thank you your honor is good afternoon may please the court my name is david goldsmith and i represent the plaintiffs in the appellants in this securities class action peel this matter comes before this court on the dismissal of our  consolidated complaint on grounds of failure to plead falsity and see enter on a twelve b six motion to dismiss this comes before the court on de novo review and we are taking the position that district judge judge bryant was wrong to dismiss on on falsity and see enter grounds on falsity our first contention your honour's is that the district court looked at the falsity question essentially backwards it's what we called in our brief immaterial ality by hindsight the question on falsity your honour's is whether the complaints allegations raise an inference that the  compliance programs and infrastructure axing the corporation were as much of a problem before march two thousand and fifteen no later than march two thousand and fifteen which is around the time that the last the centers for medicare and medicaid services conducted the onsite audit for two weeks at cigna as offices this was the this was the audit your honour's that according to the letter of january two thousand and sixteen then c and up and down and across and then they had the intermediate sanctions so the question your honour's is if you if you know that the compliance was a disaster in october fifteen can you then infer that it was also a disaster in around the end of february of twenty fifteen which is only about seven or eight months before and our contention of course is that you can the the the c m s letter which by the way was attached to our complaint was also in the record of course tells you that the the problem here was directly related to the acquisition of health spring didn't happen on its own this was this was you know related to work not just related to it was caused by signals acquisition of the health spring corp which closed in january of two thousand and twelve health spring was a private insurer like cigna wanted to be health spring interesting really had never been sanctioned by c m s even once so unlike cigna health spring had an absolutely clean compliance record but once the acquisition closed and they strive to start putting together the compliance well the previews no sir because health spring as when health spring was its own company based in tennessee it never received it was it was a private medicare a sure it never received  of noncompliance in seventeen years of operations not even once so it was an an expert if you will at complying with these c m s regulations they were really good at it and they were run by this man mr freshers one of the one of the defendant but then when they got bought out by cigna for four billion dollars this was the biggest deal that cigna had ever done to that point that is when the problems began to occur and a a flood of compliance officer they pushed out the the health spring medicare compliance officer and replaced him with mr appelle who was a cigna compliance officer by the time two thousand and fourteen  what i meant by that statement was that one of the let me let me answer it this way and if this isn't sufficient i'll answer a different way one of the things that the defense contended in their motion to dismiss was that we were conten our complaint that cigna should have disclosed every single notice as it came in and that's not our our contention at all they are our contention is that when when cigna claimed in their ten k is that they were compliant that they proper policies and procedures and so forth that they were not and so they were misleading the failure to disclose was the failure to discuss in a reasonably effective compliance program fair enough your honor i mean you we have his desk i think that's right i mean we never we never  said we're not saying that they had to say we got a notice on this date a notice on this dinner that that's that's silly that doesn't help so what i meant by the the statement that your honor read from the reply brief is that they didn't have to say that we got a notice here we got a notice there i mean the problem wasn't getting a notice getting a notice was a symptom of the disease the disease was that their their compliance function was a mess and it was a mess it was a systemic mess it wasn't a mess just you know there wasn't just this one little type of ten k s that's it there's also a code of ethics but we can get that i'm more interested in talking about the ten k s so the ten k is twenty thirteen ten k and looking at page two one five of the joint appendix if that's helpful to the court there's a statement under the heading regulation that says we have established policies and procedures to comply with a political requirements ok that is one that's that statement you claim is materially misleading yes wrong now are you claiming that they're literally false i am claiming that they are false or misleading and that at a minimum they are half cigna has policies and procedures to comply with the pickable requirements they've got a binder they've got this that but this this statement doesn't just tell the reasonable investor that they have policies and procedures and investors don't care about that they want to know whether they are complying with the political requirements and our position is that this statement told a reasonable investor at least some reasonable investors that they were complying with the at least to a reasonable degree and we don't we don't assert one hundred percent perfect compliance we never have it reload let me put it to no other way but why are these this just think that statement why is that statement materially misleading is materially misleading because at the at the time that the statement was issued they were not complying with the political requirements specifically return referring to the c m s medicare requirements to a reasonable degree they w not they were not reasonably in compliance with c m s requirements and if they had policies and procedures in a book all well and good but they