[00:00:00] Speaker 05:
and this honorable court.

[00:00:02] Speaker 05:
Please be seated.

[00:00:07] Speaker 02:
Good morning and welcome to the Ninth Circuit.

[00:00:09] Speaker 02:
Judge Bybee, Judge Forrest and I are glad to have you here.

[00:00:14] Speaker 02:
We've been looking forward to this case with great anticipation.

[00:00:21] Speaker 02:
We would just like to remind you, I mean, we've obviously extended the time.

[00:00:24] Speaker 02:
We hope that that will give everybody enough time to make the arguments that they need to make.

[00:00:29] Speaker 02:
We understand it's a fairly complicated case.

[00:00:32] Speaker 02:
Hopefully, you'll make it less complicated.

[00:00:34] Speaker 02:
That's the goal of oral arguments.

[00:00:38] Speaker 02:
But just watch your time.

[00:00:39] Speaker 02:
Let us know.

[00:00:41] Speaker 02:
you want rebuttal time and then I guess you would be entitled because I think there's cross appeals to sir rebuttal time if you would like that let us know I know we have two council that's arguing and we'll give you each 15 minutes and then if you want to reserve any each of you want to reserve any of that time you can do so first sir rebuttal so we will proceed with the only argument set for today which is Kane versus

[00:01:11] Speaker 02:
PacCap Aviation Finance LLC case numbers 24-5683, 24-6024, 24-6026, 24-6290, and 24-6345.

[00:01:30] Speaker 04:
Good morning, Your Honors.

[00:01:32] Speaker 04:
May it please the Court, I'm Nick Koprowski.

[00:01:34] Speaker 04:
I represent the Bankruptcy Trustee Elizabeth Kane, as well as the two union plaintiffs in this case, the Hawaii Teamsters and the Airline Pilots Association.

[00:01:45] Speaker 04:
I would like to reserve 12 minutes for rebuttal and response to the cross appeals.

[00:01:52] Speaker 04:
I want to begin by acknowledging that there are many points of error raised by the appellants and the cross appellants.

[00:01:59] Speaker 04:
This trial lasted five weeks and involved over 90 causes of actions.

[00:02:04] Speaker 04:
We are not asking for the findings of the court or the jury below

[00:02:08] Speaker 04:
to be disturbed on the vast majority of the causes of action.

[00:02:12] Speaker 04:
Rather, we are asking for a limited new trial on a small subset of the claims, where either one, issues or defendants were kept from the jury, two, critical evidence was kept from the jury, or three, the jury was improperly instructed.

[00:02:29] Speaker 04:
Unlike the our defendants, we are not asking this court to throw out any decision the jury made because the jury got it wrong.

[00:02:37] Speaker 04:
I want to start with what we've labeled issue number one, which is the jury instruction that we offered that the court refused to give on damages.

[00:02:47] Speaker 05:
Counsel, before you launch into the issues that you are going to discuss, I have a preliminary question, and that is, how do we have jurisdiction under Section 1291 when there are things left to be done in this case?

[00:03:00] Speaker 04:
that there is no jurisdiction.

[00:03:02] Speaker 04:
Yes your honor the argument that there's no jurisdiction is that there are things left to be done because there were certain cross claims that were dismissed without prejudice.

[00:03:12] Speaker 04:
But the dismissal without prejudice was to bring those claims in a

[00:03:22] Speaker 04:
There are a number of cases.

[00:03:23] Speaker 04:
In fact, it's the predominant rule that if a claim is dismissed without prejudice, then the case is final.

[00:03:32] Speaker 04:
Where the appellate court is concerned in the cases that they raise is where cases are dismissed without prejudice in such a way as to create appellate jurisdiction and to get piecemeal appeals.

[00:03:45] Speaker 05:
And frankly, it seems like there's an argument to be made that that's what happened here.

[00:03:48] Speaker 05:
I mean, the district court clearly thought that and intended

[00:03:52] Speaker 05:
to have a final decision in the sense of she's done with this case and it's going somewhere else for any further activity.

[00:04:00] Speaker 05:
That's clear.

[00:04:01] Speaker 05:
But it's not clear that the claims that you're referencing where there was this dismissal without prejudice are actually done.

[00:04:07] Speaker 05:
And it seems like you could say that by issuing an order that said that, she was trying to create finality when finality actually just doesn't exist because there are lingering arguments and defenses that

[00:04:21] Speaker 05:
she's allowing to go forward in front of the bankruptcy court.

[00:04:24] Speaker 05:
And I don't know how that works under 1291, because if we had jurisdiction under 158, then this would be smooth sailing.

[00:04:34] Speaker 05:
But we're not under 158.

[00:04:35] Speaker 05:
We're under 1291.

[00:04:36] Speaker 05:
So I'm struggling to put all that together.

[00:04:39] Speaker 04:
Yeah, the reason I would disagree with you there is it would be one thing if it was dismissed without prejudice to refile in her court, in the district court before her, but this is to be

[00:04:51] Speaker 04:
to be adjudicated in another process, in a bankruptcy court process, which is really the appropriate place for adjudicating creditor claims.

[00:05:00] Speaker 03:
What exactly remains to be decided?

[00:05:03] Speaker 03:
What didn't get decided below?

[00:05:04] Speaker 04:
Yes.

[00:05:05] Speaker 04:
What was not decided below were the unions at issue filed proofs of claim saying that they were owed

[00:05:13] Speaker 04:
They were owed money from the estate based on the island errors violation of the Hawaii dislocated workers act and the federal warrant act.

[00:05:23] Speaker 04:
The district court dismissed those claims without prejudice saying

[00:05:30] Speaker 04:
I'm not going to decide those claims in this case.

[00:05:32] Speaker 04:
Those are proofs of bankruptcy court, proofs of claims.

[00:05:36] Speaker 04:
It should go to the bankruptcy court to adjudicate those claims.

[00:05:39] Speaker 04:
And by the way, there was testimony before me that those claims are moot because they were for the wrong numbers.

[00:05:44] Speaker 04:
They're going to be withdrawn and amended.

[00:05:47] Speaker 04:
So the claims in front of me as they stand are now moot anyway.

[00:05:53] Speaker 04:
So she dismissed it without prejudice to allow the bankruptcy court to decide those issues with a new filing of proofs of claims with the correct amounts.

[00:06:06] Speaker 04:
To give a little bit more background in case you want it, the proofs of claims are filed at the beginning of bankruptcy

[00:06:12] Speaker 04:
When a creditor has claims against the estate, sometimes it's unclear what the value of the claim is.

[00:06:18] Speaker 04:
This one involves statutory violations, which had unique calculations of wages due.

[00:06:24] Speaker 04:
The unions did the best they can when they file those proofs of claim, but then they hired an economic expert who testified at trial that did a pretty exact valuation of those claims, and it was different.

[00:06:35] Speaker 04:
And the unions testified at trial that, yes, we do need to withdraw those claims and amend them to comport

[00:06:40] Speaker 04:
with what the expert here has testified, which is what the jury found.

[00:06:49] Speaker 02:
So you were going to move on.

[00:06:50] Speaker 02:
You were going to start with the jury instruction.

[00:06:53] Speaker 02:
Correct.

[00:06:53] Speaker 02:
So here's my question on the jury instruction.

[00:06:56] Speaker 02:
And just to tell you, maybe it'll help frame your argument.

[00:07:01] Speaker 02:
It seems like what the district court said was technically correct in the jury instruction.

[00:07:09] Speaker 02:
but may have left out another piece to this.

[00:07:13] Speaker 02:
And I'm trying to figure, which is, I mean, she said you can't award by speculation or guesswork.

[00:07:19] Speaker 02:
That's a correct statement of the law, right?

[00:07:21] Speaker 02:
You can't award damages by speculation or guesswork.

[00:07:26] Speaker 02:
But this gets complicated because you can do it by reasonable estimate in this case.

[00:07:31] Speaker 02:
It doesn't have to be with precision.

[00:07:33] Speaker 02:
So what is your argument?

[00:07:34] Speaker 02:
Is your argument that the jury instruction on its face was incorrect or that it was misleading because it didn't capture the law correctly?

[00:07:42] Speaker 04:
Our argument is that there was a material omission as to the law from the jury instruction, which although the statements of the law in the jury instruction were correct, when you leave out

[00:07:55] Speaker 04:
the other statement that was not given, it renders the jury instruction as a whole, not the whole picture of Delaware law, which thereby skewed the verdict.

[00:08:05] Speaker 04:
So it's both what we wanted was a appropriate instruction of another aspect of the law.

[00:08:11] Speaker 04:
And you asked for that and she didn't include it?

[00:08:15] Speaker 04:
Yeah, we asked for that.

[00:08:16] Speaker 04:
It was at the jury try the jury instructions conference.

[00:08:20] Speaker 04:
I read out the statement.

[00:08:22] Speaker 04:
I said,

[00:08:23] Speaker 04:
specifically your honor, you're giving a very defense friendly jury instruction.

[00:08:28] Speaker 04:
I cited cases saying this is what we want in here.

[00:08:32] Speaker 04:
I believe the record is clear that we put that forward.

[00:08:37] Speaker 04:
I don't have the sites in front of me, but I'm happy to provide them in rebuttal.

[00:08:40] Speaker 04:
I believe we have them in the briefing.

[00:08:44] Speaker 04:
And I think it's clear that it's material just as a matter of common sense, particularly in a case as complex as this one that involved intricate details of accounting and four different experts on damages just on the fiduciary duty claims.

[00:09:04] Speaker 04:
I'd also point out this is a de novo standard of review.

[00:09:06] Speaker 04:
The instruction that we ask for, the point of law that we ask for, is unquestionably the law in Delaware.

[00:09:14] Speaker 03:
And what additional language did you ask for?

[00:09:17] Speaker 04:
We wanted language from the Delaware Supreme Court where liability has been proven and the fact of damages has been established.

[00:09:29] Speaker 04:
that's the reason for why she didn't include that or

[00:09:44] Speaker 04:
She gave no reason.

[00:09:45] Speaker 04:
She actually said, oh, that's interesting.

[00:09:48] Speaker 04:
I'll consider it.

[00:09:49] Speaker 04:
I'm paraphrasing.

[00:09:51] Speaker 04:
But she didn't.

[00:09:52] Speaker 04:
And frankly, I thought we were going to get it after that.

[00:09:56] Speaker 04:
But then it was just absent from her final jury instruction.

[00:10:00] Speaker 02:
Part of the problem, not problem.

[00:10:02] Speaker 02:
I mean, it is what it is.

[00:10:04] Speaker 02:
If this is error, maybe that's true of other errors here.

[00:10:09] Speaker 02:
But the whole thing has to go back and be redone.

[00:10:13] Speaker 04:
Well, it would be a limited trial just as to damages on count six.

[00:10:20] Speaker 04:
So rather than the five-week extravaganza we had, it would be maybe a few days.

[00:10:28] Speaker 04:
I would think the experts would testify.

[00:10:30] Speaker 04:
Here are the damages.

[00:10:31] Speaker 04:
The jury would probably need some contextual testimony about what happened.

[00:10:38] Speaker 04:
But we wouldn't have all the Warren Act issues, the Dislocated Workers Act issues,

[00:10:43] Speaker 04:
the liability issues, it would be a much more focused trial as to this point.

