it please the court my name is andrew mcneil and i represent the police and fire tarmon system the city of new york now the sole basis for the district court's dismissal order was that the plaintiffs reportedly failed to create any false or misleading statements th decision because it repeatedly misconstrued both the disclosures that issue the plaintiff's allegations in the case and drew all inferences in the defense favor contrary to the control and pleading standard for example during the class period l q stressed that it timely renovations were critical to its continued success and that it made these renovations on an as needed basis those statements were misleading in fact you did not make renovations on an ass as the need arose but instead allowed a significant number of its properties to fall into a state of significant disrepair and this hidden risk ultimately materialized when l q announced that it needed to play catch up and institute an x rated renovation program at the cost of a hundred additional hundred twenty million dollars over what it had ordinarily budgeted for repairs nonetheless the district court reason that alkies investors were not misled because the company disclosed that it made so called cyclical renovations every three years and because a successful aerated renovation program resources and cabin crew mates is something that any company has to do whether it's in a lodging industry or manufacturing i maintain your machines the issue it is though is whether or not those additional expenditures are expected by the investing populace based on your representations as to how you carry out the mains of your property right and here as i was saying you have a company telling folks that we fix our properties in a timely as anita ride's basis but then all of a sudden it announces in addition to the normal s misleadingly stated and the whole reason why they needed what says that they weren't i mean i take it your complaint references a couple of managers or executives that their particular hotels aren't maintained very well right and have how does that support an inference that the company has been following a policy of deferred maintenance that really doesn't anywhere near ration program itself by its very terms is powerful evidence of the fact if you choose to spend more and if you were talking about it sixty million dollars over how many years it's one hundred twenty million dollars over two years one hundred sixty million dollars a year so that's a significant increase is it was a false or misleading statement to say part of our work is improving our facilities as needed and that's misleading inherently essentially because they decided  at some point to spend more money because they thought it was needed at that point and then the question becomes well why did they do it to address you on a point directly and the reason they did it they had to do it was because they allowed their properties to fall into a significant state of disrepair they weren't making the renovations on an as needed basis and in iowa public employees retirement system versus n f lobel this court held that given the nature of the problem at issue it is reasonable to infer that it substantially predated its announcement in here they've admitted that their standard practice right the practice they claimed was sufficient right was typically twenty five to thirty hotels a year are going to be renovated then out of the blue they say you know what we realize now we need to increase that for the next two years from twenty five to what's in the record before the district judge that suggests that the quinta must of known and failed to disclose that these hotels needed these renovations well your honor on page i j eight forty  again it's pretty clear what happened here they did not fix they they had a set budget where they're going to fix about twenty five to thirty hotels a year and they kick the can down the road even though they were telling investors we're fixing these things on an ad needed basis by kicking the can down a road you've got a big choke in the snake right got a clog in the pipeline they wake up one day and they finally come to the realization although they knew this is going to happen right we can't compete with our competitors who are actually maintaining their properties in time and fashion so hotels that we aren't going to put out we to touch for two years we need to do accelerate or innovations that would basically triple the amount of renovations we do on a yearly basis for the next two years right that is a sharp break from its prior practice they admitted they were going from about twenty five to twenty five to about eighty and spending an additional one hundred twenty million dollars on top of what the investing public believe is going to be their basics managers so the question here is whether a reasonable investor hearing looking to say we renovate our properties in a timely and as needed basis would understand that's i mean that you know all of a sudden we're going to have to add additional hundred twenty hotels on top of the thirty to sixty over the years we would normally run a  appellants argument but but there is a there for alleged categories of misrepresentations the oil prices the renovations the call center and the host tell sales what they have in common is a complaint that is based on if a company announces news that may be bad or interesting or in some way material news at one day it must have been known in an earlier date and that's a false premise that's a false argument that that doesn't form the basis of an alleged fraud or a thirty three act claim the second theme that runs through much of this is to get to those assumptions and we've pointed out instances in our brief and frankly there were more of  them before the district court there was selective quotation off and frankly with significant creative use of the lips these two make a point about a statement that's made on one call that