verify.

[00:13:32] Speaker 00:
You know, one of the problems I have with their cross-appeal when they're asserting they're entitled to all these prepayment penalties

[00:13:41] Speaker 00:
I have to see the amounts that were dispersed and the dates of those amounts to even verify if a prepayment penalty would come into play and how much it would be and when it burned off, as they're alleging, and the bankruptcy.

[00:13:55] Speaker 00:
But I don't have those documents to verify that.

[00:13:57] Speaker 00:
And so my second argument is, even if they were theoretically entitled to some amount of damages, they failed their disclosure obligations.

[00:14:06] Speaker 00:
And the district court essentially

[00:14:08] Speaker 00:
ignored, you know, the mandate of Rule 37 that that evidence is precluded.

[00:14:12] Speaker 01:
Could I ask you, when would you say before the trial, this is an unusual process, okay, I get that, but when before the trial would you say the district court had what I will loosely call the last clear chance to fix this problem and to compel pre-trial disclosure

[00:14:35] Speaker 01:
of the damages calculations and support in time for you all to prepare adequately.

[00:14:43] Speaker 00:
It probably still would have been too late, but at least at the motion and lemonade stage when I brought this issue up, I guess the district court could have theoretically postponed the trial, ordered the disclosure, let us do some supplemental expert discovery on it, and then held the trial.

[00:14:59] Speaker 00:
But essentially, the district court said, I agree with you, they've failed to disclose this, how in the world

[00:15:05] Speaker 00:
That was his quote.

[00:15:06] Speaker 00:
How in the world are we going to proceed to trial on this?

[00:15:09] Speaker 00:
But let's proceed anyway.

[00:15:10] Speaker 00:
And we literally had people pulling out calculators on the stand.

[00:15:13] Speaker 00:
I've never seen anything like it.

[00:15:15] Speaker 00:
I'm seeing these numbers and calculations for the very first time.

[00:15:18] Speaker 00:
And my client tried to submit a supplemental declaration and spreadsheets after trial, and Judge Jones

[00:15:25] Speaker 00:
wouldn't allow it, which I don't blame it, but it was only to ameliorate the prejudice of these last minute numbers.

[00:15:31] Speaker 04:
So that's why I'm asking, because it was Judge Jones that kind of prompted all of this, who responded, why wouldn't it be substantially justified not to turn over the evidence in advance?

[00:15:41] Speaker 00:
Because Hall is the one who listed this as damages in their initial disclosures.

[00:15:45] Speaker 00:
And rule 26 says, even without a discovery request, you have to provide this information.

[00:15:50] Speaker 00:
You have to provide a computation of your damages.

[00:15:52] Speaker 04:
Well, unless it's substantially justified, right?

[00:15:54] Speaker 04:
not to, and if the district court springs this on both parties, you know, last minute, that seems like a substantial justification.

[00:16:02] Speaker 00:
Well, but I think Hollett failed to disclose first.

[00:16:05] Speaker 00:
I pointed it out in my motion in Lemonay.

[00:16:08] Speaker 00:
Judge Jones still had us go to trial, but I don't think Judge Jones caused them not to disclose the documents, you know.

[00:16:15] Speaker 04:
Well, I thought the whole point is that at trial they weren't seeking to prove up the damages, and it was only Judge Jones requiring them to do so.

[00:16:22] Speaker 00:
Well, I think that it was their burden to prove the damages.

[00:16:25] Speaker 00:
I mean, they say they were seeking only declaratory release.

[00:16:29] Speaker 00:
Right, that's what I thought.

[00:16:31] Speaker 00:
And not subrogation, but that's not true.

[00:16:34] Speaker 00:
If you read their complaint and even what they're asking in this appeal,

[00:16:37] Speaker 00:
They're literally asking to stand in the shoes of Ladera and negotiate with Ladera's title insurer.

[00:16:42] Speaker 00:
That is subrogation.

[00:16:43] Speaker 00:
And under Texas law, they have to prove that amount of their subrogation claim.

[00:16:47] Speaker 00:
They don't just get to come in and, you know, ask for some vague ruling, I don't think.

[00:16:51] Speaker 00:
I think they had to... Why couldn't they?

[00:16:53] Speaker 04:
Couldn't they just get a declaratory judgment, then go to insurance, and then figure it all out afterwards?

