[00:00:03] Speaker 02:
We're going to now take up the third of our four cases on the calendar, snow-covered capital versus Widener.

[00:00:11] Speaker 02:
And I want to make sure I have this correct for the appellees.

[00:00:15] Speaker 02:
Mr. Snyder, 10 minutes, and Mr. Pencheri, 5.

[00:00:19] Speaker 02:
Do I have that right?

[00:00:20] Speaker 03:
Yes, Your Honor.

[00:00:23] Speaker 03:
David Snyder, 10 minutes.

[00:00:24] Speaker 03:
And I'm going to specifically address the fair market value issue, and then turn it over to Mr. Pencheri and Spencer Fain, who will address the contract damages.

[00:00:32] Speaker 03:
All right.

[00:00:32] Speaker 03:
Thank you.

[00:00:33] Speaker 02:
Thank you.

[00:00:35] Speaker 02:
Whenever you're ready, take your time getting ready.

[00:00:39] Speaker 00:
Thank you, Your Honor.

[00:00:40] Speaker 00:
May it please the Court?

[00:00:42] Speaker 00:
I'm Kelly Dove and I represent Snow-Covered Capital.

[00:00:46] Speaker 02:
Before you start, I believe that Judge Holcomb has some questions that he would like to address to both sides, so I think

[00:00:57] Speaker 02:
They'll start with this.

[00:00:59] Speaker 02:
Why don't we stop the clock here for these questions?

[00:01:02] Speaker 02:
So we'll be able to give you time to address the issues that you have briefed.

[00:01:07] Speaker 02:
But why don't you bring up your questions on this one point, Judge Holcomb, and then we can also, if necessary, give some additional time to the appellees as well.

[00:01:18] Speaker 04:
Thank you, Judge Bennett.

[00:01:20] Speaker 04:
So the issue is whether this court and the district court had subject matter jurisdiction over this case to start with.

[00:01:30] Speaker 04:
The complaint, which is at ER, I'm looking at ER 479 and 480, actually 4ER.

[00:01:42] Speaker 04:
recites that or alleges that the district court had subject matter jurisdiction, diversity jurisdiction and 1334 bankruptcy jurisdiction.

[00:01:53] Speaker 04:
I question whether there was bankruptcy jurisdiction, but one can put that aside, because at some point, snow-covered capital settled with the debtor, Lucky Dragon LP, and I think bankruptcy jurisdiction ceased to be present to the extent that it was at that point.

[00:02:09] Speaker 04:
So we've got diversity jurisdiction, and that was alleged.

[00:02:14] Speaker 04:
This complaint was filed in April of 2019.

[00:02:18] Speaker 04:
The allegation in paragraph five on page 480 is that Snow Covered Capital is an LLC.

[00:02:27] Speaker 04:
They're a nested LLC.

[00:02:28] Speaker 04:
The bottom line is the allegation is the owners of these three limited liability companies are individuals residing in California.

[00:02:37] Speaker 04:
or trusts whose trustees are citizens of Delaware and Alabama.

[00:02:42] Speaker 04:
So the allegation is citizenship for the plaintiff's side is California, Delaware, and Alabama.

[00:02:47] Speaker 04:
And then on the defendant's side, we've got the three individuals, Nevada, Nevada, and Texas, and we've got the limited partnership, which let me ignore that in view of the settlement.

[00:03:02] Speaker 04:
So we've got Nevada, Texas,

[00:03:05] Speaker 04:
On the defendant's side, we've got allegedly California, Delaware, and Alabama.

[00:03:10] Speaker 04:
Now, as I said, this was filed in 2019.

[00:03:13] Speaker 04:
In 2022, Congress amended the Federal Rules of Civil Procedure to add Rule 7182, which imposes an obligation on parties to reveal, disclose, identify the citizenship of

[00:03:33] Speaker 04:
all of the individuals, entities whose citizenship matters for diversity purposes, with particularity.

[00:03:44] Speaker 04:
My words, I'm paraphrasing.

[00:03:48] Speaker 04:
So I think in 2022, at the latest, there should have been more definition of who these individuals are, who were owners or managers of the limited liability companies, what trusts we're talking about, who the trustees are, and with specificity.

[00:04:14] Speaker 04:
I looked at the,

[00:04:16] Speaker 04:
I looked at the record, and I couldn't find any more reference to a diversity subject matter jurisdiction analysis.

[00:04:25] Speaker 04:
I think the answer concedes these points.

[00:04:29] Speaker 04:
And as I say, I didn't find anything more.

[00:04:33] Speaker 04:
this court and federal courts in general always have an obligation to ensure that they have jurisdiction, and I'm not sure that we do.

[00:04:41] Speaker 04:
We have allegations, but we don't have enough, in my view, I'm concerned we don't have enough specificity.

[00:04:48] Speaker 04:
So the first question is,

[00:04:49] Speaker 04:
As this case was litigated, was this ever addressed?

[00:04:53] Speaker 04:
Was it ever revealed on the record or in some way that would matter who the individuals are, who were the owners managers of the LLCs, who the trustees were, what the trusts were?

[00:05:10] Speaker 04:
Did that come out?

[00:05:10] Speaker 04:
Was that analyzed?

[00:05:12] Speaker 04:
How do we know for sure that we have subject matter jurisdiction?

[00:05:15] Speaker 00:
I don't think that was ever litigated.

[00:05:17] Speaker 00:
And with a few minutes, I could probably get more answers, but I did not look into that in preparation for this argument.

