[00:00:00] Speaker 04:
The next case is Barbara Richardson as receiver versus the United States, 2022-15-20.

[00:00:39] Speaker 04:
Mr. MiBing.

[00:00:41] Speaker 04:
Good morning, Your Honor.

[00:00:56] Speaker 00:
Good morning, Your Honor, and may it please the court.

[00:01:02] Speaker 00:
We're here today because the trial court committed three reversible errors.

[00:01:06] Speaker 00:
First, the trial court completely subverted the party's contract and refused to give effect to the agreement's plain language, which preserved the government's offset rights, notwithstanding any other contractual provision.

[00:01:19] Speaker 00:
Second, the trial court eviscerated decades of binding Supreme Court precedent by holding that a sovereign immunity waiver isn't required for a state court to bind the federal government.

[00:01:28] Speaker 00:
And third, the trial court granted non-monetary declaratory relief as to 31 USC 3728, which isn't permissible by the Court of Federal Claims, and more than that, granted that relief when there was no case of controversy regarding Section 3728.

[00:01:44] Speaker 00:
So I'll begin with the contractual errors.

[00:01:51] Speaker 00:
With respect to the contract, the trial court completely turned it on its head.

[00:01:55] Speaker 00:
The sole question before the court was whether the government preserved its offset rights in the event of Nevada Health's default.

[00:02:03] Speaker 00:
And the trial court went out of its way to ignore the only provision that addresses those circumstances.

[00:02:08] Speaker 00:
Section 19.12, entitled right of set off, clearly and plainly preserved the government's offset rights, notwithstanding anything else in the contract.

[00:02:18] Speaker 04:
At 1912, though, it says permissible.

[00:02:23] Speaker 04:
not required, but permissible, as appropriate, qualifying it, the answer.

[00:02:32] Speaker 04:
And 3.4 is clearer.

[00:02:35] Speaker 04:
It subordinates the government's claim.

[00:02:40] Speaker 00:
A couple of things, Your Honor.

[00:02:42] Speaker 00:
And you said it's partially correct.

[00:02:46] Speaker 00:
The trial court harped on these words, appropriate and available, in section 19.12.

[00:02:52] Speaker 00:
But the trial court read those terms out of the actual provision.

[00:02:57] Speaker 00:
Available is just a general reference to the rights, remedies, and techniques that are typically available to the government.

[00:03:02] Speaker 00:
And appropriate just makes clear that the government's entitled to use the appropriate, whatever right is appropriate to those circumstances.

[00:03:10] Speaker 00:
For example, 1912 Mitch's salary offset, which clearly wouldn't be appropriate.

[00:03:15] Speaker 00:
But what 19.12 doesn't say is that offset's only available if section 3.4 says it.

[00:03:21] Speaker 00:
It's actually the opposite of what 19.12 says.

[00:03:24] Speaker 00:
It says, notwithstanding any other provision, including 3.4, the government's offset right survives.

[00:03:33] Speaker 04:
Claims court said 1912 is more of a truism that preserves the government whatever rights it would normally have as appropriate.

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

[00:03:45] Speaker 00:
And that's one of two ways in which the trial court explained its subversion.

[00:03:49] Speaker 00:
But both of those subversions contradict black layer tenets of contract interpretation.

[00:03:56] Speaker 04:
How about 3.4, the subordination clause?

[00:03:59] Speaker 00:
Excuse me, Your Honor?

[00:04:00] Speaker 04:
How about 3.4, which is clearer?

[00:04:02] Speaker 04:
which subordinates the government's claim.

[00:04:06] Speaker 00:
Right.

[00:04:06] Speaker 00:
Two things about section 3.4.

[00:04:08] Speaker 00:
First, the trial court construed it to be a default provision when it doesn't actually address defaults addressed in other provisions of the agreement, such as 19.12, which lays out what the government's rights are.

[00:04:23] Speaker 00:
But any event, even if what the court said with respect to section 3.4 were correct, the court

[00:04:30] Speaker 00:
at most would have created a conflict between those provisions.

[00:04:36] Speaker 00:
But the court ignored the parties' agreement about what to do in the event a conflict arises.

[00:04:40] Speaker 00:
That's why the parties used notwithstanding provisions.

[00:04:44] Speaker 00:
These provisions are clearly meant to convey the parties' agreement that in the event that any

[00:04:55] Speaker 00:
provision could possibly be construed to the contrary, that this particular provision controls.

[00:05:02] Speaker 00:
Just in case- Can you say this?