[00:10:56] Speaker 04:
And again, we've cited the Supreme Court cases from Delaware, the Delaware Chancery Court cases.

[00:11:02] Speaker 04:
What we wanted in the instruction is very clearly the law in Delaware.

[00:11:06] Speaker 04:
I don't think that could be disputed at all.

[00:11:09] Speaker 04:
And then the next question you go to is whether it materially affected

[00:11:13] Speaker 04:
the jury's outcome, which I also think just as a matter of common sense and the fact that the jury awarded damages, but only awarded nominal damages in this highly complex case with so many details.

[00:11:29] Speaker 04:
I want to move on from that point unless you have any other questions on the jury instruction and go on to what we have labeled issue number 3.

[00:11:36] Speaker 04:
And this was the court's grant of judgment as a matter of law on count seven of the complaint, which was the allegation that Mr. Marinelli, who was affiliated with the Ellison defendants, breached his duty of loyalty by allowing island assets, island air to dissipate assets in his own self-interest.

[00:12:01] Speaker 04:
Again, the standard of review is de novo.

[00:12:04] Speaker 04:
The standard of review for granting a judgment as a matter of law is similar to summary judgment.

[00:12:08] Speaker 04:
It's drawing all reasonable inferences in plaintiff's favor that no reasonable jury could have ruled in front of the plaintiff for plaintiffs.

[00:12:15] Speaker 04:
And here, the court simply misunderstood the nature of the evidence with all due respect to the district court.

[00:12:21] Speaker 04:
And what the evidence shows, the court was focused on one date, which is July 10th, 2017.

[00:12:30] Speaker 04:
And her basis for dismissing- That's the date that Marinelli resigns?

[00:12:34] Speaker 04:
Correct.

[00:12:34] Speaker 04:
Correct, Your Honor.

[00:12:35] Speaker 04:
And her basis for dismissing this is, that's the date he resigned.

[00:12:40] Speaker 04:
After that point, he owed no fiduciary duties.

[00:12:42] Speaker 04:
So anything that happened after that,

[00:12:45] Speaker 04:
Is what weeds is the basis for this claim, but that's simply incorrect We allege facts and put on factual evidence that showed that the breach of fiduciary duty occurred before July 10th 2017 I know I want to walk you through it About what happened in this in this in this with this company the theory of this count was that in June 2017

[00:13:10] Speaker 04:
Island Air was hemorrhaging money.

[00:13:12] Speaker 04:
It was taking on massive debts, and every two weeks, it was struggling to pay its employees.

[00:13:17] Speaker 04:
This was after a year and a half of consistent and excessive losses, and they were finally totally out of money.

[00:13:23] Speaker 04:
The record shows that in early July, in early June, Mr. Maranelli's recommendation to Mr. Ellison was we should not save this company.

[00:13:32] Speaker 04:
And Mr. Ellison wholeheartedly agreed.

[00:13:34] Speaker 04:
This is an email.

[00:13:35] Speaker 04:
It's ER 4779.

[00:13:37] Speaker 04:
That's in early June.

[00:13:40] Speaker 04:
At that time, Mr. Marinelli is also trying to sell these five aircrafts that another Ellison company owns, but are being maintained at Island Air, but Island Air is no longer flying them.

[00:13:56] Speaker 04:
So Mr. Marinelli is trying to sell these planes.

[00:14:00] Speaker 04:
They're not being flown, they're just sitting there, but Island Air is still maintaining them, doing the maintenance checks, keeping up their certificates.

[00:14:07] Speaker 04:
Then later in the month of June, after early June, where they say, let the company fail if it fails, later in the month of June, they realize two things.

[00:14:16] Speaker 04:
One, Island Air really doesn't have the cash to continue operating.

[00:14:20] Speaker 04:
It's going to close down on June 20th.

[00:14:22] Speaker 04:
It can't make its payroll.

[00:14:23] Speaker 04:
There's no way.

[00:14:25] Speaker 04:
It's no other option.

[00:14:26] Speaker 04:
And two, if Island Air does go into bankruptcy, the value of those planes owned by Mr. Ellison, which Island Air is maintaining, is going to drop precipitously.

[00:14:37] Speaker 04:
And this is in the same email.

[00:14:38] Speaker 04:
It's a June 20th exchange between Mr. Marinelli and Mr. Ellison.

[00:14:42] Speaker 04:
And they do a complete 180.

[00:14:45] Speaker 04:
They completely change their tune.

[00:14:46] Speaker 04:
Instead of saying, we're going to, you know, it's OK.

[00:14:49] Speaker 04:
We'll let the company fail.

[00:14:50] Speaker 04:
Whatever happens, happens.

[00:14:51] Speaker 04:
They say, well, wait a minute.

[00:14:53] Speaker 04:
We need to put a little bit of money into this company to keep it going so that those planes, so it doesn't go out of business and the value of those planes drop.

[00:15:02] Speaker 04:
And this harms, it was totally in their own self-interest.

[00:15:06] Speaker 04:
I mean, there's no question, nothing in that email exchange would imply at all that they did it because of any sense of fidelity for Island Air.

[00:15:15] Speaker 04:
We wanted to tell the jury or argue to the jury that this constituted a breach of the duty of loyalty.

[00:15:21] Speaker 04:
And it clearly harmed Island Air.

[00:15:22] Speaker 04:
I mean, the financial support to prop up Island Air was given on June 20th, 2017.

[00:15:28] Speaker 04:
And that quarter, ending on June 30th, 2017, Island Air lost $4.9 million.

[00:15:35] Speaker 04:
Drawing all inferences in plaintiff's favor, a reasonable jury certainly could have agreed that this was a breach of the duty of loyalty on the part of Mr. Marinelli.

[00:15:46] Speaker 03:
Your thought, if he had been a rational disinterested member of the board of directors, that he would have allowed Island Air to go ahead and file for bankruptcy in June?

[00:15:56] Speaker 04:
Correct.

[00:15:57] Speaker 04:
Our argument has been that at some point significantly before July 10th, or at least

[00:16:06] Speaker 04:
In June 20th, they should have filed bankruptcy, done an orderly liquidation plan, stopped the taking on of massive new debts every month and stopped the dissipation of the assets that were left.

[00:16:19] Speaker 04:
That's our theory.

[00:16:19] Speaker 04:
It was a breach of the duty of loyalty to allow that go on and to allow that go on because of their own self-motives to have that going on as opposed to liquidating the company.

[00:16:35] Speaker 04:
I want to turn to the next issue, which is the issue of punitive damages and their availability under Delaware law.

[00:16:43] Speaker 04:
On this claim, our argument is that we should have been able to make a pitch to the jury for punitive damages on the count that we won, which was count 6.

[00:16:58] Speaker 04:
It's purely a legal question.

[00:16:59] Speaker 04:
The standard of review is de novo.

[00:17:02] Speaker 02:
Can I just ask a question on this one?

[00:17:04] Speaker 02:
Because as I looked at this, I was left with the impression that the Delaware Chancery Court bars punitive damages absent statutory authorization.

[00:17:16] Speaker 02:
So if that's true, do you agree with that sentiment?

[00:17:20] Speaker 02:
And if you do, where would you find this statutory authorization?

[00:17:26] Speaker 04:
Here is the argument, the Delaware Chancery Court bars punitive damages absent statutory authorization.

[00:17:33] Speaker 04:
But that does not mean Delaware law bars punitive damages on a claim brought in the Chancery Court if it's brought in another court.

[00:17:43] Speaker 04:
Now, there's a split of federal authority on this, on the specific issue of punitive damages.

[00:17:49] Speaker 04:
Some federal courts have said, we're not in Chancery Court.

[00:17:53] Speaker 04:
We think this is the type of claim Delaware law would allow punitive damages on.

[00:17:57] Speaker 04:
We're going to allow punitive damages.

[00:17:59] Speaker 04:
Some federal courts have gone the other way.

[00:18:01] Speaker 02:
A couple other points I would make on this is... Help me understand that, though, because I don't understand the theory based on... I mean, you agree that you have to have statutory... If this was in Delaware Chancery Court, you'd have to have statutory authorization.

[00:18:17] Speaker 02:
So how could you say, just because it's in another court, I don't understand how those courts have ruled that way.

[00:18:26] Speaker 04:
I'll give you an example.

[00:18:28] Speaker 04:
We cited maybe three cases in our brief, Delaware cases, where they involve claims, tort claims, where there's no statutory authorization for punitive damages.

[00:18:41] Speaker 04:
They were brought in the Chancery Court.

[00:18:43] Speaker 04:
And the Chancery Court has said, all right, you've brought a fraud claim.

[00:18:47] Speaker 04:
We cannot award punitive damages on your fraud claim, even though if it was brought in the Delaware Superior Court, you could get punitive damages.

[00:18:56] Speaker 04:
And we're saying that this claim is just like the fraud claim.

[00:19:00] Speaker 02:
I see.

[00:19:01] Speaker 02:
If you brought it in... You're saying, maybe I'm misunderstanding, but Delaware Chancery Court would effectively apply sort of a choice of law application and say, this isn't arising directly here, so we can do what another court would do.

[00:19:17] Speaker 04:
Correct.

[00:19:18] Speaker 04:
And that's what the federal courts have said.

[00:19:19] Speaker 04:
They've said, we're not in Chancery Court.

[00:19:21] Speaker 04:
The fundamental question is, does Delaware law?

[00:19:23] Speaker 05:
The problem with that argument is that you're never going to be outside of Chancery Court if it's tried in Delaware.

[00:19:28] Speaker 05:
Never.

[00:19:29] Speaker 04:
If you're tried in Delaware State Court, that's true.

[00:19:33] Speaker 04:
But if you're in Delaware.

[00:19:34] Speaker 05:
So then under Erie, if we do anything other than that in federal court, then we're opening the door wide to forum shopping.

[00:19:42] Speaker 04:
Well, I think that you would have that.

[00:19:45] Speaker 04:
I don't think there's going to be forum shopping just because there's the ability to do that anyway if you want to be in federal court for some other reason.

[00:19:53] Speaker 05:
Well, if you know that you're going to have this whole other category of damages available to you in federal court but not in state court, then there's going to be every incentive for a plaintiff to not be in state court.

[00:20:03] Speaker 05:
And isn't that what Erie counsels against?

[00:20:05] Speaker 05:
Well, I mean, because we're talking about a state law-based claim.

[00:20:10] Speaker 04:
I mean, you have that problem anyway in some respects with the jury trial.

[00:20:14] Speaker 04:
I mean, in Delaware Chancery Court, you don't get a jury trial.

[00:20:18] Speaker 04:
But if you were to remove those claims to Delaware District Court, if there was diversity jurisdiction or a federal question, you would get a jury trial on those same claims.

[00:20:28] Speaker 03:
And you got a jury trial here.

[00:20:30] Speaker 03:
Correct.

[00:20:31] Speaker 03:
On the regular damages, just not the punitives.

[00:20:33] Speaker 03:
Correct.

[00:20:34] Speaker 03:
The problem is that if this entire case had been in Delaware Chancery Court, you wouldn't have gotten the jury trial even as to the regular damages, much less the punitives.

[00:20:44] Speaker 03:
That's absolutely correct, Your Honor.