[00:05:26] Speaker 00:
So I'm sure we could either get an answer during the course of my friend's argument on the other side, or by the end of the day, file a document that specifies the citizenship to

[00:05:41] Speaker 00:
allay any concerns, but I am not aware of anybody from Nevada or Texas within the snow-covered capital side.

[00:05:50] Speaker 02:
Let me ask, is there anyone on the Apple East side that has any information on this at this point?

[00:06:11] Speaker 05:
Well, it's both but I think lucky dragon matters less because as I said at some point

[00:06:38] Speaker 04:
that defendant entity settled out and was no longer a party.

[00:06:42] Speaker 04:
When this case went to trial, as I understand it, the bench trial, that entity, there's only two individual personal guarantors who are the defendants by then, correct?

[00:06:56] Speaker 04:
And maybe their entity, but yes.

[00:06:59] Speaker 02:
So this is what I'd like to suggest subject to my colleagues' views.

[00:07:04] Speaker 02:
What would be ideal is if the parties could submit something jointly on this, if they agree as to the facts and say within the next seven days.

[00:07:19] Speaker 02:
And if the parties don't agree, then separate filings on this

[00:07:24] Speaker 02:
with answering Judge Holcomb's questions and the general question about jurisdiction within the next seven calendar days.

[00:07:31] Speaker 02:
Is that all right with you?

[00:07:32] Speaker 02:
That's fine.

[00:07:32] Speaker 02:
Is that all right with you, Judge Holcomb?

[00:07:34] Speaker 04:
Yes, thank you, Judge Bennington.

[00:07:35] Speaker 02:
All right.

[00:07:35] Speaker 02:
And if you do have something else you want to say during the argument today, that would be fine.

[00:07:40] Speaker 02:
But there's no need to do that.

[00:07:42] Speaker 02:
Obviously, we brought this up, so it wasn't addressed in the briefs.

[00:07:48] Speaker 02:
And so at this point, why don't we just proceed with the argument as you and your friends had planned?

[00:07:53] Speaker 00:
Okay, thank you.

[00:07:55] Speaker 00:
I will try to reserve five minutes for rebuttal if I'm able, and I will keep an eye on the time.

[00:08:01] Speaker 00:
To start, we appreciate that the district court's fair market value determination is reviewed for clear error.

[00:08:11] Speaker 00:
A finding is clearly erroneous, of course, if it is illogical, implausible, or without support.

[00:08:18] Speaker 00:
But review for clear error while a high burden does not mean no review at all.

[00:08:25] Speaker 00:
And while this dispute concerns the appraisal of real property, much of the error here that I'd like to address today is mathematical and we think satisfies the clear error standard.

[00:08:40] Speaker 00:
So we've detailed in our brief the tortured history of the Lucky Dragon Hotel and Casino

[00:08:45] Speaker 00:
which by the time of the October 2018 foreclosure sale was a vacant building encircled by a chain link fence.

[00:08:55] Speaker 00:
We went through the sales history, the default, and the many, many attempts over a two-year period to try to sell this property.

[00:09:08] Speaker 00:
The district court

[00:09:09] Speaker 00:
chose not to entertain most of that sales history in making its determination.

[00:09:16] Speaker 00:
But critical here, three appraisers testified at trial.

[00:09:20] Speaker 00:
And all three appraisers used an income approach and used the same gaming control board data.

[00:09:28] Speaker 00:
And they each used a very similar three-step process, albeit with different models and different inputs.

[00:09:35] Speaker 00:
First, they each came up with a positive

[00:09:37] Speaker 00:
stabilized abita following the Lucky Dragons negative $20 million abita.

[00:09:45] Speaker 00:
So that really had to be created from scratch because we're dealing with a business and a property that started with the negative.

[00:09:53] Speaker 01:
Because your time is running short, what is the mathematical error?

[00:09:57] Speaker 01:
Because we're well aware of how the appraisers came up with their estimates.

[00:10:01] Speaker 00:
Yes.

[00:10:01] Speaker 00:
So the mathematical error is that the district court adopted DeFederico's methodology, largely adopted DeFederico's number, and then just took a small haircut off the top and said, well, I am picking DeFederico.

[00:10:16] Speaker 00:
I like how he did this.

[00:10:20] Speaker 00:
But we need to account for the fact that he used mega resort data in his analysis.

[00:10:27] Speaker 00:
And where the district court erred is, it did not appreciate

[00:10:29] Speaker 00:
the difference that the change in inputs would have in the overall fair market value under DeFederico's own model.

[00:10:37] Speaker 01:
But it did because it did take that haircut at the end.

[00:10:40] Speaker 01:
So I guess what you're really saying is it should have done a different kind of weighing with that input.

[00:10:47] Speaker 01:
I mean, as I understand it,

[00:10:49] Speaker 01:
The district court found a little bit of fault with all three appraisals, which is not unusual.

[00:10:54] Speaker 01:
You know, here's a problem with this, the multiplier's wrong in these other two.

[00:10:57] Speaker 01:
Here's another issue with one of them where, you know, where you're not breaking down the kind of revenue generation.

[00:11:07] Speaker 01:
I'm not sure where I see where mathematical error comes in, as opposed to evidence weighing, which, as you said, is very difficult to overcome on a clear error standard.

[00:11:17] Speaker 00:
Sure.

[00:11:17] Speaker 00:
So the problem with the district court's haircut is that this 5.9%, 3.7 million, I'm just going to knock this from a little over 63 million to 60 million flat just is completely outside of DeFederico's methodology and analysis.

[00:11:35] Speaker 02:
But does that take into account the district court's finding where he says ER 27, paragraph 53,

[00:11:44] Speaker 02:
I agree with Kimmel that this property is very difficult to appraise because it is betwixt and between.