[00:05:03] Speaker 02:
What are you referring to?

[00:05:04] Speaker 00:
Section 19.12, Your Honor.

[00:05:07] Speaker 02:
In your opinion, 19.12 would somehow trump 3.4 if there is a conflict?

[00:05:12] Speaker 02:
Is that your view?

[00:05:13] Speaker 00:
Yes, Your Honor.

[00:05:13] Speaker 00:
It says it, notwithstanding anything else to the contrary.

[00:05:18] Speaker 00:
The Supreme Court, this court, has said that these notwithstanding clauses have effect.

[00:05:22] Speaker 00:
And the trial court was required to read the contract in such a way that gives effect to the provisions of the contract.

[00:05:30] Speaker 00:
The trial court wasn't to just say that an entire provision is just a truism, that it means nothing.

[00:05:36] Speaker 02:
Why shouldn't we view 19.12 as just kind of a catch-all provision based off of the actual language stated there?

[00:05:44] Speaker 00:
Two reasons.

[00:05:44] Speaker 00:
I apologize if I'm wrong.

[00:05:47] Speaker 00:
repeating myself, but the trial court's required to read a contract in such a way that it gives effect to all of its provisions.

[00:05:54] Speaker 00:
The notion that the parties include this provision, but it has no meaning is contrary to how courts are supposed to interpret contracts.

[00:06:03] Speaker 00:
And this is the only time the parties utilize a not well-standing clause.

[00:06:07] Speaker 00:
Nowhere else is an agreement that the parties say that.

[00:06:09] Speaker 00:
That's clearly meant to signal the party's intention that this provision control, just in case there are circumstances in which another provision

[00:06:16] Speaker 00:
could have been construed to the contrary.

[00:06:18] Speaker 02:
So if we find that 3.4 is what applies in like a default situation, do you agree that the government has waived its offset rights?

[00:06:27] Speaker 00:
We do not agree, Your Honor.

[00:06:30] Speaker 00:
Because again, 19.12, notwithstanding anything to the contrary, the trial court didn't grapple with that.

[00:06:39] Speaker 00:
The most natural reading of 3.4 is that it controls while Nevada Health is operating.

[00:06:45] Speaker 00:
said so at the very end of the agreement.

[00:06:49] Speaker 00:
That's also the understanding of all the parties, including the Nevada Insurance Commissioner, when the parties first entered into the loan agreement.

[00:06:58] Speaker 00:
After the contract was signed, the parties had to go back and amend the agreement to especially waive the government's offset rights with respect to the solvency loan.

[00:07:08] Speaker 00:
Because keep in mind, this loan agreement covers two separate loans.

[00:07:12] Speaker 00:
And so when the loan agreement was first signed, the government's offset rights were preserved with respect to both loans.

[00:07:18] Speaker 00:
That wasn't acceptable to the Nevada Insurance Commissioner.

[00:07:22] Speaker 00:
And so that's why the commissioner required that the loan agreement be amended to expressly waive the government's offset rights with respect to the solvency loan.

[00:07:31] Speaker 00:
But only the solvency loan, no amendment was ever requested with respect to

[00:07:36] Speaker 00:
the startup loan, and so the government's offset rights were especially preserved with respect to the startup loan.

[00:07:45] Speaker 00:
Otherwise, there would have been no need for the parties to ever amend the loan agreement if the government's offset rights had already been waived.

[00:07:57] Speaker 03:
How does the state of Nevada treat

[00:08:04] Speaker 03:
loans that have an offset provision in it that apply to startup.

[00:08:11] Speaker 03:
How do you start up loans?

[00:08:13] Speaker 00:
I'm sorry, you're on a key.

[00:08:15] Speaker 03:
What does the government in Nevada do?

[00:08:18] Speaker 03:
What's the law in Nevada with respect to offsets involved in startup loans?

[00:08:25] Speaker 00:
There is no law.

[00:08:27] Speaker 00:
Nevada law not only expressly permits, expressly requires that mutual debts be offset.

[00:08:33] Speaker 00:
And so there are circumstances in which certain kinds of debts the state may require that offset rights be waived.

[00:08:40] Speaker 00:
And that's why the state requested that

[00:08:43] Speaker 00:
the solvency loan be amended because it previously did not waive the government's offset rights.

[00:08:49] Speaker 00:
And there's no law in the books that requires that a startup loan, the government's offset rights be waived with respect to the startup loan.

