and misleading statements of existing material fact concerning pipeline status in the new system green field sales and second defendants july two thousand and twelve reaffirmed forecasts of twenty to twenty five percent earnings growth for the fiscal year already in progress despite the fact that there was an already completed first quarter with an undisclosed nineteen percent earnings decline now the misrepresentations of existing fact concerns two subjects very important to both analyst investors and that is the status of u s i's lucrative greenfield sales as well as its existing pipeline of deals throughout the class period company speakers including both the defendants and executives whose statements could be imputed to the company claims that both were doing just fine in june two thousand and twelve and i'm not going to paraphrase here i'll let you know when i'm quoting an exact statement chief financial officer holt claims quote it's greenfield for the most part and quote on october twenty seventh two thousand and eleven the seat the chief executive officer pataki announces that he needs to quote set the record straight and he says that quote greenfield opportunities are plentiful on nov two thousand and eleven plus checky again denies that us ice business is slowing down he calls the saturation worries that analysts had brought to his attention as baseless and says quote there is nothing drying up and there is nothing slowing down and just a few more december two thousand and eleven chalky says the current pipeline quote is very robust and quote coming into the new year january two thousand and twelve the chalky says quote the pipeline continues to build to record levels and quote he also says that there is quote nothing out of character in the pipeline today and cool so do you think i am trying to think i'm trying to get your point here which is to say those are not merely projections those are statement of current fact and i wouldn't even say they are merely projections those are statements of existing fact i know that's what i it what it what i also need to say is those are not even underlying assumptions those are statements of existing measurable fact that we know based upon just a myriad of cross corroborating accounts from no didn't know that this was not true for those for those present to put two points in response judge fletcher number one he doesn't have to absolutely know this because these are statements of present existing fact all all we need under this court precedents is deliberate recklessness he could have made those statements with deliberate recklessness as opposed to actual knowledge which would apply to pure forecasts number two we know that he knows that those statements were fact by to break early two thousand and ten the company's former chief of operations says it was obvious within the company that the slowing growth was happening that q s i was moving toward a recurring revenue model and that the big sales were drying up plus chalky admitted in march two thousand and eleven in a conference call with one of our confidential witnesses the chief information officer that q s i sales had become largely replacement sales by that time and that market saturation was forcing lower cost deals we know that and that is diametrically opposed that is one hundred eighty degrees away from what play chalky was telling the analysts in response to very pointed direct questions from those analysts those are the two things that matter to analysts and matter to the market the analyst had said and i'm going to jump ahead here to actionable was that something was a sure thing that sounds fairly innocuous in isolation but in the context of what was going on there somebody reassuring somebody doing it and invest in something the fact it was a sure thing matter here what we have is the defendants responding to direct analysts questions from skeptical analysts who have looked at the market they have seen that the market for these e h r electronic health records appears to have been saturated the the plateau has been reached and it and it has flattened out and these defendants have specifically responded to them and said no that's not true and the analysts have said quote the defendant's pipeline commentary is quote critical to k u s i stock reforms and that's excerpt of record greenfield for the most part and call in other words reassuring the analyst we're not talking about these recurring revenues from the highly competitive practice management part of the part of the industry we are looking at greenfield  false because they had just missed the prior quarter and they were in the middle of missing that particular quarter by nine hundred percent and so it was a huge mess and it was happening at the time in the thing is these are not circumstances popping out of the blue like i said we were told back in early two thousand and ten by chief of operations who had left the company he is that he is in the executive suite and he has told us and it's in our complaint and it's alleged that by early two thousand and ten the slowing growth was apparent in us i was moving to a recurring revenue model and that the big sales were drying up even warrant defendant rising about that how much does it matter as a practical matter that you retain all of the individual defendants well more is always better ok i guess so i imagine this case could go forward very easily with mr just mr pataki and company itself but i don't want don't know the i don't know could i ask you about the judge the judicial notice issue please sir did you did you object to what the court did on judicial notice we made a very strong speaking objection at the motion to dismiss hearing where you object into the taking of judicial notice or did you recognize that some documents had been referred to in the complaint in that they were going to leave the existence of the documents was proper the letter to the plaintiff's counsel that argued