[00:20:45] Speaker 03:
It's really unusual.

[00:20:47] Speaker 03:
It's really an odd situation.

[00:20:49] Speaker 04:
Yes.

[00:20:50] Speaker 04:
And in order to say that Delaware law prohibits punitive damages, you would have to interpret the Delaware statute making the Chancery Court

[00:21:00] Speaker 04:
the exclusive place for breach of fiduciary duty claims is also Delaware law somehow thinking that punitive damages are barred on fiduciary duty claims.

[00:21:13] Speaker 04:
But that is inconsistent with the whole body of Delaware Supreme Court law on tort claims, on similar types of claims, breach of duty of a lawyer, malpractice.

[00:21:23] Speaker 03:
Do you have any examples of a fiduciary duty claim being tried in Delaware Superior Court?

[00:21:30] Speaker 03:
I believe we cited one, but I don't want to.

[00:21:33] Speaker 03:
I can't give it to them.

[00:21:34] Speaker 03:
I remember seeing one, but it was just like an offhand comment.

[00:21:37] Speaker 03:
It's like a one-sentence throwaway.

[00:21:39] Speaker 03:
No citations, no analysis, no nothing.

[00:21:43] Speaker 04:
There was I believe there is an example.

[00:21:45] Speaker 04:
I don't have it at the tip of my finger.

[00:21:47] Speaker 04:
So I apologize.

[00:21:48] Speaker 03:
That was that was my recollection.

[00:21:49] Speaker 03:
But that's that if you've got anything, that's it.

[00:21:51] Speaker 03:
Yeah, it's if we've got it, we would have cited to I do recall that.

[00:21:55] Speaker 03:
Should that tell us something that that is as important as Delaware is to corporate law that no fiduciary claims seem to have been a breach of fiduciary duty claims seem to be tried in Delaware Superior Court?

[00:22:07] Speaker 04:
Well, the reason for that your honor is because there is statutory delegation to the chance record is the exclusive jurisdiction, but that doesn't address the issue of what happens.

[00:22:19] Speaker 04:
We're in federal court where you have a whole different

[00:22:22] Speaker 03:
Yeah, but at some point the choice by the Delaware legislature to ship all of the fiduciary claims to the Chancery Court becomes part of its substantive law.

[00:22:32] Speaker 03:
It may look jurisdictional to us and if we're just very strictly categorizing it, I understand the argument, but at some point it becomes a substantive choice.

[00:22:42] Speaker 03:
That is, if you go to Delaware, you know that the off-ramp takes you to Chancery Court and that the punitives will not be available.

[00:22:48] Speaker 04:
Well, I disagree with you that it's necessarily a substantive choice because the Delaware Chancery Court also has a completely different set of procedures as the Delaware Superior Court.

[00:23:00] Speaker 04:
It doesn't do juries.

[00:23:01] Speaker 04:
You get judges who are experts in corporate law.

[00:23:05] Speaker 04:
So the idea that they're shipping fiduciary duty claims to Chancery Court may have everything to do with process and procedure and having a specialty court as opposed to

[00:23:17] Speaker 05:
I mean, if Delaware really wanted punitive damages available for these kinds of claims, it has a statutory way of doing that, right?

[00:23:24] Speaker 04:
Well, I'm not aware of any common law tort claim.

[00:23:29] Speaker 04:
There may be some, but generally when you read the Delaware Supreme Court cases we've cited on punitive damages, punitive damages are recognized by the Supreme Court as opposed to by statute.

[00:23:40] Speaker 04:
So we cited a case that says, in Delaware, the breach of fiduciary duty or the breach of contract cases, unlike many states, you can get punitive damages in Delaware in certain circumstances.

[00:23:53] Speaker 04:
That was created by the Delaware Supreme Court and not by statute.

[00:23:58] Speaker 04:
I want to be mindful of my time.

[00:23:59] Speaker 04:
I do.

[00:24:00] Speaker 03:
Before you sit down, I think there's at least two other issues I'd like you to address.

[00:24:04] Speaker 03:
First of all, could you turn to the fiduciary duty of Ohana?

[00:24:08] Speaker 03:
Yes.

[00:24:08] Speaker 03:
Ohana question.

[00:24:10] Speaker 04:
Yes, your honor.

[00:24:11] Speaker 04:
One of our points of air is the district court erred by finding that Ohana, from taking away from the jury the question of whether Ohana and the Ellison Trust

[00:24:26] Speaker 04:
owed fiduciary duties.

[00:24:28] Speaker 04:
And we offer two theories why that question should have been decided by the jury.

[00:24:34] Speaker 04:
One is a matter of corporate control.

[00:24:36] Speaker 04:
And we cited evidence that there was substantial control by Ohana as an owner, as a one-third owner and major creditor of Island Air that

[00:24:48] Speaker 04:
allowed it that could have allowed the jury to find a basis that Ohana owed fiduciary duties.

[00:24:54] Speaker 04:
And there's a Delaware court case on this point called Voight, which held that a one third owner in that case had fiduciary duties.

[00:25:03] Speaker 04:
The second theory is an agency theory, which is that Mr. Maranelli

[00:25:08] Speaker 04:
was no more than the agent of ohana and the Ellison trust when he was serving on the board of island air now I recognize that's being appointed to the board.

[00:25:19] Speaker 04:
By another company does not necessarily in and of itself mean

[00:25:23] Speaker 04:
that you are that person's agent.

[00:25:26] Speaker 04:
Because the other side will say that.

[00:25:28] Speaker 04:
But we are alleging more than that.

[00:25:29] Speaker 04:
We're looking at Mr. McNally's own testimony, where he freely admitted, I'm here to represent Mr. Ellison's interests.

[00:25:36] Speaker 04:
I always represent the interests of all of his companies.

[00:25:40] Speaker 04:
So he didn't testify.

[00:25:42] Speaker 04:
I'm totally independent.

[00:25:43] Speaker 04:
I put that aside.

[00:25:44] Speaker 04:
And while I'm wearing my island air hat, I only wear my island air hat, he said literally, or not literally, I'm paraphrasing, but close enough, I sit here on the board to represent Mr. Ellison's interests.

[00:25:57] Speaker 03:
And then last question that I have is, would you address the question of the affirmative defense, the DWA?

[00:26:03] Speaker 04:
Yes.

[00:26:04] Speaker 04:
The defense is at the defense?

[00:26:08] Speaker 04:
Yes.

[00:26:09] Speaker 04:
Yes, Your Honor.

[00:26:12] Speaker 04:
On this one, this is a strict question of statutory interpretation.

[00:26:17] Speaker 04:
We're saying the defense does not apply as a matter of law, and the appellees are saying that the district court got it right.

[00:26:25] Speaker 04:
And it's purely a matter of statutory interpretation.

[00:26:29] Speaker 04:
And here are the points I will offer.

[00:26:31] Speaker 04:
The first point is what the district court, how it read the statute was incredibly radical in the context of the statute as a whole.

[00:26:40] Speaker 04:
Nowhere in the Dislocated Workers Act will you find a complete defense to notice where notice is otherwise required.

[00:26:50] Speaker 04:
Second, when you look at the wording of Section 394B9C, the wording clearly deals with the timing of notice in one particular context.

[00:27:02] Speaker 04:
It implies the implication is that notice will be given.

[00:27:07] Speaker 04:
It just deals with the timing of that.

[00:27:10] Speaker 04:
So it is quite a leap in interpretation.

[00:27:12] Speaker 04:
OK.

[00:27:13] Speaker 03:
I mean, I've read this statute over and over again.

[00:27:15] Speaker 03:
I've parsed it every which way I can.

[00:27:18] Speaker 03:
It's an odd statute.

[00:27:21] Speaker 03:
So can you tell me what you think it means?

[00:27:23] Speaker 04:
What I think it means is essentially what it says is in the situation where there is a divestiture, and a divestiture is where there's a transfer of ownership, and this is very important, and that transfer of ownership results in layoffs.

[00:27:38] Speaker 04:
That's in the definition of investiture.

[00:27:41] Speaker 04:
Where that happens, notice does not have to be given until the time there's a binding agreement.

[00:27:50] Speaker 04:
So in other words, the reason for that is because if a company is looking for a divestiture, if the company does indeed change hand and there are layoffs, and you're holding the owners

[00:28:03] Speaker 04:
or the company liable for it, it makes sense to not hold these new owners liable until the date they agreed to buy the company.

[00:28:13] Speaker 03:
But what did we do with that last phrase?

[00:28:15] Speaker 03:
That results in a divestiture.

[00:28:16] Speaker 03:
That seems to suggest that a binding agreement is not a sufficient condition.

[00:28:22] Speaker 03:
It has to go through.

[00:28:24] Speaker 03:
It has to close.

[00:28:25] Speaker 04:
Correct.

[00:28:26] Speaker 04:
That's my argument is that in order for that exception to apply,

[00:28:31] Speaker 04:
the you have to have a transfer ownership that results in layoffs.

[00:28:37] Speaker 04:
Otherwise, it just doesn't apply.

[00:28:38] Speaker 04:
It's irrelevant.

[00:28:39] Speaker 04:
It only applies to where there is an actual divestiture, not this other situation where you just lay off employees because you close down.

[00:28:48] Speaker 05:
So I guess I'm trying to figure that out because it seems that you can, I think this is what happened here, right?

[00:28:57] Speaker 05:
You could, the jury found that there was

[00:29:00] Speaker 05:
Island Air was actively seeking a buyer and then that didn't happen and so it was closed.

[00:29:07] Speaker 05:
So what happens when you're in that scenario where you are actively pursuing the thing that triggers this statute, you're ultimately not successful and your argument I think is, well then this statute, this protection from notice just never applies because you weren't ever successful in consummating a sale.

[00:29:25] Speaker 05:
How does that make sense?

[00:29:26] Speaker 05:
Because I read this as suggesting that

[00:29:29] Speaker 05:
You're trying to provide protection for the process of accomplishing a sale for the reason that you just stated a minute ago.

[00:29:36] Speaker 05:
Why would that vanish just because you weren't successful if you were actively trying to do it?

[00:29:42] Speaker 04:
See, I disagree with that point.

[00:29:45] Speaker 04:
I mean, that is what they've argued is the intention of the statute.

[00:29:48] Speaker 04:
They've cited no legislative history at all that would back that up.

[00:29:55] Speaker 04:
I believe that the purpose of this is to protect the new buyer from liability for not giving notice when the company was in the hands of the old buyer.

[00:30:08] Speaker 04:
So in other words, you come in and buy a company, and then 15 days later, there are layoffs.

[00:30:16] Speaker 04:
You shouldn't have to give that notice 60 days earlier when you didn't even own the company.

[00:30:21] Speaker 05:
Yeah, but doesn't that work both?

[00:30:23] Speaker 05:
I mean, so that rating assumes that the day that you enter into the binding agreement is the day that the divestiture happens and the transfer of ownership happens.

[00:30:31] Speaker 05:
And that likely wouldn't be true, it seems to me, where

[00:30:35] Speaker 05:
you would have a period of time before the actual transaction occurs.

[00:30:40] Speaker 04:
Yeah, I agree with you.

[00:30:42] Speaker 04:
There is going to be a period of time.

[00:30:44] Speaker 04:
But that's why this affects the timing.