[00:16:59] Speaker 04:
That's what I thought that they were trying to do.

[00:17:02] Speaker 00:
Maybe they were trying to do that, but I think they shot themselves in their foot in their own Rule 26 disclosures then.

[00:17:08] Speaker 00:
They described their damages as the amount of insurance up to the amount they were made whole.

[00:17:16] Speaker 00:
They put that in the section on damages.

[00:17:20] Speaker 00:
To me, if I were seeking purely declaratory relief, I would have just said, I'm not seeking damages in this action.

[00:17:27] Speaker 00:
I'm seeking a declaration as to the mechanics of the inter-creditor agreement.

[00:17:31] Speaker 00:
But that's not how they did it.

[00:17:33] Speaker 00:
I'll save the rest of my time for rebuttal.

[00:17:49] Speaker 02:
May it please the court, Frank Wright on behalf of Hall, CA, NV, LLC.

[00:17:56] Speaker 02:
appellee and cross-appellant in this case.

[00:17:59] Speaker 02:
And as you aptly pointed out, the CA and the NVs, because this property sat on the state line, couldn't have been a bigger disaster than sitting on a state line and impacting laws in two different states.

[00:18:14] Speaker 02:
And I may be the only lawyer that dates all the way back to the beginning of this.

[00:18:17] Speaker 02:
I was there when the bankruptcy was filed.

[00:18:20] Speaker 02:
This case has been going on now since that bankruptcy for nine years.

[00:18:27] Speaker 02:
I think the record is there's no dispute that my client is in the senior lien position.

[00:18:35] Speaker 02:
There's no dispute that Ladera is in a junior lien position and that the parties had an inter-creditor agreement.

[00:18:42] Speaker 02:
And that inter-creditor agreement did what most inter-creditor agreements do and it provided for a complete subordination of the debt of the junior lender to the senior lender.

[00:18:54] Speaker 02:
I'll jump right into, I mean, we're talking about the insurance.

[00:18:58] Speaker 02:
I think when you look at the entirety of that document, and you look at the recitals, and you look at 3A and 3B, and then the specific provisions on insurance, there is no carve out.

[00:19:14] Speaker 02:
No exclusion for title insurance.

[00:19:17] Speaker 01:
So if that's if that's there's nothing explicit, but how do you account for the fact that nothing in the documents requires Ladera to buy title insurance, let alone to do it for the benefit of all?

[00:19:33] Speaker 02:
It wasn't required to buy title insurance or property insurance, either one.

[00:19:37] Speaker 01:
There wasn't any provision for property insurance?

[00:19:40] Speaker 02:
No, no.

[00:19:40] Speaker 02:
Senior lender gets the property insurance.

[00:19:42] Speaker 01:
Of course.

[00:19:43] Speaker 01:
Right.

[00:19:43] Speaker 01:
Of course.

[00:19:44] Speaker 01:
But property insurance was required under the loan agreement, I assume.

[00:19:50] Speaker 02:
Right.

[00:19:50] Speaker 02:
And so if you look at the insurance provisions, what other type of insurance could they be addressing other than title insurance?

[00:19:58] Speaker 02:
Junior lenders don't buy property insurance.

[00:20:01] Speaker 02:
They buy title insurance.

[00:20:03] Speaker 02:
just like the senior lender by his title.

[00:20:05] Speaker 01:
Wasn't the junior lender also an insured on the property insurance?

[00:20:10] Speaker 02:
Should have been.

[00:20:11] Speaker 01:
Should have been, yeah.

[00:20:12] Speaker 01:
I can't say that for a fact.

[00:20:14] Speaker 01:
They should have been.

[00:20:14] Speaker 01:
They should have been, yeah, of course.

[00:20:16] Speaker 01:
Right.

[00:20:17] Speaker 01:
That's what everybody would expect.

[00:20:19] Speaker 01:
So you've told us in your briefs that this case is not exceptional, but that it is vital to the lending industry.

[00:20:26] Speaker 01:
So can you point us to any other case?

[00:20:30] Speaker 01:
Your friend on the other side said she hadn't found one.

[00:20:32] Speaker 01:
Can you point us to a case like this one in which a senior lender is able to get access to the title insurance of a junior lender?

[00:20:46] Speaker 02:
I cannot.