that they understood quite fully that judicial notice could be taken of the documents for their existence he did make the very strong point that we are not accepting judicial notice of the documents for either the truth of the matter asserted within or certainly to bolster or shore up the  defendant's speaking representation that those cautions had been widely disseminated to investors we refused to concede that point i would like to add those documents came in with defendants reply brief so they came in they were argued about at the at the hearing the district court judge did ask defense counsel well now of course those warnings were put up on the screen for the investors to read during the things and he sort of gave a half hearted tepid response  and as we know now because of what they've submitted in their supplemental excerpts of record with transcripts it is quite obvious each one of those three hundred seventy eight identical verbatim warnings that appeared over the course of eleven march were flashed up on the screen for the duration of one sentance no time at all for investors to sit there and read these these supposedly meaningful cautions that in truth we're just mere boarding a plate and this court has not yet addressed whether or not something that is boilerplate can fall within the meaningful cautions prong of the just already safe harbor we were beat up a little bit for citing out of circuit cases but that's because this court has an address it yet but as i said in my brief i'm positive this court will not agree that boilerplate repetitive caution that doesn't even mention what's happening at that moment within the within the corporation is meaningful so if we were to agree with you that the district court went too far in the way it took traditional notice what is a get you well for one thing that gets us that gets us the forecast remember that the district court took those warnings and used them to absolve the defendants of every forward looking statement they had made one of the days i guess that's wrong digits or korea very clearly says in that in the denial of your reconsideration then to a man that he considers them only for the purposes of whether they were put up during that time i realized he said yes and i say yes that's true that is true your honor i agree that he said that he said that that that's why he did it but i think it's a parent and i argued in my brief it's apparent that he used them for much more he did go into them he did you know it's one thing to say that the defendants are not telling the truth it's another thing to say i did all the judges not telling the depolarize if if focusing on just the june of particularly the july two thousand and twelve earnings forecast the repeated forecasts of twenty twenty five percent earnings growth those statements made in the in several proxy statements over the course of  three of three proxy statements that month those statements were being given to again investors and analysts hungry for information while at the same time the us i had number one just finished its fiscal year two thousand and twelve disastrous missed the numbers by double digits analysts were shocked the stock it's punished us i reassures the analysts no no no some of the deals we missed in that last in the last quarter of that last fiscal year they're moving into this new quarter everything's going to be fine analyst bit they they wrote glowing articles talking about how it was just a stubbed toe it was just a blip on the radar they urged investors like our clients to buy again which they did fast forward now to the first quarter of two thousand and of fiscal year two thousand and thirteen again those twenty to twenty five percent forecasts are coming out they've just missed the entire the first quarter's earnings guidance by nineteen per they have missed the twenty twenty to twenty five percent ninety percent on the other side of forty five percent missed they know they have missed it that happened three weeks ago when they're still making these forecasts to the market and by object to the court taking judicial notice in their brief as you pointed out the court asked whether they had jack did they said no we don't object we don't object for them to be noticed for the purpose of saying that they were shown at the same time as the forward looking statements that are alleged to be misleading under the statute that's all that's required and in addition there are in this meaningful imply an obligation to let you know that prospective investors reviewed the statement i think your honor first of all there are a series of quotes in our brief and in the exhibit showing that they were given an opportunity to are directed to safe harbor warnings and those warnings are available in slides that is the obligation otherwise this court is going to be in the business of saying the minutes not enough two minutes is enough well but if the question is judicial notice and you're asking to take as a matter of judicial notice that there was ample time that i don't i don't think they conceded that there was ample time no matter how you read how broadly read they're considered a concession well your honor the the language of the statute if i may quote it says under fifteen u s c seventy eight you dash five he provides quote the court shall consider any cautionary statement accompanying the f l s which are not subject to material dispute and i understand  i don't not you're not taking the point that i think baez was making which is to say if you flash it up on the screen for five seconds and it's got off a lot of words that would take any normal person thirty seconds to read that doesn't strike me as really giving them a fair opportunity to read and understand well your honor i don't believe that they've even raised that issue in their brief because in their brief they can see that these were shown and that they don't object to taking judicial notice but that what they do