whether swabs promise to route trades based on best execution which was material to the decision to use as a broker was also material for the decision to purchase or sell securities instead of park versus choice the supreme court repeatedly emphasized that the transaction to look at when determining whether a misrepresentation is in connection with the purchase the sale of covered securities is the transaction involving the securities themselves so the chant burn seems to focus on some sort of cause of relationship but then the next breath we did not hear by modified app at which pretty clearly said there doesn't have to be any causal relationship so how do we reconcile those two which one in several different ways to make it clear that it is the decision to buy or sell securities that is that is critical to making the connection they say misrepresent misrepresentation must be material to a decision by individuals to buy or sell the coverage security there must be a connection that matters where the misrepresentation makes a significant difference to somebodies decision to purchase or sell a proposition or it isn't the essential allegation here if you strip it down that your clients would not have sold their securities this way had they known about the u b s deal i mean really you know it they're really saying is we were we were entitled to sell them a better way that might get us a better price for them and so it's not at bottom like  an argument that had we been told everything we would have demanded a different way of selling them they may have a man a different route but it didn't have any impact on the decision to do what had an impact on their decision to sell at that time through to these some somebody said you can sell today and we'll do the u b s deal or you can sell in ten minutes and we'll shop around the market for for an execution person they would have said wait ten minutes and get the they are i mean this is that this is about inducing is about and you know whether or not the fraud induces investors to sell a particular sickly state so your clients hired  so that happens and then at some point it could be months later the investor decides i want to buy hundred shares of i b m at one hundred dollars a share and they contact schwab that's a route that throughout the promised in their contract is that in connection with their their sales why why isn't it i mean it's it's only one step it's a factor involved in the sale but it's not connected to their decision execution in doing it are you saying that your clients would have said it's ok go ahead it's it's not fair it seems to me then it's immaterial aspect of the trade so district court we have the third circuit we have the seventh circuit we have the seven just trip to new york last week and each rape case we have a slew of district court cases and i can't find a single case that except your position is there one execution there's a number of decisions including with this court where they look at breach of contract and this is the there are there are there are cases that say that breach of contract or producer duty claims might not be subject to but i'm looking at this pack pattern every time this fact pattern has been presented to a court anywhere in the country they found the claim sluice are barred i'm not saying they're right i'm just asking you is there a single case and i balance this fact pattern where you've won the meaning of the term the meaning of cost of insurance and this court said look it's a question of whether the plaintiffs interpretation of cost of insurance is correct or defendant is correct that doesn't mean it's a non disclosure misrepresentation case we've got the same thing here the dispute is over what does best execution require we say it require schwab to take certain steps a b c and d and determine the best venue s opposing counsel has i heard a lot of cases why shouldn't we construe it band and say we're going to look through the form of the claim and look at the substance of the substance as merely another as representation fraudulent practice claim well the substance is not that  regulation is greater than what's loose the covers that argument was presented in chad born because there are the f c c was saying wait a minute court don't construe in connection with the broadly because you're going to limit our regulatory scope and some of them they were so i guess my question is still the same because i'm a difference do we give to the minute we make of no difference i just i'm not sure what kind of difference to my getting the answer is not because the facts of this case are different in the facts of this case it's not about failure to disclose and factual be even generally disclosed what they were doing they told people you know we've got a contract with u b s we route to u b s we get paid by u b s it's not over what they said or didn't say it's good morning may please the court gilbert serota for the schwab defendants and i'm going to try to restrain myself to nine minutes if i can let me address both arguments very briefly both arguments elevate form over substance because if we had all the time right but if know if it's a contract i guess i didn't see a stopping point with your argument any preach of contract it misrepresentation because you said one thing in the contract and he did something else so what's the stopping point for your argument because we have president freeman and other cases saying you can bring a contract a breach of contract claim where the breach of contract claim in substance you may be right in this case but i think looser elevates for for substance too so my coercion is this they make two claims that were do not require under state law misrepresentation