thirteen forty fifty nine thirteen forty three fifty four k b the asset management n v versus eaton corp at all oral argument as follows fifteen minutes for the plaintiff fifteen minutes to straightforward is a company liable under the securities laws for falsely denying that it had engaged in litigation misconduct in state court when the state court conducted a thorough investigation and determine that the company was a knowing participant in the misconduct and when the company's stock value dropped immediately after the company finally admitted its wrongdoing under the law of the circuit the answer is yes as such a district court's determination that the plaintiff had failed to plead the c enter and lost causation elements is erroneous and respectfully should be reversed now turning first to the issue of sea enter plaintiffs at a minimum have established cmdr of the corporate defended eton as well as the individual defendants in leo with respect to even a strong enter arises here from the fact that the first be court made findings factual findings in determine that even had been involved in both the litigation misconduct as well as a subsequent cover up and also based on even suspiciously time termination is detailing k b c's complaints the first week or conducted a thorough investigation into the litigation misconduct which included attempts to influence the trial judge and made the following finding and i quote the bottom line is both egypt and it counsel participated nonetheless the district court gave really zero credence to that finding simply because clinton had appealed that decision but she's burden here was not to prove c enter its burden here was just to plead c enter and regardless of whether eaton appealed that decision the frisbee courts detail find in support a strong inference of c enter the c answer relates to statements made by ms that rhyme is that what we're asking about when they made certain statements they knew they were that the idea correct your honor that are the key statements that we're talking about the key statements were made i think beginning in two thousand and nine of august where the august they said we didn't ask peters to insinuate that he would do anything something like correct and they also went on to say that we did also there was nothing improper about paying the former frisbie employee who sort of was a whistleblower for his testimony that they hadn't done anything improper with respect to sort of these are statement the statements as to which you say there is c are statements that that they didn't do corrupt kinds of things with respect to this other litigation that's correct i don't like has computers to get involved with judged a lot or so forth and that's that's well there was it was more than just the improper export to communications and an attempt to influence the trial judge who was also efforts to withhold asking about what happened i'm asking about what was said that was wrong oh my apologies oh yes it was naming trying to get at what the statements are to which center might apply and they they mostly relate to they mostly statement mostly if not entirely statements that profess innocence to more or less corrupt things that were going on with respect to the previous litigation is that i might focusing on what the theory of your case is that's correct your honor that they made affirmative statements as to whether or not they had engaged in certain types of misconduct at the being hiring someone to influence the judge and so forth that's part of it certainly was another part of the will to go a bit further these statements were made in a public setting like a press conference after the frisbee litigation and your further theory is that that had an effect false statements that had an effect on the stock price of eaton that hurt your client's right that's the theory that's correct your honor of is that you have a company that's accused of fairly agreed is misconduct this is not the type of thing that happens every day they come out affirmatively and just don't say you know we intend to defend ourselves like announce a we didn't go i just want to once know what the statements are short and again i to start well i'm looking at a summary of them that says there's a statement in august of two thousand and nine and other statements of them are of two thousand and nine and another in december of two thousand and nine which basically say we didn't do anything wrong so those are the ones those are the statements that you're talking about as to which scienter applies according to your theory yes there were also statements and in i believe january of two thousand and eleven which was after the first b court issued its decision so the first because the when is the when is the the the period the time period goes a believe from the starting point was august two thousand and one is the going is the class period right there the class grew to believe your honor goes from august two thousand and nine through i believe it's the beginning the very beginning of june of two thousand and twelve and during it's that period of time that's the that's the class period through in the twelfth that's correct your honor and what you have is starting the commencement of the class period was when they made certain misstatements because mr peters was going to testify as to what he would have said before there was a statement as to what he would have said before the grand jury regarding his contacts with judge the lauder then you have again the subsequent statements you mention then there was a decision issued by the frisbee court and i believe was december  shortly thereafter in general two thousand and eleven even continued to deny that it did anything wrong with respect to both the documents with held