[00:20:47] Speaker 01:
unprecedented in annals of Anglo-American law at this point?

[00:20:52] Speaker 02:
I have not seen any other senior lender that has attempted to obtain the title insurance of the gender lender.

[00:21:00] Speaker 01:
Wow.

[00:21:01] Speaker 01:
Okay.

[00:21:02] Speaker 01:
The question is, if you're telling us we need to read the whole document contextually, which is what I understood you to be saying,

[00:21:12] Speaker 01:
the structure of the transaction, the relationships among the parties would seem to suggest that this purely optional title insurance that the junior lender buys on its own initiative with its own money was not really contemplated by the borrower or the senior lender.

[00:21:32] Speaker 02:
I think what was contemplated is that both parties were going to get title insurance.

[00:21:37] Speaker 02:
I think what may not have been contemplated is that the senior lender's title insurance was going to be ineffective.

[00:21:44] Speaker 01:
Well, that's your problem, right?

[00:21:46] Speaker 02:
Well, that is a problem.

[00:21:47] Speaker 02:
However, you have a document that says that they cannot receive a payment from any source.

[00:21:54] Speaker 01:
The way that's written is extremely broad, right?

[00:21:57] Speaker 01:
And so the way that some of these provisions are written, if they were to receive a payment from another property entirely, it has to go to you before it goes to them.

[00:22:07] Speaker 02:
if they received a payment from another source that was being applied to their debt.

[00:22:13] Speaker 01:
Now, they make an argument that this is not- No, or for the benefit of the holder of the junior debt, not necessarily on account.

[00:22:21] Speaker 01:
That's the last part of the sentence.

[00:22:23] Speaker 01:
I'm looking at one, let's see, where am I?

[00:22:26] Speaker 01:
1B, right?

[00:22:31] Speaker 01:
About eight lines, seven, eight lines.

[00:22:33] Speaker 02:
Or any payment of any character shall be made on account of the junior debt or otherwise to or for the benefit of the holder or holders of the junior debt.

[00:22:40] Speaker 01:
Right.

[00:22:41] Speaker 01:
Doesn't have to be for the account.

[00:22:44] Speaker 01:
So if they've got a deal in Arizona that pays them money under this language, if we take it literally, you get it, right?

[00:22:55] Speaker 01:
That's absurd, right?

[00:22:56] Speaker 02:
If you take it literally, it is very broad.

[00:22:59] Speaker 01:
Yes.

[00:22:59] Speaker 01:
And it's absurdly broad.

[00:23:02] Speaker 01:
So we can't take this stuff too literally, right?

[00:23:05] Speaker 02:
But I think you can take it that if they're receiving a payment on title insurance, it clearly is on account of their debt.

[00:23:14] Speaker 02:
There's no other reason you have title insurance than the fact that you have debt.

[00:23:18] Speaker 01:
But they're saying the debt has disappeared by this time.

[00:23:20] Speaker 02:
And it had not disappeared.

[00:23:22] Speaker 02:
And here's the reason.

[00:23:23] Speaker 02:
It hadn't disappeared any more than Hall's debt disappeared.

[00:23:26] Speaker 02:
It's been discharged.

[00:23:28] Speaker 02:
We had a discharge as to the debtor.

[00:23:31] Speaker 02:
They still had a guarantee claim they could pursue.

[00:23:33] Speaker 02:
Their debt didn't go away.

[00:23:34] Speaker 02:
They can still chase a guarantor.

[00:23:36] Speaker 02:
They can still chase the title company.

[00:23:38] Speaker 03:
Can I go back to something you said?

[00:23:40] Speaker 03:
You said there's no reason to get title insurance other than to secure the debt.

[00:23:45] Speaker 03:
Is that true?

[00:23:45] Speaker 03:
I mean, don't you buy title insurance to ensure that you actually have the home?

[00:23:50] Speaker 03:
Even if I went and paid cash for a home, I'd still go get title insurance to make sure that I have title to the house.

[00:23:56] Speaker 02:
If you're a lender, you're getting title insurance to secure your loan and to secure the priority of your loan.

[00:24:03] Speaker 03:
And so that's why they got it so does a homeowner not ever get title insurance or they these are just separate They're separate buckets.

[00:24:10] Speaker 02:
They're separate topics.