[00:30:45] Speaker 04:
So in other words, when the duty accrues for the new owner is the date of the binding agreement.

[00:30:53] Speaker 04:
So if you lay off employees 17 days later, then

[00:31:01] Speaker 04:
17 days is the day you need to get, if you're intending to lay off employees, the day the buyer needs to give notice is when he actually takes owner of the company.

[00:31:12] Speaker 05:
I think I agree with you that the statute likely is also intending to protect the new owner if a sale happens.

[00:31:19] Speaker 05:
But what I don't understand about the argument that you're making is what tells me from the text of this statute that it also isn't trying to protect the existing owner in the scenario that I've laid out?

[00:31:28] Speaker 05:
Why isn't it both?

[00:31:30] Speaker 04:
It's because of the last words of the statute, which are that results in a divestiture.

[00:31:35] Speaker 04:
If you're looking to protect both the process and the new owner, you don't even need the terms that results in a divestiture.

[00:31:46] Speaker 04:
They could be completely omitted from the statute.

[00:31:48] Speaker 04:
So the fact that those terms are in there

[00:31:52] Speaker 04:
implies strongly that it's only intended to apply in a situation where there actually is a divestiture.

[00:31:59] Speaker 03:
I think all of that makes a lot of sense.

[00:32:02] Speaker 03:
I don't know what to do with the word until because that suggests the until seems to is a temporal point that applies to an employer of a covered establishment that is actively seeking a buyer.

[00:32:12] Speaker 03:
So when does that employer have to give notice?

[00:32:15] Speaker 04:
Well, our argument, which we think is consistent with why employment law in general, is that the risk of loss is on the employer.

[00:32:25] Speaker 04:
In other words, if the employer is out there looking for a buyer and can't find one and then just closes shop, they shouldn't be completely exonerated.

[00:32:34] Speaker 03:
Well, but it says that an employer shall not be required to provide the notice until

[00:32:40] Speaker 03:
he's entered into a binding agreement, that results in a divestiture.

[00:32:43] Speaker 03:
But if he enters into a binding agreement that results in a divestiture, then he doesn't have to give any notice.

[00:32:48] Speaker 03:
So when would he have to give notice under C?

[00:32:51] Speaker 04:
Well, I mean, the employer would need to give notice under C when there's a binding agreement of sale.

[00:32:58] Speaker 04:
And this is a question that would arise, by the way, if there was a divestiture, which didn't happen here.

[00:33:05] Speaker 04:
But the until, so I would.

[00:33:08] Speaker 04:
A better word instead of until would have been if.

[00:33:11] Speaker 04:
Yeah, that's why I'm saying this is a timing issue.

[00:33:14] Speaker 04:
And the word until means something.

[00:33:16] Speaker 03:
And whether it means it's the new order.

[00:33:18] Speaker 03:
It just means until he's entered into a binding agreement that doesn't result in a divestiture.

[00:33:24] Speaker 03:
And then he better start giving the notice.

[00:33:30] Speaker 04:
Yeah, I mean, our argument is it doesn't apply if there's no divestiture.

[00:33:35] Speaker 04:
So if there is a divestiture, you look at this, and the until date is the date that says when notice needs to be given.

[00:33:41] Speaker 05:
So somebody who's actively seeking a sale and otherwise meeting the first part of the statute better give notice anyways, because there's no guarantee a sale will actually happen.

[00:33:48] Speaker 05:
And if it doesn't actually happen, then they will have violated the law.

[00:33:51] Speaker 05:
And they wouldn't have known that from the outset, because they were trying to put a sale together.

[00:33:55] Speaker 04:
That's what we think the Hawaii State Legislature intended.

[00:34:00] Speaker 05:
The statute is not much protection at all under that scenario.

[00:34:03] Speaker 04:
The statute is meant to protect the employees, not to protect the employers.

[00:34:08] Speaker 05:
And because of that... I'm not sure I understand that because if that was true, then this provision wouldn't exist at all.

[00:34:14] Speaker 04:
Well, it's supposed to be a because it's a statute that is supposed to protect the employees.

[00:34:20] Speaker 04:
We ought to narrow read the exceptions narrowly where there's an exception for the benefit of an employer unless it says specifically, I mean, if the statute means that just looking for a buyer is enough, it would have been written radically differently.

[00:34:38] Speaker 04:
Anyone could just take their hand at it and write it in a couple of sentences that says if you're looking for a buyer, you're protected as long as you're in good faith looking for a buyer.

[00:34:48] Speaker 04:
That's all you really need to say.

[00:34:49] Speaker 04:
I also need to make the point that as I think our dialogue has shown, this is a very difficult statute to interpret.

[00:35:00] Speaker 04:
the Hawaii Supreme Court.

[00:35:01] Speaker 04:
We have our motion to certify this question and the other questions regarding the statute to the Hawaii Supreme Court.

[00:35:08] Speaker 04:
We think this is such a close call with the statute.

[00:35:10] Speaker 04:
There's enough at stake.

[00:35:11] Speaker 04:
It affects enough people.

[00:35:12] Speaker 04:
It meets the arguments.

[00:35:13] Speaker 04:
I wanted to put that in rather than concede that point just by having this dialogue.

[00:35:19] Speaker 02:
I've gone... I'm a little surprised that you want to seek sort of... I mean, that would be, you know, years-long delay here.

[00:35:27] Speaker 02:
And you're okay with that?

[00:35:28] Speaker 04:
I'm OK with it because I am confident, as confident as I can be, that the Hawaii Supreme Court would agree with my interpretation.

[00:35:37] Speaker 04:
And they're the ones who's, you know, I'm putting my money where my mouth is.

[00:35:43] Speaker 04:
I'm trying to think of the expression to show that this is the way I think the Hawaii Supreme Court would read the statute.

[00:35:49] Speaker 04:
And the reason I'm asking for it is because I think they'll agree with me.

[00:35:54] Speaker 02:
OK, we'll still give you some time for rebuttals.

[00:35:57] Speaker 04:
Thank you, Your Honors.

[00:36:11] Speaker 01:
May it please the court.

[00:36:13] Speaker 01:
Good morning.

[00:36:14] Speaker 01:
I'm Peter Ito on behalf of APLE's cross-appellants, the OUD defendants.

[00:36:22] Speaker 01:
As Judge Nelson indicated, this is a complicated case.

[00:36:25] Speaker 01:
There are many moving parts.

[00:36:27] Speaker 01:
It's gone on for the last eight years.

[00:36:30] Speaker 01:
This morning, I really want to focus on the issue raised by Judge Forrest.

[00:36:36] Speaker 01:
That's issue 17 for the out-defendants.

[00:36:40] Speaker 01:
And I want to explain to the court how issue 17 for the out-defendants then bleeds into issue 15.

[00:36:48] Speaker 01:
But first, I want to...

[00:36:51] Speaker 01:
because the nomenclature here is important.

[00:36:55] Speaker 01:
The unions filed administrative expense claims.

[00:36:59] Speaker 01:
They didn't file proofs of claim.

[00:37:02] Speaker 01:
Why is that distinction important?

[00:37:05] Speaker 01:
Because both are treated differently under the bankruptcy code.

[00:37:09] Speaker 01:
Under the bankruptcy code, specifically section 502, proofs of claim are presumptively deemed allowed until they're disallowed.

[00:37:21] Speaker 01:
In contrast, administrative claims under section 503 are only allowed after notice and a hearing.

[00:37:32] Speaker 01:
We do not believe, as we've argued in issue 17, that this court has appellate... Council, can you help me out and tell me...

[00:37:42] Speaker 02:
issue 17.

[00:37:43] Speaker 02:
I'm just trying to kind of play.

[00:37:45] Speaker 02:
What is the issue here?

[00:37:47] Speaker 01:
The issue here is that the amended judgment entered by the district court did not dispose of all claims as to all parties.

[00:37:57] Speaker 02:
So you're going to the jurisdiction?

[00:37:59] Speaker 02:
Yes.

[00:38:00] Speaker 05:
So I wanna ask, so our case law says that when we have jurisdiction under 1291 and not 158, which is where we normally are in bankruptcy cases, so this one is unique, when we're under 1251, 1251 applies the same in the context of bankruptcy as it applies anywhere else.

[00:38:21] Speaker 05:
So what I've been trying to wrestle with in terms of figuring that out is,

[00:38:26] Speaker 05:
Where is my zoom lens focused, so to speak?

[00:38:29] Speaker 05:
Am I focused on the adversary proceeding and whether that is final or am I focused on the bankruptcy case and whether that is final?

[00:38:38] Speaker 05:
Because under 1291, in every other context, we would have our lens zoomed out and we'd be looking at the entire case, the whole dispute.

[00:38:47] Speaker 05:
So in here, that would be the entire bankruptcy thing.

[00:38:51] Speaker 05:
What do you think the answer is there?

[00:38:53] Speaker 01:
And your honor said 1251 at first, but it's 1291.

[00:38:56] Speaker 01:
1291, sorry.

[00:38:57] Speaker 01:
1291.

[00:38:58] Speaker 01:
I think the focus has to be on the adversary proceeding here.

[00:39:02] Speaker 01:
So OK.

[00:39:05] Speaker 05:
What do you point me to to give me that answer?

[00:39:08] Speaker 01:
Well, I'll explain to you how we believe what is going to result.

[00:39:14] Speaker 05:
I mean, I want a hook in the law, right?

[00:39:16] Speaker 05:
Where's my hook in the law?

[00:39:17] Speaker 05:
Is there a statute?

[00:39:18] Speaker 05:
Is there a case?

[00:39:18] Speaker 05:
Is there something that answers that question of when we're under 1291?

[00:39:23] Speaker 05:
How do we look at a bankruptcy case?

[00:39:26] Speaker 01:
Well, I can't tell you exactly how you would look at the bankruptcy case in the context of 1291.

[00:39:32] Speaker 01:
1291 says that this court has jurisdiction of appeals from all final decisions of the district court.

[00:39:45] Speaker 01:
And our argument here is that the underlying amended judgment is not a final decision.

[00:39:51] Speaker 03:
The final decision is to what?

[00:39:52] Speaker 03:
So what hasn't been decided?

[00:39:54] Speaker 01:
What has not been decided is my client's counterclaims.

[00:40:00] Speaker 01:
We were allowed under the bankruptcy code as part of this adversary to object to and to seek the disallowance of the union's administrative claims.

[00:40:13] Speaker 03:
These are the administrative expenses.

[00:40:15] Speaker 03:
Yes, your honor.

[00:40:16] Speaker 03:
Are any of these tied to any of the issues that are before the court today?

[00:40:19] Speaker 01:
Yes.

[00:40:21] Speaker 03:
Well, then how can we ever get there?

[00:40:23] Speaker 03:
In other words, how can we decide the questions that have been put to us if we don't have final judgment because we don't know how much expenses will be attached after we decide these questions?

[00:40:37] Speaker 01:
You cannot.

[00:40:38] Speaker 01:
It's completely circular, though.

[00:40:39] Speaker 01:
Well, you can't, had the district court, as part of its amended judgment, decided our second and third counterclaims and had determined that the union's counterclaims should either be disallowed in their entirety, which if they were, we argued there would have been no liability on council.

[00:40:59] Speaker 03:
So the administrative expenses is something that is usually calculated, that includes, for example, the trustees fees.

