or after we hear that argument so let me turn now to the calendar thomas edwards versus the morning morning your honour's if it pleases the court felicia and as for the appellants thomas edwards and michael fortune individually on behalf of others similarly situated your honour's the adoption of a fundamental investment restriction not to concentrate more than twenty five percent of its net assets in any one industry you agree that that  excess twenty five percent occurred as a result of that st of all you agree do you not that the occurrence was the result of an increase in value in value and not not not  the purchase of more shares there's no factual dispute about that right here on the do you agree that if the one thousand nine hundred and eighty three release provision that says that if that occurs if an excess of twenty five percent occurs as a result of an increase in value the five hundred does not need to sell off shares to get back down to twenty five percent do you agree that if that is now remains the governing law notwithstanding what was and eighty three dollars language remains in effect it does provide that exception to the twenty five percent benchmark in the us c c s guidance said if the appreciation in value of the assets was the just that and it is our contention that if a shareholder were to read the one thousand nine hundred and ninety eight release which is the current release that the shelter would find no sets no such language or exception s not me publishing this guide nineteen from the earlier question you're saying that because and because a shareholder might misunderstand the law the shareholder gets the benefit of what the shareholder understood the law to be rather than what the while you're on a st of all we argue and i think the f c c makes it clear that this was not in s c c regulation that we were discussing the interpretation of this was an s c c guidance that doesn't rise to that level and as an interpretive guidance what it is assisting with is how to fill out a form and that's the form and when a registration statement so well we are suggesting here on our is that if a shareholder worked to read this interpret  would no longer have any application to the manner in which the as c c interpreted what was industry concentration and as as far as the one thousand nine hundred and ninety eight release and going forward how the f c c interprets industry concentration is by using simply this twenty five percent benchmark which the f c c contends was a reasonable level to gauge there is a breach because there was an obligation to get the law the twenty five percent how is that a breach of they haven't done anything in terms of additional investing well there was a breach because they are supposed to be gauging their level of industry concentration on these should have rebalance and if that rebalancing involves selling off then that's what they should have done but the point of this industry concentration restriction is to reduce risk to shareholders so doing nothing we c because sequoia failed to take any action when their concentration in the health care industry exceeded the twenty five percent benchmark which is the benchmark at the f c c uses to gauge the level of risk case the th circuit ally's the issue of the undertaking by the fund to determine that the restrictions that the fun placed on itself when it adopted this industry concentration restriction actually created the contractual obligation and implicit in that obligation would would be that it would manage unfun consistent with its policy and the failure to do so in that case gave rise to  know the north star court jew an analogous situation because in that case there was an adoption of a charter for the college and in that charter it stated that if you donate to this college we will use your donation for charitable purposes and the analogy that the th circuit drew from that is that this is creating a contractual obligation that based on these restrictions in the funds ability to manage itself there is an implicit obligation there and a promise to shareholders that the fund would manage itself pursuant to those stated restrictions which includes the shareholder vote necessary to change that policy and it is those restrictions that the th circuit stated gave rise to the contractual obligation in that case your honor understood correctly that your position is on the legal question your position is  that if there is sufficient ambiguity and possible confusion about the meaning of the nine hundred and ninety eight dollars release so that a shareholder could have concerning how the guidance should apply to the twenty five percent benchmark and that ambiguity shouldn't have been decided on a motion to dismiss although the shareholders contend in this case that the one thousand nine hundred and ninety eight release expresses in its plain language that in footnote to fourteen that the guidance from the earlier one thousand nine hundred and eighty three release no longer apply to registration forms that are filled out under the amended  be to be superseded not not whether the s e c so intended or whether we would interpret it as as having been superseded correct your honor utah has by but you have reserved three minutes for a bottle thank you council will hear from sequoia good morning your honor is robert skinner amy roy from ropes and gray on behalf of the sequoia fund let me turn directly to the question of why the one thousand nine hundred and eighty three guidance regarding the application of the twenty five percent and one a which is the form for the registration statement for mutual funds one of the requirements informal and one a was the disclosure of the funds concentration policy and the f c c gave guidance in that release saying that we think twenty five percent is an appropriate benchmark and you know that you don't exceed that benchmark by passive increases in value fifteen years later in one thousand nine hundred and eight the f c c issued an amended form and one day and eighty three however in two places in those instructions as published in the federal register the f c c said form and one day as amended incorporates certain disclosure requirements from the guidelines to current form and want to say those guidelines include the so called guide nineteen that related to concentration so it's flagging in the one thousand nine hundred and eight release we're incorporating certain of the old guidelines from one hundred and eighty three into the new form and one a and that died one thousand dollars is the one that set forth both the twenty five percent threshold figure and the test for how to apply it that is the active vs passive distinction then in the specific reference in the later one thousand nine hundred instructions to the concentration issue what the court said is the commission's staff has taken the position for purposes guidance regarding both the twenty five percent passed and how to apply it this debt that the then went on to say in the very next sentence in the one thousand nine hundred and ninety eight guidance the proposed amendments incorporated this percentage test into form and want to pay in other words it cites to guide one thousand which has both the threshold and the wave to apply it actually versus passive and then goes on to say in the next sentence the proposed amendments incorporated this percentage test into the new form and want to say we think it is very clear that the guidance regarding how to apply the test which is not an exception as the plaintiffs are trying to characterize it it is guidance as to how the test is to be applied it's very clear the staff intended to continue that guidance and indeed the plaintiffs have not and cannot point to any statements since one thousand nine hundred and three that the staff were the commission has ever made suggesting that they