shareholders repeatedly in proxy statements no less followed annually that they are performing various duties but then they nor those duties that amounts to a conscious disregard of responsibility and amounts to an actionable breach of ridha and in this case they can't be a more clear cut situation where there was a conscious disregard of it's easy to say but let's work through the component parts of this so i ask you first of all were the non interested directors in this case entitle to rely on the argus report that were not your own and why is that because if you look at the stat the washington business corporations act which provides for the justifiable reliance defen se the statute provides for two parts to the defense the first part is that the the directors are only entitled to rely on an expert who has competence in the area the s says the directors can only rely on experts as to matt is the director reasonably believes within the person's professional expert competence the counsel with respect i thought argus was the gold standard for this kind of thing they're first review that form was a review of to see with was a net benefit to the transactions the second review that they performed was to see whether transactions were reasonable and fair a third review that they said they performed respect specific lee to the north from family members should pay to the company to cover their costs now i know you disagree with it but my understanding is and correct me if i'm wrong that it when our guest proposed a figure in the north and family actually paid more than that did i miss something respectfully you're on to that that's an incorrect characterize i guess what happened the proxy statement says very clearly that every year it says that the payments received from the nordstrom family have to qualities one they were based on the based on rates that they surveyed the the in the industry and and these were the rates that they charged the norton family but then also there's the  proxy statement said that the payments received exceeded the estimated cost now august in the first part agad agad looked around and looked to see what other people were paying in the industry and then they told north from these the right you should charge so no that to that extent this charge that part of its review process but they also told shareholders that these payments exceeded the estimated cost to nordstrom of providing the services and there is no no analysis in the august report nordstrom and you will see in the papers submitted by the defendants they say that wall the cost or the cost in built into the rates charged by august they must be a profit margin we never allege that there is a plead why at the pleading stage all we're required to plead a sufficient facts to rebut the justifiable realized where are those facts and the facts were as as i've just described your honest the fact that these directors told shareholders that they the other duties that the that the board members had they didn't rely on argus did they for the whether they whether or not they completed their duty of loyalty and so on they look to them to determine whether the amount of really good faith belief that this was a reliable company they had that they're not required are they to go out themselves and hire somebody else to investigate argus to determine whether it was accurate no we're not saying that you're honest and i'm not clear that's  was the reasonable cost that the nordstrom family members should reimburse right not the costs you're on they were entitled to rely on than on the august report in terms of what to see what other people w charging but what other people would charge an industry is not necessarily what is does not necessarily cover nordstrom's cost it isn't that you know it's just a very standard that used by virtually every major corporation in the country to have someone like  make a determination of what the what the cost should be based on a survey and they reimburse accordingly i mean otherwise you've got to have two hundred accountants following people around the checking everything and making an exact calculation well you're honest i think i think it comes from what most from was telling its shareholders it was telling shareholders that the payments and as i go back to what it said in the proxy statement every year they said the same thing that the payments that we charge but the notion family have two survey that remember august is serving that the rights charged by the industry plays like that but that's that's that's a determination made by the members of the board not by argus that second part right yes it's a determination let's get to the second part right what what what is it you're saying how did the board members taking the argus calculation as a correct calculation then what the board members did was wrong according to you right right because they had they told you what t performing these additional analyses view of net benefit to be viewed to make sure that the charges to the north and found exceeded the estimated cost and they didn't do those things so if august only limited its its report to want to aspect of what nation with respect under brown versus eyes and which is you know as a delaware case that washington tends to rely on interim in this area doesn't that require a standard of gross negligence on the part of these directors it does you  what are you alleging that there is the non interested members of the board did that was grossly negligent in his eyes and your own is the the court said there is gross negligence if the directors are presented with information that is material material it's readily available to you they don't even consider that material readily available information and they recklessly and their recklessly indifferent to that information and and you remember in premises i sent you on as the supreme court sent the case back to the delaware chancery court for because the delhi chancery court did exactly what the district court did here which is basically just ruled on the justifiable reliance defense and the supreme court said well no the the correct approach is and then they didn't do it again where does argus come into this my understanding from reading the pleadings yours and theirs in the record is that they like many other boards of directors rely on outside experts to make these determinations they saw what the argus report said they said ok this is what they say is reasonable the north of family can pay more than that so they did pay more than that from their perspective why would that be grossly negligent because august never examined nordstrom's costs and this is important as are you blaming the experts then you're saying that that argus was at fault nor you're saying that the directors were at fault for not examining the way  which are the board members did what are the background or their relationship to do the family said cetera can you just lump them all together and and deal with the board we are saying that the other directors never obtained any call backs from the north from family when they terminate the transaction so this has been effectively buried and with the only lawsuit that stands because the statue of limitations has been two years now since the dismissal