you good morning your honors me please the court jeffrey abraham represented a plan appellants who are in the who are who are plaintiffs in the case bill on the district court terms of a broader overview of the case of former shareholders of american realty capital retail centers of america which we call r c a and they received zero point three eight five shares of an entity called american finance trust or a f i n n ninety five percent based upon the third circuit decision and quaker oats would be whether the constant repetition of this twenty four seventeen any the number created a reasonable reasonable understanding among investors that it of considerable significance and i don't think that you can deny that that's the case here because not only is repeated constantly it's on the cover page it seems to me take that facts that were contrary to twenty four seventeen been a valid number and the most prominent of those facts is the merrill lynch property sale and that was one of the largest groups of properties that they own and it was sold for one hundred forty eight million dollars which is not an inconsiderable sum of money especially in the context the air fire and and it was sold at a capitalization rate of eight point six percent what that was i don't believe that the capitalization rate of eight point six well it was felt within the range but it was a significant sell at the higher end of the range and strongly suggested that the correct valuation method was in a higher end of the range it would be a material fact that a reasonable shareholder the six point zero nine percent we have assumed for the twenty four seventeen anything that out sales mislead will not only to make spelling out around it and spell out the eight point six percent capitalization rate you might have to use a calculator or you know something more than that and flip through a whole bunch of pages and perhaps even on the rescue see filing to figure that out of the financial changes in the company that while maybe not specifically disclosed or disclosed i'm not sure that this is a very these aren't just financial shape changes these are transactions and specific vents that impact the reasonable investors perception of the value of the company exactly what they said could happen and that investors should not construe the representations that were made not to thank you for the question it's not just could happen it did happen and that's the difference because there's a risk that essence but came inaccurate based on subsequent events where when you have this level of disclosure well let me your honor at the time looks let's drill where the time is the time of the energy is twenty four seventeen the time of the disclosure is when the proxy comes out in two thousand and sixteen these events had already occurred by the time the proxy statement came out in the summer two thousand and sixteen so it's not really a duty to update these  existing facts that impact the issue of how much a half point is worth and by the way also how successful enterprise unless they were withheld all you're saying is they should have done a calculation that could actively followed by securities analyst you're saying this is a subsequent occurring of act of fact that with material they disclosed the fact they disclose the sale they disclose the amount of money they disclose the date they disclose the n a v as  december thirty one the question is you want them to spell out that this was a good this is a good investment this is not a good investment i don't know quite what you want to say other than what they disclose your honor  twenty sixth in compas which accomplished all but three months of the losses that you fight in your complaint and although it didn't directly reflect the losses with respect to sun trust it did more by because in real estate investments of this sort the relevant financial metric is not in accounting was its cash flow which was reflected in funds from operations and modify funds from operations so the fact that there was an accounting loss was really not  major significance and a proxy focuses on funds from operations and the impairment of an asset in the ability to generate cash flow from an existing asset is a material fact especially when one considers it's from a group good morning your honor my name is stuart i'll be making the argument this morning on behalf of all of the descendants i think just newmar you heard you asked about the standard of appellate review it is a day nouveau standard motion dismissed but the one point i would add to that is that the court judge blake in considering the motion to dismiss was entitle to consider all of the documents that are referenced in the complaint and were submitted as exhibits was no objection to an as it was attached to the proxy i don't believe the process was attaching and it was record it was it was referenced extensively to the complaint and i believe the fund and submitted it as an exhibit in the motion to dismiss and this is a proxy that is two hundred plus pages in text and then there's another by submitting other exhibits as well so there was no there was no argument made that this was not a twelve b six motion of the proxy could not properly be considered and as i said the proxy is some two hundred plus pages of text describing the transaction plus another five hundred fifty pages of financial information and the merger agreement and the banker statement so to the point that was discussed this morning the proxy specifically discloses in an urge the court to look at the risk factors it's it's what's referred to correctly as a person estimated per share net asset value of anything in the company who is doing the acquisition it is specifically stated throughout the proxy that that net asset value was determined as annual basis so to the questions you are asking this morning it is correct that the net asset value was determined on december thirty first two thousand and fifteen and at the time of the merger agreement which was in september of two thousand and sixteen and at the time of the proxy statement which was in december