[00:41:06] Speaker 03:
Is that correct?

[00:41:07] Speaker 01:
The trustees fees would be deemed an administrative tax.

[00:41:10] Speaker 03:
It's just one example.

[00:41:11] Speaker 03:
So we have the trustees fees.

[00:41:13] Speaker 03:
And that ordinarily would be decided by the bankruptcy court at the end of the whole shebang, right?

[00:41:19] Speaker 01:
To the extent there's a distribution and the trustees fees would be determined based upon it as a percentage of distribution.

[00:41:25] Speaker 03:
Right.

[00:41:26] Speaker 03:
Why would we want to have the trustees fees determined now, then take an appeal, possibly reverse things, in which case the whole question of the trustees fees is moot?

[00:41:37] Speaker 01:
Well, for this reason, Your Honor.

[00:41:40] Speaker 01:
How do you determine in counts four and five what the damages are when counts four and five are based upon administrative claims that haven't been allowed?

[00:41:50] Speaker 05:
I'm trying to understand that.

[00:41:52] Speaker 05:
So let me ask it this way.

[00:41:53] Speaker 05:
The administrative expense claims that we're talking about, why were they part of this adversary proceeding as opposed to just living back down in the bankruptcy court until this proceeding is done?

[00:42:03] Speaker 01:
There were two ways the administrative expense claims could have been decided.

[00:42:07] Speaker 01:
Under the local rules here in Hawaii, the unions could have filed a motion seeking approval pursuant to Section 503 of those administrative expenses.

[00:42:16] Speaker 01:
That's the first way.

[00:42:18] Speaker 01:
The second way that the bankruptcy, the Federal Rules of Bankruptcy Procedure allow us to do that, and that would be specifically Federal Rule of Bankruptcy Procedure 3007B.

[00:42:32] Speaker 01:
That statute, that rule says that when we file an adversary proceeding or when an adversary proceeding is pending, and in this case we bring a counterclaim that involves one of the enumerated claims that you can bring on your bankruptcy code or federal rule of bankruptcy procedure 7001, you can attach to that an objection to a claim, which is what we did.

[00:42:59] Speaker 01:
we objected to those administrative claims, specifically because they serve as the basis for the trustees' claims on counts four and five.

[00:43:09] Speaker 01:
The trustees' argument on count four and five is that my three clients, PacCap Aviation Finance, who I'll refer to as PAF, Malama Investments, and Jeffrey Al, are liable for exposing the bankruptcy estate to those administrative claims.

[00:43:27] Speaker 01:
Well, the exposure isn't the same thing as liability.

[00:43:30] Speaker 01:
So we wanted, in the context of this lawsuit, those administrative claims to be decided.

[00:43:38] Speaker 01:
Here, the district court punted on that issue and said that those claims should be decided by the bankruptcy court.

[00:43:45] Speaker 01:
We don't believe that that was proper in the first instance, but we've also argued here on appeal that as a result of having done that, there's no way you can determine liability on counts four and five.

[00:43:57] Speaker 01:
That's our issue 15.

[00:44:00] Speaker 01:
There's no damage.

[00:44:01] Speaker 01:
What is the damage to the bankruptcy estate from administrative claims that haven't been allowed?

[00:44:08] Speaker 01:
It's theoretical.

[00:44:11] Speaker 01:
It's pure conjecture.

[00:44:13] Speaker 01:
There's no way you can determine liability because those claims haven't yet been decided.

[00:44:18] Speaker 01:
And that's why, as part of our counterclaims, we wanted those two administrative claims to be decided.

[00:44:26] Speaker 02:
I don't think it's... Counsel, if you're right, what would we do?

[00:44:30] Speaker 01:
You'd remand this case back to the district court.

[00:44:33] Speaker 02:
And?

[00:44:34] Speaker 01:
And tell her, tell the district court that our counterclaims two and three need to be decided.

[00:44:41] Speaker 01:
We put on evidence during trial with respect to those administrative claims.

[00:44:47] Speaker 02:
But those are now pending in the bankruptcy court.

[00:44:51] Speaker 01:
Well, they were filed in the bankruptcy court.

[00:44:56] Speaker 01:
in the claims register, that's correct, but they're not currently before the bankruptcy court for consideration.

[00:45:02] Speaker 01:
They were filed eight years ago this month.

[00:45:08] Speaker 01:
Eight years.

[00:45:10] Speaker 01:
They could have, they meaning the unions, could have gone in and sought to have those administrative claims allowed.

[00:45:17] Speaker 05:
So your perspective is that there's nothing left.

[00:45:20] Speaker 05:
So of the things that are left with the Bankruptcy Court now, there's nothing there that needs to be done to decide your counterclaims.

[00:45:28] Speaker 05:
Those can be decided now.

[00:45:29] Speaker 01:
Those can be decided within the context of the underlying action.

[00:45:33] Speaker 05:
Is the trustee going to agree with that or no?

[00:45:38] Speaker 01:
I don't think the trustee raised this issue below.

[00:45:40] Speaker 01:
They knew that counterclaims two and three were part of our, within the adversary.

[00:45:47] Speaker 05:
I'm trying to get at, is it a disputed point that the district court has what it needs to have to be able to decide these counterclaims?

[00:45:54] Speaker 05:
Or whether some of the parties think that there's things left with the bankruptcy court that influence this decision?

[00:46:00] Speaker 01:
If there's any disagreement from the unions,

[00:46:03] Speaker 01:
on that point, Your Honor, it's that they believe they need to go back and correct

[00:46:10] Speaker 01:
their administrative claims because they do not currently meet the exact- That's the mootness question.

[00:46:15] Speaker 01:
That's the mootness issue that the trustees council referenced, right?

[00:46:18] Speaker 01:
They do not meet the exacting standard under 503, which is the evidence that I listed during the underlying trial for just that reason.

[00:46:26] Speaker 01:
They don't meet that standard.

[00:46:27] Speaker 01:
But that's also why we objected and sought the disallowance of those claims, which we were entitled to do.

[00:46:33] Speaker 01:
And we believe that it was an error, as we point out in issue 15,

[00:46:37] Speaker 05:
So you said that this decision, your counterclaims and impact counts four and five?

[00:46:44] Speaker 01:
Yes, your honor.

[00:46:45] Speaker 05:
So what if we ask the district court to certify finality as to all the claims except claims four and five?

[00:46:52] Speaker 05:
Then what would happen?

[00:46:54] Speaker 01:
Do you still have a final decision there?

[00:46:57] Speaker 05:
If you certify under rule 54B, then we would have a final decision as to less than all the claims, and maybe we could deal with everything but claims four and five.

[00:47:08] Speaker 01:
Potentially that could happen, but you'd still have claims four and five left to be decided, right?

[00:47:13] Speaker 05:
That would go back to the bankruptcy court or would go back to the there would stay with the district court to finish these remaining steps Some judgment would be made there that wouldn't be our problem today is what I'm saying And is that a mechanism to deal with this problem and or not?

[00:47:29] Speaker 01:
pause for a moment to think about that I

[00:47:34] Speaker 01:
I assume that that's possible, Your Honor, to do it that way.

[00:47:38] Speaker 01:
It doesn't seem practical in light of the many issues that are involved here.

[00:47:43] Speaker 01:
They should be resolved all at once, and in this case should be allowed to proceed forward.

[00:47:47] Speaker 02:
Well, I actually push back on that.

[00:47:48] Speaker 02:
It seems actually eminently reasonable, given everything that's been done in this appeal right now.

[00:47:55] Speaker 02:
If there's an easy cure, then why don't we resolve that?

[00:47:58] Speaker 02:
This is 98% of the case.

[00:48:02] Speaker 02:
So why not resolve it?

[00:48:03] Speaker 02:
Why wait for the extra 2%?

[00:48:04] Speaker 02:
I mean, there's a sense that everybody understood that this was final.

[00:48:10] Speaker 02:
We may have a problem.

[00:48:11] Speaker 02:
And we need to be careful about that.

[00:48:15] Speaker 02:
But it doesn't seem inefficient, 2% this way.

[00:48:19] Speaker 01:
And we wouldn't object to that, Your Honor, that happening.

[00:48:23] Speaker 01:
I was going to reserve three minutes on our sir rebuttal.

[00:48:27] Speaker 01:
I see you have reached my time.

[00:48:29] Speaker 01:
Thank you.

[00:48:29] Speaker 01:
Thank you.

[00:48:48] Speaker 00:
Good morning.

[00:48:49] Speaker 00:
It may please the court.

[00:48:50] Speaker 00:
Aileen McGrath, and I'm here on behalf of the Ellison defendants.

[00:48:53] Speaker 00:
And I recognize that the court has covered a lot of ground already this morning.

[00:48:57] Speaker 00:
I plan to start by focusing on

[00:48:59] Speaker 00:
The only issue that I think has come up so far that necessarily implicates the Ellison defendants is the discussion about the breach of fiduciary duty claim against Mr. Marinelli that the district court resolved on the basis of a judgment as a matter of law.

[00:49:14] Speaker 00:
The rest of the issues, of course, I'm happy to and I will address, but I do want to flag that all of those issues only arise as to the Ellison defendants if this court were to make certain other determinations adverse to us along the way.

[00:49:29] Speaker 03:
That would include the question of who's an employer and the fiduciary duty of Ohana.

[00:49:34] Speaker 00:
Correct.

[00:49:35] Speaker 00:
Ohana's fiduciary duties only spring that question only springs into effect if you were to reverse on the fiduciary duty claim against Mr. Marinelli and the affirmative defense to only matters if you think that Ohana was an owner under the DWA.

[00:49:49] Speaker 00:
And I want to be very clear to start with the claim against Mr. Marinelli.

[00:49:53] Speaker 00:
The district court understood full well what plaintiff's claim here was and why it was necessarily predicated on the ATR transaction.

[00:50:01] Speaker 00:
So the ultimate sale

[00:50:03] Speaker 00:
of the airplanes that my friend on the other side was discussing, which took place after Mr. Marinelli left the board.

[00:50:10] Speaker 00:
On page 360 of the excerpts of record, the district court said plaintiff's theory is that Mr. Marinelli kept Island Air alive and out of bankruptcy because he wanted to sell those planes.

[00:50:20] Speaker 00:
The district court understood that.

[00:50:22] Speaker 00:
It also applied exactly the framework for determining whether that was, in fact, a breach of fiduciary duty claim

[00:50:30] Speaker 00:
that plaintiffs asked the court to provide.

[00:50:33] Speaker 00:
Both before the district court and in their first brief on this case, plaintiffs cited the Delaware Chancery decision in void, which looks at whether a transaction that's ultimately consummated after a director is no longer involved.

[00:50:45] Speaker 00:
And to be clear, we think that's the most generous framework

[00:50:49] Speaker 00:
That applies we think that it even heightened standard applies to a director who's fully left the board as opposed to abstain from a transaction that standard looks at whether the director effectively set that transaction in motion.

[00:51:01] Speaker 00:
Those are the exact words the plaintiffs used.

[00:51:04] Speaker 00:
both below and to this court in describing their theory.

[00:51:06] Speaker 00:
And the district court found that as a matter of law, no reasonable juror could conclude from the evidence that Mr. Maranelli proposed the transaction that resulted in the sale of the planes, controlled the outcome of that transaction, or influenced the board.