with only a lawsuit that stands between shareholders being able to good morning honors robert varian for nordstrom i will with the court's permission take about thirteen minutes of the allotted fifteen and mr green will argue for to the court has i think cut pretty quickly to the core of the issues and i'm happy to respond to questions before i do that or obviously all respond to questions any time the court has them but before i do that i think a little context might be might be helpful  this really is a paradigm case in which demand should be required we've got a board here who had no interest whatsoever in the transactions financially or otherwise then even fly take personal flights on the planes which actually is pretty pretty common in a corporate aircraft and nordstrom didn't allow that the benefits to the corporation i think are pretty clear and the governance committee in particular but the board as a whole is composed of very independent accomplished individuals their c e o s they're not people who are beholden to anybody they have no interest and there's no reason to believe that they would do anything other than what they believe to be in the best interests of the corporation and we believe the record shows very clearly that's exactly what they did counsel who with respect to the  committee that was in charge of the government's committee who were the non interested directors what was their background any of them have an accounting background i can't answer that question authoritative i'm not sure whether there were financial experts i would assume given what we do know about them there are two x c e o s i believe and what kind of companies publicly traded you know i can i can find that exactly but yes publicly traded companies in at least in a couple instances so this is something presumably they would be familiar with yes i did that that's right and as to counsel's last point nordstrom acted in a very responsible way there was a books and records request we produced over two thousand documents to them they sifted through all of that and they constructed an alternative sort of their theory of the world peripheral cost analysis which they're not take all the factors into account that it should have i guess aside from the expert report can you explain to me what factors the committee did take into account yes yes your honor th argus report is certainly the core of it and the complaint has not played any particular ice facts to show that the governance committee did not take into account and of course that's their burden to show through particular eyes facts did not take into account net benefit to the company whether it was fair or the transactions were fair to the corporation and i think the fact of reliance on the argus report shows clearly that they did take those things into account but it's not our burden to show that they did show on a director by director basis stronger that people did not and they had references the proxy statements that there were some indication in the proxy yes so the proxy statements are part of the record and i'd make two core points both either of which is dispositive all by itself first as a matter of law under citi group lin wa that's the case that we supplied late because it was decided late  here addresses this and a number of other cases but citigroup's probably the best aspirational statements about process in other words committee charters what committees are supposed to do how they normally approach problems or issues do not establish legal standards now they haven't played any facts at all much less particularize facts to suggest that people didn't do exactly those things that they failed to consider whether there was  benefit or or or anything else that's referred to in the proxy in an aspirational sense but let's look at the proxies for a second the proxies are very clear with respect to these particular transaction it's exactly what happened i mean it's the most fulsome disclosure i don't want to overstate it but it's very fulsome i really i couldn't think of anything else they could have added candidly when i walked all the transactions all the individuals all the dollars all the categories so it's very clear exactly what was done exactly what was charged and you know the f c c never raised an issue with it the auditors never raised an issue with it nobody's raised an issue with it i mean everything you think counsel that if we look at the proxy statement that we will there see everything that the governance committee did and which fulfills its obligations under the law is that correct i am not saying that your honor let me try to be a little bit clear i think we know first of all it's not our burden to show charged you know how many pilot hours how many maintenance hours how much for hang around those things going to say as a court if we look at the proxy statement and we look at the various standards at the governance committee must fulfill can we tell by looking at the proxy statement that it fulfilled its duties under the law i would say yes i would say it's their burden to show through particularize facts first that that the governance committee did not do that and even if they did that your honor and they didn't they didn't even come close they're just quit quibbling about the process you can always criticize the process and hindsight and these are very capable lawyers who file a lot of these cases and they know how to criticize their craft policy  processes so that's what they do but even if the governance committee had gotten it pretty far wrong and they didn't i mean they absolutely didn't they did everything that a responsible committee would do in a circumstance that still wouldn't make any of that i was directors interested they still wouldn't face any substantial likelihood of liability and because of the gross negligence standard we talked with the case it's even it's even a little stronger than that your honor the brand there's some sort of other reason why directors who have no interest in the transaction otherwise acted the way they did so they have to if it's illegal if they have some benefit that they're going to get out of it even gross negligence alone wouldn't be enough but there's no gross negligence here there's not even colorable gross negligence here so we think first that the governance committee did exactly what it should have done very responsibly disclose what it did in great detail the proxies don't impose any any duties themselves as a matter of law they describe prophecies and that's all they do in the law is very clear that's not the legal standard that's  rails test should have been applied rather than the second prong of aronsen does it make any difference in this case it you know our conclusion or is that it makes no difference and i won't get into the analysis it gets quite convoluted and a little bit unclear but the bottom line is that it doesn't make any difference in the argument that the rails test applies is that the committee which is less than a majority of the board made the decisions to approve the related party transactions so when you look at the board as a whole you would apply the rails test but under the rails test it's the same basic analysis they can be interested if if they face a substantial