and it's improper contacts with just water and then ultimately as the court investigated and again it became apparent to the trial court here that there was some serious misconduct going on it had ordered the most of the individual defense in this case to submit affidavits under penalty of perjury now saying hey that's the end of it the day that pappa davids are or are admitted and then the the  injury or the stock drop the cause immediately after these affidavit after june twelfth no immediately after may thirty first goes may thirty first and i believe it's through last period somehow in my notes i think it's misconduct in the nature of asking peter is to insinuate that he would do something improper hiring peters to influenced a lot or whore asking him to implements judged a lot of those the statement says to which santer arguably appliance what is there in the affidavit switch would cause a stock or a shareholder to think oh even though i didn't think that happened before now i think that happened i understand your honest question just take me a moment of navigation to get there because i want to make sure that we're not artificially compartmentalizing what went on below you had the discovery violations you had the ex parte communications and you had the cover up of both and during the course of the the investigation right the court below got frustrated with the will the trial court refresher with the fact that documents pertaining to both the wrongful  discovery violations as well as ex parte communications were being wrongfully withheld being denied everything you know part and parcel right throughout the class period the declarations themselves focused on discovery violations but part of those discovery violations were the failure to turn over certain incriminating documents relating to the peters lauder relationship two documents in particular that the court the trial court said hey that's part of these affidavits i want you to explain why these two documents which by the way pretty much show what was going warrant turned over even though there were numerous warders in the past to reckon you to do so and the important thing to me is that two years earlier before the stockbroker declined precipitously as you say two years earlier the court a court the court in mississippi dismissed the case and fined so doesn't the market know then that already knew two years earlier before these affidavits hit the hit the market hit the news the market already knew about the problems the market knew about certain aspects of problems and again we're talking huge  fine it is a dismissal of the frisbee case here i think it was well that is a significant sanction for significant misconduct but that's not where it ended what you had subsequent to that disclosure and i agree that of course this is disclosure of someone on it so you have a continued campaign of denials by the company and i think what we're talking about is sort of an interplay between both causation materiality and we have a company that's been fined continuing to say though we did absolutely nothing wrong here nothing went on and then finally finally when push comes to shove in the drug courts there's no now you have to you have to under penalty of perjury submit these affidavits and they finally come forward after two years of denying everything and say you know what some serious lapses really did happen here serious lapses that they say really did happen were serious lapses in discover not serious lapses in i'm asking but it appears to me and i'm wondering what your responses looks like what they finally admit to that they've been denying at that point time when you're saying the stock went down are laps in providing discovery lapses in in what you did when you allegedly asked peters to influenced a lot or are you with me that's the problem i completely understand what you're saying and i did my best i believe to answer a minute or two let me try it again or is the discovery relates to these facts but i'm not sure that something the those shareholder is going to track well i will tell you if we're talking about materiality now we're talking about an issue in the law is clear that that's all i'm talking about last causation ok so when you have a company or some other things that arguably caused the loss you know and they say you know it's not so in order for for the complaint plausibly to say that the loss was caused you have to have something which possibly suggests that right when other things might possibly suggest it right like these mergers or whatever it was that also was going on at that time to answer your honest questions directly is possible yes the affidavits referred specifically to discovery violations pertaining to the e mails that demonstrated among other things the improper peters to water contacts so they were they basically admitting that they wrongfully withheld that then to answer your honor's question you have the affidavits come out there is an immediate drop in the stock price the only other possible cause and again on a motion to dismiss it is not a plaintiff's job to try to desegregate other possible causes that is the province of complex expert testimony but putting that aside which you have is the announcement of a merger ten days earlier right the defendants are centrally claiming that it took the efficient market ten days to absorb the information of that merger and that's the real cause not the release of these affidavits the day before and i will tell you if a plaintiff's attorney tried coming in and try establish causation with a ten day gap they'd be laughed out of court because there are new mobile cases saying that's far too much time because it does not take the efficient market that long to do so ok thank you thank you here but