[00:09:01] Speaker 00:
Your Honor, that brings me to the court's second error of law, and that was that the trial court ignored the extensive precedent by holding that a sovereign immunity waiver is required for a state court to bind the United States.

[00:09:16] Speaker 00:
The trial court had essentially four justifications, all of which were wrong.

[00:09:21] Speaker 00:
The trial court initially relied on this court's decision in Conway, but Conway was a

[00:09:28] Speaker 00:
Preemption decision involving a federal administrative scheme that permitted offset that conflicted with the state law that prohibited non-contractual offset, and the trial court never addressed sovereign immunity or contractual offset rights.

[00:09:41] Speaker 00:
Here, Nevada state law actually permits and requires offset, and the contract also allows offset, and there are no preemption issues.

[00:09:49] Speaker 00:
The trial court also relied on a series of cases addressing NREM jurisdiction when this isn't an NREM action.

[00:09:55] Speaker 00:
This is an impersonal action brought against the United States in the Court of Federal Claims.

[00:10:02] Speaker 00:
The trial court applied buffer abstention principles after especially holding that buffer abstention doesn't apply.

[00:10:08] Speaker 00:
And the trial court also said that the government's submission of a proof of claim waives

[00:10:15] Speaker 00:
the government's sovereign immunity.

[00:10:17] Speaker 00:
But the Supreme Court for their case has held that that's not true, that a minister act by an executive officer doesn't waive the government's sovereign immunity.

[00:10:26] Speaker 02:
Which of the cases dealing with sovereign immunity do you think are most analogous to the present case?

[00:10:32] Speaker 00:
I will say United States v. Shaw, Your Honor.

[00:10:34] Speaker 00:
That was a case in which the government has submitted a proof of claim in a state probate matter, and the Supreme Court especially held that that

[00:10:42] Speaker 00:
mere submission of a proof of claim in a state court doesn't waive the government's sovereign immunity.

[00:10:48] Speaker 00:
A waiver of sovereign immunity must come from Congress, and it must be unequivocal.

[00:10:56] Speaker 03:
Does Section 3.4 of the loan agreement, does it apply in the event of default?

[00:11:04] Speaker 03:
And if so, how does it apply?

[00:11:06] Speaker 00:
Your Honor, it does not apply in the event of default.

[00:11:09] Speaker 00:
Section 3.4 doesn't address default.

[00:11:12] Speaker 00:
If anything, as the session lays out, it's meant to address circumstances where the company is still operating.

[00:11:19] Speaker 00:
And what that provision does is it was meant to protect the government's initial investment by having the company prioritize its continued operations.

[00:11:30] Speaker 00:
But once the company defaulted under the contract, that's when provisions like section 19.12 come into play.

[00:11:40] Speaker 03:
Lastly, Your Honor, I'd just like... So when we look at the arguments that are made with respect to antecedents, and that's under 3.4, correct?

[00:11:51] Speaker 00:
Yes, Your Honor.

[00:11:52] Speaker 03:
Okay, so you're saying that 3.4 wouldn't apply, so those arguments have no meaning here?

[00:11:58] Speaker 00:
3.4 has no meaning.

[00:12:01] Speaker 00:
Once the body of health ceases to operate, 3.4 is no longer operative.

[00:12:07] Speaker 00:
That's the revision that controls while the company is operating.

[00:12:10] Speaker 02:
Why isn't that while the company is operating just relating to subsection C of 3.4?

[00:12:16] Speaker 02:
You seem to contend, I think, that relates to other subsections as well.

[00:12:20] Speaker 02:
Or is that the argument you're making?

[00:12:22] Speaker 02:
Tell me.

[00:12:22] Speaker 00:
Yes, Your Honor.

[00:12:23] Speaker 00:
That's the argument that we're making.

[00:12:27] Speaker 00:
The trial court relied on this doctrine of the last and has seen it and applied it as an absolute rule when it's not.

[00:12:33] Speaker 00:
It's at most a guidepost.

[00:12:36] Speaker 00:
And what this court has said is that

[00:12:39] Speaker 00:
you look to the actual context of the provision.

[00:12:42] Speaker 00:
And so you look at the contract as a whole, what the parties did in 3.4, what they did in 19.12, the requirement that the loan agreement be amended to waive offset rights.

[00:12:56] Speaker 00:
You take all that together.

[00:12:58] Speaker 00:
The most natural reading of 3.4 is that it only applies while Nevada Health was operating.

[00:13:05] Speaker 00:
Last point I'll make is that the trial court aired an address in 3728.