[00:11:51] Speaker 02:
I mean, isn't the district court here doing what triers of fact are supposed to do when coming up with how to harmonize three different appraisals by three qualified experts with regard to a property that

[00:12:10] Speaker 02:
is difficult to appraise because it doesn't neatly fit into a particular type of appraisal bucket.

[00:12:18] Speaker 02:
Isn't there got to be some discretion there when you have something that I think the district court fairly characterized as betwixt and between?

[00:12:27] Speaker 00:
That is correct.

[00:12:28] Speaker 00:
It's betwixt, in between, and it doesn't squarely fit in certain categories.

[00:12:31] Speaker 00:
And that's why, for example, choosing comparable properties was difficult.

[00:12:36] Speaker 00:
And the district court's agreement, perhaps, with DeFederico's choice of comparable properties would be something that would be entitled to deference.

[00:12:47] Speaker 00:
The problem here is that all of this is data-driven, and everyone agreed, including the district court's finding.

[00:12:55] Speaker 00:
that the lucky dragon is not a strip mega resort property.

[00:12:58] Speaker 01:
Yeah, but at the same time, the district court pointed out that Kruger and Kimball had properties that are less comparable, but on the low end, you know, smaller downtown casinos.

[00:13:08] Speaker 01:
So that input was bringing in revenue estimates that were too low, right?

[00:13:13] Speaker 01:
And so that's the big twist in between problem of trying to figure out what's the most credible fair market value for these.

[00:13:21] Speaker 00:
So the problem is that

[00:13:23] Speaker 00:
It's betwixt and between, but everybody agrees it's not in the 72 million plus mega resort band.

[00:13:31] Speaker 00:
And the other problem is that the district court, I think, got confused about the 1 million plus Clark County band, which is called 1 million plus, but is dominated by the 72 million plus band, which comprises 92% of that band.

[00:13:46] Speaker 00:
And so the district court recognized and diagnosed a problem, which was that

[00:13:50] Speaker 00:
I'm not sure if that's the case.

[00:13:57] Speaker 01:
I'm not sure if that's the case.

[00:13:59] Speaker 01:
I'm not sure if that's the case.

[00:14:04] Speaker 01:
I'm not sure if that's the case.

[00:14:09] Speaker 01:
that they're not truly comparable and his EBIT estimate would be closer to 20 million, basically double what he had, which if you scale that up, and I'm not sure that you would, would come out to a fair market value of 73 million, which is even higher.

[00:14:23] Speaker 01:
So again, you know, these inputs are imperfect, but that's what a district court does in trying to

[00:14:31] Speaker 01:
to hash out what to do between the three different appraisals.

[00:14:35] Speaker 00:
That's right.

[00:14:35] Speaker 00:
That's in a different step as well.

[00:14:37] Speaker 00:
So the question of comparable properties is what determines the beta multiplier, whereas the real driving force of DeFederico's numbers were its sensitivity to the RTD number.

[00:14:50] Speaker 00:
And that RTD number was, it's just undeniable that it comes from the 72 plus million

[00:14:56] Speaker 00:
because that's the $3,368 number, which he compares.

[00:15:03] Speaker 00:
He lowers it to $3,000, but that's still the $1 million plus, which again is dominated by the $72 million.

[00:15:09] Speaker 00:
And there are other bands.

[00:15:11] Speaker 00:
So there's a band that's downtown $12 million plus, and the band that we think probably would be more appropriate, which is the $36 to $72 million band.

[00:15:20] Speaker 00:
Because again, there's no dispute that the Lucky Dragon doesn't belong in the $72 million band.

[00:15:25] Speaker 00:
So to the extent that there's disagreement about what other band the court should look to or the appraiser should look to to determine an RTD value, nobody is arguing that the lucky dragon is above the $72 million mark.

[00:15:39] Speaker 00:
And the district court found that.

[00:15:41] Speaker 01:
And that's our point, part of our point here is that the district court- I thought part of the issue was that D Federico testified that the

[00:15:49] Speaker 01:
RTD number of sub 3000 was just an example, but on a perspective basis he was giving sort of a mixed bundle of what the possible revenue generation was.

[00:16:02] Speaker 01:
So if that's in the record too, why wouldn't the district court be entitled to rely on that testimony as opposed to your assertion that this RTD of 3300 was driving everything?

[00:16:14] Speaker 00:
So the RTD, he compared the 3,000.

[00:16:17] Speaker 00:
He also used the mega resort hold percentage, which doesn't apply to a casino of this size.

[00:16:24] Speaker 00:
And even though the answering briefs attempt to minimize the percentages, like, oh, one is 13.47% as opposed to 11%.

[00:16:34] Speaker 00:
But even that change in hold percentages results in a $10 million difference in the fair market value.

[00:16:43] Speaker 00:
And so the problem is the district court, this isn't a residential sale.

[00:16:47] Speaker 01:
What about the fact that the district court found a problem with the multipliers for Kruger and Kimmel?

[00:16:51] Speaker 01:
because they were using sales out of Pennsylvania, other places, and DeFederico.

[00:16:59] Speaker 01:
I guess what I'm saying, my view is, it seems as if you're just trying to re-litigate your disagreement with DeFederico.

[00:17:07] Speaker 01:
which is not our task for a clear error review standard, right?

[00:17:11] Speaker 01:
We're not the trial court, we're not here to rehash, you know, who's more credible versus not.

[00:17:17] Speaker 01:
I'm not seeing what clear error is in your attempt to try to nitpick at Federico's testimony.

