paragraph twenty six dollars that were all close associates of militia need us with knowledge of this criminal background and agreed to the public to be the public face of the company when his rap sheet prevented him from doing so through an i p o knowing full well that middle of the neatest would remain in charge through a side agreement as the complaint specifies that paragraph twenty eight the defendant's prior experience with melissa need us and knowledge of his criminal background necessitated controls reporting and oversight by the could actually process and all the complaint alleges that they stood by his nose in the dismiss appropriated over three hundred million dollars from the company over the course of numerous years this case is not about a small one time  random underling the complaint specifies how both the cost overruns and the inflated receivables constituted material irregularities in the company's financial statements which the defendants are presumed to know they did nothing to intervene or in bed again despite the reported cost overruns and the unexplainable ballooning receivables that occurred over a multi year period now the court must determine whether it can constitute a breach of the future duty for directors or an officer to allow a known criminal to have his way with the company without monitoring overseeing or intervening in his activities in the midst of a material financial irregularities pointing to significant ongoing financial fraud in this misappropriation the court below found that the mere fact the company hired an outside auditor and claimed to have an audit committee insulated from any duties to monitor or act the district court also found the steps taken much later in time by completely different people to unravel the fraud somehow insulate the defendants from liability these holdings are inconsistent with both the law and the alleged facts of the case or in my law which is a possible here because nor my company provides in section sixty one dollars of its business corporations a the directors and officers show carry out their duties with a degree in diligence and skill which ordinarily prudent people would exercise under similar circumstances and like fish is the key point i want to draw the course attention to the circumstances matter both are in my and delaware which is persuasive authority for or am i make specific reference to the circumstances being important to us in considering the sufficiency and the possibility of the allegations the court must take into account the circumstances of this case where associates of a known criminal are stepping in to hold the official seat so to do sherry power while still allowing the criminal to act for the company pursuant to a side agreement those circumstances five which makes the point very clearly that a breach of the duty of care can result from reckless indifference which is the very type of action alleged in this case and what's happening here with respect to both the court's more than with a higher burden than simply gross negligence through reckless indifference but blurring that distinction is at the core of what's happening with the decision bloke i think that to speech in his make clear both in the admin also in the delawares disney  opinion at not not six a nd at sixty five and also what chancellor chandler had to say in the chancery court does need decision about the distinction between the claims which has been reaffirmed by the dover supreme court in stone versus ritter and the bottom line is that you typically don't see the duty of care through reckless indifference or just gross negligence client's being adjudicated all the way through by the delaware courts because in almost all of those cases there an ex who patient that would apply with respect to the simple point bonilla gross negligence case that's an execution that doesn't exist here as we've argued to the court because there's no exculpation cause in the company's articles which is required in order for there to be duty of oil to claim even if we're talking about it as a prong one caremark claim you have to understand or look to what particular controls are we talking about and as i pointed out in my opening the circumstances matter is not just any type of control in particular i would point out with respect to an auditor and auditors role is to look retrospectively at what occurred in a prior year to say that having an auditor which is simply a requirement to list on a stock exchange that that would then absolve directors from any potential prong one liability under caremark obviously have far reaching implications these are the fiduciary these are the ones that are supposed to have foresight they're the ones that are supposed to determine under the circumstances looking back to the the standard of care what would a reasonable person do under these circumstances where you're allowing a known criminal to run the show you would employ him you would actually institute controls that matter with respect to the legal risk going to be misappropriating funds in connection with the company's major project or that the financial systems are actually going to catch the extent to which receivables are going to balloon to the tune of two hundred million dollars through sham transactions through entities that he's controlling because that's a known with good reasonable core site risk associated with having a known criminal run the company under your watch and so we would disagree with the notion that any control such as the existence of an auditor who looks retrospectively at prior years satisfies your prong what duty but also what terms of guilty that's good i thought that th the existence of some mandated regulatory controls do not make directors immune from liability if they fail to monitor what was clearly important in the context of the case in that case in march and it was the lack of  in this case it's a failure to monitor melissa need this in the context of the biggest things he was running at the company that were systematically spiraling out of control over a multi year period so i believe that looking at margin itself will show how some a particular control may not be the control that you actually need in the context of the given case because there were regulatory requirement that play there that they met and others that were not controlled so i think you'll see the distinction there and i think it's consistent with  what we're doing with this in this case in terms of blurring the distinction of the duties or perhaps importing higher hurdles a lot of the cases that are cited to this court and argued deal with derivative claims that have a higher burden demand futility determination of a higher burden or issues of operational risk versus legal risk such as the romans case or even this court's opinion