[00:24:11] Speaker 03:
That's homeowners do get title insurance They get title insurance to ensure that they've got the lender your point is that where here we're talking about the lender It wouldn't make sense for any other they don't care.

[00:24:22] Speaker 03:
I mean, I guess they do care about that and

[00:24:25] Speaker 03:
underlying title to the home, they want to make sure that's accurate.

[00:24:28] Speaker 03:
Correct.

[00:24:29] Speaker 03:
But they're getting title insurance for the amount of their loan.

[00:24:33] Speaker 03:
They're not getting it.

[00:24:34] Speaker 02:
Right.

[00:24:34] Speaker 02:
Exactly for the amount of their loan, which is why we're dealing with a title insurance policy for $6 million, which, as you noted, Judge Jones just split it, and there was no basis to split it.

[00:24:47] Speaker 01:
You agree.

[00:24:48] Speaker 02:
I agree there's no basis to split it.

[00:24:49] Speaker 02:
You just want the whole thing.

[00:24:50] Speaker 02:
This is totally contrary to a subordination agreement.

[00:24:54] Speaker 04:
So just going back to your point before, even if the junior debt was discharged, wouldn't the title insurance still be paid on account of it?

[00:25:05] Speaker 04:
Because on account of seems to be a very broad language.

[00:25:10] Speaker 02:
Yes.

[00:25:10] Speaker 02:
And again, as I was trying to point out, the debt's discharged as to the borrower.

[00:25:17] Speaker 02:
The debt is not discharged as to a guarantor.

[00:25:21] Speaker 04:
Is there a guarantor in this case?

[00:25:22] Speaker 02:
Yes, there is.

[00:25:22] Speaker 02:
Who is that?

[00:25:24] Speaker 02:
I think they had Radovan.

[00:25:26] Speaker 02:
There were two developers involved.

[00:25:28] Speaker 02:
We had guarantees from both Criswell and Radovan, both developers.

[00:25:32] Speaker 02:
We got an $8.6 million judgment against that.

[00:25:35] Speaker 04:
So the junior debt still existed, just it was discharged against the borrower.

[00:25:40] Speaker 04:
So even if

[00:25:42] Speaker 04:
you know, regardless of the bankruptcy that is still entitled, the proceeds of the title insurance was still on account of the junior debt.

[00:25:49] Speaker 04:
Correct.

[00:25:49] Speaker 04:
That's your argument, because it still existed as to the guarantor.

[00:25:53] Speaker 02:
Right, and Old Republic.

[00:25:55] Speaker 04:
But even, can I ask though, even if it wasn't, even if there was no guarantor and it was discharged, then would you say it's not on account of the junior debt?

[00:26:04] Speaker 02:
No, I would say it was still on account of the junior debt, because the title company is going to be looking at that debt.

[00:26:09] Speaker 02:
What they're going to be looking at is,

[00:26:11] Speaker 02:
What was your damage?

[00:26:12] Speaker 02:
You don't necessarily just get $6 million.

[00:26:14] Speaker 02:
In other words, how were you damaged because there was a lien that popped in front of you?

[00:26:21] Speaker 02:
And there was never a determination that Penta had a lien superior to Ladera.

[00:26:27] Speaker 02:
There was never a determination that Penta had a lien superior to Hall.

[00:26:30] Speaker 02:
It was settled.

[00:26:32] Speaker 02:
There was an issue raised, and it was settled.

[00:26:34] Speaker 02:
Y'all had asked the question, what was the original amount of that debt?

[00:26:38] Speaker 02:
Okay, about $150,000, which had been paid.

[00:26:45] Speaker 02:
There was still some equipment on the site.

[00:26:50] Speaker 01:
Work had been done.

[00:26:51] Speaker 01:
This is at the time of closing.

[00:26:52] Speaker 02:
Right.

[00:26:53] Speaker 02:
This was at the time of the original loan closings.

[00:26:56] Speaker 01:
Yeah.

[00:26:56] Speaker 02:
Right.

[00:26:57] Speaker 01:
Yeah.

[00:26:57] Speaker 02:
All right.

[00:26:57] Speaker 02:
And then over time, after Hall stopped funding because the loan went into default, the borrower racked up another

[00:27:07] Speaker 02:
I think it was over $10 million because we settled, as I recall, and I'm working off memory, I think it was $8 million.