[00:17:24] Speaker 00:
So our point is the district, so we're not advocating, we're not making the argument, which I think would not win on this standard, that he should have followed Kim or Krueger right now.

[00:17:35] Speaker 00:
We're operating completely within the bounds with what the district court did, which was I'm picking DeFederico and

[00:17:43] Speaker 00:
The inclusion of the mega resort data is a problem, and so it needs to be discounted.

[00:17:48] Speaker 00:
But then in taking DeFederico and just removing 3.7 million, it's completely untethered to DeFederico's methodology.

[00:17:57] Speaker 02:
And if we're... Council, when I look at what I think my colleague was quoting from, maybe paragraph 57,

[00:18:06] Speaker 02:
Kimmel used sails that were more remote in time.

[00:18:09] Speaker 02:
The only Vegas property he used was Club Fortune, which has no hotel.

[00:18:13] Speaker 02:
Kruger relied on sails from Pennsylvania and Missouri and Club Fortune and included Proforma Evida instead of trailing.

[00:18:22] Speaker 02:
And Kimmel and DeFederico used trailing.

[00:18:25] Speaker 02:
And trailing is based on actual numbers where performers are estimates and thus more risky and less accurate.

[00:18:31] Speaker 02:
And those seem to me to be very normal and appropriate types of conclusions, very detailed by a trier of fact that I think find support in the evidence.

[00:18:45] Speaker 02:
It's not, I have trouble seeing the untethered part that you're talking about because the court makes all of these findings and appears to be taking them into account and coming up with a number.

[00:18:58] Speaker 00:
And in that analysis, Your Honor, the court was actually erring in comparing apples to oranges a bit because, again, the comparable sales, which he didn't care for from Kimmel, is part of the EBITDA multiplier and not part of the RTD.

[00:19:15] Speaker 00:
And really, a decrease of either of those numbers on either of those steps results in a deficiency.

[00:19:21] Speaker 00:
And so if this were just a residential sale where there's three properties in a neighborhood and one sold for $500 and one sold for $700 and an appraiser comes in and says, well, this one had an updated kitchen and this one had this feature.

[00:19:36] Speaker 00:
But this was a highly technical analysis that all three appraisers undertook and the district court

[00:19:42] Speaker 00:
undertook as well.

[00:19:43] Speaker 00:
So the district court's order goes through the multipliers and the sales.

[00:19:48] Speaker 00:
And then in coming up with a discount, instead of looking at the math and looking at, oh, if we're using appropriately using RTD data from the gaming control board in the 36 to 72 million band instead of the mega resort band, which I know doesn't apply, that actually has a drastic effect on the output.

[00:20:08] Speaker 00:
and the fair market value.

[00:20:11] Speaker 00:
So this isn't just about spitballing what this casino is worth.

[00:20:14] Speaker 00:
This is a detailed analysis.

[00:20:16] Speaker 00:
And that's why our point that the haircut is insufficient is because it's not based on any of that analysis.

[00:20:23] Speaker 00:
It's like taking a very detailed process and then just sort of making a, well, I guess I'll take $3 million off to find a fair market value that's just a smidge above the indebtedness number.

[00:20:37] Speaker 04:
Are you alleging that the district judge here was results oriented?

[00:20:42] Speaker 04:
That he wanted to get to a number and figured out a way to get there?

[00:20:45] Speaker 00:
I would never make that argument.

[00:20:48] Speaker 04:
Because I didn't see that in your papers, but are you arguing that?

[00:20:51] Speaker 00:
No, I think the district court genuinely misunderstood the effect of even small changes in the RTD, the effect in the fair market value,

[00:21:01] Speaker 00:
on the other side, I would not disparage the district court.

[00:21:05] Speaker 00:
So this is, I mean, this is complicated, and that's our point is, you know, the district court, we think, correctly found that DeFederico's analysis, because he says, I don't agree with it in total, the problem is it includes mega resort data, and we need to discount to account for that.

[00:21:21] Speaker 00:
But to account for that,

[00:21:22] Speaker 00:
requires taking more than just this $3 million.

[00:21:27] Speaker 00:
And I just think in this complex, these complex calculations, the district court did not appreciate that, for example, lowering an RTD amount by $200 or $300 results in an enormous change on the other end.

[00:21:42] Speaker 01:
Mr. Can I ask you to switch gears for a second?

[00:21:44] Speaker 01:
So part of the appeal are about

[00:21:47] Speaker 01:
these extra damages that you're seeking.

[00:21:49] Speaker 01:
And it's not entirely clear to me what the nature of those, whether there's attorney's fees or costs or what it is.

[00:21:55] Speaker 01:
But here's my concern about it.

[00:21:58] Speaker 01:
You've got a stipulation that address the totality of pre-foreclosure damages.

[00:22:05] Speaker 01:
And to me, my reading of it makes pretty clear that you would not be asking for any other pre-foreclosure damages.

[00:22:12] Speaker 01:
And then you've got a survival clause in the guarantee that would seem to foreclose the ability to recover any post-foreclosure damages.

[00:22:19] Speaker 01:
If that's so, why isn't that dispositive of all of your extra damages claims?

[00:22:26] Speaker 00:
Because the guarantee, which as we explained is called a bad boy guarantee colloquially, is meant to

[00:22:34] Speaker 00:
compensate the lender for litigation expenses, irrespective of whether it's a prevailing party.

[00:22:41] Speaker 00:
So expenses including fees, yeah.

[00:22:43] Speaker 01:
But I'm not talking about prevailing.

[00:22:44] Speaker 01:
I'm saying there's a survival clause in the guarantee that says you can recover up to the point of foreclosure.