when read in full context as the district court did simply wasn't made and the third theme that covers most of these four areas is the reliance on five confidential witnesses who at best at best are offering antidotes about individual hotels at a company that own franchised roughly eight hundred sixty seven during the relevant time period and so the experience at one hotel or two or three hotels can hardly indicate what the state of the whole company is going to the renovations i think the questions were right on there is nothing in the record to show for example that a decision had been made three four five six or a year earlier that the hotels were in need of additional renovation in fact it is clear from the record and i'll refer the court to the third quarter two thousand and fifteen analysts call transcript which is in october of two thousand and fifteen so several months before the february disclosure of the  times sixty year additional investment that the company was thinking about additional renovations and in that hall mr klein the then c e o said among other things so as we think about it we talking we're taking a look at potential investment alternatives into all of these areas but we will assess and discuss more on our years and earnings call certainly with a focus on those items that will accelerate long term growth so you actually have a company not one that's hiding the state of its hotels in our brief is full of citations to the exact aid of these hotels to the amount of money that historically had been put into renovations to the occasional other accelerated renovation programs this was not the first time this company had done that during the time period discussed in the complaint or in the briefing or in the public disclosures but then a company that as it's looking in the competitive environment and considering what it's going to do having not yet decided there is no allegations that the company decided for example october to announce spending more money in february it is completely transparent with its investors with the public with the analysts and it saying these are things we're thinking about we'll talk to more about it at your end and that's exactly what they did they announced a two year program that yes sixty million dollars is a lot of money it's more than the hundred that they had to play spend it because it was on top of that yes it's accelerated but it was done for reasons dealing with argument your honor i think two answers to it one the state of the hotels was disclosed in detail frankly at almost every periodic quarterly update in that in the eight k and on prior earnings calls th market knew that the owned hotels were twenty seven years old on average for example the market knew that spending the appropriate amount of money on renovations was of course in the hotel a just really relevant to the performance of the hotels the basis though for this backlog for this need at most comes down to these these five confidential witnesses four of whom were simply general managers of one hotel at a time so again in a collection of eight hundred fifty seven or eight hundred sixty seven apologize hotels of their own time you have a small handful maybe less than a dozen hotels being talked about by these  four who are the former general managers of select hotels and select geographic regions some of them not all some of them say the hotel i worked at needed repairs but when i think the exception of one of them may be true none of them even attribute a change in business to that and none of them are in a position frankly because they are only at the general manager at the individual property level to judge is this in the proper timeframe to renovate the district court cited to three years is a typical cycle i believe the court was referring to the our franchise cycle the own property cycle was typically longer it was seven but none of these individual managers speak to or necessarily had the perspective as it appears that most of them from the allegations were relatively short term employed do you know where in the cycle the hotel they happened to work at was you you can't renovate all your properties at the same time so i think the short answer to your question is it's definitely their argument but it's not an argument supported by any non conclusory allegations including by any frankly of there are five confidential witnesses youngblood the parties appear to is not nothing that we should be concerned about the district to the extent the district court wrote that all of the properties had a three year cycle that was a mistake the but the franchise properties did typically have a three year cycle or at least it was three years on average i think cycle is probably not quite the right word the owned property has had seven but i'm not sure it matters if it's three or seven or frankly if it's anything at all use you still to get to the heart of their argument would need credible allegations non conclusory allegations that it was somehow known that there was significant backlog in the renovations and i wouldn't discovery  this was done on two of the six right yes or yes yes or i was down and told the sex because you don't get discovery just because you have a theory or a or a or a wish your honor you need to have credible allegations and they you know they did their full complaint very detailed in the sense of at least length i think the details are somewhat lacking on some of these key points we moved to dismiss and under the district court's practices and rules she then gave them the opportunity to read plead which they did  we moved to dismiss again and after all that really could depend on how you count two or three complete complaints she dismissed on thanks for your hon the implicated of course you know i think the bottom line is that even argue and even if they could adequately allege material misstatements or omissions of back with respect to renovations or any other topic i would expect mr