[00:13:09] Speaker 00:
No case of controversy regarding that.

[00:13:10] Speaker 00:
The parties never raised or briefed that issue.

[00:13:13] Speaker 00:
And I'll reserve my time for a bottle.

[00:13:16] Speaker 00:
Thank you, Your Honor.

[00:13:17] Speaker 04:
Thank you, counsel.

[00:13:18] Speaker 04:
Mr. Ferraro.

[00:13:22] Speaker 01:
Thank you, Your Honor.

[00:13:23] Speaker 01:
May it please the court.

[00:13:29] Speaker 01:
What we have here is the latest iteration of a number of cases that have come before you.

[00:13:37] Speaker 01:
The last case was Conway.

[00:13:39] Speaker 01:
And in Conway, the government was attempting to leapfrog other insolvency creditors through offset, rather than paying its debt in full and making a claim against Colorado, in that case, Colorado Health estate.

[00:13:52] Speaker 01:
They're doing the same thing here.

[00:13:54] Speaker 01:
And they're doing it here by, quite frankly, torturing

[00:13:59] Speaker 01:
the language of the loan agreement.

[00:14:02] Speaker 01:
And I respect the arguments of counsel.

[00:14:07] Speaker 01:
But the simple fact of the matter is, when you look at this holistically and you start at the beginning, and that's really where you have to start, the co-op, in this case, the insurance company, is a creature of statute in Nevada.

[00:14:23] Speaker 01:
The statute that authorized borrowing

[00:14:27] Speaker 01:
of the loan here, and the parties are presumed to know the law, including the federal government.

[00:14:32] Speaker 01:
693A180 makes it very clear that money that is borrowed, similar here, in fact it applies specifically to the startup loan, that money borrowed under 693A180 cannot be the basis of offset.

[00:14:52] Speaker 01:
That's the starting point.

[00:14:54] Speaker 02:
Can you address section 3.4 and also what I was talking about with the opposing counsel about whether or not the wild borrower portion just applies to subsection C or to other subsections?

[00:15:06] Speaker 01:
You know, I've read their papers, and I listened to argument today, and I find the arguments, quite frankly, unpersuasive.

[00:15:15] Speaker 01:
Judge Solomson did a deep dive, entertained argument,

[00:15:20] Speaker 01:
And I think quite appropriately said that the claim of the government, that Section 3.4 somehow evaporates in the event of insolvency,

[00:15:32] Speaker 01:
is simply not supported by the language.

[00:15:34] Speaker 01:
And then he also prophylactically said that you construe this contract against the drafter, which was the government.

[00:15:41] Speaker 01:
If the government had wanted section 3.4 and the subordination provision to disappear, they could have written that clearly in the agreement.

[00:15:49] Speaker 01:
They did not do that, OK?

[00:15:51] Speaker 03:
The only part of section 3... She may have placed that language in the default section.

[00:15:57] Speaker 01:
It should have been in the default section.

[00:15:58] Speaker 01:
It could have been in section 3.4.

[00:16:00] Speaker 03:
Does it matter that it's not in the default section?

[00:16:02] Speaker 01:
It's not anywhere in the agreement.

[00:16:04] Speaker 01:
And what the government's trying to do is seize upon section C of 3.4 to eviscerate sections A and B. Judge Solomson saw that for what it was and disregarded that argument.

[00:16:18] Speaker 01:
And whether it's the last antecedent rule or whether you just read this according to its terms, there can be no question that A and B of section 3.4 apply no matter what if they don't disappear upon default.

[00:16:35] Speaker 01:
And it makes sense, and I'll tell you why.

[00:16:37] Speaker 01:
Do you know when subordination is most important?

[00:16:42] Speaker 01:
It's in a default setting.

[00:16:44] Speaker 01:
That's where it really comes into play.

[00:16:48] Speaker 01:
So the government's argument is wrong on the language, wrong on the law, and it is not consistent with common sense.

[00:16:57] Speaker 02:
What is your interpretation of the phrase cash flow and reserves in section 3.4?

[00:17:02] Speaker 01:
cash flow and reserves are very very simple when you're operating and that's why you have the period when you're operating as an insurance company you have reserve requirements and typically cash flows and so that's why section c is carved out and it deals where where you're operating as an insurance company and you have to maintain required reserves and

[00:17:29] Speaker 01:
And you have to meet the requirements of state law.