were not complying with them to a reasonable degree the their their compliance structure from  from day one if you will was a disaster you're saying the implication is they were lying not only with their policies and procedures right and i think this is right yes sir and i think you know our pretension is that this language was written cleverly in order to in order to have that kind of message you know i mean it's true that they don't say we are in compliance or we are in substantial compliance and that is true  but our contention is that the language like this and other language that we allege is false or misleading was you know absolutely conveyed to a reasonable investor that they were reasonably in compliance with the regulations that a issue and we have cases that we cite in our brief to support that there is the bio scrip case there is the barrick gold case you know it is not it is not the case that you have to say we are in compliance or we are in substantial compliance in order to satisfy this i mean you know a panel of this court held in s c c versus gabelli that half truths are just as misleading as as you know as as literal statements that a literal statement can be misleading or a literally true statement excuse me can be misleading and another case called line kleinman v land corp by a panel of this court so the same thing even if even that if you have to reasonable investors and one of them re and fourteen ten leading to an inference the company was sufficiently uncomfortable with an affirmative statement that it took it out yes i think then and one of the most important facts in this case your honor and i thank you for raising it is the deletion of that language in the next year's ten k our position is that the deletion of that language actually supports falsity for both ten case because it is as your honor said there isn't you know a clear inference in black and white that that that the company decided that they felt that this language was true in the twenty two thousand thirteen ten k and then for the next years ten k they were not comfortable with the veracity of that statement and they took it out and both of the ten k s by the way were signed and certified under sarbanes oxley by both the c e o and the c so if they didn't have policies and procedures or and they weren't compliant with respect to two thousand and thirteen then we would suggest that they weren't compliant and then have policies and procedures with respect to two thousand and fourteen either and we allege that obviously for both years so we think taking it out supports falsity has to both ears and we have other alleged misstatements in that in the two thousand and fourteen ten k and i'm happy to discuss those if the presiding judge would like  district connecticut no discovery has been taken no discoveries been taken and your honor plaintiff made made an issue of the court's use of the term discovery in the portion of its decision on which judge brian understood the posture she was measuring the complaint as to whether it stated a claim the use of the word discovery while you know certainly those of us who practice think of that in terms of the federal rules she clearly was referencing the plaintiff's counsel's investigation and the reference in the in the transcript as well which is in the joint appendix beginning at page fifty two clearly as in the in the context of plaintiff's plea for yet another chance to plead the complaint and judge brian commenting that as a asking questions as to whether more quote discovery would allow plaintiffs to be able to plead the claim signal had not established policies and procedures that were reasonably effective to comply with applicable requirements would that have been a material  misstatement judge total i think the answer to that is no and that's not the claim here in any event because look the claim is based on the notices that came in after this statement and the question effective compliance right at that time when the statement was made understood your honor at the two two answers to the question i think number one is it would not be misleading to make the statement we have a savage policy is the procedures and your honor and i would ask the court to consider the context of that statement we are talking it's on page fifteen in the ten k this is not a statement about the medicare business at cigna it's not about the health spring business this is in the general portion of the al you were a port title regulation and what it says in the sentence before the sense of plaintiff's challenges is the laws and regulations governing our business continue to increase each year and are subject to frequent change on i think in that case that's that's it clearly that would be a false stay and i we can see that would be actionable that is not what has been alleged here of course what's been alleged is that as it turned out two years after the statement when the c m s took action against they had compliance problems they had not succeeded in in their policies and procedures at least in the view of c m s at that time that's not actually what the c m s said in the i knew were of two thousand and sixty and they didn't warning letters corrective action plan plans from c m s over the past several years a number of these notices were for violations discovered during the ordeal which was two thousand and fifteen demonstrating  over the past several years not would indicate that it goes back to the time sigma was making the statement it has established policies and procedures to comply with the  had been a total of more than seventy five individual compliance notices and some of those are in the record at beginning at four twenty one in the appendix out of seventy five of them nine were received up until the time of the last statement that's at issue and we have examples of those increasing number of notices that came out and you got closer and closer to two thousand and sixteen are we to simply discount what the c m s heard that this had been going that this is  systemic problem and it's been going on for several