there's never been any suggestion that it that they that they silently switched let me ask you according to my exchange with your adversary counsel your adversary counsels argument would be off what you said is irrelevant it's irrelevant whether we conclude even if we conclude that everything you said is absolutely correct if a lay person shareholder could have looked at all these documents and understood them as as meaning that the nine hundred and ninety eight dollars release supersedes the provisions that you rely on about the passive increase that should be the test that is the test and you are in violation even if we agree with everything you just explain to us it misses the point because the point is not did the f c c intend to abrogate the one thousand nine hundred and eighty three passive increase provision but you shareholder a lay person shareholder reading those provisions i've understood that and i think that's her argument what do you say that that's incorrect for at least a couple of reasons your honor one is of course that presumes that this is a contract and therefore that the contract interpretation principles of you know a reasonable reader of the contract apply nd they've asserted an implied contract not an expressed contract and implied contract who's terms come plaintiffs argument doesn't doesn't as i understand it the plaintiffs argument doesn't rely on its being a contract may be wrong about that that that i thought there was an argument that this that it was a violation of law giving rise to a claim to to concentrate to concentrate when you are when you are registered and and are under a commitment not to consecrate if the question therefore is whether this is simply a violation of law in that it is a violation of the policy stated in the prospectus i think it is it is there is no basis in law to suggest that a shareholders reading that a lay person could have read this too and to mean that the ninety three provision was abrogated if we accept that argument does that mean we need to rule on the question whether there was a contra i think that there well no actually yes i think you would need to i mean if in other words the contract the alleged contractual language in treats as the concentration policy of the definition as defined by interpretation or guidance of the f c c you know i would disagree with the premise that the  therefore that somehow that this test was switched to a passive test the court might then need to conclude that it needs to get to the contract formation question and if your honor like i can turn to the question of why it is that the th circuit's decision in north star is both distinguishable on its facts and also incorrectly ruled significantly your honor the implied contract found by the north star panel  majority of the north star panel to one decision was based on a couple of facts that do not apply here and her and her quite important one is that that fund was a massachusetts business trust that was founded by an agreement and  declaration of trust that by its terms made the shareholders parties to the agreement so there was already a contract existing between the shareholders and the fund by virtue of that declaration of trust the court then held that by having the shareholders vote to implement the concentration policy there the shareholders then by vote entered into a contract with the fund limiting the investment authority of the fund that ha been set forth in the original contract between the parties and the fund neither of those facts upon which the court based its finding of an implied contract is here this is a maryland corporation with no similar declaration of trust the shareholders did not vote to implement these policies it was a policy implemented unilaterally by the fund and simply described in the mandatory disclosure have to vote on the policy they gave you the policy side as it existed i think the key distinction here your honor is indeed the policy is binding and it isn't forcible simply not as a matter of contract and the and the in the case law other than  in that case yes roger in that case that but there were shareholder claims and the f c c enforcement action schwab settled enforcement action on very similar facts having to do with concentration of mortgage backed securities in this particular fund and judge also  the northern district in a case that i think is most analogous to this one of any case cited by either party and i would refer the court to it judge also tossed out the breach of contract claim but let this federal securities law claims go forward because on the on the theory that the the fact that the policy concentration policy had not been followed was left the prospectus materially misleading and therefore gave rise to an action under the thirty act that was not a contract case that was it was a contract case they also asserted a contract action and judge also said following other th circuit authority the mckesson case said eight and offer of a securities in a securities offering document is a much broader concept than a contractual offer and they are different things and offer in a securities offering is a description of the product the contract claim was dismissed and the contract claim was dismissed in the you you are making an offer of securities but that is not tantamount to offering a binding contract it is not an offer from which you are seeking a response of action or offer in that in that in the basic quid pro quo of a common law contract the dartmouth case your honor is is importantly miss relied upon by the th circuit in the majority holding of the dartmouth case from eight hundred and nineteen chief judge chief justice marshall found that the charter founding dartmouth college was a private contract between the crown and the trustees justice story in his concurring opinion relied upon by the north star case and the plaintiffs he's in his compatriot pea said i believe it is also the case that there is an implied contract between the charitable corporation and its future donors but that was not the holding of the court tha the land and was missed relied upon by the th circuit similarly the th circuit relied upon the lapidus vs case but that was a case that did not involved a claim contract involved whether or not allegations that their voting right was contractual in nature the court did not find that thank you are thank you years or three minutes for  bringing not that it was a strategic decision but we believe that clearly this particular industry concentration restriction created a clear contractual obligation on the part of the fun unless there is some unmistakable language of the intent to incorporate a document into of into another document then the incorporation by reference must fail and that is precisely release that what it is concerned about is gauging this level of industry concentration it is not concerned how the fine reaches that level of concentration whether by passive holding or active my adversaries argument that these types of contractual obligations are somehow shielded if they are published in a mandatory disclosure document i think that argument was there any language  again your honor we've distinguished those treatises to the extent that they are reliant upon the release that based on the language of the s c c we're no longer being published or are likeable to registration statements going forward and that's the language that we rely on your honor with respect to my adversaries statement that these types of contractual obligations cannot cannot form the basis of the obligation because they appear in a mandatory disclosure statement again we would submit that the th circuit squarely rejected that argument and also clarified its holding in the mckesson case relied upon by both sequoia and the court below thank you thank you thank you both very lively or human reserve decision