[00:17:33] Speaker 01:
In a liquidation, which is what we have here, basically what you're doing, and I'm sure the court knows this, and it's an area that has been quite, and this relates to other parts of Judge Solomson's opinion, it's an area that has been, excuse me, but I've got a cold and a little dry mouth here.

[00:17:52] Speaker 01:
It's an area that has been ceded to the states under McCarran-Ferguson.

[00:17:59] Speaker 01:
States govern insurance.

[00:18:05] Speaker 01:
And part of that is the liquidation process.

[00:18:09] Speaker 01:
And that's what this court recognized in Conway.

[00:18:14] Speaker 02:
Can you also talk about section 19.12?

[00:18:18] Speaker 01:
Section 19.12.

[00:18:19] Speaker 01:
And I think the questioning has already illuminated where I'm going to go.

[00:18:23] Speaker 01:
If it's available and it's appropriate,

[00:18:26] Speaker 01:
then you might have set off.

[00:18:28] Speaker 01:
Here, it was neither available because, as Judge Solomson said, the debt had not become due because you had not paid the superior creditors.

[00:18:37] Speaker 01:
And it wasn't appropriate for the reason that I started out.

[00:18:40] Speaker 01:
When you look at the agreement and you look at 693A180, it wasn't appropriate in this context.

[00:18:48] Speaker 03:
The Control Court did find that offset was permissible and better, right?

[00:18:54] Speaker 03:
It is permissible.

[00:18:55] Speaker 01:
In certain circumstances, it is.

[00:18:57] Speaker 01:
But the general statute dealing with offset would not trump the more specific statute, 693A180, which is in effect an enabling statute that allows the co-op to even get off the ground.

[00:19:09] Speaker 01:
and mandates what you have to do in order to facilitate the operation of a co-op.

[00:19:15] Speaker 01:
So you have a specific statute that, in my opinion, would trump the general statute, even if the government had a legitimate claim.

[00:19:23] Speaker 01:
But they don't here.

[00:19:24] Speaker 02:
And if you step- What is your response to opposing counsel's argument that section 19.12 trumps 3.4 and looking at that notwithstanding language?

[00:19:36] Speaker 01:
And as Judge Solomson said, you have to read the contract as a whole.

[00:19:40] Speaker 01:
You have to give effect to all the provisions.

[00:19:43] Speaker 01:
If you read the contract like the government wants you to read it, you are then doing violence to 693A180, and you are then taking out the essence of this agreement, which is that this funding was subordinate to policyholders and then claims of operation.

[00:20:02] Speaker 01:
And that's what they want you to do.

[00:20:03] Speaker 01:
They want you to rewrite the deal.

[00:20:05] Speaker 01:
They could have made that clear, and they didn't.

[00:20:08] Speaker 01:
And that's where the available and appropriate language kicks in.

[00:20:11] Speaker 01:
In this context, offset would result in a violation of Nevada law, and it would result in an evisceration of the agreement and the very basis for which this deal was cut.

[00:20:23] Speaker 02:
So do we need to refer to the Nevada statute to interpret this particular contract?

[00:20:29] Speaker 01:
I don't think you don't.

[00:20:31] Speaker 01:
I'm citing the statute as further evidence if you go back to the beginning.

[00:20:34] Speaker 01:
But no, you can look at the contract as Judge Solomson did.

[00:20:39] Speaker 01:
With all due respect to counsel, the reading of the government does not give effect to every provision.

[00:20:45] Speaker 01:
The reading of the government amounts to a rewrite.

[00:20:48] Speaker 01:
Judge Solomson made it very clear that in certain circumstances where you do have a surplus and you have paid your superior creditors, then you may have a preserved offset right.

[00:20:59] Speaker 01:
At that point, it would be available and it would be appropriate.

[00:21:02] Speaker 01:
But when you have not satisfied the creditors that are superior to your subordinated debt, your debt is, number one, not due.

[00:21:11] Speaker 01:
And it would not be consistent with Nevada law or the terms of the agreement to go ahead and affect an offset.

[00:21:18] Speaker 04:
Are appropriate and available fact questions determined by the Claims Court?

[00:21:23] Speaker 01:
I don't think they were fact questions, Your Honor.

[00:21:26] Speaker 01:
I think Judge Solomson made it very clear that he could look at the agreement.

[00:21:30] Speaker 01:
He found no ambiguity.

[00:21:32] Speaker 01:
He construed it as a whole.

[00:21:34] Speaker 01:
And I think his rationale is sound.

[00:21:38] Speaker 01:
And I don't think there is any need for that.