of two thousand and sixteen and at the time of the shareholder vote in february two thousand and seventeen the only net asset value determined was the one that was published in our in march of two capitalization rate and so so let me talk about that then first of all i heard that the merrill lynch referred to as marilyn's transaction marilyn's transaction was was a huge transaction the largest a number of properties a fin as of december thirty first two thousand and fifteen as a proxy discloses had four hundred sixty four properties the merrill lynch transaction involved three properties located in one town i think it's hopewell new jersey and one state new jersey rented by one tenant merrill lynch it was an arm's length sale to a third party there was no whatever number he came up with this is going to test my accounting a little bit but the the concept of a capitalization rate is something that is used in order to try to value particularly these types of companies non listed  they describe how often phelps which is the outside approach was brought in to assist with any of the number for december two thousand and fifteen what they do is a look at leases that are longer than seven years for those they use the income capitalization rate and that's exactly what they do just look at the revenue that's coming in from those properties for the next seven years or longer and they try to value that and they use their judgment to come up with capitalization rates if the property is less in seven years they use a discounted cash  that's that's the difference here what you have though is three hundred and ninety one properties owned by a fan located in thirty seven states throughout the country that were leased to multiple transaction on a fin and so to your point just on a bomb there's a disagreement as to whether or not there was a seventy made on loss and you can put those numbers are there you can look on those pages in the proxy and you can see the disagreement is the merrill lynch properties were acquired when they were purchased for about sixty five million dollars they sold for forty eight million so if you want to say that's a loss it's right there because the sale price of forty eight million is shown and the sixty five million dollar acquisition costs are what is also shown though is that there was depreciation for those merrill lynch properties or the years of twenty seven million dollars if you take the depreciation out which i'm told is required by by gap what was a gain or loss if you take that twenty seven million dollars of the creation out of the the one hundred sixty five million dollars then you come up with a gain of four million dollars so either way on those points judge there's no allegation in the complaint that those opinions are subjectively false there's no allegation in the in the can buy to those opinions or are objectively false so i think the answer to all that is under  management there's no allegation that they're not i think monica then goes on to a second point that if the shareholder if the work wasn't done to come up for a good faith basis of those projections that may be another problem on the second part of  but again there's no allegation of that's like and in truth if you look at which is also part of the record if you look at the two thousand and sixteen form ten k it was fog for eighth and what you will see is that the projections on what i refer to as the with the whole proxy and any disclaimers or warnings related to it yes your honor and if you look at where the projections are given what you see is that there are a multitude of qualifications disclaimers and conditions in fact with virginia bank shares there's no allegation of that here and i guess i get outside the point a little bit when i say if you look at the two thousand and sixteen form k those projections turn out to be be within the ballpark i think the projection for car bombers asking about it on the of if you if you haven't done it if you don't have a reasonable basis i think you know on the can the question is did they comply with the law the company said they did comply with the law in the example that the court use but they didn't talk to a lawyer  eartha lawyer told them hey you're not complying with the law but they say so but we believe we comply with the law that wouldn't be a good faith basis and that would create liability but that's not the situation here you have projections given that are clearly qualified by the no room for reasonable investor to believe that a fan is a financially healthy company or a for a company poised for financial growth and  that's why i say look at the appendices to the to the proxy where you see the historical financial information if you look at it all of that information what you see is as just noted there's been sixty two million dollars of losses already  financial because only for the nine months ended september thirty two thousand and sixteen but the proxy discloses the now and september thirty two thousand and fifteen eighth and last on a personal basis twelve cents on two thout september thirtieth two thousand sixteen eighth and last twenty nine cents per share so to say that somehow the projections create a suggestion that this is a growing company mean judge clearly read the proxy and said how can you look at all of these losses and say this is a growing growing company so i think that the the proxy fully disclosed the the any easy was determined as of a particular date that subsequent events might affect that it was not being modified and there was nothing to disclose of would be disclosed what's your position a response to that that's wrong it's my position but let me explain what the proxy sense is that if the f c c has not approved the extended and the last date for the drop dead date if you will is an example third so yeah you can you can mine and you can see this almost any case your honor you can mine a fifth two hundred this had to be done by more checks when in fact there was leeway in there and all the way through to april and had a you can always mind something if you want to but but