like the district court i would urge this court to look at the allegations in the actual complaint and i believe you will agree with the district court that the complaint itself is deficient in a number of respects is the district court found appellant has failed to allege the critical elements of its claims under section ten b including cmdr in los causation this court of course reviews that those findings de novo but i would point out that the  overarching theory here is highly implausible plus appellant is asserting their reports about litigation which they admit paragraph fourteen of their consolidated amended complaint had never been mo monetized by eaton or by the market caused an alleged one point four billion dollars stacked decline after in a month in which there were a number of other announcements and i'll get to that in a minute  every case that has found lost causation based on these types of allegations there has been some sort of link alleged between the statements and the and in the actual stock price where the company's finances the company's financial reports there have been either restatements of financials there have been in the case of the hill versus state street what about where you were hypothetical situation companies as we've been saying until now that we haven't engaged in fraud but we did not this case but in a typical case just to test your thesis you now say you know actually we've been engaged in fraud from last year your honor i would say wouldn't and then the stock goes down wouldn't you would that be enough to possibly do allege that that that previous statements that there was no fraud actually led the market or a direct court to dura pharmaceuticals in the d and j case from this court you're saying the laws in that case that's not enough to show that's not enough that boilerplate and conclusory only because shareholders feasters that's that's something you might hesitate to buy is not this case did is does not know this case are different i'm just trying to get at the theory you seem to be saying that could never be enough to prove loss causation your honor the case is say that there have to be specific not specific but and off allegations in the complaint to raise a plausible connection i'm just asking why would that be possible in that situation if a company came out and said yes we committed f i'm yes we hired in this case peter's right to influence judge the lawyer and we knew what he was doing the whole problem to be met is not this case here and i know it's simply napoles understand that that's why i said it was a hypothetical and not this case to test your theory but doesn't really answer my question if you just say that's not this in me it's just like saying judge i'm not going to answer your right and i don't think the court should be looking at hypotheticals that aren't involve the facts of this case what we have here going your chance to answer it but i mean you're not going to answer i think i'm trying to answer your honor and i apologize if the allegations of this complaint alleged  with c enter that the company knew that they hired jones to influence to water that they didn't play ball in discovery and if they came out later and said  knowingly that they did do that and those statements allegedly led to a stock drop that's a valid theory under risk right and the private  we admit that those statements were baked into the price of our stock we admit that those statements influenced the stock price and it artificially inflated the stock price to begin with because that's a piece of the last causation puzzle and then admitted yes we we were lying we were false yes your honor i agree that would probably say it last causation but there are a number of additional steps for admissions in court you're talking about i thought judge murphy was asking you about questions of questions about admitting certain kinds of bad action causing the stock to go down simpliciter it's the it's the connection between admitting bad actions and causing the stack to go down that i'm having trouble with your honor and i think that is exactly what the district court judge had trouble with there is nothing in the complaint that makes any plausible connection between those two and in fact if you look at the actual af are so then your stronger argument is that not not that there's a lack of c young to her about what ethan did because ethan fully knew what it was doing but more because what e did can't be plausibly alleged to have had anything to do with the drop in the price of the stuff here i think both of those are very strong arguments i think the district court was right on both by known you know you of course you do which is the stronger certainly the last causation seems much stronger to me based on what you're telling us if you look at the affidavits and i was just going to get to this what the what the individuals actually say with the defendants actually say in their affidavit says i didn't know about this before i only knew about it in may of two thousand and twelve this is the first i'm hearing that we didn't produce documents we should have produced back in two thousand and eight that's what they say in the affidavit that to me totally negates see enter even if the complaint had pled a letter or which doesn't it doesn't lead anything specific about these individual defendants it doesn't explain how any of these individual defendants or through any individual defended eton or through anybody else eaten the company had knowledge of any of this stuff or or could have been reckless because there is nothing in the complaint as opposed to all the argument that's been made in all the briefing court recognized very recently in the kayak decision requires at least that the that the allegations of