[00:27:13] Speaker 02:
That's what we settled that Penta could receive out of the proceeds just to get that litigation gone so we could close the deal.

[00:27:22] Speaker 04:
Can you, unless my colleagues have other questions, can you address the counterclaim issue?

[00:27:26] Speaker 04:
Because I do think that that was problematic, that just a simple notice of pre-construction costs, I don't know if that's given all the other representations.

[00:27:36] Speaker 04:
I just don't know if that isn't enough to require due diligence.

[00:27:42] Speaker 02:
I think where Judge Jones came out on the counterclaim when he was ruling on that, when he looked at the undisputed facts, and the undisputed facts he had in front of him is that

[00:27:51] Speaker 02:
Ladera lent money on this property before Hall ever made a loan.

[00:27:56] Speaker 02:
They already were in.

[00:27:57] Speaker 02:
Okay, they'd made an initial loan, Hall then made a loan, and Ladera loaned additional money.

[00:28:02] Speaker 02:
So they were already a lender.

[00:28:05] Speaker 02:
Ladera had conducted its own independent due diligence with respect to the property.

[00:28:10] Speaker 02:
Ladera was represented by council.

[00:28:14] Speaker 04:
The... But what about the representations that said that, I think it was in Pantera, I forget the name of the construction company,

[00:28:22] Speaker 01:
Penta.

[00:28:22] Speaker 04:
Penta, sorry.

[00:28:24] Speaker 04:
Penta did not do any prior work.

[00:28:28] Speaker 02:
There was a representation by Penta to Hall in those loan documents that it had not done any prior work.

[00:28:40] Speaker 02:
That was not a representation by Hall to Ladera.

[00:28:44] Speaker 02:
This is a representation made by a borrower to the senior lender in the loan documents, which turned out to be false.

[00:28:50] Speaker 01:
But Ladera has offered evidence that you all knew it was false, right?

[00:28:56] Speaker 02:
They have offered evidence that we were aware that there was construction activity, just like we had offered evidence that they were aware there was construction activity, and that their Ladera clients lived near the property and saw the property, went on-site on the property.

[00:29:12] Speaker 01:
All sounds like a factual dispute to me.

[00:29:16] Speaker 02:
What Judge Jones found is that based on these facts and based on the fact that the representation they were relying on was in a document that was not a rep made to them, that there was no basis for justifiable reliance.

[00:29:31] Speaker 04:
And so as he sorted through and looked at each and every statement that they were like... Well, how do you make, what do you account for the argument that, well, even if they knew there was construction, they didn't know it was Penta and that therefore they didn't know that they would be on the hook for, what, eight to nine million dollars?

[00:29:48] Speaker 04:
That they, that Penta would get eight to nine million priority over,

[00:29:53] Speaker 02:
I would represent that neither Hald nor Ladera knew.

[00:29:59] Speaker 02:
Well, that's the whole point.

[00:30:00] Speaker 02:
Then why is this not the jury's question?

[00:30:05] Speaker 02:
It's not a jury question because if you look at the knowledge that this is undisputed facts, okay, we have to look at the undisputed facts.

[00:30:15] Speaker 02:
And the undisputed facts are that Ladera already had knowledge.

[00:30:20] Speaker 02:
They had knowledge of their own.

[00:30:21] Speaker 02:
They had knowledge that they evidenced.

[00:30:24] Speaker 04:
Not necessarily that Penta was doing the construction.

[00:30:28] Speaker 04:
Right.

[00:30:28] Speaker 02:
They had knowledge, if you look at the confidential memorandum that was referenced in the record, they had knowledge of that.

[00:30:34] Speaker 02:
There was an exchange of emails between the two principals of Ladera with respect to that, and that $3 million had been spent on the property.

[00:30:43] Speaker 02:
So they had knowledge, $3 million, I think it was $300,000,

[00:30:47] Speaker 02:
Yeah, that's nothing.

[00:30:49] Speaker 04:
I mean, you look at that and like, okay, whatever.

[00:30:51] Speaker 04:
But I didn't know it ballooned to $8 to $9 million.

[00:30:54] Speaker 02:
But if you're a lender, you have to be careful because of, and again, this gets back to the difference in the state laws.

[00:31:02] Speaker 02:
Nevada has very different laws for general contractors than California does.

