good morning ron this may please the court and your love for the appellant city of roseville employees retirement system this court's requested that we be prepared to discuss the recent align decision and i don't want to presume what the court which is us to address with regard to this case but i think the line does provide a framework that would be helpful with regard to three points that will help hopefully understand that understand distinguish this case first that unlike a line that the statements here about sterling's safe and sound back in practice is were statements of opinion that conveyed certainty statements of excuse me statements of fact they convey certainty that statements of opinion secondly that  assuming this court finds that the case does fall under the i'm the caroline line of cases defendants were aware of undisclosed facts including that the regulators were finding unsafe and unsound banking practices that were not disclosed and if they had and ten accuracy so i think those are important points from dearborn but i actually was focusing on something different so maybe i should tell you and then you can comment on it and that is if we and i was the issue of santer and putting together in broad strokes what you've alleged with respect to the investigation the positions that these executives held in that time and circumstances of mr gilkey is firing certainly raise certain suspicions as you've indicated in your briefing but it seems to me that the inference of no santerre is even stronger here than it was in dearborn and that's  issue i'd like you to address in contrast so i think so here we have i think a important starting point for the defense here is the july twenty third two thousand and eight q and a during an earnings conference call in which both an investor and an analyst asked about upcoming regulatory exams at stirling and mr gilkey said well we just finished a safe and sound exam at gough which was sterling's other main subsidiary that we had been taught that he had talked with the regulators even though he had got the final report yet and was anticipating the same kind of  exam safe and sound exam and sterling beginning he knew beginning in october of two thousand and nine and going to the end of the year showing he was and this is in mr burns presence and so this shows that they were very aware that these exams and then in november so the certain practices that the regulators were concerned about one of them being using potential cash flows in very cloud all dependent loans which was a against in violation of a two thousand and six at the s c rule so they discuss it they say they're discussing this in november in fact they were they were caught violating this rule and had to change it the two thousand and six if i could maybe walk through this and that a banking expert but if i could try to safe and sound practice is and gap that for collateral dependent loans banks need to can value the loan by comparing the loan balance with the value of the property that securing the loan and expressly prohibited using potential cash flows in determine the value of the loan so that if a loan is a million dollars a million dollars and the property is worth four hundred thousand dollars the bank the value of on is four hundred the but the collateral has been realized the phone right but what the banks why is it different from insurers who could be could be mortgage insurance the critical part is that the only the only thing that the bank the only  but the rule was very very clear this is not a judgement call that if it's that cloud all dependent on that and that's delinquent the bank has to get a loan at the under my example four hundred thousand dollars and charge to six hundred thousand dollars these are the sort of the mortgage insurance that's correct with the other side of that my worry about this mr love is that having been an attorney for a bank or two in life there are a lot of examinations which happened in the carter administration they had and i'm old so i'm back to the carter administration when we had the carter administration they had one way of allowing the bank to report the loans if the value of the collateral meaning if the value of the property was more than sufficient to collateralize the loan there was no trouble and we went to the r administration and the reagan administration changed it and said we're not worried about the value of the collateral anymore now we're worried about the cash flow if the cash flow of the loan doesn't ma needs to be to make the loan a valuable loan then you're going to have to collateral you're going to have to determine it differently i guess my worry about this is that it seems to me that if i am to swallow that the district court was wrong on puffery which you really haven't addressed but if i'm even to swallow that then it seems to me i have to determine whether the if you will the actual report or the actual determination by those who are are examining the loans was prior to contemporaneous to or after because if we're just fighting about what we should do or how we should collateralize it doesn't seem to me that that's important it has to be when do they know for sure what the regulators have said and why so when i look at contemporaneous and i look at the c d o it doesn't seem to me that the c d o indicates that the findings were past practices necessarily at the time it was issued they were findings but if i look at nol t knoll t says the c d o is issued when a bank is has been or is about to engage in unsafe or on sound practice so i'm not sure that i can say that's contemporaneous in addition to my earlier point which i was trying to make which was even before the visitation issued in june but the allegations are that these regulators were present at the bank throughout this entire time that even if the regulators are at the bank again that's another thing that kind of has the regulators were at the bank that that necessarily means that people at the bank know what they're thinking but that's that's why the facts a little too early are the july twenty complaint so what do you have to feel so the other part of that is that the after the initial see if the examination this report that comes out in january two thousand and nine there's an exit interview with before that this is paragraph seventy two and seventy four of the complaint and so the regulators have an actual exit interview with the fans and discuss their findings if everything was fine with the bank first of all they would have had to and the one practice with regard to potential cash flows which they announced in january so that's an unsafe unsound practice and i just admitted that i can understand they gave sterling the january two thousand nine  but what evidence is there in this record that is that the january two thousand and nine report detailed unsafe and unsound practices i think that can be i couldn't find it's not well right we don't have access to that fact that there are problems there if there are no problems there they wouldn't need to continue this now yes that's basically the stain it is that the mere presence these regulators milling around is a red