discussion rather than regurgitate the briefs i thought it might be useful to set the stage starting at the beginning of the story in two thousand and twelve and the end of the story in two thousand and fourteen and then fill it in  much larger company the price was ended up being thirteen billion dollars more importantly seventy seven billion dollars was going to be borrowed as part of the transaction and indeed on that very same day  eaton said that with respect to that seven billion dollars it was already thinking about how it was going to structure that and indeed it put on the table of the possible sale of assets of the possible sale of assets was put on the table early by the company not by any of the analysts after the transaction was done to give some idea of the magnitude of this the combination of old eaton and new cooper the net worth of eaton doubled so this was a major transaction by a smaller company taking on a lot of debt for a bigger company now there's a lot of talk about spin offs i want to spend two seconds on spinoffs a spin off obviously is where a let's call and principle company spends off the stock of a subsidiary and the share alters of the subsidiary own the stock no cash that changes hands so what does that have to do with anything well the trick if you want to put it that way is that when you spend it off you can allocate part of that debt from the big company the principal company down to the company that you're spinning off that way you can get it off the books of the company the crown jewel that you really care about eaton slash cooper and indeed the bigger the spin off the more debt you can downstream and yet off the books and the tax free element of this the incentive there is if you can make it tax free you can make this assumption of debt by the new owners more palatable and what that does is create incentives to get rid of your older subsidiaries that your older businesses where the tax base is so low so all of that adds together to create tremendous incentives to lower this massive amount of debt and that is the theme the law the addressing the debt that runs through runs through this entire  the appendix at page three hundred and sixty eight mr cutler who is the head man at eaton and who is the architect of this whole transaction said quote we are not able to do a tax free spin of any business for five years post the acquisition date of the cooper transaction he went on to say that limitation means any spin would be it would result in a very significant tax liability he says this is a o goes into how this is not a simple analysis it's a complex tax question and then most importantly for our purposes on page in paragraph one hundred and sixty eight mr cutler takes the  stand again and says this is not new knowledge not new knowledge we've been well aware of this all along and that was in response to some annoyed questions from analysts saying why are we learning about this right now if it's been built into this since the day you bought cooper all right so what we have here is what we respectfully submit is an admission that they knew of this tax restraint and its consequences way back in two thousand and twelve and as we will see they didn't tell people about it what happened next after this announcement was made in july several things happened all of which go to materiality that very day the stock dropped eight two percent it dropped three billion dollars in one afternoon three billion dollars in one afternoon which is the largest stop drop this company ever experienced all of the analysts i repeat all of the analysts that were covering the company said that that stock drop was directly related to the description and the disclosures of the tax restrictions that were made in the statements in addition a number of the analysts from prominent investment banks downgraded their views of eat all of this court's decision in scholastic this criticism and this reaction by the analysts is relevant and probative of materia materiality so let's go to what happens in between the two bookends let's there are a number of misrepresentations let me take a couple of them just to walk you through them and i can be criticized for taking the juiciest ones but so be it paragraph one hundred and ninety this came on the day of the announcement of the transaction are you perk clued it by any element of the tax structure of the deal to spin off the truck and odom automotive parts at any time mr cutler says quote there is nothing in the deal per se that would prevent us from taking portfolio moves but we have no such plan i'll get to the no such plan in a minute but he denies that there's anything in the deal that stops it nd going into october another i'm sorry i don't understand there's nothing i would prefer he said there was nothing there's nothing in the deal that would prevent us from taking portfolio moves right that is the operative that means there is nothing in the deal that would prevent us from spinning off or one of these subsidiaries or divisions not withstanding the tax restraints and we submit that is totally the tax that that is correct but we were all but one has to understand that you could sell a subsidiary for cash for a couple couple one hundred million dollars which they did somewhere along the line  but if you're looking to reduce the debt dramatically which is what all the analysts were pushing for then you're going to have to have a large spinoff in order to get that debt moved off the balance sheet of the parent isn't a matter of law and that you can remain nothing preclude them from doing it there would be serious tax consequences but they weren't precluded from doing it i thought well that's the interpretation of the court below if something is impractical and impractical in impossible as a practical economic activity impossible are two different concepts well mr cutler c prohibition let's stick with pro i will stick with a prohibition they couldn't do a tax spinoff because of these various you get what does it matter because they're stating that there was no intent to do it at that time and the district co thought that they were under no obligation to disclose the consequences of something they had no intention of undertaking why use an act racked it's incorrect st because the district court did not give us the benefit of our interpretation of the pleadings in the sense that he the court will almost took at face value and it's locked in stone there are various to naught else and said we had no plans to do this but they said means that there are things can change it doesn't mean that the thing is locked in and that's that's the point they can't change it and they except for the fact that the tax good afternoon your honors please the court room on martinez from letham and walk ins and the individual