[00:31:09] Speaker 02:
I do want to touch on some other things in the record.

[00:31:15] Speaker 02:
We haven't complained about how he got to his dollar amount, even though it was kind of interesting, but he had a basis for it.

[00:31:26] Speaker 02:
And so when you look at how did he get to $3.5 million, which he then reduced to, in his oral ruling he reduced it to $3.2 million, and then in his written ruling he reduced it to $3 million.

[00:31:38] Speaker 02:
How did he get there?

[00:31:39] Speaker 02:
He took two major pieces of evidence, both of which were totally well known to Ladera because they were parties to the bankruptcy case.

[00:31:46] Speaker 02:
He took Hall's proof of claim and he took a sworn affidavit that was filed of public record by Hall within a month of the closing.

[00:31:57] Speaker 02:
And he took those two and he had $24.8 million on the proof of claim and then $32 million in the affidavit, 16 months apart.

[00:32:05] Speaker 02:
Okay, so how does that amount get there?

[00:32:08] Speaker 02:
it gets there because Hall was still funding money advancing cost during the bankruptcy because interest was continuing to crew at a default rate of interest and because of legal fees.

[00:32:19] Speaker 02:
And so as Judge Jones worked through it, he then deducted, we think, improperly the two bankruptcy fees

[00:32:27] Speaker 02:
You're entitled to prepayment fees as a lender in bankruptcy if you accelerated the debt before the bankruptcy, which Hall did.

[00:32:36] Speaker 01:
So can I back you up, though, counsel?

[00:32:40] Speaker 01:
Reading the transcript of the two fellows you had testify about damages, was it Payne and I've gone blank on the... Mike Janes was one.

[00:32:52] Speaker 01:
Janes, yeah, Janes and the other fellow.

[00:32:56] Speaker 01:
I've never, I would expect maybe to see calculators sometimes used in cross-examination, but not indirect on damages as they're making adjustments as they go.

[00:33:10] Speaker 01:
And I would appreciate it if you could address the Rule 26 disclosure problem, not at the outset of the case, not at trial, but in preparing for the trial on damages.

[00:33:27] Speaker 02:
Yeah, at the number one, I mean, the case had been going on three years with discovery for four years.

[00:33:35] Speaker 01:
That's all fine.

[00:33:36] Speaker 01:
You're obligated as the plaintiff to set out numbers and provide the backup.

[00:33:41] Speaker 02:
Except that we never were seeking a judgment against Ladera on our debt.

[00:33:47] Speaker 01:
We weren't We were seeking a declaratory you were seeking money at the trial ordered by the judge That's why I'm not worried about the outset of the case Come to the the weeks and months coming up to the trial when you kind of have the last clear chance You can avoid this this train wreck, okay?

[00:34:05] Speaker ?:
I

[00:34:05] Speaker 02:
Um, and we relied on, as I said, we relied on the primary documents was a proof of claim.

[00:34:13] Speaker 01:
And where did you show this as your rule 26 disclosure?

[00:34:17] Speaker 02:
It was in our exhibits.

[00:34:20] Speaker 01:
In exhibits.

[00:34:21] Speaker 01:
Okay.

[00:34:22] Speaker 01:
And in your trial, and were those disclosed ahead of trial?

[00:34:29] Speaker 02:
Yes.

[00:34:29] Speaker 02:
Yes.

[00:34:30] Speaker 02:
And in other words, all the pleadings in the bankruptcy case were disclosed ahead of trial.

[00:34:36] Speaker 01:
Okay, you're not really allowed to just sort of give the other side a stack of documents, right?

[00:34:42] Speaker 01:
You're supposed to lay out your damage claim and the support for it.

[00:34:48] Speaker 01:
Where did that happen?

[00:34:50] Speaker 01:
Or where do we have a district judge finding that your failure to do so was either substantially justified or harmless?

[00:34:58] Speaker 02:
We laid it out after he told us that he was going to try the issue, and he did this at the summary judgment ruling.

[00:35:05] Speaker 02:
He decided at summary judgment stage that Because he asked me point blank he said so when are we going to decide the dollar amount and I said That'll come up after you you know after we go after the insurance at that.

[00:35:21] Speaker 02:
I mean to me.

[00:35:22] Speaker 02:
That's a separate issue We're entitled.