c n n be at least as compelling as competing inferences and the competing inference that we have advanced here and which we continue that the statements are no way did we ask peters to ask or insinuate that he would do anything improper in trying to implement structured water you're just saying that's that's true that is the company's position continues to be the company's position to this day and i understand and and that but all they have to do is plausibly plausibly allege that that was not true and known not to be true and that they've at least plausibly alleged that no matter what your current position i didn't all these courts have said that's exactly what happened and they knew it your honor the court's actually before the class period we have the special master in the mississippi case saying  eaton engaged peters to influence the larger zero into if your client said the contrary maybe your client is right but a reasonable juror could come to the conclusion that your client was not heap a plausible theory you know there are there inmates on death row continue to say that they were not guilty of the crime and continues to believe it was not guilty and there is there are not plausible allegations in the  allegation to say that they're not guilty but these people who are on death row there's at least a plausible argument that they did it at court presumably has found that they did it and appellate court has presumably agreed with them you know we have the exact same situation as the merits of frisbee or old news however with regard to see enter judge you wrote in two thousand and ten quote eaton and it's counsel knew the serious improprieties occurring on it's be here between peter's and the water and stood by with blind eyes closed quote nevertheless later in affidavits and to this day it no time did we hire peters to influence the  in any way so it seems to me that yes or no up or down any way you slice it eaten no it's making statements that contradict in a significant way of finding no fraud issue what would theory is stated at this highly preliminary stage an allegation in the complain that they had caused the stock stock price to drop there is no theory stated in the complaint that that it caused the stack prices and on the boil we gave in the complaint that the stock dropped as a result stock price dropped as a result of these statements and behaviors that that's what you're saying honor yes but that's based on a complete misreading of the affidavits is some kind of corrective disclosure as is the court has already pointed out there was no corrective disclosure eaton never admitted that it in fact defrauded the court in mississippi and hired his art his argument in response to that as i understand it is it disclosed some things about disclosure where the things being disclosed related to these statements you of the cases a corrective disclosure has to go to the alleged misrepresentation the misrepresentations uniformly here were eaten did not hire peter's influence judge delimiter and if peters was doing that we didn't know about it those were the alleged misrepresentations the affidavit say something totally different they say our discovery process was not sufficient and we should have produced documents in two thousand and eight that we're just finding in april of two thousand two thousand and twelve and and you know we're sorry about that and it shouldn't have happened and we're just finding out about this that's what the affidavit say that is not a corrective disclosure and if they aren't your own or if you're not going to consider the cooper deal as influencing the stock prices the plaintiff is trying to say it should not be the court should also look at paragraphs are very fair and you put your question no thank you thank you of court good morning my name is darryl clay represent the apple even julio the district court's decision with respect to mr leo is properly affirmed for the four reasons set forth in our brief mr leo there is no allegation that he made a material misrepresentation that in a motion i joined reefs did the briefs then contain a separate argument that you were involved in this particularly did not contain a separate analysis with respect to discreetly mr leo any of the images what you're making now right  but you're making an argument essentially not raised below in order to as an alternative argument for a firm and so the respect to your particular client especially jaw droppers i would disagree that these are new arguments it's the application of the same arguments to a single individual defendant there's nothing new each of these four issues in mr leo's brief we're all touched upon by the district court in his opinion and all we did was provide a discrete analysis as to our standalone client mike your honor i just want to address the issue of causation and i think there's some preconceived misconceptions as to what a plaintiff needs to plead to establish causation unlike cmdr which is you know there's a higher pleading requirement of the the who what's where's and when's of fraud which are subject to all nines hiding in plain standard causation is subject to rule eight and really just requires a short plain statement to put the defendant on notice of what the theory of causation is here now they factually dispute the theory of causation that's fine but that's not appropriate at the pleading stage what the plaintiffs have done here is exactly what is required and as we possible know of course of the under rule eight it has to be plausible and what we've alleged here is that there was the very first time of the company admitted to engage in wrongdoing that wrongdoing included its grand scheme of withholding information during the course of the litigation and some of that information