in wayne county and so there's a different standard applied in terms of what type of controls are expected of directors with respect to operational risk as opposed to the type of legal risk we have here and we just submit that the court needs to be careful at not allowing those distinctions to be blurred or to import higher hurdles that should not apply in the context of this case to reach a fiduciary duty under the various duties that is to be weighed under a rule standard with all imports has to be decided in favor of the point and i'm going to reserve the rest i well what's what's most important is what we've alleged about the lack of there being any sufficient controls over the particular financial reporting and the type of activity that the known criminal was undertaking and so are at the pleading stage and so accepting our allegations is true but the question is not really can the defendant springboards some factual dispute about whether or not these directors were actually looking at monitoring various things there's nothing in the record that is properly in the record for the court to consider at that point through discovery we're obviously going to get far more information about what they were thinking what they were doing what they were saying to each other at the time that the known criminal was systematically looting the company to the tune of three hundred million dollars right now what we have there be allegations that they failed to actually monitor oversee or intervene in activities related to his running of the company's major project and  officially the company's financial position because when you look at the receivables as a point of or you may this is not a material one off financial fraud this is a systematic looting over a period of years to take the company of trust he brought this action seeking to hold the defendants wanted bill for fraud that they had nothing to do with and are not alleged to have known about plaintiff's theory is that the tenets failed to adequately monitor agents way and if they had the foresight to scrutinize specified documents and if they had recognized regularities that were not clear on the face of those documents they might have discovered withdrawn earlier in a comprehensive and agent predecessor and that's it that's the that's the full extent of the allegation with regard to their close association and so for example my client mr ted larry is nicholas temple areas and served as the vice president for general maritime subsidiary and that's a connection that they are alleging creates a close relationship a close association with regard to the prior misconduct in the repeated refrain that mr  criminal it is true that there were issues raised about mr smith now it's an easy background and it's true that those issues were fully disclosed prior to the i p o including with regard to the framework that occurred here and so far we moved a remote in the type of conduct that it was basically irrelevant and in that respect wasn't a red flag at all so for example there were three convictions that predated the i p o and those are the only three financial court and the sufficiency of its controls and year after year after year issued on a qualified opinion on the connection with the company's financials and when issues were identified that the  defendants under their leadership remedied those issues so there just is not an allegation in this complaint and that just buckled down there just wasn't sufficient allegation that there has been either a failure to implement controls  the decision not to act itself in a formal decision is what is you know whether it receives the benefit of business judgment will but there is here there's no decision that's been channeling the duty of care just isn't it ok to it at all and i think that that's where the cases that mr collins referred to and your honor with her to that's where the line seems to be drawn into those cases in which a so called the in action was found to potentially life level with breach of the duty of care there was a that's a case where the board of directors had been put on notice that a transaction that they were that there had been a significant accounting error with regard to the transaction that they were about to and the company was about to enter into and it was decided to go ahead with the transaction anyway so in that situation arguably there's an action because they didn't stop the transaction but that case stands for the proposition that where there is a conscious decision not to act and similarly critical properly found that when it cannot allege that having implemented such controls they consciously failed to monitor them meaning that acting in bad faith they knew that they were not properly monitoring the company and are consciously disregarding alleged in the complaint that was called into question direct the court to appendix nineteen paragraph twenty six of the complaint where it's alleged that these particular defendants were hand picked by milissa need us to step in as the produce yuri's when he could do so and it says quote before joining at the end each defendant was a close associate of melissa need us with the knowledge of his suspect background and each fully understood the terms of the framework agreement and the reality that most any of us retain power over their position that a the the specific quote that court makes about the distinction between duty of care is gross negligence including reckless indifference as compared to the duty of oil the standard which involves the quote conscious disregard of one's duties the conscious disregard all the under the duty of loyalty rubric in when you're forced to show good faith and so there are just needs to be a just one to remind the court of the distinction of these duties because they are being blurred here and the court below derivative action that may be required in a derivative action case under chancery rule twenty three point one but it doesn't apply here oddly the parties here disagree on whether the lower court made the statement but the court can obviously read page twenty seven  opinion itself and we request that the court apply notice pleading standard under rule eight recognizing this is a twenty six dollars motion where inferences are to be decided in favor of the point of and not a summary judgment case a case after trial like disney is certainly not a demand futility taste it's not an operational risk case this is a case where again producer he stepped in to serve the role recognizing that they had a known criminal running the shop and they did put in place the right controls and they did nothing as the company spiraled out of control losing three hundred million dollars over a period of many years we respectfully request that the court reversed the decision below thank you