[00:35:24] Speaker 02:
We've asked for a declaratory judgment.

[00:35:26] Speaker 02:
We're entitled to the insurance the insurance company is going to

[00:35:30] Speaker 02:
probably push back and say we're only willing to pay X dollars and so on and that's when that dollar amount will come into play and he said no I want to try it now and so then that then that didn't switch gears now we've got to go try this this issue and we provided the other side with the bankruptcy proof of claim we provided them with the affidavit that Mike Janes had filed in the bankruptcy case though that was the closest in time evidence is your argument that

[00:35:58] Speaker 03:
No disclosure obligation.

[00:36:02] Speaker 03:
Was incurred by you and tell the district court said that is that basically what you're saying yes?

[00:36:08] Speaker 03:
Because that's why you're saying we didn't disclose it earlier.

[00:36:10] Speaker 03:
We didn't we only disclosed it then that So your your claim is you just satisfied the disclosure requirements although that doesn't seem to be consistent with the rule I mean I understand why you put it out there then this might have been sort of invited error by the by the district court But it doesn't seem like you complied with

[00:36:31] Speaker 03:
the disclosure rules as set out in the rules themselves?

[00:36:39] Speaker 02:
I would say that, well, we did produce a lot of documents.

[00:36:46] Speaker 02:
And we did provide the other side with, I mean, obviously, the bankruptcy case was it.

[00:36:53] Speaker 02:
We had plans.

[00:36:54] Speaker 02:
We had all kinds of stuff that was coming out of the bankruptcy case because we were seeking a claim for breach of contract.

[00:36:59] Speaker 04:
Well, if we send it back because of the splitting issue, could there be a new calculation of what the damages are?

[00:37:06] Speaker 04:
So even if we agreed with you, because how the district court split it, if we say that that was completely wrong, we remand it back for a new calculation of damages, could this all be fixed that way?

[00:37:20] Speaker 02:
It could be fixed, but I think it's got to be fixed with direction.

[00:37:24] Speaker 03:
So the... You don't want to be up here again on that.

[00:37:28] Speaker 02:
No, no.

[00:37:29] Speaker 02:
So if you go back to the base of $3 million and we take off the... And we just start with that.

[00:37:36] Speaker 02:
And so that's an okay starting point because that's how he rationalized down to that number.

[00:37:42] Speaker 02:
He still needs to add back in the exit fee, the prepayment fee.

[00:37:45] Speaker 02:
And then he didn't run interest.

[00:37:48] Speaker 02:
Interest continues to run.

[00:37:49] Speaker 02:
Debts don't stop until they're paid off in full.

[00:37:52] Speaker 02:
And he didn't run any interest from the time of the closing in 2018 until the time he handed out a judgment in 2023.

[00:37:59] Speaker 02:
That interest alone would have pushed this debt above $6 million.

[00:38:03] Speaker 02:
And then he just decided no on legal fees.

[00:38:07] Speaker 02:
And we were seeking legal fees.

[00:38:09] Speaker 02:
I know I'm at the end of my time.

[00:38:10] Speaker 02:
as a breach of contract damage claim, he found that there was a breach in the summary judgment ruling.

[00:38:16] Speaker 02:
But you didn't appeal any of that, so that's not before us.

[00:38:19] Speaker 02:
No, we didn't appeal that.

[00:38:20] Speaker 02:
What I'm saying is we did appeal the issue of legal fees, that he did not award legal fees.

[00:38:26] Speaker 02:
Oh, sorry.

[00:38:26] Speaker 02:
You're right.

[00:38:27] Speaker 02:
OK.

[00:38:27] Speaker 02:
And I'm just saying there was two bases.

[00:38:29] Speaker 02:
The reason we tried the legal fees, it was a damage claim for the breach of contract he'd already found.

[00:38:35] Speaker 02:
But we also were seeking his prevailing party legal fees.

[00:38:39] Speaker 02:
And then he just said, well, they're not reasonable, so I'm giving you zero.

[00:38:43] Speaker 02:
Never found an amount.

[00:38:45] Speaker 02:
And our position is he had an obligation to find an amount.

[00:38:49] Speaker 03:
If we send it back, there's more errors that you want to be corrected.

[00:38:52] Speaker 03:
Thank you.