or omission as an element you agree yes fraudulent they don't die and yes they do let me if i can explain the conduct that they are alleging is that schwab promised its customers in essence are action and preached at and had a regulatory body through every single of the contract so any breach of contract claim falls into that group not no i wouldn't say that freeman is a good example of where it doesn't free men by the way all of freeman was found precluded sluice except for one discrete contract claim which involved the interpretation of an insurance contract completely independent from securities transactions so you're saying any contract relating to security is law so basically any contract with a securities company that relates to how the securities company will perform yeah i think this any even any breach any claim of breach is covered by sluice every contract in connection with is that your position yes and let me tell you the seventh circuit in the holds first is j p morgan kay said this allowing plaintiffs to avoid litigation acts looser by contending that they have contract claims about securities trusted you we thought you did deal with u b s but it turns out later we could have don't you we would have done better had you dealt with somebody else and that's a breach of contract we don't think you lied we don't think you failed to tell us anything we just want to sort of reach your contract by the way i think it's a crappy b of contract claim but that's for somebody else to decide ok so why isn't that just a breach of contract because the theory of the case is essentially that when you entered into an agreement with u b s to route your trades to u you were engaging in fraudulent and deceptive conduct because you did not tell us says customers that you are sacrificing best execution if they say that judge her aunt says hypothetical as no they said here's what we're going to do so there's no untrue statement there is the contract requirement but they told them what they were going to do then i'm having trouble with the statute which says the complaint has to allege an untrue statement says that we're i'm having some difficulty i don't want to speak for judge or cooter is that it's somehow counterfactual we have a state law cause of action that does not require a misrepresentation and we're saying convenient way for us to do it it may result in in the dark market occasionally undercutting your bid or making some profit off of it but in the long run it's the most efficient way for us to operate contract says that is fully misrepresentation of the underlying issue of whether or not you're sacrificing best execution for profit so if it let's assume the contract says we may on occasion sacrifice best execution for efficiency connection with language and sluice is barred by slaves if you are bringing a says yes or no state yes if you're bringing a state law class action and it involves breaches of best execution it is covered by sluice it's covered by sluice under all three prongs as judge c borg found it's both an omission it's a deceptive conduct it's basically saying you took kickbacks in in return for sacrificing best execution of the complaint doesn't actually say any of those things you're saying just as a matter of law it's covered by yes the that and that's the most important teaching of the supreme court cases and dabbed it is that you can have a valid claim contract claim doesn't matter whether it's a good claim or bad claim it it doesn't have to mention fraudulent or deceptive conduct because if the substance and grab a min of it is manipulative and deceptive conduct it's covered by sluice and that's what every single case from the seventh circuit to new jersey to new york have said about the conduct and you know i'm running over to but the prader case in new jersey federal court said something that i thought was quite instructive it basically said a best execution claim is in essence a pattern and practice of misrepresentation intent to deceive manipulate and of fraud in a case that they were trying to avoid the application of  just like this one but i suppose congress could have made a statute that said that but this doesn't seem to say that so i think it does say as a matter of law based on other circuits construction i think it says it and where a customer is allegedly deprived of best execution it's by nature a manipulative and discredited ally regarding best execution is there any statutory language or regulatory language defining sure rule that's a good question i can't cite one off the top of my had but but the the process the adoption of finra rules requires notice under the administrative procedure act and that you look at trades in the aggregate and you look at multiple factors are going to tells us how one violates their duty advantage and a failure to provide best execution is a manipulative and deceptive device and we know that five and the scope of salusa were all of the same we were dealing with the first part by the in connection with the argument the question is whether or not this is essentially alleges a misrepresentation it doesn't have to be alleged as to misrepresent well essentially i said as i said i mean you you don't regard hampton as precedent but i think it has some language that i think is extremely appropriate here and i'll just leave it to my colleague here after this what it says a plaintiff's need not make an allegation of fraud or deception and salusa applies if the substance of the claim is could be described as deceptive and so i want to go back to fi think it's persuasive i think an agency that is charged with enforcing the securities laws who makes a decision as to whether a particular course of conduct is within or without