years of course not you know our it's all part of what you and what judge bryant looked at in assessing the complaint and the totality of it and this is why what we've what we've laid out a brief we believe this is classic fraud by hindsight what was said in january two thousand and sixteen and my colleague says you can infer they knew this in february two thousand and fifteen well not based on their allegations where we know the audit didn't happen the audit that led to the sanctions happened in october twenty fifteen they made this statement in two thousand and sixteen about something that had been going on or they said several years ago in order to come out you were why do we have to say that the c m s was simply  at all your honor again it's measured against the statement and that's why i started with this isn't a statements case misrepresentations case not no missions case they're alleging that these five statements in the sec it's a misstatement rather than omission  there was a failure to do school was that the compliance program was not reasonably effective what they say your honor is that it was materially misleading to make the statements they made without saying and our compliance program is not reasonably effective so well perhaps it's what maybe it's just the same call i don't know your honor it's not my point is plaintiff is not arguing that there was any point when they had an obligation and fifteen for instance when sixty six notices came in that cigna had now big ation to make an affirmative statement we've received sixty six we've received a lot of statements we have issues with compliance that we're dealing with that's not the claim here the claim is to be measured against the ask another question of course you took the statement in the two thousand and fourteen time care and as i read your brief we replaced it with  new disclosures regarding the world wide regulatory regime that significance ok when i look at your disclosure about the worldwide regulations that you face there is nothing in there that says we have established policies and procedures to comply with applicable requirement what you do is you describe lots of requirements but make no assertion as you did in two thousand and thirteen and care about your compliance with those requirements well so you are i would disagree that we don't make statement in that on that page regarding not the medicare business but the entire one hundred percent of cygnus business not this this business unit we do not say said we did not say in twenty five fifteen for the twenty fourteen year we have established policies  procedures what they did say and this is on page j a two hundred of the appendix as paragraphs about the medicare regulations and specifically the risks relating to audit of the medicare business the resources that were being never made any representations about its compliance about how it was doing about whether it was successful never maybe never made a statement about whether it was successful in complying with the regulations that is what plaintiffs contend the statement and specifically the federal audit which of course is what came to pass your all timidly it's on the page there your honor that included the following the regulations that contractual requirements in this area are complex are frequently modified are subject to administrative discretion these risks being included reimbursement claims as well as potential fines and penalties and that's when it's followed by the statement that plaintiff here attacks which is we expect to continue to allocate significant resources to comply with these regulations and requirements and to maintain audit readiness that's adequate in the circumstance based on the facts alleged in the complaint absolutely or honor there are no facts alleged including the notices that plaintiff describes in  paragraph seventeen that appear some samples of which appear in the record at four twenty two suggest that in fact they had a systemic lack of compliance at the time those statements were made i concede c m s contended to the contrary in january tw r and you would not need to make that factual determination what you would need to conclude as judge brian did is that there is nothing alleged by plaintiffs at the time of the statements in question known by cigna that made the statements they made misleading had cigna made statements as appear in some of the cases cited by my friend this court's jiko solor case the by a script case from the district court in which statements were made to the effect of we believe we significantly complied with a political regulations or if there had been an allegation that when you made that statement as we have in some of the other cases like the goldman sachs case from judge crotty in the district court where it was specifically alleged the company had the information that directly contradicted the statement made at the time it made the statement so if cigna had in february twenty sixth seen said we believe we are significantly complying with a political regulations we wouldn't have a disagreement allege and taken those allegations as true is that beginning when the audit in october twenty fifteen did not go well and if so sometime between october two thousand and fifteen and january twenty sixth seeing there may be a point in time when someone could say you the argument was and only after the c m s announced the severe sanctions correct your honor corrected that there's a there's one day difference signal received a letter i think it was january twenty one and announced it to the public thirteen and two thousand and and fourteen well you are i think they have i don't think there is a claim with respect to those ten k s nor with respect to the code of ethics statements that are attacked because cigna did not make representations they could have the words words have to matter and the precedents from this court show as they do they didn't say we believe we are saying that we are compliant we we believe we have taken steps to become compliant the kinds of things we see in the precedents