[00:21:41] Speaker 01:
Because again, when you look at this holistically, and you go back to the beginning for the purpose of this loan,

[00:21:48] Speaker 01:
It is very clear that offset would not have been permitted here.

[00:21:53] Speaker 01:
And again, logically, it makes sense.

[00:21:56] Speaker 01:
If you had offset, what would it do to the subordination language?

[00:22:00] Speaker 01:
What relevance would it have until you have a default, until you're in a runoff situation?

[00:22:07] Speaker 01:
That is when it is most applicable.

[00:22:11] Speaker 01:
And so the government wants to write that out.

[00:22:13] Speaker 01:
And that, to me, would be inappropriate here.

[00:22:17] Speaker 01:
And I don't think it would be consistent with a Nevada law or any principles of contract interpretation, quite frankly.

[00:22:25] Speaker 02:
If we were to, hypothetically, find in your favor, do we need to reach issue two?

[00:22:32] Speaker 01:
Actually, you don't.

[00:22:36] Speaker 01:
And as you prepare for these, as I know you all have been in my position, and you look at all these arguments, while I think Judge Solomson's absolutely correct, when the government participates in a, and I think that you're talking about issue two, a liquidation process, which is really the, and to put this in context, it is the only place where you can have an orderly wind down

[00:23:06] Speaker 01:
and insurance company.

[00:23:08] Speaker 01:
States regulate this area.

[00:23:10] Speaker 01:
States have insurance regulations.

[00:23:12] Speaker 01:
Part of those regulations deal with wind down and liquidation.

[00:23:21] Speaker 01:
The government, and this has been curious to me, the government came to Nevada and filed a claim.

[00:23:27] Speaker 01:
They have now tried to avoid the consequence of that claim with a variety of arguments, saying, well, we were just doing it in case there was a surplus, whatever.

[00:23:36] Speaker 01:
The fact is the government interjected itself into that process.

[00:23:42] Speaker 01:
And again, I think we have to look at this as two sophisticated parties from the beginning.

[00:23:47] Speaker 01:
And again, I'm not going to rehash what's in Conway, because I think this court did an excellent job.

[00:23:53] Speaker 01:
of analyzing insurance law, analyzing the ACA, and made it very clear that everything points to the government having to go to the states and participate in the liquidation process.

[00:24:08] Speaker 01:
And there's Supreme Court precedent, the Bank of New York case, that states very clearly you do not implicate notions of sovereign immunity when the government itself interjects itself into the proceeding.

[00:24:21] Speaker 01:
And as this court said in Conway, that is the place where you go resolve these complex creditor fights.

[00:24:31] Speaker 01:
And so there is no implication of sovereign immunity.

[00:24:35] Speaker 01:
And we're not here contending that the Nevada court could compel the government to pay.

[00:24:41] Speaker 01:
In fact, we came to the federal court of claims.

[00:24:44] Speaker 01:
And we filed our action.

[00:24:46] Speaker 02:
Given any indication it would seek an offset under Section 3728,

[00:24:51] Speaker 01:
3728, as I looked at that, Judge Solomson reached that issue because of some tactics that were being employed by the government in Conway.

[00:25:02] Speaker 01:
And he, I think, quite appropriately, ruled in aid of our ability to collect the judgment

[00:25:11] Speaker 01:
that he gave us, $55 million.

[00:25:14] Speaker 01:
And I think I need to point this out, too.

[00:25:16] Speaker 01:
This is something I wanted to bring up.

[00:25:18] Speaker 01:
There is no dispute the government owes us at least $38 million in the exact numbers in our brief.

[00:25:25] Speaker 01:
They have yet to pay that $38 million.

[00:25:30] Speaker 01:
And so Judge Solomon, Solomson, looking at

[00:25:35] Speaker 01:
The tactics of the government in Conway, seeing where they were going, said 3728 is essentially a waste of time.

[00:25:44] Speaker 01:
And he cites a case from this court, and it's in, I believe, footnote 11 of our brief, that says, you can take a practical view of things, and if the next step is a waste of time, you don't have to go there.

[00:25:55] Speaker 01:
So what he did is he says, we're not going to make the co-op

[00:26:00] Speaker 01:
and the receiver go in circles anymore.

[00:26:03] Speaker 01:
And I have not understood why the government has made this argument.

[00:26:08] Speaker 01:
I don't see what it is they're trying to preserve.

[00:26:11] Speaker 01:
We've done everything we can.

