hoops good morning your honors may it please the court william king on behalf of the collins i'd like to reserve three minutes your honour's this appeal derives from the district court's dismissal of to which i refer to as the two claims that defendants made several material misrepresentations of fact in their twenty thirteen publicly filed ten q s and again in the company's april sixteenth two thousand and fourteen job he's twenty seven million in stock compensation which he took in the third quarter of two thousand and thirteen produced a staggering one hundred seventy three million dollar loss those facts which were apparent to the defendants or at least should have been on september tenth of twenty fourteen with respect to their eighty three claims plaintiffs alleged the merger was a sham from the inception it was designed only to provide mr jaafari a public platform to sell his otherwise  sky mall shares and to retire operating debt owed to his affiliates through the sale of the company's only lucrative business lines all while mr mudge off he waited for the time he could finally cash in let me ask you you're a claims first right as i understand correct me if i'm wrong if i've forgotten something you got four of these claims one was the press release  that seems to be forward looking and therefore comes under the safe harbor provisions of the arizona securities act do you disagree with that well that one minor correction the press release was part of our eight three claim we are not letting an independent misrepresentation in the press release is part of our aid to claims but we just the courts comments we do disagree with that that the controlling case is the on the care case from the united states supreme court and it says that  if there are mixed statements of fact are in for looking statements that affirm the speaker's believe those can be used as of this representation or the second was a false statement as to the merger value and the originally stated the twenty five million dollars based on some economic analysis and i think the c d c said no you got a value  merger based on the actual transactions was one hundred seventy seven million dollars how is that misleading statement to which a reasonable investor who is buying the security can object i mean he's buying it thinking is worth twenty five million it turns out to be worth one hundred seventy seven million i'm less is a short seller he should be very happy your honor i recognize the i any investor whether he relied or didn't speak might be damaged by finding other than his investment is worth more than he thought it was i mean this capitalism revoked  was on now you're on the second point i would make is is that the impairment charge was masked by the understated value so of them not the statement as to the valuation where the valuation was incorrect and under arizona law even an innocent misstatement can result in liability on the securities fraud statute or even a favorable mis let me start by picking up where i left off is that all under arizona law all plans were required to allege was a material misrepresentation misrepresentation a fact even an innocent one and notwithstanding that the defendants restated their financials including their tank use and plaintiff's allegations detailing defendant several other material misrepresentations and omissions all of which by the way the district court seemed to accept as part of its ruling in nonetheless dismissed plaintiffs a two claims with prejudice and without leave to him and based upon him i'm briefed and unsupported interpretation of section forty four nine hundred ninety one days in connection with language under the district court's interpretation goes so it seems to me the boil down to your argument and i know you are a go through the the argument for me but it seems to me what you're suggesting is that the district court's order requires that  i i thought that was an aide to claim and if it is a that i'll put it in the other one but then he went through the statements from issues regarding the true merger value and the next is the omissions regarding the elimination of the business lines and plans to sales guy venture tell me why that makes it well let me see if i can clarify we alleged for primary misrepresentations is part of the a to claim or at least will argued and we can take up the allegations later but the number one judge based it on was was misrepresenting failing to disclose the merger is true value right and the adverse materiality of the higher valuation judge was substantial substantial risk of an impairment charge because most of the additional consideration was allocated to goodwill we've gone through they've gone through that so the second misrepresentation was failing to disclose the risk of the impairment charge which allegations but i can go through the other eighty two allegations and we can turn to i want if you would like the third series of misrepresentations in support of the eight to claim was filing a misleading april sixteenth two thousand and fourteen  ok and that i have that is my next guess that a case stated that there is no change expected to five accounts i e the cash debt revenues and cost of revenues and that was accurate but it only made early told part of the provision but they did in the real about this two thousand and fourteen well under the arizona securities act there's an affirmative duty not to mislead and you can't just tell half the truth all the reasons cited in the september twenty fourth team delinquent ten k as the basis for the impairment charge had occurred in the second half of two thousand and thirteen and so there is no reason in april twenty four thousand that the company should not have then taken the apparent  the last misrepresentation for purposes of a to claim is failing to disclose the twenty seven million dollars in stock compensation that was taken in the third quarter of two thousand and thirteen but not ever disclosed until the delinquent september tenth two thousand and fourteen ten k and that was a significant expense while the transaction itself was disclosed and we can see the point the effect of the transaction was not disclosed and the effect of the transaction more than tripled the company's net operating loss expenses in two thousand and thirteen from i think roughly twelve million twelve million to about thirty nine million dollars those are the eighty two claims the supreme court later came out in assisi versus lorenzo and pretty much did away with the arguments that the defendants made the district court accepted namely that r separate subsections do overlap and do not govern separates spheres of conduct right the do you do additional misconduct beyond the statements are all missions sufficient to support your a three claim yes your honor and i love to go through the complaint and i would let me go through kind of what the allegations are or what the arguments are as i mentioned earlier we allege that the merger was a ploy from its inception intended to create the appearance of two companies joining forces to strengthen themselves and to grow together but as a chronology bears out mr job he never had any intention of growing the companies