object is to the content of it so and  if it is a relevant consideration they have conceded in their briefs and after oral argument that they did not object to the taking of judicial no if i can go ahead no no no i was going to change the subject that's fine i'm actually quite  concerned with these various statements of current fact by mr bush aki about the pipeline being for being robust and so on those are not forward looking statements those are statements as to current fact and they strike me as wrong  do you how do you deal with them let me start with your last observation judge fletcher there they're not wrong on the record ok so what do you mean by saying on the record this company enjoyed unquestioned revenue any p growth and pipeline growth through three thirty one two thousand and twelve there's never been a restatement there are they delegate that the appellant's make that people at various points in time before the class period and after the class period so that there were problems but the undisputed financial statement record of this public company audited public company starting with the class period may of two thousand and eleven which is the end of the fiscal year two thousand and eleven then the first quarter of fiscal two twelve which is june thirtieth two thousand and eleven the second quarter of fiscal two twelve which is nine thirty two thousand and eleven third quarter of fiscal two thousand and twelve which is twelve thirty one eleven and this is in our brief your honor it was before the district court in the district court so found every single one of those shows a record increase in revenues a record increase in earnings and a record increase in pipeline that last one i don't agree with you well your honor pipeline was reported and the numbers go from i think it's one sixty three and finally they they get to one eighty nine there's a decrease in the pipeline judge fletcher is on july twenty sixth two thousand and twelve that is the first announcement of a decrease in the pipeline it goes down to one fifty fifty first announced fair enough the last the announcement before pipeline the pipeline is the company's estimation of deals that will close in the next six to eight months it's reported the methodology for it is reported it's never disputed by the plaintiffs they don't they don't say that they didn't follow the methodology they don't say that there was a misstatement of what that was and they don't ever in their complaint allege that these pipeline publicly reported pipeline numbers are wrong the most that they say is that they have they'd statements from confidential witnesses say saying there's a slowing down in the business now if i could take that on for one second your honor what sense does that make starting with this class period the plaintiffs themselves allege that the era the statute by congress pumping sixty purposes of the question assume that is correct assume that for example the may seventeenth conference call statement by plug shockey about the robust pipeline and so on i assume that that is not borne out by the fact that are appropriately alleged and supported in the complaint so assume it's wrong right you know i understand you're not going to concede that understood that strikes me as a statement of actual and current facts rather than a forward looking to assume that by may seventeenth two thousand and twelve that that's a false statement what do we do with that that strikes me as you're in trouble if that's if my representation is true the the the state in your honor that it keeps growing and as of three thirty one which is which is that time period no we are all out i can read i can read from the statement if you want but the statement is under my hypothetical my statement is false and i'm asking you what do you do if that is if it's true that the statement is false or right then i think the next prong of the analysis assuming the statement is current not forward looking and false is that one then goes to santa and the question of whether or not allegations of saying are adequate because as you know they're not really challenging the forward looking statements so with what we're left with is the current statements then the question there is were they true at the time they were stated and what's the degree of that we have not gotten ourselves to this is a sufficient showing of likelihood that he knows or is recklessly disregarding the truth of this me he's basically representing as fact that this is what is true and i'm asking you to assume that i not true how do i get around finding that there is sufficient slander when he himself is saying he's in a position to know he says i know when he says something that's false in your honor it seems to me and i may be misunderstanding i'd let it go but it seems to me that you're asking me to assume that he's knowingly making a false statement he is saying that he knows this and it is false now he may be lying about whether he knows it is that because i think that's what your defense has to be at this point well if he is if you say i know this but in fact he doesn't know stub is with respect to the quarter it's with respect to certain sales that did not materialize at the end of the fourth quarter that's all that happened here and they got pushed into the next quarter and he is in the middle of the era and he's thinking to himself what happened well what happened your honor is that on march seventh two thousand and twelve the government announced a delay in the requirement that people qualify for stage two certification by one year mark seventh is with the end of the fourth quarter of fiscal year two thousand and twelve and as mr plus hot ski explains to the market in july when they finally come to grips with what's happened when you can see what's happened and they're actually is reduction in the pipeline he both the market he says now we understand what happened this announcement in march of two thousand and