flag of you because i tried to find and i couldn't find any evidence what the january two thousand nine hundred port said i couldn't find that june report is even known by anybody until two confidential witnesses in my book the best i can say about them is they have some assessment of the bank's practices themselves but they don't know what happens during the fans are saying they are in discussions with the regulators during the safety and soundness exam and there's an inference that since they're talking with the regulators during the first part of this analysis that they continue to talk to them particular when there are all these problems that is the reason why the regulators are staying at the bank and then therefore fired as soon as the this is order issues do you want us if there's any seconds left i'll give you a little extra time that you may want to save the rest for rebuttal ok thank you or i guess i should say that the entire santer argument or the entire effort to show a strong inference of center seems to be based upon an allegation of blatant falsity that there were statements that were made that were blatantly false notice below was not challenge by the plaintiffs there was no objection to notice it yes ok thank you you're going to make with that is done in a lot of cases here and on that particular point i recognize that this court has said that you take a holistic and of course the supreme court has said that as well you take a holistic approach i've always wondered exactly how that works because you have to look at the parts to begin with and of course the ninth circuit has said you first look at the parts and then you look at the whole thing holistically if you look at the parts and i'm just going to step aside from the allegation of blatant falsity for a second everything else cuts in favor of not a strong inference of science or there was tremendous amount of disclosure of incredibly difficult problems that the bank was suffering as your honor said that the confidential witnesses really don't add very much at all there was no restatement very interesting lee neither mr gilkey nor mr byrne sold stock which is really contrary to strong inference of santa and probably even more contrary is the fact that mr guilty guilty purchased stock and he purchased stock significant amount of stock to during a period when he is alleged to have only inflated the price of the stock so if you think about it that really is contrary to a notion of an inference of science are in the court this court has many times pointed to those types of events being addictive of a lack of scientists so the record also shows that mr gilkey for go for went getting a raise during this period which has also been pointed to by the ninth circuit as indicating that if you try to make use of the fraud by increasing your compensation that's an end in indication of say it there if you forego that opportunity you could say that that is a indication when the c e o and c f o were fired well it might not by itself but i think this story that i glean from the complaint and argument is that when you take the firing and the timing of the firing and then you also make the investigation the regulators at the bank what was disclosed as part of those discussions while people were at the bank plus the gap which in and of itself wouldn't get you one way but when you paint that in their view you then have a more holistic view that it least get you past the twelve b six why isn't that the case well because really when you're add up all of the pieces they don't really strongly indicate that there's a strong inference of science or the firing i will admit that you one could say that the findings might look like they are indicative that someone felt that there were misstatements in the past remember this is an indication of santer of false statements right but there's really nothing on the record that suggests and there's no allegations of the complaint that said that they were fired because they made false public statements there was no restatement the f well c c w force testimony says that he heard that he was fired for they were fired for a project on conduct from another bank employee didn't they before he gave that i think if i remember correctly c w four basically says that they were fired that she or he heard that they were that they were fired because they had not brought these issues to the attention of the board and the board was surprised about the c n d now that that may be a good reason for firing somebody and that may be indicative of mismanagement but it's not indicative of securities fraud to the investing public so we think that holistically that there is not a strong indication of say enter now it's important when we talk about this is i said it really boils down in my mind to the point of saying that there was such blatant fal sities that one could imply slander and there are indeed there are cases where there are blatant falsities and you don't need to go beyond that you can just look at that and say you presume that if you were willing to say something that false that you must have done it with an intent to say and make a false statement but that's not really the case here it's this is not a case in which someone says the cars are red and it's obviously blue and you can see very clearly that it's a false statement or we had these contracts and they didn't have these contracts as in some other cases that's not the case here the statements that were made here and this is very critical because obviously this is a securities case and the words are very important there's been a lot of that we are in compliance with the law that this is a strong statement that we do not have any problems in connection with an f b i see audit which is of course an ongoing issue and there could always be safe and sound issues but let's just very quickly look at the actual statements that were made there's only five safe and sound statements the first one of very early in this process simply says quote we're going to join you start down the safe and sound trail they've cited i think the definition from the f d i c manual so do you accept that as a foundation you know that's an interesting definition your honor because that definition in and of itself basically says this is a very general concept in fact i can quote from it so that the f d i c manual itself says quote the concept of unsafe and unsound practices is one of general application we touch which touches upon the entire field of operations of a banking institution it would therefore be virtually impossible to catalogue with a single all inclusive or rigid definition now what that means is basically safe and sound is the same thing as saying banking almost since this is what bank do and there's no specific definition of safe and sound are you know you don't think it's anything more than saying banks abide by banking laws well what it means is that every aspect of a bank needs to be in accordance with safe and sound banking practices but if you look specifically at what this the specific allegations of alleged misstatements are here in a file before you get there are you really saying that