it that's a very persuasive element that the court should consider and know at wal ses he cases have sustained its own jurisdiction under a manipulative and deceptive device as to the issue of best execution and i'll believe i'm sorry i took so much time let me turn it over to u second as an aider and abettor of all of the tort action alleged against so under it and i'm blanking on this but and if this is a case cases are purported to be covered by california law with respect to the state claims right you're a defendant yet big because u b s is a defendant because it's alleged to have participated in the disk deceptive scheme again your honor i think it's important this is the plumbing case right which is plainly pleaded as a deceptive scheme perpetrated by fraud on its customers u b s is alleged to have been unknowing participant in that scheme u b s is alleged to have paid kickbacks to schwab received order flow from schwab knowing that was breaching its du of best execution to its customers and then subjecting those orders to manipulation in the u b s dark hole that's i think the theory of aiding and abetting here and that theory necessarily require some sort of deceptive conduct on your missions on the one hand and manipulative or deceptive devices on the other i'm sorry your honor i see my time is up please the manipulative u b s was explicitly accused of manipulative conduct in the fleming complaint and we recite in our brief over and over again these repeated references to manipulation by u b s itself in the dark pool or by high frequency trading firms that  knowingly exposed schwab's orders to its mr fleming who uses the term manipulation to describe what u b s did with respect to schwab's orders now we argued that in the district court we argued that putting to one side the misrepresentation prong of salusa in so far as you're asserting claims against u b s you're out of the box because you've asserted manipulation and that answer that argument one completely unanswered in the district court as the district court itself noted in its opinion the first time we heard any attempt to defend against that argument was here in the in the appellants reply brief and as you know under the law this court i think it's pretty clear that's too little too late and the arguments they make namely that you know judge seaboard kind of misused the term manipulation or that in fact he didn't dismiss the case against u b s based on this manipulation pran of sluice as well as the deceptive pronk that's just wrong and i refer the court to page thank you my post and counsel contends that every that's execution case is necessarily manipulative or deceptive but i would like to remind the court with this court said in freeman which is just as plaintiffs cannot avoid crafty pleading the sentence may not recast contract claims as fraud claims by arguing they really involve deception or misrepresentation and i would also like to remind the court that in limb we don't even have a breach of contract case market players i know you represent women not filming but could you respond to this perhaps the fleming complaint begins by saying we're alleging a bunch of things including intentional misrepresentation or out of a single course of conduct it's not like it's a separate count doesn't that pretty clearly make that complaint one for intentional misrepresentation no because this court has said you know claim my claim you don't look at you look at it it's a single course of conduct in other words if you have a single course of conduct that can be described either as a breach of contract or as an intentional misrepresentation then what the are don't we have in substance an intentional misrepresentation and i think they had that flemmi has the right to say this is the conduct that supports fraud which good luck and this is the conduct that supports breach of contract excuse me contract and you look at the claim separately and that's exactly what the court did the second circuit in kin gate they are they said these fraud or negligent misrepresentation claims you're barred by salusa those are based on misrepresentation but fiduciary duty and breach of contract those claims which had to do with did did the defendants properly administer the funds did they properly manage the funds case we don't just rely on europe i guess my question is if if if that if if we assume for a moment that fleming accurately alleges a misrepresentation claim and you just leave one out of your complaint but allege alleged my question is if we were to conclude that inflaming the allegations essentially amount to a misrepresentation claim why would we rate reach the same conclusion in your case other than the fact that you haven't alleged it we're we're not stuck with your allegations that's what all the cases say we look past the allegations and to the substance aren't your cases substantively identical i don't agree and i'm having a hard time  and i apologize but for the can i make one final point on why hampton is different in hampton the material fact was misrepresented which the it was a material fact misrepresented which is we're going to in invest in no more than fifteen percent risky securities in fact they invested and in greater than fifty percent fifteen percent risky securities here were more like freeman it's how do you interpret best execution if the excess execution requires the conduct we allege it's violated if best execution requires conduct that complied with they when but it's not a misrepresentation of a material fact it has to do with interpret in a term and then applying it to the conduct in the case and that's why hampton vastly different in this case anything over there very helpful arguments in the case