twelve caused people to delay their buying of our products because they weren't required any more by the government to meet this deadline of meaningful use and that's when they declined to reaffirm guidance and that's just not fraud your honor in our submission i mean he's he is dealing in real time with what he's saying there's no indication that the numbers that he's saying are other than what they're reporting the most they don't have an accountant coming in here and saying i was in charge of keeping the pipeline numbers i told plot ski that instead of it being one hundred eighty nine million which would have been a record it was actually one sixty four but he went ahead and he reported one eighty nine they don't have anything like that your honor what they have is reported figures that they don't challenge and they have c w's who make allegations about a slowing down before era before the class starts or after july and that's the sum and substance of their criticism of these audited public numbers so respectfully ron i appreciate that you asked me to accept the hypothetical but the the sequence of events historically is not challenge and cannot be challenged these are reported audited numbers they've never been restated they have never been thousand and two q terra intuitive surgical all of them say the same thing if you're going to say that figures are wrong you need to show contradictory evidence you need to not just say oh they were bad sales reports you need to say what was in those sales reports that were contradictory and there was none of that here your honor so it's difficult for me to have to deal with that hypothetical in light of that these these their entire case comes down to their c allegations and if you go through the c w allegations one by one as we have done in our brief your honor they do not amount to anything that is  sets out the standard for analyzing c w allegations and there the courts are skeptical about c w allegations because work talk is cheap and it's easy to say anything you want so as the guy says what you have to show and you have to show the particulars of the alleged transgressions with specific dates documents or content of the documents and the employees need to be able to say that they were there when those specific adverse contents got communicated to the defendants none of that is present here your honor none of it the most that they have is a statement about mr plotz in march of two thousand and eleven before the class period before the era incentives kick in before f ive quarters of unquestioned record revenues and earnings results kick in that's what that's the most that they have timing any of these allegations to individual defendants and so on the rocker once once you take a look at the sea w's we submit you're on to that on the record what they're left with is is a claim that these pipeline numbers are wrong but no evidence nothing that would satisfy the p s l arrays clear  directive and most recently an intuitive surgical this court could not have been clear negative characterizations of reports without reference to specific sales data is not enough that's what the p s l already got rid of that's what we're not going to permit as a matter of pleading that isn't going to be sufficient i don't think you know if you're honest ok well i've kept it up what do you have specifically that tells us what jockey said was not true that is my first point actually judge fletcher we have a fourteen year director of the company ahmed hussein who told us who which is in his verify complaint over in state court that after that three day the block although the reaffirmed earnings forecast as late as july twenty third two thousand and twelve the withdrawal of guidance three days later that completely flabbergasted the market hussein went to pataki and said now i am paraphrasing i don't have an exact quote what gives employ chalky told him that the defendant rosina the founder of the company ordered them to to put those numbers out there despite what was going on internally the council said that the sales from the last quarter of that disastrous fiscal year get pushed into the next quarter i misspoke earlier when i made an implication about the district judge but i can say this that is a false statement that is not what happened analysts were outraged that this tale of large deals getting pushed into the next quarter was put out there because that's not what happened if that had happened anything other than  holistically and i mean we have the temporal proximity we have a three day difference between the last false statement and the one hundred eighty degree turn around we have mr push chalky sales of eighty seven percent of his holdings on a single day in february two thousand and twelve when he hadn't sold a share for four years he sold just after telling investors now's a great time to buy us i stock he sold just after the market is started is hovering around forty five dollars per share he manage with that on day sale and i know what you allege all right and we also have the core inference let's be honest here the division that this is all happening in is the next gen division one of four divisions within q s i that division alone or ten seconds in but we offer to amend with more specifics of the numbers that counsel was saying that we have not bothered to to plead and he's talking about quarter after quarter of unquestioned growth if given leave to amend we can we would be able to allege forensic analysis of us ice financials we would allege also with more post class period analysts discussions i mean remember these are people that are paid to dig into the financials and sort out what what went on and we would be able to allege again that it was not a a r a the american reinvestment recovery act that affected this company so grievously it was the fact that the very things that they had been warned about back in two thousand and ten that is slowing greenfield