[00:51:23] Speaker 00:
All of that is the beginning and the end of a claim.

[00:51:25] Speaker 03:
I'm sorry.

[00:51:26] Speaker 03:
You said that Maranelli didn't propose the transaction.

[00:51:29] Speaker 00:
Correct.

[00:51:30] Speaker 03:
That's correct.

[00:51:30] Speaker 03:
And he didn't control it.

[00:51:32] Speaker 00:
You did not propose, control, or influence the board.

[00:51:37] Speaker 03:
How many people were on the board at this time?

[00:51:39] Speaker 00:
Three.

[00:51:41] Speaker 00:
This transaction occurred after Mr. Marinelli left the board.

[00:51:45] Speaker 00:
And I recognize that plaintiffs are trying.

[00:51:47] Speaker 00:
I also do want to give some additional context.

[00:51:49] Speaker 00:
I understand Mr. Kapowski gave some context about emails that I don't agree that those emails show a connection between the desire to keep Islandera afloat and the sale of the planes.

[00:51:59] Speaker 00:
I'm not going to get into that.

[00:52:00] Speaker 00:
I recognize that we're on J-Mall.

[00:52:02] Speaker 00:
At the same time, I think it's important to understand the theory here.

[00:52:05] Speaker 00:
The theory here was that Mr. Marinelli, at Island Air's request, agreed to two transactions in the summer of 2017.

[00:52:13] Speaker 00:
One, to infuse $50,000 to help Island Air get through a cash crunch that was preventing it from meeting payroll.

[00:52:22] Speaker 00:
Two, that he agreed again at Island Air's specific request to purchase $800,000 worth of spare airline parts

[00:52:30] Speaker 00:
also to help the company through a similar cash crisis.

[00:52:34] Speaker 00:
Plaintiff's theory is that he did all of that because he wanted to sell the airplanes before Island Air entered bankruptcy instead of after, because those planes would be worth $1.5 million if that transaction happened first, even though ultimately that $1.5 million in excess value went right back to Island Air under the terms of the transaction as it was ultimately negotiated.

[00:52:58] Speaker 00:
And the reason that plaintiffs are trying to

[00:53:00] Speaker 00:
to distance themselves from the ATR transaction and focus back and forth on conducts that occurred before and after is that.

[00:53:09] Speaker 00:
Mr. Marinelli was no longer director by that time that transaction occurred, so the district court correctly analyzed that transaction under that framework.

[00:53:17] Speaker 00:
And any claims about actions that Mr. Marinelli took that had the effect of keeping Island Air out of bankruptcy are the kinds of deepening insolvency claims that the Delaware Chancery Court has said don't give rise to a breach of fiduciary duty claim, including when plaintiffs couple them with the assertion that, well, those directors had a self-interested reason.

[00:53:38] Speaker 00:
for keeping the company afloat.

[00:53:40] Speaker 00:
For all of those reasons, the district court knew well what this claim was about.

[00:53:43] Speaker 00:
It focused properly on the factors that matter, and plaintiffs haven't made any argument pointing to any evidence from which a reasonable juror could conclude otherwise.

[00:53:55] Speaker 00:
And unless the court has any questions about that, maybe I'll turn then to the questions that Judge Bybee raised about Ohana's relevance here.

[00:54:04] Speaker 00:
So Ohana could only be liable for a breach of fiduciary duty if Mr. Maranelli is liable.

[00:54:10] Speaker 00:
The claim is that Mr. Maranelli was either an agent of Ohana or that Ohana was effectively a majority and controlling shareholder.

[00:54:20] Speaker 00:
Neither of those circumstances

[00:54:22] Speaker 00:
is true.

[00:54:23] Speaker 00:
On the agency front, Delaware law is very clear that a director's fiduciary duties when he's acting as a director on a board do not flow back to his employer or to the company that appointed him to the board unless there's evidence showing that that entity has the legal right to control, the legal right to force his hand in terms of the actions that he takes on the board.

[00:54:48] Speaker 00:
The evidence that plaintiffs have pointed to here consists solely of the fact that Mr. Marinelli was loyal to Mr. Ellison.

[00:54:56] Speaker 00:
That is not enough to take this case out of the usual context that Delaware courts over and over again have said is not enough to impute fiduciary duties when an employer appoints an employee to the board.

[00:55:10] Speaker 00:
As to the actual control question as to Juana, there was no evidence that Juana could actually control the company.

[00:55:19] Speaker 03:
In fact, the just- You know, counsel, the Delaware cases have the language is unusual because it says owner or controlling interest.

[00:55:29] Speaker 03:
And if controlling interest just means 51%, there's no reason to have an owner.

[00:55:35] Speaker 03:
It's superfluous.

[00:55:36] Speaker 03:
On the DWA question now, we're- Yeah, but the whole question of control, and under Delaware law, Delaware has said that even if you have less than 50%,

[00:55:47] Speaker 03:
that you can be a controlling interest is the Elon Musk rule, the 800-pound gorilla.

[00:55:53] Speaker 03:
And Mr. Ellison certainly looks like he fits in that category.

[00:55:58] Speaker 03:
He probably would like to be considered the 801-pound gorilla.

[00:56:02] Speaker 03:
Maybe if you admit to here to being the 799-pound gorilla.

[00:56:06] Speaker 03:
But he's certainly in that range of this is the big boy on the block.

[00:56:10] Speaker 00:
I actually don't think that's true, Judge Bybee.

[00:56:12] Speaker 00:
As a matter of the claims and the circumstances in this case, many of plaintiff's claims turn on the fact that they thought that our defendants, by virtue of Mr. Au's control over the two other minority shareholders that comprised the owners of Island Air, that his domination and the district court made an express finding on this that I think is inconsistent with the idea that Ohana is in fact the owner.

[00:56:36] Speaker 00:
This is on page 57.

[00:56:38] Speaker 00:
the excerpts of record that the our defendants control the company because of Mr. Al's common relationship with those two entities Plaintiffs haven't of course they haven't because that's the basis for their fiduciary duty damages claims against the our defendants They haven't challenged that determination, and I don't see how I have the right to reacquire a 66% stake is that right and

[00:57:01] Speaker 00:
I don't think that's right.

[00:57:02] Speaker 00:
That's not right.

[00:57:03] Speaker 00:
I don't think that's right.

[00:57:04] Speaker 00:
Ohana had the right to acquire additional shares, but that wouldn't have changed the extent to which it could actually control the outcome of the board with respect to the questions that issue here, namely whether Island Air could continue operating.

[00:57:17] Speaker 03:
But did they have the right to acquire a 66% stake?

[00:57:21] Speaker 00:
I believe that the answer to that, I'm actually not sure about the answer.

[00:57:26] Speaker 03:
Okay, my notes say that they could acquire a 66% stake at any moment for $12,000.

[00:57:32] Speaker 00:
I don't think that's true.

[00:57:34] Speaker 00:
My understanding is that Ohana had the ability, and I'm happy to correct this on rebuttal if it turns out that I'm misunderstanding, but I don't believe that Ohana had the right to obtain a numerical majority that would have given it control over the board.

[00:57:49] Speaker 00:
I also don't think that that's enough.

[00:57:51] Speaker 00:
under Delaware law, the Voight case that plaintiffs talk to demands actual present control and the mere fact standing alone of ability to obtain control, I don't think changes that calculus.

[00:58:02] Speaker 05:
Well, that's not the only factor at play here.

[00:58:05] Speaker 05:
I mean, the other thing is that the Ellison side of this equation was where all the money was coming from.

[00:58:10] Speaker 05:
And courts say that we can look at sort of the influence that being the money holder has, even if you're not officially a member of the board.

[00:58:19] Speaker 00:
Well, prior to the fact, I don't think that was true after the AOA defendants entered the scene.

[00:58:22] Speaker 00:
Once Ohana sold its interest and became a minority shareholder, the money that was flowing into the company previously

[00:58:31] Speaker 00:
that sort of course of conduct changed and the out defendants had control.

[00:58:35] Speaker 00:
Here too, I think what I've heard from my friend on the other side is that the Ellison defendants cut off that chain of funds.

[00:58:42] Speaker 00:
And so I don't think it can be, the findings that were made as to that.

[00:58:47] Speaker 05:
I'm not sure that they cut off that chain of funds does a whole lot because that was a choice that they made and they could have made a different choice.

[00:58:53] Speaker 05:
And you can make that choice to try to influence behavior.

[00:58:56] Speaker 05:
And so isn't that, that sort of cuts towards the point I'm trying to make.

[00:58:59] Speaker 00:
I think that goes beyond what the Delaware Chancery Court or the Delaware courts in general have recognized.

[00:59:05] Speaker 00:
is sufficient to paying minority shareholder who has a numerical minority and to hold them accountable on a control basis.

[00:59:14] Speaker 00:
Again, here, I think this only matters if there was an actual breach of fiduciary duty.

[00:59:18] Speaker 00:
Do you want to underline that?

[00:59:19] Speaker 00:
That could give rise to liability.

[00:59:22] Speaker 00:
But even if that were the case, I don't think that Ohana, that the evidence that was introduced as to Ohana's role in the company at the time that these allegations are focused on can give rise to that level of control.

[00:59:35] Speaker 00:
Unless there are more questions about Ohana.

[00:59:38] Speaker 00:
I don't want to spend too much of my time on punitive damages again because that's an issue that only matters.

[00:59:45] Speaker 00:
for the Ellison defendants if the court were to reverse on the fiduciary duty claims.

[00:59:49] Speaker 03:
But it would matter a great deal to the Ellison defendants if we were going to reverse.

[00:59:52] Speaker 00:
Right.

[00:59:53] Speaker 00:
And so that is why I will say something about it, which is that I completely agree with some of the discussion, particularly the way that Judge Forrest was characterizing the issue, which is that as a matter of statute, the Delaware legislature has vested the court of chancery with exclusive jurisdiction over fiduciary duty claims.

[01:00:10] Speaker 00:
That court, as everyone agrees, lacks the power to award punitive damages.

[01:00:15] Speaker 00:
I don't see how there could be any basis to say that there is a source in Delaware law to find punitive damages as a matter of state law.

[01:00:23] Speaker 00:
And even if there were, how then that would not give rise to exactly the kinds of forum shopping principles

[01:00:29] Speaker 00:
that we've been discussing.

[01:00:30] Speaker 00:
And I think the analysis of this, both the source of power and the potential eerie implications, Judge Nathan spoke very clearly to this in the Buchwald decision that we cite that allowing an additional remedy to be available, so not just a different procedure, but an additional remedy that would be available exclusively in federal courts, that strikes right at the heart

[01:00:52] Speaker 00:
what Erie is supposed to prevent.

[01:00:54] Speaker 00:
And so even if you did think there was some ambiguity, and I don't think there is, about what Delaware recognizes as a matter of its positive law, I don't think that Erie

[01:01:03] Speaker 00:
I think that the Erie factors very clearly suggest that there could be no punitive damages available.

[01:01:08] Speaker 03:
I think there's much to commend itself in the Buchwald decision.

[01:01:13] Speaker 03:
The hard point for me here is that you've claimed the benefit of Erie as to the punitives, but as to the regular damages, we went ahead and allowed a jury here, which would not have occurred in Delaware.