instead he used in the appearance of the merger as a prop to gain control of exhibit to create a public market first private sky mall shares and to wind up sky malls affairs as a means to pay off sky nelse operating debt debt by the way which now mr madoff is affiliates had guaranteed to allow the company to stay operating while he waited for the time where he could finally cash in the if we look at the paragraph the delay in filing a s c c form ten k and form eight k and the end disclose negotiation for the sale of the exhibits loyalty business are those what you're really going to discuss just one moment if i may read the as your honour's know and we'll probably hear that plaintiffs initially pled that the defendants overvalue the merger and candidly we did not plead the first man to complain as well as we probably could have today or could do today but that there was never any any disclosure of any pleading the facts and so we've never had a chance to cure any pleading defects it just said you already amended it and reason i asked that question is you know that the standard or view on back it's got to be something that's so out of it that there's no question that that's an abuse and if you've given one chance to a man before why is it that i've got it going to say now the district court was just in not allowing another one well number one the the court denied leave to amend on futility grounds and it never made any findings to support to support its futility conclusion number two when the district court denied leave to him and it did so without raising without giving us any opportunity to hear the facts there's no prejudice that was argued below as to why we should be given leave to amend and you know the ruling on the on the nine lead to amend is an abuse of discretion when if the court's rulings are you simply fail to plead the in connection with a requirement the standard under this situation is abuse of discretion and in this case judge logan did not abuse is discretion in denying leave to  should judge logan consider when he's trying to determine whether to allow amendment well in this instance your honor based on judge logan scheduling in standing order which is now codified in local rule twelve point one there's a built in opportunity for plaintiffs to amend in this instance the parties were required by virtue of the local rule and judge logan's order to meet in confer in advance of any motion practice the parties in this case had a robust essentially didn't say anything about that he did not but it's required under his standing order i'm just trying to say what were the factors he should have considered he considered one futility he did not consider bad faith he did not consider unto delay he did not consider prejudice he did not consider whether they've previously amended only to say they previously amended and they're allowed that under the rule without his permission so i'm trying to figure discretion but the factors he ought to consider so that i know whether it is boredom or not are not in these discretion they're in law they're in rules i said well i didn't somebody above me or otherwise or probably judge fernandez put in the law before that why doesn't he need to consider her well in this in he may have your honor but in this instance what he talked about was futility and we know it's futile because there was an opportunity in this instance when you go through the chronology of what happened the parties had a meeting conferred in which they discussed the deficiencies in the complaint that was the opportunity with which the plaintiffs had the ability to go and correct the deficiencies that were identified by the defendants they opted not to do that  they then had the opportunity after the defendants filed a motion to dismiss to sleep seek leave to amend at that point but they didn't they simply included a four or five words request leave to amend notation at the end of their briefing they have it demonstrated and they i frankly don't see any in this record doesn't have anything to do with to leave de lay and i don't see any in this record doesn't have anything to do with prejudice to you and i don't see any in this record so i'm saying to myself you know i don't know whether i can go with that and you are not arguing that those factors are present in this case but under this circumstance the futility of the fertility pronk allows you to affirm his ruling particularly given that it's an abuse of discretion standard this is very similar to a decision in the taylor case which another panel in this search it affirmed under very similar circumstances when you had this built in local rule which gave the parties effectively want to opportunity to amend  required to plead to state in a to claim a false representation or material omission and it was material material meaning there was a substantial likelihood the the alleged misstated fact or emission would have significantly altered the total mix of information available to reasonable investor none of the arguments that they've articulated either in the first amended complaint or those in the briefing process have satisfied either the falsity or the materiality standard now defendants in connection with the sale or purchase of securities which suggests that the district court thought somehow reliance was important i disagree your honor connection with and it's a fair reading i think of judge logan's order to stay that what he concluded was none of the individual defendants in this action made a false statement or or omission that was material in connection with the purchase and sale of security  scheme in order to state a private cause of action against an individual you need to examine a r s forty four dash two thousand and three which states that if you're going to make a claim again as private claim against an individual that the alleged action alleged individual must make participate or otherwise induced in the alleged sale of the of the security i think in this instance none of the facts alleged in the complaint or in the briefing process satisfy that standard your honor regardless of whether you agree or you disagree though with judge logans in connection with language you can affirm on other grounds you can look at each of the alleged false statements or alleged emissions which form the basis of the claim and conclude either or both that they were not  but also your honor because in this instance you haven't heard anything that's going to change going down below and this court does from time to time and this is one of those i don't want to call it unique but perhaps less frequent situations where the court can affirm based on any other grounds that are set forth in the pleadings now if you'd like me to examine the individual alleged misstatements or emissions i'm happy to do that i think you but i think you with respect to the alleged valuation of the merger there's nothing false or misleading with respect to the alleged valuation when you look at what was disclosed in the in the fall two thousand and thirteen the august two thousand and thirteen s c c finally things exhibit disclosed following first that it had hired an independent evaluate valuation firm to value the merger