in fact can from asian that the trial court said let us know why you withheld this let us know if this is all you have or the two most incriminating documents with respect to the peters the lawyers relationship the very next day the stand against us the first time the company comes forward and you know they want to deny that they made any admissions i hate to interrupt because our time writings of judge bigger in the subsequent behavior of the company give credence to the plausibility of your claims in the c n tower and knowledge of the company but once he did that didn't he also advise the public well in advance of the may two thousand and ten affidavits that you claim because the loss know your honor because the complete story was now sure enough the opinions of the trial court did give some of the information to the public but they were met with again a campaign of we disagree with everything that said we did nothing wrong again these are affirmative statements that whatever the trial judge said throw that out the window don't pay attention to what's going on there because that's just baloney right and what we learn after after a year and a half of that is well jeez and to quote from one of the affidavits which are said to not you know have any missed admissions in the general counsel mr mcguire paragraph twenty one of his affidavit he acknowledges that there were very serious lapses that happened and i sort of a background question that i meant t ask when the first time you were up yesterday which is let's think about a possible theory for why a shareholder would sell or deem the stock to be worth whatever it is less if it had been and so the shareholders thinking well i could understand if the shareholder thought here's some litigation that i thought eaton had a pretty good chance of winning which would have brought them tons of money which would have cost the show cause the value to go up and so that would that's a share i want to hold as opposed to all of a sudden finding out that this litigation is going south and they're not may get all of this money that would be one theory which would be plausible but doesn't quite fit here because the litigation it's pretty clearly gone south prior to the us so if it's not that then what is the reasonable shareholder worried about when it just turns out that somebody for the corporation has done something let's say corrupt i'm not saying it was but in a hypothetical situation they say well here i have shares in this stock some of the people did something  might have to go to jail or they might have to pay sanctions but the sanctions are pretty small compared to the total value of the company so you know i might i might not buy more but i'm i'm not going to i'm dizzy i'm saying i'm not going to devalue the company in my mind just on something like that so what's the possibility of shareholder caring enough to cause the shares to go that far down when it is assuming it doesn't have to do with whether they're going to win this huge lawsuit which is already been lost pretty much agree with me absolutely or honestly answer well the answer is this is a corporate integrity matters the the ethics and integrity of the people who run a publicly traded generally a public integrity kind of and there are cases here in there that say that when you have corrupt in to give also just an example of how the dollar value of the fraudulent conduct at issue does not necessarily translate to the impact that the misstatements have with respect to accompany me take for example the what the theory does though it turns every instance where somebody in a corporation law yes he even if he says you know i went to florida when i really went to new york to visit my mistress you know that that's going to turn into the fact that he lied and then later admitted it is and if the shares happen to go down you're going to have a have a security when you say you know let's litigated well as a matter of pleading perhaps of course you have the opportunity to always as a matter of pleading you get  you also have materiality as an element and quite frankly the idea that someone said he went to florida for whatever purpose it may have been it turns out not to be the case is a far different issue of materiality than a company engaging in just repeatedly to get i'm not talking again i'm not i'm talking about the possibility of loss loss causation not so much material well i understand there's materiality argument as well but in terms of possibility of loss causation just seems hard to imagine that that would have caused whatever new material information right and there is a stock movement again that is sufficient at the pleading stage under rule eight to show that there is a causal connection between the two because again i mean i don't mean to make someone point than it is but the issue of causation as you know is a head ringer and a securities fraud cases is incredibly complex that's why both sides go out and pay lots of money to econometrics to do their regressions analyses to say oh no in fact it was this announcement ten days earlier even though you know the ratings agencies corporate of that news and downgrade of the company the very next day which is exactly what happened here or put it on written negative ratings watch but you hire these experts for that very purpose that it is fundamentally premature to start questioning plausibility of well would it have gone down or not quite frankly i think very much so that if i'm thinking of investing in a company and they come out and say yeah you know so i'm a c e o i'm others a chief of the litigation department i get in corrupt conduct yeah we kind of did it i guess we were wrong about denying it for so long interesting case will be submitted are there any other cases