[01:01:27] Speaker 03:
In other words, we allow a jury to decide regular damages

[01:01:31] Speaker 03:
But not punitive damages.

[01:01:33] Speaker 03:
But both of those questions in Delaware would have to be decided by the Chancery Court.

[01:01:37] Speaker 00:
Well, in the Chancery Court, there would be no punitive damages.

[01:01:40] Speaker 00:
That's right.

[01:01:42] Speaker 03:
But the regular damages could not be decided by a jury.

[01:01:45] Speaker 03:
In other words, our forum shopping here would allow for a jury to decide damages when it would not in Delaware.

[01:01:54] Speaker 03:
Just regular damages.

[01:01:55] Speaker 00:
I agree with that Judge Robbie.

[01:01:56] Speaker 00:
I think that the difference between the availability of a jury trial right in one forum versus another is the quintessential kind of procedural difference that courts have said doesn't give rise to eerie.

[01:02:05] Speaker 00:
And that's because there's not going to be, there's a different procedure.

[01:02:09] Speaker 00:
And yes, maybe parties, some parties will prefer a jury or not, but it's not going to be outcome-determinative in the sense that, you know, well, if I file suit in this forum, I am going to be able to seek the sky's the limit in terms of what damages I can obtain as opposed to

[01:02:24] Speaker 00:
having to prove exclusively actual damages, which would be the case in Delaware law.

[01:02:30] Speaker 00:
Again, I think it goes back.

[01:02:30] Speaker 00:
I don't think there's any source of Delaware law to point to to say that this is available.

[01:02:34] Speaker 00:
But if it were, those would be all of the negative ramifications that I think overcome it.

[01:02:39] Speaker 00:
I would like to turn back to the DWA questions.

[01:02:43] Speaker 00:
I'm happy to talk about the affirmative defense.

[01:02:46] Speaker 00:
I agree that the actively seeking a buyer language seems very clearly to me to suggest that there are protections given to entities that are actively seeking a buyer.

[01:02:56] Speaker 00:
This, too, is one of those issues that only matters for the Ellison defendants if you were to reverse on the threshold question of whether the Ellison defendants or Ohana specifically owned the company

[01:03:08] Speaker 00:
for purposes of the DWA.

[01:03:10] Speaker 00:
And to go back to what Judge Bybee said about the relationship among the statutory definitions, the DWA defines an employer as an individual or entity that owns, operates, or has a controlling interest in a covered establishment.

[01:03:26] Speaker 00:
Both as to this issue, and I think this actually points to some of what I'm talking about in terms of the cross-cutting differences among plaintiffs' claims, their exclusive basis

[01:03:36] Speaker 00:
for arguing that Ohana is an employer under the DWA, is that Ohana owned the company by virtue of its one-third ownership interest.

[01:03:46] Speaker 00:
There's no argument in the briefs or anywhere else on this issue that says that Ohana exercised a controlling interest.

[01:03:53] Speaker 00:
The ordinary English language way of referring to an owner is someone who owns something completely.

[01:03:59] Speaker 00:
The ordinary plain English way of referring to a controlling interest includes entities that partially own a company but don't own it in its entirety and nonetheless control it.

[01:04:10] Speaker 00:
The district court applied the plain meaning interpretation of those two provisions

[01:04:16] Speaker 00:
Ohana had a one-third minority interest.

[01:04:19] Speaker 00:
Plaintiff's argument, if it were true, would mean that not only one-third minority interest holders, but any shareholder, I think plaintiffs are quite candid about this, that any minority shareholder, whether having a one-third or one-three thousandth interest in the company, would equally be individually liable for that company's DWA notice and wage payment violations.

[01:04:43] Speaker 00:
that is not only an absurd result just as a practical matter, it's also a result that runs headlong into what the legislature actually said, which is that only entities with a controlling interest, not those with just any interest, are employers under the DWA.

[01:05:03] Speaker 00:
Unless the court has further, I see that I've already gone into that.

[01:05:05] Speaker 00:
I would like to just very briefly touch on our cross appeal issue, which is the equitable subordination question.

[01:05:12] Speaker 00:
And the problem with the district court's interpretation here is that the district court misapplied the standard for equitable subordination in three respects, all of which boil down basically to the fact that the district court found common features of bankruptcy claims.

[01:05:29] Speaker 00:
bankruptcy cases, excuse me, and that's of course the only context in which equitable subordination is ever going to arise to justify the heightened remedy of equitable subordination.

[01:05:41] Speaker 00:
Number one, the district court, despite recognizing that there are three categories of inequitable conduct that courts have recognized, there's fraud, illegality, and breach of fiduciary duty.

[01:05:53] Speaker 00:
There is use of the debtor as an instrumentality or alter ego.

[01:05:56] Speaker 00:
It is undisputed that neither of those is satisfied here.

[01:05:59] Speaker 00:
The third is under capitalization, but the district court expressly declined to find that Island Air was under capitalized at the time that the loans were extended.

[01:06:10] Speaker 00:
That should have been the end of the inquiry, but the court went on, and this is what I'm focusing on, as well as on the third prong with respect to the court's focus on issues that are common in the bankruptcy context,

[01:06:21] Speaker 00:
The court said it was enough for it to find that Mr. Marinelli and therefore Carbonville, which is the entity that extended the loans, knew that Island Air was a risky enterprise.

[01:06:32] Speaker 00:
The fact in the bankruptcy context that the

[01:06:35] Speaker 00:
that the company would have been in financial peril is virtually always going to be true.

[01:06:40] Speaker 00:
That's why this court, and I would point the court to its filter court decision, has said that equitable subordination is not appropriate even when insiders, just like Carbonview, extend loans to an insolvent corporation, even when they take steps to tie the security for those loans back to a time when the company was insolvent.

[01:07:01] Speaker 00:
To say that equitable subordination is warranted simply on the basis that a company was faced financial risks I think goes exactly contrary to what the court has said there.

[01:07:11] Speaker 00:
If I could, I would like to reserve another minute for rebuttal on this issue, unless the court has other questions for me now.

[01:07:19] Speaker 02:
Thank you.

[01:07:19] Speaker 02:
Thank you.

[01:07:22] Speaker 02:
We'll give you four minutes.

[01:07:24] Speaker 02:
I know you asked for 12.

[01:07:26] Speaker 02:
If you need more, you know,

[01:07:30] Speaker 04:
Thank you, Your Honor.

[01:07:31] Speaker 04:
There are a number of things I'd like to address, and we'll see how quickly I could do them.

[01:07:36] Speaker 04:
I'm going to start with equitable subordination, because that is what went last.

[01:07:41] Speaker 04:
It's a highly factual inquiry.

[01:07:43] Speaker 04:
The district court looked at the totality of the circumstances, cited probably a dozen facts.

[01:07:51] Speaker 04:
And as to that inquiry, what they say- Your position is we would have to find clear error by the district court on these things.

[01:07:58] Speaker 04:
As to the fact-finding, I believe as to the ultimate decision, you would need to find decent discretion, but to the extent they're disagreeing with the facts, that is clear air.

[01:08:08] Speaker 04:
The standard is for an insider, and this is in the hedged investment cases they cite, is where a claimant is an insider or a fiduciary, the party seeking subordination needs to show some unfair conduct

[01:08:22] Speaker 04:
and a degree of culpability on the part of the insider.

[01:08:24] Speaker 04:
The cases they cite, as well as the Ninth Circuit Strombos case, make clear you don't need a showing of illegality or common law fraud, which you would need if you're not an insider.

[01:08:35] Speaker 04:
And some of those cases, the Fabricators case and the Strombos case, find equitable subordination without making any findings of fraud or illegality.

[01:08:48] Speaker 04:
Moving on, I want to address Mr. Ito's claim argument about the counterclaim that was dismissed without prejudice.

[01:08:59] Speaker 04:
Because I want to give the court a fuller picture of just how academic

[01:09:05] Speaker 04:
an argument this is.

[01:09:06] Speaker 04:
And I should note that this issue that they raised, oh, the court can't hear this because there's still these pending proofs of claim in the bankruptcy court, is something they didn't raise until I've looked in the record.

[01:09:18] Speaker 04:
It goes to our jurisdiction is the problem.

[01:09:20] Speaker 04:
I know, but it shows the strength of the argument, the fact that they waited so long to raise it.

[01:09:27] Speaker 04:
But here's the issue.

[01:09:28] Speaker 04:
The jury has valued those claims.

[01:09:32] Speaker 04:
They came up with a verdict to the penny of how much island air is liable to the unions.

[01:09:43] Speaker 04:
When those claims are adjudicated in the bankruptcy court at the end of the bankruptcy case, and the trustee has really only taken the position that we're just doing what we do in the ordinary course, was these are bankruptcy court proofs of claim, administrative expense claims with a very similar process.

[01:09:58] Speaker 04:
It should just wait till the end of the bankruptcy case.

[01:10:01] Speaker 04:
But when you get there, we have numbers for those claims.

[01:10:05] Speaker 04:
And I believe it would be equitably, it would be race judicata.

[01:10:09] Speaker 05:
Don't some of their arguments in the counterclaims sort of attack those numbers, the basis for the calculation?

[01:10:16] Speaker 05:
Whether it should have happened at all?

[01:10:18] Speaker 04:
Now that we've had a jury, the attacks they make on those numbers are what we had a jury trial about, and then we got a number from the jury.

[01:10:30] Speaker 04:
Now, they're correct.

[01:10:31] Speaker 05:
It seems to me that you're trying to say there's really nothing to be done.

[01:10:34] Speaker 05:
There's really no there there.

[01:10:36] Speaker 05:
Don't worry about it.

[01:10:37] Speaker 05:
If that's true, then why did the district court have to dismiss with prejudice and acknowledge that there are arguments left to be dealt with that the bankruptcy court can deal with?

[01:10:45] Speaker 04:
I believe that the district court was adhering to normal bankruptcy process, which is what we argued.

[01:10:50] Speaker 04:
It's like, let these claims be adjudicated in the normal bankruptcy process rather than you doing it.

[01:10:56] Speaker 04:
If it were to go back in front of the district court to adjudicate those claims, I believe she'd have no choice but to follow the jury and say, OK, this is what the jury found those claims are worth.

[01:11:09] Speaker 04:
This is what they're worth.

[01:11:10] Speaker 02:
Council, if we disagree with you on this, what is the problem, as Judge Forrest had suggested, and we were talking to opposing counsel about just doing a limited remand, get a certification, and coming back under that process.

[01:11:30] Speaker 04:
If you disagree with us on that, I would prefer that.

[01:11:35] Speaker 04:
as opposed to sitting out and waiting for the whole thing to be done and then coming back up again.

[01:11:39] Speaker 04:
Correct.

[01:11:40] Speaker 04:
And I would ask the limited remand not be a reversal of the jury's verdicts on counts four and five, but rather asking the court.

[01:11:53] Speaker 02:
No, I mean, it couldn't be.

[01:11:54] Speaker 02:
I mean, if we agree with your opposing counsel,

[01:12:01] Speaker 02:
then we would say we don't have appellate jurisdiction, so we couldn't do anything other than do a limited remand for purposes of creating a true final judgment in some way.