[00:38:53] Speaker 03:
All right, thank you.

[00:39:02] Speaker 00:
First, I'd like to address the language on account of the junior debt or

[00:39:08] Speaker 00:
for the benefit of the holders of the junior debt.

[00:39:11] Speaker 00:
My point in our briefing, maybe I was too cute in arguing that the debt was extinguished, but my point was, essentially after the bankruptcy, right, any payment we receive, it cannot reduce what the borrower owes us.

[00:39:24] Speaker 00:
The borrower doesn't owe us anything anymore, and it's not in our capacity as the junior debt holder.

[00:39:29] Speaker 00:
But even if you credit what Hall says, that let's say the debt still exists, it's still out there, our title insurance,

[00:39:36] Speaker 00:
doesn't reduce what the borrower or the guarantors owe.

[00:39:41] Speaker 00:
And in fact, our title insurance policy with LIDAR, there's a sub-recreation clause there.

[00:39:47] Speaker 00:
So let's say, I mean, with Old Republic.

[00:39:49] Speaker 00:
So let's say Old Republic pays LIDAR title insurance.

[00:39:52] Speaker 00:
Then Old Republic, if they still think there's a viable claim against the borrower or guarantor, they can go out and sue them.

[00:39:58] Speaker 00:
But to me, that just shows that them paying us doesn't diminish what the borrower or guarantors owe us.

[00:40:04] Speaker 00:
Old Republicans go seek that if they think there's something collectible out there.

[00:40:08] Speaker 00:
I'll also point out, I think this is a largely academic discussion because this was Lidera's guarantee agreement and even the loan with the borrower was largely non-recourse, meaning

[00:40:25] Speaker 00:
If there was a deficiency after foreclosure, we couldn't sue the borrower personally or the guarantors personally, except for limited exceptions.

[00:40:33] Speaker 00:
This is at AER 1788, if you want to look at section 6.3 of our loan agreement.

[00:40:39] Speaker 00:
But basically, our only security was our lien position so that we could foreclose on the property.

[00:40:46] Speaker 00:
And that's why title insurance was triply important to us at this case.

[00:40:50] Speaker 00:
It guaranteed our lien position.

[00:40:52] Speaker 00:
Now, Hall says, you know, there was never a determination that Penta, you know, had lean priority.

[00:40:58] Speaker 00:
Well, Hall essentially made that determination when it settled with them, and we were pushed a third position and got nothing.

[00:41:04] Speaker 00:
But that's exactly why we had title insurance, and between us and our title insurance, that was our covered risk.

[00:41:09] Speaker 00:
You know, that's why they need to pay it.

[00:41:11] Speaker 00:
I want to quickly address, you know, Hall's argument that Penta made the representation that no work of any kind had been done.

[00:41:20] Speaker 00:
We have evidence in the record.

[00:41:21] Speaker 00:
I mean, Hall wrote the script and got somebody else to say the line.

[00:41:24] Speaker 00:
But Hall can still be liable for fraud, even if it gets a third party to say the line.

[00:41:29] Speaker 00:
You know, we put evidence in the record.

[00:41:31] Speaker 00:
Hall's counsel had discussions with Penta.

[00:41:33] Speaker 00:
Penta says, we won't agree with this because this is false.

[00:41:37] Speaker 00:
Hall says, well, let's change the wording and say, under this agreement, no work of any kind has been done.

[00:41:43] Speaker 00:
Penta says, OK.

[00:41:44] Speaker 00:
But then it read the capital A agreement that actually refers to prior agreements.

[00:41:48] Speaker 00:
So I think it's a bit rich of Hall to say that somebody else made it.

[00:41:54] Speaker 00:
And finally, if I could just address the proof of claim and the affidavit from the bankruptcy matter, they were just numbers.

[00:42:01] Speaker 00:
You know, it's a proof of claim with certain numbers written on it, but we still didn't have anything substantiating what made those numbers up or proving, you know, that the principal number on that was accurate and the principal number kept changing on various bankruptcy documents.

[00:42:17] Speaker 03:
Okay, thank you.

[00:42:17] Speaker 03:
Thank you to both counsel for your arguments in the case.

[00:42:20] Speaker 03:
The case is now submitted and that completes our arguments for the day.

[00:42:23] Speaker 00:
Thank you.