likelihood of liability which is a very high bar you have to plead it through particular eyes facts and you have to overcome the statute the affirmative presumptions of the business judgment rule and the exculpatory provision in charter all three of them is there a difference on the amount of reasonable doubt it's cast on the judgment of the board based on the rails ten versus the aaronson test it seems like you all the ones you mentioned in your briefs are due to figure out the what we do with that because if the if the district court did apply the wrong standard then did it abuse its discretion and we have to send it back you know and i mean let me try to be clear it's a very convoluted and interesting big question i think probably if we did a little more research we'd find a law review article that would eliminate this further it makes no difference in this case and in terms of the standard on appeal of course this court can affirm on any basis that you know appears on the record in the record and in the law and this determination the dismissal can be affirmed on five or six individual grounds independently that are amply demonstrated in the record so i just i was just kind of curious because the palace didn't raise it you all raised it and made a big deal about it and said no but it's not a big deal your honor maybe i should apologize for that i read our briefs and i thought this is a very interesting argument that people have made very effectively the end of the day or conclusion is it doesn't make any difference and the district court certainly didn't commit error in applying the second prong of the aaronson test comes out the same way so why would it be to test if he comes out the same way i'm sorry your honor i mean why would there be two different tests if you just simply dismissed them and said they come out the same way well seems to me that the difference is that just dispose of the matter but what do we do with the entire board what's the record show of whether or not they actually in fact consider even the argus to us you know you know the problem stems from the fact that the complaint and i don't mean to cast blame but you read the complaint the count one which is the count that deals with the approval of the related party transactions speaks of the board as a whole it names the whole board so they kind of go back and forth they haven't been precise about it and i think out of an abundance of caution we sort of covered it both ways but under the second prong of the aaronson test the analysis really turns out to be the same as the rails test and the reason is you look at whether the board could have considered an exercise its business judgment and in doing that you look at the same things you look at whether they face a substantial likelihood of liability is really the key question in this case and the business judgment will protections still apply just as they do on the second prong of errands and the exculpatory clause still applies just as it does under the second prong aronsen as does the reliance on the statute which is presumed to be in good faith and someone needs to rebut through particular eyes facts that presumption which of course was not done here so i thank you really almost any way you look at it this judgment needs to be affirmed rails aronsen first prong second prong abuse of discretion no abuse of discretion and it really comes out exactly the same way what your weakest position or where you most susceptible to a  the fact that makes me most uncomfortable is that the plaintiff he's a very capable lawyers took all of the books and records information that we gave them constructed alternative cost analysis of overhead and attributions and allocations and things and when they did that and put it side by side with the hours that were charged for maintenance and pilot and other things they can make it appear that there's some sort of a mismatch but you know first in the real world that isn't true there was a profit margin that covered overhead on every hour that was charged so for each one of those hours the corporation received money that covered costs overhead and profit so it's actually subsidizing the flight department but i think the key point at the end of the day is even if they got that wrong even if the analysis that they did and relying on argus the way they did somehow was flawed that really doesn't change anything there's still no particularized facts that get you to a breach of the duty of wales he or even close these are directors who have no interest in these transactions are trying to do the right thing they did the right thing obviously and there are no particularized facts to rebut the presumption the business judgment roll well or to get out from under the exculpatory provision charter were to rebut the presumption of good faith reliance morning your honor is made on the court my name is doug green i represent blake peet and eric nordstrom in the various entities we call the related party defendants and i want to make just briefly one set of points the plaintiff argues that should this court reversed the district court that she will have established that our motions to dismiss are told the six motions were defeated in because the twenty three point one standard is harder than the twelve sixteen hundred and that's just not so and i want  briefly explain why aronson's first prong says that a director is disqualified if he or she has an interest such as the familiar milia will or economic interest or faces a substantial likelihood of believe here the district court held that it was the familial relationship of billy peter and eric that disqualified them for him considering the man and that's clearly stated it at twenty one twenty  two the court did not hold that they face a substantial likelihood of liability the related party energies of course were not on the board in the court didn't even undertake an interest analysis with respect to them of course we don't believe that the whatever the district court did or didn't do that point ups has stated a claim here from my client's perspective the board set up an independent review  through the independent directors on the governance committee those those directors employ dargis who you've talked about at great length this morning i regret to tell you as they said in the middle ages temp fugit and yours has flown so we thank you very much for your argument will hear one more minute for a rebuttal right thank you thank you within the persons professional or expert competence that's the first part and second part our director is not acting in good faith if the director has knowledge concerning the matter in question that makes reliance otherwise permitted by this subject subsection unwarranted and here if you are the directors and you tell your shareholders every year that oh we've got related party transactions in north rim family but they've been cleared and we perform these reviews and you don't perform all the reviews you rely on most on august to figure out what to char but then you don't do this this is what they told shows the payments exceeded the estimated cost to the company of providing those services and were based on a survey conducted by a leading independent expert two parts they based on a survey and