[00:22:51] Speaker 01:
So that is not an analysis in my view of who's prevailing or not, just you're not entitled to any post-foreclosure recovery.

[00:23:00] Speaker 01:
So why isn't that dispositive for any post-foreclosure damages claims that you're asserting?

[00:23:08] Speaker 00:
Our position is that the survival clause takes it past foreclosure, but even if it's just pre-foreclosure, that still opens the door to expenses that were incurred in the bankruptcy.

[00:23:19] Speaker 01:
But then how do you get around your settlement, which said

[00:23:22] Speaker 01:
for pre-foreclosure, we agree that this is the sum total of all the expenses that are at issue and we're setting that aside and now we're having the bench trial.

[00:23:31] Speaker 01:
How are you now coming back and asking for more pre-foreclosure expenses?

[00:23:36] Speaker 00:
Because my understanding of that number is that's the indebtedness number that did not.

[00:23:41] Speaker 01:
It says total.

[00:23:43] Speaker 00:
Well, and I can refine that so I can better answer your question.

[00:23:47] Speaker 02:
But it also says, further, SCC agrees not to offer or argue that there are any other pre-foreclosure damages other than those agreed upon in the stipulated indebtedness.

[00:23:57] Speaker 02:
We're in the same paragraph, right?

[00:23:59] Speaker 01:
Right.

[00:24:01] Speaker 00:
Yeah.

[00:24:02] Speaker 00:
Well, we were looking for mainly fees that were incurred in the bankruptcy and outside the indebtedness.

[00:24:09] Speaker 02:
All right.

[00:24:10] Speaker 02:
Thank you.

[00:24:11] Speaker 02:
You've used your time.

[00:24:12] Speaker 00:
I have.

[00:24:12] Speaker 02:
Thank you.

[00:24:13] Speaker 02:
We'll give you two minutes for rebuttal.

[00:24:19] Speaker 03:
If I may.

[00:24:19] Speaker 03:
I'd like to pick up on some of the questions that were asked because I think they go to the heart of why this appeal is not and the arguments are not appropriate.

[00:24:31] Speaker 03:
And specifically, they really are trying to retry this case.

[00:24:35] Speaker 03:
And that's really what they're doing at their core.

[00:24:38] Speaker 03:
And virtually everything that they argued on appeal, both in terms of papers and here today, was considered and either accepted or rejected by Chief Judge Gordon.

[00:24:50] Speaker 03:
And while sometimes we gloss over the standard of review, I think it really is important to focus on a little bit more for just one second.

[00:25:00] Speaker 03:
The cases are clear that they make a particular distinction with valuation cases.

[00:25:08] Speaker 03:
Because I think of some of the nature of what your honors have been getting at.

[00:25:11] Speaker 03:
And they say that when it comes to valuation issues, trial courts have particularly broad discretion.

[00:25:17] Speaker 03:
And an appellate court's power of review is particularly narrow.

[00:25:23] Speaker 03:
Taking even further, and Your Honor asked the question that I've been trying to ask the entire appeal, which is, where's the math error?

[00:25:31] Speaker 03:
And I think, in essence, what they were confronted with is exactly what we believe happened here, which is these are factual issues.

[00:25:39] Speaker 03:
So I've got to come up with a way to make it not a factual issue.

[00:25:43] Speaker 03:
So I'm going to say it was the judge didn't understand it.

[00:25:47] Speaker 03:
which I think frankly is a little insulting and not that Chief Judge Gordon needs me to defend him, that he didn't appreciate and made a math error or that he acted arbitrarily and none of it is the case.

[00:25:58] Speaker 02:
I agree that your friend has not made out, in my view, a math error claim, but I think what they're really saying is that

[00:26:09] Speaker 02:
Without explanation he invented a haircut number right and I'm not buying into that, but I'm saying I think their argument is that he came up with a haircut number and

[00:26:20] Speaker 02:
He had some predicate explanations as to why he liked some parts of summer crazers, didn't like some.

[00:26:29] Speaker 02:
But then there was just sort of this magic haircut number with no explanation.

[00:26:36] Speaker 03:
So that was exactly where I was going to ask, because I think it's critical.

[00:26:39] Speaker 03:
So first of all, there is not one case that they can cite or do cite that required the judge to do anything more than he did.

[00:26:47] Speaker 03:
In fact, the cases say that fair market value determination is one of fact and not based on fixed rules or formula.

[00:26:57] Speaker 03:
and SEC concedes that there's no requirement that they use a precise formula and that it's very common for trial courts when considering conflicting appraisals to use quote, non-quantitative reasons, end quote, for determining fair market value and that's the Tahoe case.

[00:27:15] Speaker 03:
And that valuation is as much an art as it is science.

[00:27:18] Speaker 03:
And what the judge did here, after a very lengthy and thoughtful background, he came up with what was, in his best judgment, the value of this property.

[00:27:27] Speaker 03:
There's nothing that was required more than that.

[00:27:29] Speaker 03:
And judges and juries, when they're fact-finders and appraisers, do that very thing all the time.

[00:27:36] Speaker 03:
They use their judgment.

[00:27:37] Speaker 03:
And let me give you a couple quick examples.

[00:27:40] Speaker 03:
In this particular case, and there

[00:27:43] Speaker 03:
appraisers because, again, appraisers don't always plug in inputs and magically a value comes up.

[00:27:51] Speaker 03:
So let's take the multiples, which we addressed very briefly.

[00:27:54] Speaker 03:
And the multiples, what both sides did, all their appraisers, is they looked at the sales because the multiples are determined on comparable sales, right?

[00:28:02] Speaker 03:
And they have, here's what this sale did, and then it has a range, and then they pick a number.