defendants your honour's pointis theory in this case is that even committed securities fraud by failing to disclose the hypothetical tax consequences of a hypothetical spinoff transaction that the company repeatedly told the world that it had no intention of undertaking that theory fails for four reasons the statements were not false or misleading they were not made with c enter they were not material and nine of the ten statements were made outside the true class period and are thus not properly before the court now mr dubbs started with the beginning and then he went to the end and i think the middle got a little bit of short trips to let me talk a little bit about the middle of the middle is where beaten repeatedly over and over again told the market that he had no intention of spinning off this division had no intention of conducting a sale the reality is that that once the transaction cooper transaction was announced there was a disagreement essentially between the company and between the analysts about what should be done with the vehicles division the analyst generally thought as mister laid out they laid out the analysts thought there was a theory under which what should happen is that the vehicles division should be sold or spun off for many of the reasons m dobbs laid out very clearly disagreed the company said repeatedly that it like the vehicle business it didn't want to see it didn't want to spin it off it was clear truthful and direct about why i like the vehicles business i like the high returns and like the strong cash flow it like the role that the vehicles business played in grooming management talent that could then come over to the other parts of the firm and so that the disagreement that you see between the analysts in the company during the the two year class period it's laid out in the complaint the disagreement between the analyst reports and the company statements is basically this this sort of debate about what should be done with the vehicles division but the key thing about this period the key thing about the middle period is that over and over again even address the fundamental issues core premise which is is this vehicle is this spin off of the vehicles trans business actually something that the companies considering is it actually something that might in reality happen and they said no and they said no over and over again they said no in may and we talked about some of the the various elements of the claims here st with respect to force falsity whether they were false or misleading statements i think there are four key points to keep in mind number one eaton never said that you could do a tax free spin off it never said that it also never analyzed for address the economic feasibility of the spin off at all until the very end of the class period number two as i said ethan was very clear and direct on the fundamental point that the analyst cared about that the analyst were discussing which is you know is this spinoff transaction going to happen and even said over and over again that it had no strategic interest in a spin off and it had been explained why as as i said earlier point number three this whole post hoc debate that is that is what th securities case is about that this debate about the tax consequences of a spinoff is a total sideshow because of what i just said this the tax consequences of a spinoff were not the roadblock to the spin off the roadblock to the spinoff was the fact that the company didn't want to do a spin off and that's management most emphatically did not share the analysts kept pushing this theory even in the face of the repeated statements by eaton that it didn't want to do is to spin off and i think it's important to note your honour's that it's not just the statements you know the company was clear over and over again as i said but even after the five year window in which this tax free spinoff couldn't happen even after that period expired as about two years ago even still didn't do the transaction so if it was such a great idea as the analysts say and as mr dubbs says even want to done it but that really it was immaterial it didn't have any role in the it didn't have a role in the decision making process because even had made a fundamental strategic calculation that it wanted the vehicles business and it wanted to keep the vehicles business in the company as a whole and optimally what this whole debate really shows is that the point is real complaint in this case that a core issue is not that eaton was lying but rather that the analyst didn't believe us when we were telling the truth so we've said that we said we were very truthful and direct with the market it's not our fault though that the analysts persisted in this mistaken idea that what should have happened here was a spin off in the face of our repeated statements to the contrary our obligation under the securities law was to tell the truth it wasn't to quash every rumor or to fact check every analyst that was getting it wrong and i think if you look to the court's decision the state teacher's case this is the one that the district court relied on page two hundred and fifty five here's what the court said that a company has no duty to correct or verify rumors in the marketplace unless those rumors can be attributed to the company here and the rumors could not be attributed to the company the rumors are attributed to the analyst reports that had a fundamentally different strategic vision for what should happen with the vehicles division  the stock price i think today is significantly higher than it was both before and after the drop that we're talking about so it seems like even as manage the company quite well although of course that's not in the stock price not in the record of course so they appendix what you can said at the end was that that there was a prohibition that's the word mr dobbs emphasized prohibition it's true he said that but the prohibiting was on a tax free spin off it was in a probation and spinoffs it was a prohibition on tax free spin outs which of the the analyst there lays out in just a paragraph or two what the relevant considerations were and explains very credibly based on the facts that are available in the public why a spin off tax free spin off was in fact prohibited so the july th statement was entirely correct the only other statement that mr dubbs decided to talk about was the statement in may two thousand and twelve when the question was asked whether even was precluded by any element of the tax structure of the merger to spin off the vehicles division and the answer to that  course it was not precluded it wasn't impossible to spin off the vehicle division it wasn't like there was a legal prohibition or regulation that said thou shalt not do spinoffs or it wasn't like there was something in the contract