[00:26:13] Speaker 01:
We've come to the federal court of claims.

[00:26:15] Speaker 01:
We obtained a judgment.

[00:26:17] Speaker 01:
We've had a ruling on the set off.

[00:26:20] Speaker 01:
They don't pay us the $38 million that we're owed.

[00:26:23] Speaker 01:
And now they want us to come back and present this

[00:26:26] Speaker 01:
to the Secretary of the Treasury, and they say that the Secretary of the Treasury would be a party, that argument, quite frankly, and we address this in our brief, really doesn't make any sense.

[00:26:36] Speaker 01:
It's the government that's the party.

[00:26:39] Speaker 01:
So Judge Solomson took a practical, holistic view of this and said, we're not going to get, in aid of your collection of this judgment, we're not going to play any 37, 28 games.

[00:26:50] Speaker 01:
That's all he said.

[00:26:52] Speaker 01:
And I think that was appropriate, because at the end of the day,

[00:26:56] Speaker 01:
What has become abundantly clear, and I'm here now.

[00:27:00] Speaker 01:
I think this started in 2015.

[00:27:02] Speaker 01:
It's 2023.

[00:27:06] Speaker 01:
OK?

[00:27:07] Speaker 01:
We have been at this for a very- 2024.

[00:27:11] Speaker 01:
I'm sorry.

[00:27:12] Speaker 01:
It is 2024.

[00:27:13] Speaker 02:
OK, keep going.

[00:27:15] Speaker 01:
I just want to make sure I'm in the right track.

[00:27:16] Speaker 01:
We want it to be 2023.

[00:27:17] Speaker 01:
Happy New Year.

[00:27:19] Speaker 01:
Huh?

[00:27:19] Speaker 04:
Happy New Year.

[00:27:22] Speaker 01:
It's 2024.

[00:27:23] Speaker 01:
We've been at it a long time.

[00:27:26] Speaker 01:
And I think Judge Solomson saw this for what it is, and he wants to bring an end to it.

[00:27:31] Speaker 01:
And he appropriately did so with a very well-reasoned and thorough opinion.

[00:27:36] Speaker 01:
And again, while I applaud the government and as lawyers, we sometimes are paid to torture language in agreements and cite cases and go to the outer limits.

[00:27:50] Speaker 01:
When you step back and you look at this in light of where this began,

[00:27:55] Speaker 01:
OK?

[00:27:56] Speaker 01:
And what the intent of the parties were, I don't think there's any question that Judge Solomson's decision was correct on the law in terms of contract interpretation.

[00:28:06] Speaker 01:
And more importantly, it's consistent with the express intent of the parties as embodied in section 3.4 of the loan agreement.

[00:28:14] Speaker 01:
It can't be any clearer.

[00:28:16] Speaker 01:
The loan is a subordinated loan.

[00:28:19] Speaker 01:
It is to be risk-based capital.

[00:28:21] Speaker 01:
You can't write those out of the agreement.

[00:28:24] Speaker 01:
And it's subordinate, most importantly, and that's what we're talking about here, and I think it's important to know this.

[00:28:30] Speaker 01:
It's subordinate to the claims of the policyholders.

[00:28:33] Speaker 01:
The claims of the policyholders here exceed what the government owes us.

[00:28:38] Speaker 01:
So we're not getting violence.

[00:28:40] Speaker 03:
Can you briefly address the amended promissory note

[00:28:43] Speaker 03:
Sure.

[00:28:43] Speaker 03:
And what that does with respect to the waiver?

[00:28:46] Speaker 01:
It actually helps us, quite frankly.

[00:28:50] Speaker 01:
And again, I'm not going to bore you.

[00:28:52] Speaker 01:
My partner over here is a CPA, and he has spent hours talking to me about accounting treatment.

[00:28:58] Speaker 01:
All that was happening here, with the surplus note, was they were trying to effectuate an accounting treatment under the Statutory Accounting Principles Number 41.

[00:29:09] Speaker 01:
And this is in Appendix 1-913.

[00:29:11] Speaker 01:
And that accounting statement requires that you do certain things.

[00:29:17] Speaker 01:
That's all.

[00:29:18] Speaker 01:
So they wanted to classify the surplus note, not the startup loan.

[00:29:22] Speaker 01:
And so what they did is they ended up having to specifically comply with that statute.

[00:29:26] Speaker 01:
The original loan documents had some of the language in different places.

[00:29:30] Speaker 01:
But that principle requires that it be in one place.