taking going back to two does duncan into projections taking the projections of two nonghet measures that somehow arm or heard the total mix of information when you've got all the gap information out there about how these companies are doing makes no sense and in the proxy fully disclosed the information  of action under the i think just like didn't reach that issue because she found a pleading defect in the papers and a clean defect still exists a pleading the fact is in order to bring a transaction within thirteen e or have the transaction has to have a out i think all that information is is is it's not expressly give and in the proxy is the information is included within the scope of what the proxy talks about so i don't i think just by also rule that was duplicated the fourteen a climate she was right in that regard on the from other cases in the supreme court but basically in order to have an extreme court has cautioned that it is not the role of the judiciary to develop implied cause of action that's the role of congress and you look to the structure and the  the structure and the and the language principally the language of the statute and here the language of thirteen is it shall be unlawful to not and prescribe conduct that is that this court in  distinction between the decision of the supreme court in the trans america case which involves sections of the investment advisor act and the decision is from court in canon versus universe of chicago language was no person in the united states shall be subject to sex discrimination in connect with higher education that says no person has persons have a right that's focusing on the rights of the persons as opposed to the conduct of y filing of which one could take judicial notice and that under basic notice tweeting that we sufficiently allege that fact it's not a requirement to plead with particularity and we believe we adequately allege address the materiality issue of the maryland properties because i think we're arguing materiality here of one hundred forty eight million dollar transaction and the standard is clear as ability even though i believe it's material the the capitalization rate from the proxy i don't respectfully i would disagree and i would point to your honor's two pages three and four of our question really was you know it's as i understand the capitalization rate it's basically taking a current income stream and projecting that x number of years and that's the judgment call as to how many years you  percent and what was sudden interest rates go up to eight percent i still get the same cash but it's worth less because people would buy a different capitalization rate to it and capitalization a higher capitalization really functions inversely with the cash flow and knowing that the fourth largest group of properties seven point seven percent of the rason sold for a much higher capitalization rate would i mean i believe it will be able to prove it was immaterial your number you know  proxy you don't have to flip through appendix page i forty three for the initial course and accumulated to clichy ation of the properties and then you have to do a significant calculation which perhaps i'm better at than maybe the hang our financial expert is better at that and then only then you come up with the eight point six zero percent capitalization rate with all due respect i don't think that's full disclosure especially to a broad group of relatively  for us embody who's a college graduate read and understand and then the say we have the reasonable investor i would read a pretty a pretty sophisticated level to the reason one bester looking at these papers and trying to decide whether favor maybe maybe you shouldn't your honor my local over my experts levels this occasion with run of the mill investors to whom this partnership or this investment was moorcock to this like really mom and pop investors it's almost that security they get this proxy saying hey you're going to get a premium they're not given facts to stablish that most recent transaction is added value which reflects a lower value for a f i n they're not getting it they're not getting a premium and in fact had they liquidate it they would have gotten more money and in fact let me just say this in conclusion this is not a theoretical case of picking through things i have financed stocks publicly trades now when we wrote the papers or traded  fifteen it trades under fourteen now if you take the value of the consideration the shareholders see assuming fifteen dollars a share you get to six dollars seventy two and a half cents the lowest range value of n a v for r c a reflected in the was nine dollars and three cents and goes up to pension and three cents it's a twenty five percent hit the average shareholder took here these are material facts at least plausibly allege material have either well i was irrelevant considerations you should not consider yourself irrelevant because at some level you should expect many of the shareholders who receive this are less sophisticated than i was school graduate what circuit who hears many of these cases we get to hear two of you argue this case and we get directed to the very pages of the proxy statement and we can then make some assessments my only observation was this is not an easy task and when we talk about the reason vaster we must be talking about somebody that has some sophisticated knowledge as to how to read proxies and financial statements i think your honor in this context should look in the context of who the investment was marketed to was marketed to mom and pop investors this is not a publicly traded securities it's not followed by securities analysts and it's just a different animal than the average publicly traded security there there is no way that an individual investor could have understood these facts without the benefit of financial expert were some somebody perhaps i hate to say it is savvy as me financially perhaps the savvy as you financially you have to piece it together flipping through the proxy with a calculator to understand that there was an eight point six percent