of the covenants of the cooper merger that prevented it from doing that rather it was based on a strategic decision by the company that this was not in the company's strategic interest so i don't think that their statements here are false i don't think that they were misleading to the extent that there was a disk duty to disclose anything it would have arisen only if the company's own statements had been misleading then there would have been a duty to complete the statements or make them correct but there wasn't any such duty heater because the company never said anything that implied it was giving all of the reasons why all of the considerations that might bear on a decision to sell the  spin off the vehicles division and the company never said or implied anything that suggested it was discussing all of the tax consequences of any potential hypothetical deal that might actually you know at some point want to do including the ones that it said decided it didn't want to do a company didn't see any of that and then i think more fundamentally the information that we're talking about here is information that's available in public laws is the kind of thing that courts across the country have recognized do not need to be disclosed and heliotrope case in the progress energy case that to prevail for quick points there obviously the test undersea enter under the sea enter under the p s r is very demanding it's hard to satisfy you've got to show a strong inference of c enter essentially actual intent or recklessness that approximates actual intent you know we don't have any of the classic of bad intent or recklessness there's no objective eye there's no smoking gun email or no confidential informants and there's no unusual insider trading stocks sales that would suggest that you can have any motive to lie in addition there's no actual coherent theory here that the other side has as to what was actually going on so you know that there are three rests on the idea that ethan was somehow trying to trick the market into thinking we might actually do this spinoff that there is completely incoherent based on the facts played in the complaint because the facts put in the complaint made clear even was repeatedly telling the market that it wasn't going to do a spinoff so how could even simultaneously be trying to trick the market into set into thinking yes spin off while at the same time telling the market no spin off that doesn't make any sense it's not coherent and finally that that any duty to disclose here wasn't clear and certainly in this kind of murky circumstance there isn't a clear duty to disclose and it's just as possible that what really happened here is if there was any confusion it was because despite the fact that even had reasonably tried to clarify its intent the market and we think that for of these reasons there's no sea enter there's no falsity there's also no materiality and we asked the court to affirm something and they would have said we have our tax lawyers have looked at it and we're operating under a regime where we cannot do anything for five years that was what was not disclosed what was the value of that no one on the other side has explained why do you lose three billion dollars and a half a day if nothing is worth it if that information is just nothing if the denials of management were so persuasive if everyone agreed that management have the discretion not to sell this stuff which it did and it wouldn't and they said and saying that these things were possible they weren't possible jumping off the brooklyn bridge is possible but nobody does it we cannot going to do something right now or we're not going to do something as presently planned that's different than saying we're not going to do something we're never going to do something also it's different than saying we're never going to do something and one of the reasons we're never going to do something that we are and you know we don't have to discuss like the security so i don't require doesn't require that investors be given every piece of information they might like to have the question is whether there's been a misrepresentation or or some kind and again as long as they are telling the market they're not going to spin off and they don't how how is there any misrepresentation mentor failure to say and by the way if we wanted to we'd face adverse tax cuts on they are forced to come clean when a analyst presents them with a is no legal or transactional restriction it's that it wouldn't be a practical thing to do given the taxes they'd face well it would be and they say there's no no  prohibition aren't they stating a true statement there is a prohibition is what they said and the prohibition is the tax consequences they say that's a prohibition against doing here but you could spin off think face very serious tax consequences it's not doable we i mean we have alleged we have an investment banker saying it's not doable it's alleged it's not doable it's not rational we have to assume that the business men are rational now as to your honor's point about the misrepresentation if the analyst said to them what are you guys going to do about the debt that would be sufficiently general that we wouldn't be here but when they are put to the metal and said is there any is there a limitation in the deal is the red covenant is there something like that that says you can't do it and it's very specific and they deny that and then just at the end get out of jail free card but we have no intention of doing it and i must be terribly confused about what is the are in the covenant that prohibits them from doing it there is nothing in the covenant that's what should have if the word was covenant and it was limited to covenant no if if the question was is there anything in the deal that says you can't do that the answer to that is yes and they were and what the reason it's yes is because the tax consequences are absolutely prohibitive and you cannot in the real world do this deal and i would urge the court to look at all the statements that everybody says are unequivocal statements that they're not going to spin off and they're all heads they're all headed one way or or the other and the three billion dollars drop why someone has to come up with an answer for why the three billion dollars disappeared we're trying to protect investors they lost three billion dollars in one afternoon and this all just because of irrationality and because of you know analysts off on a toot no they have expectations and expectations not just from the analysts but the in response to the analysts questions as to what the options were facing the company and an option even if not exercised an option even if not exercised has value and that value is surprised by the market at three billion dollars thank you thank you reserve