that is mere puffery then the district say i don't know whether i really agree with the district court that this is puffery because it seems to me that if at least property depends on the context in which it's made that's our case of police  retirement system st louis but we have to have a standard to the lack of a deaf specific and definitional meaning render safe and sound puffery that's what the district court said but it seems to me this can be measured at least from the f d i c manual so i'm having a tough time getting where the district court god yeah we absolutely believe that statements need to be looked at in context and if you look at the statements that were made here and context these were a couple of words that were used in the context of extensive negative dire disclosures about problems at the bank with in fact in the with respect to the last statement i think the bank said that there classified as went up three quarters of a billion dollars i mean these were surrounded by extensive negative warnings and then in the course of that and in the course of that the bank didn't say we are engaged in safe and sound practice is that comply in every respect with f d i c regulations in fact i would like to point out of these statements what did we say we said in one statement in october of zero eight thanks to safe sound and secure banking discipline not we are engaged in safe and sound but thanks to safe sound secure banking discipline that's almost the exact phrase that is used by the second circuit that was used by j p morgan chase who said on october twenty second right put on october twenty first you say in some we are managing through a difficult credit cycle while maintaining a safe sound and secure banking practice that's absolutely correct seems to me when you read that with october twenty second it's a little bit different flavor than you're now trying to show me that was the very first statement safe sound and secure banking practice that was stated in one day the next day when it was a press release right yeah right and then the next day we say thanks to safe sounds you're banking discipline ok and then the three other statements are that we are committed to safe sound and secure banking practices and in a way because write you don't say you're committed you said you committed to continue so what if we'd continue it seems to me to imply that you've been having saved them thinking practices and now i'm going to keep doing that so that's a little bit different than just simply saying there's a discipline so how do you distinguish that july two thousand and nine statement yes it talks about a commitment to continue in a certain way one could almost say that at the same time as  you've done something wrong i mean i could in clean pleading guilty for example is something i could say i've done something wrong but i'm committed to going forward not doing something wrong but the fact of the matter is if you look at each of these statements they are so heavily surrounded by negative disclosures that this is really the small part of what the disclosure is and that's why we call it puffery this is not like in the number of cases that th misstatements to see from some practice is not material we're saying that when looked at in context it's not material it's not it's really it's really not it's not materials not it's puffery basically as the court as the court below found that when you look at these statements in context they are not first of all they're not very specifically talking about regulatory they're not talking about regulatory compliance and they're much more general statements well so i guess if i read those five statements and i don't agree with you then i proceed on to what we are now talking about which leads to follow through the we have to see if there the next two or c m tour or materiality the issues which we are now talking about rush nicely your honor and that's actually where is about to go which is to simply say that's the reason i backtracked to talk about safe and sound is to say you may not be convinced that this is par for you may not be convinced that we think that these statements in context are not significant statements so if you are if you believe that there were misstatements the question really becomes were these made with santer as in any other miss tatement case ok and the point i was trying to make is as opposed to since the whole santer argument seems to be blatant falsity that in this type of a statement where there's a definition which really is very general and says you really can't define things very clearly and in which the statements were made while accompanied by extreme negative dire disclosures that is not indicative of a strong inference of scienter this is not a blatant falsity case this is a case in which if the speaker stepped over the line in your view then that's your intitled to that view but that doesn't indicate a strong inference of say enter of it's discussion of opinion testimony as i stand here today i can't really even recall what they said about so i enter because it wasn't wasn't the focus of what we were thinking that you would the court was interested in additional see answer fact which also goes to the puffery issue as well as context and here you know this is the myth of a huge financial crisis sterling has three billion dollars worth of construction loans there's great concern about you know failing loans problem loans not enough capital and so in that context the regulators will just be milling about they would be in contact with the management of the bank you argue that but i find nothing in the record to suggest that and having been a lawyer for the bank which i'm not putting in the middle of that i want something more because i don't know what those regulators are doing right there so many times regulators are in there they could be there for decades and you don't know what they're doing and so therefore i look at that and i say to myself i wish mr love had just a little more fact about just because there are there what does that mean i think this is one of those cases where there is discover there's a reasonable expectation that discovery would reveal those facts you know we we don't have those so you're hampered we have very good you need to get over that slight edge right i mean and frankly in my book you're hampered again by the fact that you are subject not just to the general pleading standards here but we now have a pleading standard which makes it a higher case for you to bleat if i could just one more second on this point again the defendants were in discussion with these regulators they knew very well why they were there that they mention that in july they have the discussions in november they have an exit interview at the end of the when the report of examination is filed in january they knew where they were there they were there for important reasons because there are serious problems with the bank thank you thank you argument from both counsel this morning the case of roseville employees retirement system versus sterling finance is submitted our next case for argument this morning is read versus city if tacoma