where companies have been held liable for that  know but there were there were two issues right one issue in what was and was materially false or misleading the second issue is what did cigna now yes and to the issue  two thousand and fifteen is that right if that's true then of course the plaintiff has pleaded the plaintiff out of court because there would have to be a knowing misstatement or a mission in two thousand and thirteen in the two thousand and thirteen and in the two thousand and fourteen ten care so i mean the point of can respond in a moment but it's surprising that you think reading the complaint that the pla briefs is that on the point of see enter beyond conclusory assertions about what signon knew the facts are there were nine of these routine notices some of the which appeared in the record and judge brian examined them nine of them had been received during the entire period that's at issue here and plaintiff has conclusively a lead just that senior management knew about them because of reporting up requirements etc take that at face value consider it to be true for purposes of the motion here that would not pleaded themselves this case as it were i don't think that's a phrase that i use but i think what we've already get is that plaintiffs haven't played the claim because the events that they contend made their statements misleading occurred after the statements you're saying thank you your honor i'll try to be brief this is a number of issues that that counsel for cigna raised obviously i disagree on on the on the question that the court has been spending some time on i mean just just talking about the notices you know in terms of notice to the defendants and their their receipt of that of knowledge long before the audit which took place in october of two thousand and fifteen i mean that's easy each notice was addressed to defendant appelle who was the medicare compliance officer and and as as my friend has pointed out a number of times a couple those are in the record you can look at it i think there are some others that might have been addressed to mr fritsch but every single one that we're on medicare regulations and the as as as i think defense of pointed out you've got a pretty complex articulated set of regulations that that the department of health and human services is passed on and they're very specific every single instance of noncompliance whether it's potential or actual has to go to the c e o of the company not just some division in the bowels of the company but every but the c e o of the company himself or herself so that not anybody else and it has to go to a compliance committee that has to exist mr french was on the compliance committee so that's those three defendants with respect to mr mccarthy the c that i will that is not quite as cut and dried but we do have a lot of allegations that i think are more than enough to allow an inference to be raised he was the number two executive he was the chief financial officer he was have involved in the health spring deal he was certainly involved in the all the financial aspects of the company i cannot imagine that mr appelle just as a matter of logic would not have added mr mccarthy to the to the e mail so so you know that we have a number of allegations on  knowledge or or knowledge or or recklessness knowledge of facts or access to facts that contradict what you're saying we think that with the notice and other facts that we allege in the complaint including from some confidential witnesses although i don't think we even really need the confidential witnesses they're just icing on the on the cake i think that's the answer is adequately alleged here fraud by a hindsight point that that that my colleague mentioned i think is really quite wrong  the c m s letter could not be more explicit about naming specific events that happened at specific times beforehand it's got specific years that we can you know put into a timeline that shows that these things happened before the the misstatements that are at issue and i'd like to point something out for the record and i'm i'm on it's the same statement that we've been focusing on the established policies and procedures it's on page two one five again of the joint appendix it's the two thousand thirteen ten k you know my my friend correctly read the first couple sentences but if you look down a little bit your honour's will see a whole bunch of bullet points and the company elaborates a little bit in terms of their licensing and there are subsidiaries in the kinds of areas where they're supposed to policy those policies and procedures and one of them is reimbursement or payment levels for medicare services so there is an area which is mentioned here or explicitly and the point i'm i'm drawing is that the actual misstatement is not as generalized as defendants would have would would would have it i think it is more tethered to the subject matter of the litigation th than mr stern would would would argue and it relates to the consumer i question that good or bad i would think that would strengthen his position it's their statement right  there including reimbursement or payment levels for medicare services within the scope of the earlier paragraph right so if they say if they say we have established policies and procedures to comply with the requirements my contention  is that is telling a reasonable investor that they are replying with the political requirements it's not it's it's clever language that is such that is substantively the same as we are in reasonable compliance with the political requirements i mean say it's it's not enough no one cares if you just say we have policies and procedures what people want to know is if you're following them and if they're effective so so are our position your honor is that the real meaning of language like that is that they're reasonably and in compliance so my suggestion your honor is that this bullet point shows you that it's not just a a generalized puffing sort of statement that iran or had concerns about in the u b s case but rather that this shows