[00:28:08] Speaker 03:
They don't say it's one-tenth minus 62.

[00:28:12] Speaker 03:
They say, on my judgment, this is what it is.

[00:28:15] Speaker 03:
And more specifically, and maybe even more applicable, Mr. Kimmel, when he selected his EBITDA, which was perhaps one of the most important, obviously, components of the case,

[00:28:26] Speaker 03:
He said he didn't go through the analysis in terms of category by category.

[00:28:32] Speaker 03:
Instead what he did was he took what he believed based on the evidence data he believed was appropriate and he said here's what the average is for this evidence for these casinos for EBITDA and I'm going to take 30% off.

[00:28:46] Speaker 03:
doesn't say why he's going to take 30% off.

[00:28:49] Speaker 03:
He just says, I've been doing this a really long time.

[00:28:52] Speaker 03:
And based on my judgment, that's the right number to do.

[00:28:55] Speaker 02:
That sounds like Kumho Tire to me.

[00:28:59] Speaker 02:
But we have no Galbert issues before us, correct?

[00:29:03] Speaker 02:
That's right.

[00:29:03] Speaker 03:
That's right.

[00:29:04] Speaker 03:
And in essence, there's nothing that wasn't admissible that should have been, et cetera, et cetera.

[00:29:08] Speaker 03:
I mean, it's just basically what they're complaining about is that the judge didn't agree with them, that he didn't agree with the inputs that they used, et cetera.

[00:29:16] Speaker 03:
And I want to correct a couple things.

[00:29:18] Speaker 03:
One is he didn't just do a, I'll use the haircut phrase, but I'm not sure it was a haircut, the $377 million.

[00:29:27] Speaker 03:
There was a step above it.

[00:29:28] Speaker 03:
And the step above it is, first of all, they keep pointing to this 3368 RTD number.

[00:29:35] Speaker 03:
That is not the number that actually Mr. DeFederico used.

[00:29:40] Speaker 03:
It was $3438 what he used.

[00:29:45] Speaker 03:
And Mr. DeFederico then took the 3438, which represented the table games in his new mix.

[00:29:53] Speaker 03:
those specific table games.

[00:29:55] Speaker 03:
And as he put it, the market said, what does that look like?

[00:29:59] Speaker 03:
It's 34, 38.

[00:30:00] Speaker 03:
And he conservatively took that down to 3,000 for his projection for table games.

[00:30:05] Speaker 03:
So before Chief Judge Gordon even got to the next step, there was already an almost 13% deduct from that over $1 million, including the mega resorts.

[00:30:20] Speaker 03:
And then he took another almost 6% off of that to get to his final number.

[00:30:27] Speaker 01:
And was he doing that because of this in-between issue?

[00:30:31] Speaker 03:
I think at the end of the day, he, you know,

[00:30:35] Speaker 03:
He was terrific and I think he listened to every single thing that was said and he considered and he asked questions.

[00:30:40] Speaker 03:
I think at the end of the day that was his judgment.

[00:30:42] Speaker 03:
Is that he thought that maybe Mr. de Frederica was a little heavy on the because of the large resorts but he felt that and again everything was made this is all argued at trial that he first knocked it down to the 3,000 and then he felt another 3770 was

[00:31:01] Speaker 03:
what it should be knocked down again, based on his judgment.

[00:31:04] Speaker 03:
And there's no requirement in the law for him to do any more than that, to do any more explaining than that.

[00:31:11] Speaker 03:
I think it was a remarkably well thought out, and I'm not just saying that because we won, but that it was a very well thoughtful analysis, including the sales attempts, including the multiples.

[00:31:24] Speaker 03:
And I'm running out of time, but I just want to mention one other thing.

[00:31:28] Speaker 03:
And Your Honor brought up the multiples, I think.

[00:31:31] Speaker 03:
And there were a couple elements we pointed out in our brief.

[00:31:33] Speaker 03:
They had the requirement to prove a deficiency, every element of a deficiency.

[00:31:38] Speaker 03:
And there were a couple clear examples when they didn't prove it.

[00:31:41] Speaker 03:
One is the multiples.

[00:31:42] Speaker 03:
The judge clearly, and I think which they really don't defend their own multiples in the brief.

[00:31:49] Speaker 03:
They were really out of whack.

[00:31:50] Speaker 03:
They really relied on bad comments, which I can get into, but I'm running out of time.

[00:31:54] Speaker 03:
I think that alone kills our appeal.

[00:31:56] Speaker 03:
And the second is,

[00:31:57] Speaker 03:
Mr. Krueger, each of the three appraisers talked about the number of table games.

[00:32:03] Speaker 03:
Two of them, including Mr. Kimmel and Mr. DeFederico, said 37.

[00:32:08] Speaker 03:
And Mr. Krueger said it was, I think, 23.

[00:32:13] Speaker 03:
And the judge said that was contorted.

[00:32:15] Speaker 03:
You throw that out, that really knocks out their case as well.

[00:32:19] Speaker 03:
So I also don't believe they met their burden here, unless the court has any questions.

[00:32:25] Speaker 04:
I have a question.

[00:32:26] Speaker 03:
Yes.

[00:32:27] Speaker 04:
Paragraph 62 of the district judge's findings of fact and conclusions of law, it's in the record 1ER30.

[00:32:39] Speaker 04:
The judge notes that in connection with the bankruptcy case, Snow Cover Capital offered a couple of valuations, characterized as Harper valuations.

[00:32:49] Speaker 04:
This was in January and May of 2018.

[00:32:56] Speaker 04:
One was $60 million and one was $55 million.

