good morning may please the court james rose appearing on behalf of the appellant's members of the i afraid the family with the court's permission i would like to reserve five minutes for rebuttal time this morning all right an employee stock ownership plan and aesop and the transaction was structured as a seller finance security transaction and effectively without belaboring the details which are brie extensively my clients loaned the corporate defendant thirty seven million dollars the corporate defendant then use those funds to purchase all of the stock in the original construction company held by my clients and the terms of repayment over a number of years and more specifically how those payments were made and when they were applied is the focus of this dispute this is primarily a rule twelve case and secondarily i think a securities fraud case and i describe it that way recognizing fully that the parties have extensively briefed the securities law  requirements their requirements for how to properly plead the securities fraud claim and those are relevant here but it's important to keep in mind what district court did and did not do and this is why i refer to it as primarily a rule twelve case the district court did not say did not rule that these plaintiffs failed to allege the facts that a plaintiff must allege in order to properly plead a securities fraud claim and the district court also did not say that these plaintiffs failed to allege all of the elements that a plaintiff must a ledge under section ten b of the securities exchange act what the district court did say is that these  never ever assert a securities fraud claim against these defendants because these plaintiffs are want holders and and we've briefed the fact that as a matter of law that is just wrong and it doesn't seem to be any opposition on that point anymore now although the although the transaction here closed in two thousand and thirteen the fraud that we are alleging did not occur until two thousand and sixteen that's also something that tripped up the district court the district court ruled as a matter of law that because we were complaining of statements and actions and omissions that occurred in two thousand  and that was nearly four years removed from the date of quote closing unquote we couldn't possibly be asserting that those statements and actions and omissions occurred in connection with the securities transaction that's also wrong as a matter of law because there was a an additional series of securities transactions that occurred in two thousand and sixteen and that's what i want to talk about now i want to talk about specifically what constituted fraud in this just believe this is a failure of the state of the state a claim kind of a case but if it is the record reflects that there were no material misrepresentations that were cast to secure this fraud and i'm not saying that's the case but if that did turn out to be the case where would that leave review of this dramatic well jordan answer your honor i don't think there is us to employ as the reviewing court on appeal well i think it's to novo review i do think the court has the authority to do what the district court should have done that's that's one of the things i'm asking you to do is to review the allegations that were certain and conclude that they do rise to the level necessary in order to plea but i also think there are a couple other ways you could get there you don't have to go point by point through the allegations through the six elements that you typically see associated with the securities claim you could also conclude that there's a duty to update presence here there is no duty to there's no lack of duty to warrant holders as the defendants are but there is pacifically the duty to update and this is something that there's a bit of a what i think counsel you're arguing that there is a duty to update and interpretation and interpretation that that apparently the plain language did not did not in your client's argument is it did not sufficiently inform them as you know the argument by the by the movements was it's right there in plain language it expires after sixty days right and so your position or stand in your position for your clients is zero but we didn't quite read it the way you read it and you really ought to have come back to us and said no we read it this way and you're about to miss a deadline here and that is so atypical of a of a fraud case especially in the scenario of a stock kind of transaction where the language says what it says so i'm i'm just giving you a softball here so you can respond to that but it it is atypical from a fraud standpoint to say duty to update in  because we're not arguing that they had to sit down and read us the language of the why we're saying i thought i heard you say update you know we are we are arguing that they had a duty to right so the distinction is that in twenty thousand one hundred and sixty three years after the documents were signed right they they changed the way they were applying payments the parties had a conversation about this very topic in two thousand if you continue to apply those payments pro rata as required by the documents and as you've always done the only way we'll agree to something different is if we amend this deal if we entered into new transactional documents changing the original intent of the deal no new documents were executed the deal was not modified in any way and yet the defendants without telling us change their behavior it's not that they changed their interpretation of  contract from two thousand and thirteen until two thousand and sixteen they applied all payments in a pro rata manner beginning in two thousand and sixteen after reaffirming that that would continue they then changed the way they apply payments and began applying them in a non pro rata manner and they did that on purpose in order to attempt to trigger the warrants in staggered fashion instead of at the end of the deal when all of the debt had been paid then answer question your honor it's not a matter of interpretation it's a matter of updating the statements they made previously which were truly hand made but can you tell me where the support the evidence will support the evidence very support is for this conversation that you just alluded to where there's no