[00:29:35] Speaker 01:
All they did was modify the surplus note

[00:29:38] Speaker 01:
to accomplish that a country most importantly in the second amendment is that altered the application of the officer not at all not at all because it only dealt with the startup loan and most importantly uh... judge reyna

[00:29:53] Speaker 01:
in the Section 1918 or Appendix 1918 of that agreement, it reaffirms the earlier agreement.

[00:30:02] Speaker 01:
They didn't touch the subordination language in the earlier agreement.

[00:30:07] Speaker 01:
And it reaffirms that document.

[00:30:09] Speaker 01:
And we've already made those arguments.

[00:30:11] Speaker 01:
But also, most importantly, if you look at the financial statements that were presented around that time, the startup loan that they're now saying was somehow

[00:30:22] Speaker 01:
not a subordinated debt is identified clearly on the financial statements as a subordinated debt.

[00:30:28] Speaker 01:
It's also referenced in the note as a subordinated debt.

[00:30:31] Speaker 01:
But all that aside, no matter what somebody does for accounting treatment, you don't alter the underlying agreement between the parties.

[00:30:40] Speaker 01:
Thank you.

[00:30:41] Speaker 04:
Thank you.

[00:30:44] Speaker 04:
Thank you very much.

[00:30:55] Speaker 00:
Thank you, Your Honor.

[00:30:56] Speaker 00:
With the couple minutes I have left, I'd just like to make a couple points in response to my colleague.

[00:31:02] Speaker 00:
First, regarding Section 3.4, it doesn't evaporate when the body health defaults or anything like that, but it does yield to Section 19.12, and that was agreed to by the parties.

[00:31:15] Speaker 00:
My colleague mentioned the McCarran-Ferguson Act, which has no relevance here, that deals with conflict between state and federal law.

[00:31:22] Speaker 00:
And here, state and federal law are in agreement that the United States is entitled to offset debts.

[00:31:28] Speaker 00:
Again, offset wouldn't violate state law.

[00:31:31] Speaker 00:
State law especially requires that mutual debts be offset.

[00:31:36] Speaker 00:
Regarding the notion of policyholder claims and the payment of policyholder claims, just to remind the

[00:31:42] Speaker 00:
the court that the government gave Nevada Health two different kinds of loans, and so they still have $48 million in solvency loan funds, and those amounts are what are used to tackle this backstop to satisfy policyholder claims.

[00:31:59] Speaker 00:
The startup loan by statute and by agreement wasn't used for that purpose.

[00:32:04] Speaker 00:
It was used to get the company off the ground, and those funds have already been spent.

[00:32:08] Speaker 00:
Those funds were never intended to satisfy policyholder claims.

[00:32:13] Speaker 03:
regarding the notion that the government hasn't... The trial court said that it gave no meaning to the notwithstanding clause and determined that 9.12 is only a truism.

[00:32:29] Speaker 03:
How do we take that?

[00:32:31] Speaker 03:
This is a provision within a loan agreement that the parties arrived at, that you drafted.

[00:32:42] Speaker 03:
convinced me that trial core was correct on that.

[00:32:46] Speaker 00:
I think the trial court was wrong that 19.12 is a truism.

[00:32:51] Speaker 00:
There are no truisms in the contract for two reasons.

[00:32:55] Speaker 00:
One, the parties especially, the parties address what happens when Nevada Health defaults under the loan agreement.

[00:33:04] Speaker 00:
I mean, that's a particular circumstance that comes up.

[00:33:06] Speaker 00:
The parties also included a notwithstanding clause.

[00:33:10] Speaker 00:
It's the only time that the parties use that.

[00:33:13] Speaker 00:
It doesn't make sense that the parties will utilize this provision, which has special legal significance in a clause that has no meaning whatsoever.

[00:33:22] Speaker 00:
And more than that, trial courts are required to construe contracts in such a way that gives effect to all of its provisions.

[00:33:29] Speaker 00:
Courts aren't to look at provisions and just decide that a particular provision doesn't mean anything when the parties gave meaning to it and gave special meaning to it by inserting a notwithstanding clause.

[00:33:42] Speaker 02:
What is your brief response to the fact that they'd be construed against the drafter?

[00:33:49] Speaker 00:
There's no reason to construe the agreement against either party.

[00:33:54] Speaker 00:
All the court needs to do is give effect to the agreement's plain language.

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

[00:34:02] Speaker 04:
Thank you, Counsel.

[00:34:03] Speaker 04:
This is submitted.