goldberg they would still need to third time in one year and shortly after he resigned as when all these revelations with respect to all these additional renovations being needed and i'll get to the oil because i want to focus on the oil as well as the other primary group statements so again you have a situation three times in one year they have to adjust their guidance he gets fired the same day they're announcing they're adjusting their guidance again the third time and then about a month after he resigns and client now is in charge all these revelations about the need for additional renovations the true impacts of sure and as we point out in our grier address there was she right now she respectfully to show that the dish of court as we point out every literally every single step of her analysis on the renovations issues just incorrect on the last clear that when you choose to speak on a topic you any further questions about the renovations other than the very nature of the program itself shows that they have been kicking the can down the road on oil which we haven't discussed before look into it routinely made false statements regarding the impact of lower oil prices on a ski texas market for example and i think this is a very big one in its twenty fourteen prospectus for its s p o which was issued in november of two thousand and fourteen the company talks about how texas is twenty five percent of its business how it's sensitive to local economic issues how oil so it's if it is there they didn't say however at the time when they're trying to solicit investors by the way our earnings from oil and gas related business in texas for two thousand and thirteen and twenty fourteen was anomalous it was overstated their own words it was a historical right since it was over overstated means you said something that wasn't true about what the business was what they're saying is those were very good years and now there's been a decline writes what they said well they didn't say there was a decline or this period versus that period and they said the new numbers are returned to the historical figures the other year was a very good year absolutely and then the question arises and as we've posit the answer is quite clear under the law you can talk about oil and sensitivity to oil and then and the fact that oil can impact your performance yet when you're running out there soliciting investors and you know that the financials your recording in those documents are abnormal compared to your performance in far years that's doesn't doesn't the world know what performance was in prior years they don't know it has anything to do with oil is the whole point they say in the prospectus that their business is concentrated in texas their business is sensitive to the local industries and the local economy and any idiot knows that oil is a big deal in texas so what is it that they didn't say they didn't say and then everybody knows when the boom years are in when the  it that the investor is hidden from the investor about the fact that in twenty five percent of not even twenty five percent of the business that portion of the twenty five percent that is in the oil regions of texas is going to be affected when the oil price plummets your honor you know not everybody knows that and that's why the law provides a requirement that when you're going to speak about for example you oil sensitivity you can't then eight  people to buy your business say guess what you know you bought our stock based on this lot really stock because you're going to try and flip it in two days maybe but if you're buying stock in a company that has twenty five percent of its business in texas and you're told that there's oil sensitivity you don't know that they're going to be good years and bad years and you can't tell when the good years in bed use a coming just by watching the prices at the pump you know and by watching the evening news and finding out that oil prices worldwide are either going up or down  clearly not iran especially when the company itself is repeatedly stating that the decline in oil prices not having a material impact on its overall right because overall even in texas there are what you call it occupancy rate went up by a little bit overall and for the whole country it went up by a lot right and you have to look what they said so they said for example during the first order of twenty fifteen that texas they came out and said hey look every comment they made was to downplay the effect is a little bit of softening here reading a little bit of impacts but then ten months later they could have weighed by what's going on in the rest of the country where lower gas prices means more leisure travel means more people saying you know and knowing the importance of the texas market what  are performing very strong in texas guess what ten months later they reveal our most important market is performing at less than half the rate of the rest of the f the re the rest of country group was up by half the rate of the rest of the country it was below where their overall guidance and being up is irrelevant if your investors believe you're going to be up by twenty percent and you're only up by ten percent your stock is going to crash so it is it is relative it depends on the situation and when reasonable investor thinking about the most important techs the most important market and they're saying despite all this news right that oil is coming down that this is not having any material impact on us at all everything is peachy keen we're performing very strong we don't have any disproportionate revenues coming from our oil and gas business every one of those statements was flat out false we knew they were getting disproportionate revenues from oil and gas business as of the same climate we knew that they were performing ten months later when he admitted it less than half as well as the rest of the country and that only external rated in the second quarter at the same time