affidavit your honor because this complaint was dismissed at the pleading stage that's part of the probably ok if it's alleged where in paragraphs seventy four through seventy seven specifically that's where we describe this communication that happened in two thousand and sixteen and then there is a series of e mails that were attached to the pleadings that show that after this communication with the defendants did  not sign no amendments were ever executed the deal never changed where the fraud comes in is that without telling us in two thousand and sixteen they then modified their behaviors and changed the way they applied payments unilaterally and they did it on purpose without disclosing it in order to try to change the trigger timing of these warrants this was fraud  have a contract that involves asaram of securities but i'm glad you asked that question because that's exactly how the defendants pivoted away from their fraud in the district court and that's exactly what the district court seemed to believe is that because this was also a breach of contract it couldn't therefore be a securities violation that's just not true the vast majority of securities fraud cases also involve a breach of contract if our claim here was limited to the terms of the warrants and the way the defendants wanted to be if all we were arguing is they didn't follow the terms of the warrants then maybe we would just have a breach of contract claim but that's claim our claim starts with the notes our claim is that the notes required them to apply famous in a certain way and they didn't and because they didn't and because they were deceitful about it because we had a conversation about it and they undertook to speak on it once they undertook to speak on it they had an obligation not to omit any material facts and not to make any statements that would be misleading but they did it they misrepresented discern this change in behavior the change in the how the programs are versus not in progress with it was in the blues record then why were you not omissions that followed an action to follow yes ok that's helpful it's really the omissions after that conversation your honor it's really what happened after that then then they had a duty to communicate with us once they decided not but i guess we'll have to make it and everyone else should be careful about moving papers etc that that can be ok relationship although it involved does not allow application of the securities laws do you have a case that says that that it has to be a public we have a corporation expire it was how you were doing the counting of the payment because that's what determined the expiration date and that there had been an earlier representation that everything would remain the pro rata unless you notified them unless they agreed otherwise and that you would honor that and then you did put your the point is from your brief the security itself must be manipulated or deceptive is that correct that signing can be and you say it can't be a device because if they're arguing and interpretation as a device now observation but it answer any questions the court has but there is one comment i want to make in response to something to sponsor something that mr allen said that this ultimately will be a factual question but the makeup of the  board is not something that harms our claim the makeup of the board as something that supports our allegation that these actions were done with c n n or our client did not control the board during the relevant period of time and we've alleged this again it's  is these allegations are interspersed throughout paragraphs between paragraph seventy four and ninety six but it is true that it's a beginning of two thousand and sixteen before this team was put into play the board was comprised of three were the plaintiffs represented in any fashion on the board we're told that they were by mr allen correct and as alleged in the complaint the composition changed there were no i free family members on the board the family lawyer was still on the board but two of the three positions were controlled by mr ed and that is part of the the device if you will the manipulation that occurred behind the scenes that that's precisely what we're alleging now ultimately that will be a fact question is how that happened but what we've alleged and what the documents show is that in november of two by the family lawyer well well how that happened your honor is not in the record because again this complaint was dismissed at the pleading stage save you know a geisha is are there the allegations are between paragraph right of the four and i'd like you to point me to be exact language that you are relying on to establish this claim that they were representations in the payment to particular individuals and that the company agreed that that would be the case unless there was a writing to the contrary so can you tell  of the plaintiffs told ad cockpits individual defendants that if the company was going to make a prepayment his portion should be paid to angelo senior next sentence however angelo he instructed ad hoc that if there was a prepayment to  anyone no holder appropriate documentation needed to be executed by all of the plaintiffs to reflect the change in payment terms and any necessary corresponding changes to here's the important part to preserve the original intent of the transaction documents throughout the proceeding seventy three dollars paragraphs of the complaint before so the allegation is that the original intent of the transaction documents is to ensure that payments would be applied pro rat appropriate paperwork now you say despite promising to do so i mean is there anything how did he promise to do  so my understanding is that in the communications between the parties he promised to do so there's also an email reflecting that he did send a proposed amendment but not an executed document because my client's then refused to execute that document that e mail is attached to our so they ask this court to take you digital notice of the state court proceeding documents that are publicly available and it is filed and is publicly available in that case not in this  email is not a part of this record you don't know but there are references to it and through those communications in this allegations were addressed in all