[01:12:13] Speaker 04:
Yeah, I prefer that you treat the judgment as final, but the second best option would be a limited remand just on those two counterclaims, and then we could decide in the district court.

[01:12:25] Speaker 02:
Well, hold on.

[01:12:25] Speaker 02:
I mean, you're saying a limited remand just to decide those, but we could even do it with a certain

[01:12:32] Speaker 02:
interlocutory appellate certification.

[01:12:35] Speaker 02:
Correct.

[01:12:36] Speaker 02:
I mean I take it that would be your second option your third option would be fine go back on a limited remand and just deal with these two remaining issues.

[01:12:44] Speaker 04:
Well I mean whether if you think that you need a limited certification from the district court on every issue but the two counterclaims

[01:12:54] Speaker 04:
We could do that, but I don't know if that's necessary.

[01:12:58] Speaker 04:
I mean, if there's any mechanism to resolve everything else and remand on those two counterclaims, that would be certainly the preference.

[01:13:06] Speaker 04:
But again, I mean, we've made the arguments.

[01:13:07] Speaker 04:
I won't reiterate why we think the judgment is final under the case law.

[01:13:13] Speaker 04:
If I may have a moment to address a couple of other issues, I want to address the count regarding Mr. Maranelli's breach of fiduciary duty

[01:13:23] Speaker 04:
judgment as a matter of law being granted on that.

[01:13:27] Speaker 04:
This happened in the context of about half a dozen motions for judgment in that matter of law that were decided at once during trial.

[01:13:35] Speaker 04:
The district court simply overlooked some of our arguments here with all due respect.

[01:13:41] Speaker 04:
And it's clear from the complaint that we were arguing that breaches of fiduciary duty proceeded

[01:13:48] Speaker 04:
his resignation.

[01:13:50] Speaker 04:
We said in the complaint, this is paragraph 262, that the spare parts transaction, this is the June 20th transaction, which was entered into because they wanted to sell the planes, was a breach of fiduciary duty.

[01:14:03] Speaker 04:
The fact that the transaction to sell the planes was consummated afterwards

[01:14:08] Speaker 04:
is irrelevant.

[01:14:09] Speaker 04:
If they failed in this transaction and didn't sell the planes and Mr. Ellison lost money, he still breached his fiduciary duty by trying to do it before July 10th by entering into these other transactions to keep Island Air going so that he could keep trying to sell the planes.

[01:14:28] Speaker 04:
That's the point.

[01:14:29] Speaker 04:
And I think if you read our complaint in our papers below, we've made that clear.

[01:14:33] Speaker 04:
It's not just conduct that occurred after his resignation.

[01:14:38] Speaker 04:
And the last point I want to touch on quickly is the idea of Ohana's control of island air.

[01:14:48] Speaker 04:
The plaintiff's theory here

[01:14:53] Speaker 04:
And my colleague or my friend on the other side argued that, well, we argued that Mr. Au controlled island air.

[01:15:00] Speaker 04:
So therefore, how could Ohana control island air?

[01:15:02] Speaker 04:
And what we argued was a little more nuanced.

[01:15:05] Speaker 04:
And what actually happened in the dynamics of the way this company operated was Mr. Au certainly had day-to-day control over island air.

[01:15:13] Speaker 04:
He was a variable dictator at island air on a daily basis, except

[01:15:18] Speaker 04:
to get something done.

[01:15:19] Speaker 04:
And that's when Mister Ellison wanted to get something done.

[01:15:21] Speaker 04:
And when you want to get something done.

[01:15:23] Speaker 04:
He spoke up through Mister Maranelli and he always got it done.

[01:15:27] Speaker 04:
That's the control we had over the company wasn't interested in the day to day operations.

[01:15:32] Speaker 04:
But we wanted something done to further his interest.

[01:15:34] Speaker 04:
He

[01:15:41] Speaker 04:
who is either part of the control group or also has a controlling interest.

[01:15:45] Speaker 04:
In other words, it's not one over the other.

[01:15:48] Speaker 04:
And I want to set you the record where the stock warrants was, and that's 4739.

[01:15:58] Speaker 04:
Judge Bobby, you're correct.

[01:15:59] Speaker 04:
It allowed Ohana to take back two-thirds ownership for $12,000.

[01:16:05] Speaker 04:
That is correct as a matter of fact.

[01:16:07] Speaker 02:
So how do we apply that?

[01:16:11] Speaker 02:
Because their argument is, yeah, regardless, that's a potentially future controlling interest, but that's not a present controlling interest.

[01:16:20] Speaker 02:
How do we make that judgment?

[01:16:21] Speaker 02:
I mean, do we get into saying, well, $12,000, that's so nominal that this is just a sham thing that they don't technically have control, but if they ever really want control, they can have it immediately.

[01:16:33] Speaker 02:
What if that were $12 million?

[01:16:35] Speaker 02:
Would we then say, OK, there's no control because

[01:16:39] Speaker 02:
they would actually have to do something.

[01:16:41] Speaker 02:
They'd actually have to think about this.

[01:16:43] Speaker 04:
I don't think you have to make that determination, because what we're asking for is for the jury to make that determination.

[01:16:50] Speaker 04:
Judgment was granted as a matter of law, saying that under these facts, there's no way that Mr. Ellison could have control.

[01:16:56] Speaker 04:
They could argue to the jury those points.

[01:16:59] Speaker 04:
That's who should decide it.

[01:17:01] Speaker 04:
OK.

[01:17:01] Speaker 04:
All right.

[01:17:02] Speaker 04:
Thank you.

[01:17:03] Speaker 04:
Thank you very much, Your Honor.

[01:17:04] Speaker 02:
We'll start with the serve rebuttal.

[01:17:10] Speaker 01:
Thank you again, your honor.

[01:17:11] Speaker 01:
I wanted to respond to Mr. Kropowski's arguments on counts four and five, and this ties back into potentially sending those counts back to also determine my client's counterclaims, the second and third counterclaim.

[01:17:28] Speaker 01:
Mr. Kropowski said that on counts four and five, the jury found my clients liable to a specific dollar amount, to the penny.

[01:17:41] Speaker 01:
And counts four and five are based upon alleged damage caused by my clients to Island Air.

[01:17:49] Speaker 01:
This is the problem I have.

[01:17:52] Speaker 01:
What liability today does Island Air have to the unions?

[01:17:58] Speaker 01:
Zero.

[01:18:00] Speaker 01:
The estate is not on the hook for anything at all, which is why we argued on issue 15, there's no case or controversy.

[01:18:10] Speaker 01:
There is no case or controversy at all.

[01:18:13] Speaker 01:
There has been no injury to Island Air.

[01:18:15] Speaker 01:
Now, Mr. Koprowski can come back on behalf of the unions and say, well, the jury has already found liability.

[01:18:23] Speaker 01:
The problem with that argument is this.

[01:18:25] Speaker 01:
Throughout their first brief and their third brief, what do they say is the source of the liability on counts four and five?

[01:18:37] Speaker 01:
The union's administrative expense claims.

[01:18:40] Speaker 01:
Those have not been decided.

[01:18:42] Speaker 01:
So to come full circle, as I was sitting there and thinking about the question that your honors posed with respect to sending this back, to have sort of a mini trial on four and five and to deal with our counterparts.

[01:18:57] Speaker 01:
Does the trustee have standing on counts four and five?

[01:18:59] Speaker 02:
We wouldn't even need to do a mini trial.

[01:19:01] Speaker 02:
I mean, you're talking about the jurisdiction.

[01:19:03] Speaker 02:
We could just send this back and get an interlocutory certification.

[01:19:07] Speaker 02:
And I just, I mean, this is complicated enough and a deal that I just wonder why we don't do that.

[01:19:12] Speaker 02:
You've agreed we can do it.

[01:19:14] Speaker 02:
You've reluctantly agreed that that's a better alternative.

[01:19:18] Speaker 02:
It keeps us all in the same position.

[01:19:20] Speaker 01:
And the only question I pose there is there's no standing on counts four and five, though.

[01:19:25] Speaker 01:
There's no case for controversy.

[01:19:27] Speaker 01:
I don't have anything else to add.

[01:19:29] Speaker 01:
Thank you.

[01:19:30] Speaker 02:
Thank you.

[01:19:31] Speaker 02:
We'll give you two minutes.

[01:19:40] Speaker 00:
Thank you, your honors.

[01:19:41] Speaker 00:
I appreciate the extra time and I recognize I'm just up here on cross appeal.

[01:19:45] Speaker 00:
But if I could provide a citation in the record to follow up on my answer to Judge Bybee's question about the $12,000 in the stock warrants, I think ER 3205 to 3209 shows why those stock warrants would not have changed actual control because

[01:20:03] Speaker 00:
Ohana had the right to purchase only additional series A. Stock control over the board was defined by series.

[01:20:11] Speaker 00:
And so purchasing additional stock in the same series would have had zero impact on Ohana's actual control over the board.

[01:20:18] Speaker 00:
And I'll leave it at that for those purposes, but I think that citation is really important.

[01:20:22] Speaker 00:
That was ER 32?

[01:20:23] Speaker 00:
3205 to 3209.

[01:20:25] Speaker 00:
And these are cited on page 33 of our second brief in fuller context.

[01:20:31] Speaker 00:
And then unless the court has any other questions on that, I will focus just on the cross-appeal issue and very briefly that even if you disagree with everything I said before, you agree with what you heard from Mr. Koprowski about the inequitable conduct,

[01:20:43] Speaker 00:
the district court still made further independent errors about harm to creditors.

[01:20:48] Speaker 00:
The Stoombos case that Mr. Koprowski referred to also makes clear that harm to creditors cannot flow exclusively from the fact that loans were secured.

[01:20:59] Speaker 00:
In fact, Stoombos goes further and says that a finding of just generalized harm to creditors is not enough.

[01:21:05] Speaker 00:
Equitable subordination requires specific findings that there was harm to competing claimants.

[01:21:11] Speaker 00:
and that the loans are subordinated only to the extent necessary to remedy that harm to the disadvantaged claimants.

[01:21:19] Speaker 00:
The district court made no findings along those lines.

[01:21:22] Speaker 00:
In fact, the district court never made any findings about the predicate question of whether any other interest holder, any other unsecured creditors, excuse me, were in fact disadvantaged because the question of whether the carbon views loans were entitled to priority turned on the value of the collateral

[01:21:41] Speaker 00:
that secured them to the extent the value exceeded those collateral.

[01:21:46] Speaker 00:
They were unsecured and operated on the same level as any other set of competing claims.

[01:21:52] Speaker 00:
And unless the court has any further questions for me, I will end it there.

[01:21:56] Speaker 00:
I thank the court for its time.

[01:21:57] Speaker 00:
And I'd ask that you affirm, except with respect to the equitable subordination determination.

[01:22:02] Speaker 02:
Thank you.

[01:22:03] Speaker 02:
Thank you to all counsel.

[01:22:04] Speaker 02:
This argument could have gone a lot of different ways.

[01:22:08] Speaker 02:
It went the best way possible, and that's because of your professionalism and your preparation, and that's very helpful to the court.

[01:22:13] Speaker 02:
So we thank you, and that concludes our arguments for the day.

[01:22:18] Speaker 02:
The case is now submitted, and we're in recess.

[01:22:24] Speaker 05:
All rise.