[00:33:01] Speaker 04:
The district judge says, I give no weight to the Harper appraisals.

[00:33:06] Speaker 04:
OK.

[00:33:07] Speaker 04:
But then he says that it is fair to include as data points Snow Cover Capital's representations to the bankruptcy court.

[00:33:17] Speaker 04:
So did he take these Harper valuations into account or did he not?

[00:33:22] Speaker 03:
He did not take them into account in terms of the actual valuation component.

[00:33:28] Speaker 03:
And what he means by data points is we had a lot of skirmishes over the extent to which

[00:33:33] Speaker 03:
the sales history should come in.

[00:33:36] Speaker 03:
And we filed a motion to get rid of the time period before the bankruptcy and the bankruptcy, which they continue to dwell on, and we lost that motion.

[00:33:47] Speaker 03:
So what the judge said was, well, if I'm gonna let them talk about that time period, I'm gonna let these guys also include it.

[00:33:56] Speaker 03:
And I believe what it really means is that to say that the property couldn't be sold

[00:34:02] Speaker 03:
during that time period shows why it wasn't a real fair market value sale, because their own appraiser says during that very same time period it was worth $60 million.

[00:34:16] Speaker 03:
So there must have been something not right in the sales process.

[00:34:20] Speaker 03:
So I don't want to put words in the judge's mouth, but based upon living with this case and seeing the way he wrote it, I think that's what he meant by the data points.

[00:34:30] Speaker 04:
Thank you.

[00:34:34] Speaker 03:
Thank you, Your Honors.

[00:34:35] Speaker 03:
I'll hand it off.

[00:34:42] Speaker 05:
Thank you.

[00:34:43] Speaker 05:
Oliver Pancari for William Widener, the appellee.

[00:34:47] Speaker 05:
May it please the Court, picking up on the

[00:34:50] Speaker 05:
the point that Judge Sanchez made about the 3.7 of the guarantee, the survival clause.

[00:34:57] Speaker 05:
3.7 is consistent with Nevada law.

[00:34:59] Speaker 05:
NRS 40.459 parens 2 says that a judgment cannot enter for more than the difference between the delta between the indebtedness and the fair market value of the property on the date of foreclosure.

[00:35:11] Speaker 05:
And that protection is afforded to guarantors.

[00:35:16] Speaker 05:
And the court could not enter a judgment in excess of that amount.

[00:35:21] Speaker 01:
Now, in terms of the actual... I mean, in other words, what you're saying is whether we get there through the survival clause or Nevada law, it's the same.

[00:35:31] Speaker 01:
If the indebtedness is satisfied, Nevada law says you can't reach the guarantors either.

[00:35:38] Speaker 05:
Correct.

[00:35:40] Speaker 05:
So in terms of the other point made by Judge Sanchez in terms of specific items of damages other than attorney's fees, there are only two of them that are mentioned in the brief.

[00:35:51] Speaker 05:
One is transfer taxes for $178,500.

[00:35:57] Speaker 05:
That's expressly in the stipulated indebtedness.

[00:36:00] Speaker 05:
So that's gone.

[00:36:01] Speaker 05:
This is 2ER-0124.

[00:36:04] Speaker 05:
And the second they refer to as marketing, pre-foreclosure marketing expenses.

[00:36:09] Speaker 05:
That again would fall under the pre-foreclosure part of the stipulation that is prohibited under paragraph 2.

[00:36:16] Speaker 02:
I'm sorry.

[00:36:17] Speaker 02:
For the first one that you mentioned, I'm ER-124.

[00:36:21] Speaker 02:
What number is that in the category list?

[00:36:23] Speaker 05:
So it is the fourth one down, transfer taxes.

[00:36:26] Speaker 02:
OK.

[00:36:27] Speaker 02:
The number being 178.5.

[00:36:31] Speaker 02:
Correct.

[00:36:31] Speaker 02:
OK.

[00:36:31] Speaker 02:
Thank you.

[00:36:34] Speaker 05:
And then in terms of the fees, which is the second issue that's being challenged, the attorney's fees.

[00:36:41] Speaker 05:
The district court gave a procedure for the parties to follow in terms of attorney's fees.

[00:36:46] Speaker 05:
The procedure was to file a motion pursuant to Rule 54.

[00:36:50] Speaker 01:
I'm sorry, what was the second item that you mentioned?

[00:36:54] Speaker 05:
Oh, it was $400,000 in marketing fees.

[00:36:58] Speaker 01:
And was that pre or post?

[00:37:00] Speaker 05:
They reference it as pre in their brief, but those are the only two specific items that are referenced.

[00:37:06] Speaker 05:
Now, whether fees are analyzed as fees as fees or fees as damages, they still have to be reasonable under the terms of the guarantee and under the battle law.

[00:37:16] Speaker 05:
Stalker Capital failed to provide any evidence of the work performed, the need for the work, the hours spent, or the rates.

[00:37:26] Speaker 05:
They gave nothing to the district court.

[00:37:28] Speaker 05:
And that was one of the reasons why the district court denied their motion for fees.

[00:37:32] Speaker 05:
So their excuse for that is they said they anticipated there would be a second phase of trial.

[00:37:39] Speaker 05:
And they cite to the transcript from the district court from a hearing on February 5th, 2024, and I quote,

[00:37:49] Speaker 05:
If I decide ultimately there are no post foreclosure damages, it's done.

[00:37:52] Speaker 05:
If I decide there's a chance for post foreclosure damages, we'll have a second phase of trial.

[00:37:58] Speaker 05:
And the court ultimately decided there were no post foreclosure damages.