second that it could have reported the value on a market valuation methodology which is the methodology that was ultimately encouraged by the c but what exhibit disclosed in those filings was that based on the advice of the independent valuation firm it didn't believe that that valuation was appropriate it went with a twenty five million point five million dollars valuation so there's no lack of disclosure with respect to the facts there was no lack of disclosure with respect to what a market valuation may have been versus what the ultimate valuation was that they had and the fact that the f c c later disagreed with the manner in which the merger was valued doesn't constitute fraud there's multiple different ways to value a company this is really a disagreement ultimately over what constitutes over what was a judgment call and so in that instance given that in the total mix of information available it's not actionable the second there are allegations with respect to i believe the eight k the april of two thousand and fourteen aka there's nothing false or misleading with respect to the statements in th k if you look at three twenty which is where the representation is it states where currently assessing how the one hundred twenty five million in additional fair value should be recorded it's a disclosure of the hundred twenty five hundred fifty two million and then it's going to be recorded but they went further and stated we don't believe the restatement will cause any changes to the previously reported cash revenues cost of revenues and so on but coupled with that exhibit disclosed don't rely on this they disclosed we are in the process of evaluating every all of this information and how it is going to affect your suggesting it's under the safe harbor rule i think you could conclude it's down to the safe harbor or you could conclude number one it's not false because it's entirely truthful and number two it wasn't material and in the total mix of information that was available in the marketplace at the time but peculiarly when in that very same statement exhibit disclosed you shouldn't rely on the two thousand and thirteen filings the f c c has asked us to look at how we valued the merger and were in the process of that and not only that they disclosed that they weren't sure when they would be able to that when that analysis would be completed and when they would be able to submit either amended or subsequent filings so given the total mix of information available your honor it simply wasn't material i believe i've had all of the eight the bases of the claims your honor unless there's what about honor and i had to take that into parts because i think that that allegation has two components to it first of all there is the allegation that there wasn't a disclosure of the discontinuation of the nutraceutical line which occurred in the fall of two thousand and thirteen that was in fact disclose if you look at yard two ninety one and three o five it was disclosed in november two thousand and thirteen ten you so there's no lack of disclosure on those grounds with respect to the ultimate sale of the venturers line of business that didn't occur until september of two thousand and fourteen it was it's a temper tenth of two thousand and fourteen to be exact and it was disclosed the very day that it was consummated in an eight k filed with so those statements are made your honor in connection with the press release which happened in may of two thousand and thirteen now whether or not that's the way to claim or the three claim those statements are covered by the safe harbor rule regardless of whether or instance your honor if you look at the start of your question you know that i mean unless you have a case telling me that failing to say something is forward looking statement which is a contradiction so when you look at the press release plans don't turn out the way that the parties may want them to that's not actionable fraud and now with respect to the a three claim i believe i've covered all of the press release statements there's been an argument and we've covered the venture sale as well pointers also have also alleged that the merger itself was a scheme to pay off loans to defendant and jockeys entities we've demonstrated that there were no loans entities or any of his affiliates at the time of the merger never happened until later until the fall of two thousand and fourteen when mr madoff these entities loaned money to infuse the cash into the business which was necessary to keep it going as a going concern through the end of the year the pre the pre merger loans were not secured by mr nutjob these entities it was a chase loan and it was secured by exhibit and you can see that at page one twenty three which is the may twenty second two thousand and thirteen eight k which is just closes that it's exhibit in exhibits subsidiaries which are the guarantors so there was no factual misstatement there was no mission there was no actionable conduct in connection just a few quick brief points if i may and that whole discussion on rule eighty three i'm brought back to the fact that we're here in the real twelve b six and a lot of this back and forth on the timeline of what was  that the plaintiffs knew of certain pleading the facts and still then chose not to amend it certainly not the case here on the issue of the merger valuation the argument that  reported value was not misleading ignores the significance of the one hundred thirty seven million dollar impairment charge which resulted in a dollar for dollar charge to the company's income producing a cumulative one hundred seventy three million dollar loss or twenty thirteen when the company restated its second and third quarter ten q s in september of two thousand and fourteen treif let the true value of the merger it's good well went up from fifteen million to one hundred forty one million assuming those figures were reported back in two thousand and thirteen as the company conceded they should have been yes he didn't just come in and say this is the value exhibit agreed to what the value was but going back to the point of all that had been reported back in twentieth thirteen exhibit perts own imperent pyramid policy would have then been duty bound to reassess its goodwill that it was carrying on its books and that was impaired and a lot of this probably comes to light much faster than it really did with respect to their full sixteen twenty fourteen as you see for me k defendants failed to disclose the whole truth they did say that the merger had to be restated they did list the accounts that it would not affect but they did not list the non you have to look at it look at that in light of what they were also saying in twenty thirteen thank you which was we're going to grow we're going to start reporting profits we're going to we're positioning ourselves to expand what they were really doing was cutting back everything  the research for example in that our net segment marketing was shut down in december of two thousand and thirteen so they're really telling two stories thank you very much thank you very much the case of  be submitted and the court will stand in recess until nine o'clock to morrow morning