[00:38:02] Speaker 05:
In that same order, that was from July 2nd, 2024, the district court ordered snow covered,

[00:38:08] Speaker 05:
and the guarantors to meet and confer about any attorney's fees and costs under 54D and 1.8 of the guarantee.

[00:38:16] Speaker 05:
If no agreement could be reached, then Snow Cover was to file a motion for those fees.

[00:38:20] Speaker 05:
No agreement was reached, and the motion was filed, but the motion did not include any of the information provided to be able to establish whether the fees are reasonable or not.

[00:38:29] Speaker 05:
And that is required under Local Rule 54-14 and under the Nevada Supreme Court case, Brunzel.

[00:38:36] Speaker 05:
That's how you determine if fees are reasonable.

[00:38:38] Speaker 05:
And Smoke Cover failed to comply with that.

[00:38:42] Speaker 05:
And in addition to, so that was one of the reasons the district court denied the motion for fees.

[00:38:47] Speaker 05:
The other was the court went through each category of fees and made a separate determination why they were not reasonable.

[00:38:53] Speaker 05:
That included the fees relating to the bankruptcy, fees relating to ancillary proceedings.

[00:38:58] Speaker 05:
There were two fraudulent conveyance cases that were filed against the FONFA state, plus a probate action.

[00:39:05] Speaker 05:
The court found, well, if there's no deficiency, it's not reasonable to pursue these fraudulent conveyance actions.

[00:39:11] Speaker 05:
Similarly, with the fees incurred in this action, the court found where there's no deficiency, it's not reasonable to incur these fees.

[00:39:20] Speaker 05:
That was the court's rationale in terms of denying the fees.

[00:39:23] Speaker 05:
It would be against public policy.

[00:39:24] Speaker 05:
And even Snowe covered in the reply on page 37 says, it is uncommon for a non-prevailing party to recover fees.

[00:39:33] Speaker 05:
Yet they asked the court to find it was error.

[00:39:37] Speaker 05:
for the district court to not award them attorney's fees.

[00:39:40] Speaker 05:
They claim that because they almost prevailed, they should be entitled to prevailing party status.

[00:39:46] Speaker 05:
Your Honor, they sought tens of millions of dollars as the deficiency, and the deficiency was zero.

[00:39:53] Speaker 05:
They did not almost prevail.

[00:39:54] Speaker 05:
The district court's decision should be affirmed.

[00:39:57] Speaker 02:
All right.

[00:39:57] Speaker 02:
Thank you, Counsel.

[00:39:58] Speaker 05:
Thank you.

[00:40:08] Speaker 00:
Thank you.

[00:40:09] Speaker 00:
I'll be brief.

[00:40:12] Speaker 00:
We fully respect the standard of review here and understand what that presents for us, which is why in our appeal we stayed within the framework of what Judge Gordon adopted and what the district court adopted and why it was error within the DeFederico framework.

[00:40:31] Speaker 00:
We weren't here arguing that he should have chosen a different expert.

[00:40:38] Speaker 00:
Again, for lack of a better term with the haircut, we think the error comes from where he says that the mega resort data renders the amounts somewhat higher when in fact they render, it's a night and day comparison and the somewhat higher is where the problem is.

[00:41:00] Speaker 00:
Additionally, we didn't discuss Ahern's testimony very much.

[00:41:05] Speaker 00:
The district court also credited Ahern when he testified, albeit by virtue of a deposition that he had taken in March 2020, that he anticipated maybe doubling his money in two years.

[00:41:19] Speaker 00:
and thought that was consistent with his decision that the DeFederico number and his ultimate number were correct.

[00:41:28] Speaker 00:
And we think he misconstrued that testimony as well because A. Hearn testified, maybe I'll double my money in two years after it's stabilized.

[00:41:37] Speaker 00:
and I put about $10 million in it, and that's actually, that dovetails right with Kimmel's valuation.

[00:41:43] Speaker 00:
So we're working within the framework of what the district court chose to credit and what the district court chose to adopt and think there's clear error even within that framework.

[00:41:54] Speaker 00:
And finally, with respect to the fees, when fees are damages, they're not sought through Rule 54.

[00:41:59] Speaker 00:
My friend quoted the district courts

[00:42:03] Speaker 00:
statement correctly that the district court indicated that if there were any potential for further damages, there would be a second phase.

[00:42:12] Speaker 00:
So in briefing, whether there could be further damages, that was not the time for Snow Covered Capital to bring in its billing statements and make its fee application.

[00:42:23] Speaker 00:
This was a threshold briefing as to whether there would be further fees allowed.

[00:42:29] Speaker 00:
Rule 54 just doesn't apply here.

[00:42:31] Speaker 00:
It's for post-judgment.

[00:42:32] Speaker 00:
We briefed that in our reply that the local rule goes back to the federal rule.

[00:42:37] Speaker 00:
It's all under 54, and it's post-judgment.

[00:42:39] Speaker 00:
These are fees as damages, and so they don't get treated as post-judgment prevailing party fees under Rule 54.

[00:42:45] Speaker 00:
And I appreciate the court's time.

[00:42:47] Speaker 00:
Thank you.

[00:42:48] Speaker 02:
All right.

[00:42:48] Speaker 02:
We thank counsel for their arguments.

[00:42:50] Speaker 02:
The case just argued is submitted.

[00:42:52] Speaker 02:
The Council reserves the right to vacate the submission depending on the party's filing with regard to the jurisdiction.

[00:43:00] Speaker 02:
Thank you, Council.

[00:43:04] Speaker 02:
With that, we will get to the final case on the argument calendar, Lamus versus Clark County School District.