discuss i guess thank you your honor that the way the plan worked it was designed for certain partners at the firm they were obligated every year to purchase the amount of stock that was offered to them and then they were mandated as we'll discuss discussion it was the amount of the award was discretionary no the word discretion is what is important your honor in this sense it applies to whether or not there was a bonus and is will discuss that was not a bonus here and it was awarded your honor on a  lockstep basis on other words there was no discretion as to this particular partner had a good year versus this particular partner did not have a good year no it was on a lockstep basis and for that reason this i in seniority would have received the same opportunity which was more than opportunity needed to buy but at the same amounts same award when you apply the plain reading of the statute to the fact intensive surrounding circumstances here reversal is warranted that record here includes a detailed proposed pleading and a sworn declaration both of which on this appeal of a motion to group plead should be accepted as the plan itself contained a severe penalty for selling section ten d if you were to sell one share of stock while employed you would have lost all rights to purchase any further stock which was a lucrative benefit because you're purchasing the stock if you didn't forfeit it at a significant discount the eight circuit emanate your case tells us that a penalty on sales in a stock plan is an important factor militating in favor of  finding of a pension plan i should also add that the department of labor the department charged with administrating this program or the rest of program has held or a pint that discouragement in and of itself can militate in favor of a pension plan but most importantly the third factor i want to discuss and it's something that the court below completely ignored and respectfully the defendant to studiously avoided is this the plan participants were told orally do not sell if you sell they will be negative and severe repercussions for your career including bad reviews and terminations this is in our proposed pleading policies not according to the plan but one year someone says we discourage you from selling us another management group comes in a couple of years later and says it's ok to sell maybe you really ought to say so in that in that sense that that kind of surrounding circumstance that you're talking about is not structural in the plan and that that's what makes you kind of nervous because it was a plan either isn't it was a plan or it isn't  very respectfully disagree with that because it is set forth in the plan first of all the discouragement is in writing in the one nine hundred you know i understand you you you cited section ten d and that's a penalty i and i understand that but now you're going on and now you're saying that that does that verbal advice which can change over time and is not structural in the plan itself can can constitute surrounding circumstances that will at some oh then nobody will know whether they it was a plan or not and it is very dangerous as played here and sworn to there was no deviation there was no oscillation here and the statute asked us to look at not only the surrounding circumstances where look what they resulted we're trying to to apply principles of of a whistle law and not and not just implement this plan but of course your honor but what the statute says is that we should look at whether the surrounding circumstances and the plan terms resulted in not it's not the surrounding circumstances and the plan terms it's the expressed terms because as a result of surrounding circumstances such plan results in a different so in other words i think the focus is go to be on the plan i mean you make an argument that ten d is part of the plan and it says if you sell one share your you know you're heavily penalized i have said that argument but now you're going on you're saying that something that can change and is not really part of the plan is going to determine whether this is enormous a plan on your honor i respectfully submit that what your concern is is actually addressed by the language of the statute because it says the expressed terms that is to say the written plan or or the surrounding circumstances so yes no running circumstances or something that may be different from the expressed language of the plan that we submit the plan including the penalty itself gives rise to results in rather  in the alternative to express terms so an expressed term would be one that says that says this income is deferred that would be express but surrounding circumstances would mean you look at the whole  there is nothing in the case law in fact to the contrary to suggest the surrounding circumstances are limited to the actual planned language in fact i'd submit the way the statute is structured it would suggest that surrounding circumstances can include not only the penalty and the expressed discouragement in the pledge but the oral discouragement which we have pled in sworn to was consistent throughout and those oral statements for example less common i know i'm over time ahead the statute also provides this which is i think pertinent to what your honor is driving at in section one thousand and two two b it provides that if an entity an employer tries to evade the statute there can be a finding that there's a pension plan what you cannot do your honor is say one thing in the plan and then in a sense behind closed doors say something else that would be an evasion of the statute i believe their oral admonitions backed with teeth are part of the circumstances if they contend or you conclude otherwise then they have a different problem then those oral threats oral admonitions would be an evasion of the statute which again would warrant a finding of a pension know he does not you are notably this was the first time mr corsan asked the district court for a leave to amend and this was timely made it was made less than one week from judge kap been repeated opportunities over a period of years for this issue to be raised you are one of the and you're going to the reasons the un do delay in the prejudice the issues in this explain to judge kaplan the securities claim didn't crystallize until the fall of two thousand and ten the information circular the falsies are alleged took place in may two thousand and eight after carlyle bought it they i p o d in the fall of two thousand and ten and the c e o same c e o who'd given eleven percent revenue projections to the so called fairness expert in two thousand and eight twenty percent revenue growth since the deal twenty percent year one eighteen a half percent year to that was a result of careful planning in other words this the projections that he expected that issue crystallized after the consolidated complaint was filed the september of two thousand and ten in short ironic didn't know about some of the misrepresentations and didn't know about the evidence of prejudice here was a result of attorney's fees that the apple lees had expended in filing the motion to dismiss recognizing that's the block is very and this is a problem when a very learned district judge should recognize that but we do i respectfully disagree that if you don't your it's very clear based on what i've just explained in terms of the timing there's no undue delay it was a week after the motion for reconsideration and this court precedent with respect to the prejudice the judge kaplan abused his discretion on the undue prejudice and delay prongs the other alternative reason that judge kaplan denied leave to men was futility and i submit made the same errors shooting from the hip from the bench no written opinion no citations to case law theory on current characterising this just for judge judge kaplan found mr just released his claim his securities claims by signing a letter of transmetal in two thousand and eight this was the letter that sent to the shareholders they signed an order to get the consideration for the merger they signed on the dotted line and centered in one buried in the middle of that letter  release language that plainly section twenty nine of the securities exchange act said any release when you try to release your right to bring action under the series act that's avoid this court as well your honor in the  still lose now i believe go to great lengths to try to avoid section twenty nine and they cite a string of ninth circuit cases in which a release has been valid in the middle of ongoing litigation between parties represented by counsel waiving future claims the ninth circuit has found that in the context of having representation in the middle of an ongoing litigation with counsel that that can be sufficient  under section one b we are left guessing as to what judge happens basis was he simply said you didn't come close to pleading nine b gave no explanation and i would submit that you should not conduct plenary examination of the record in this complaint whether we satisfy the specificity nine b in the absence of any indication from judge kaplan as to what was in specific if you do i submit there's no shortage of who what where when the pleads fraud in connection with the bidding process the so called auction process where despite the fact that strategic bidders were interested we know from the information circular and unnamed strategic bitter came in in two thousand and six that only all discovery process is about you you don't you know discover the existence of a claim just because you discover the existence of additional support for it there's no  you're saying it you're saying incremental facts were found out over time and therefore there's nothing untimely about your motion to amend but certainly you knew all about the sale of of the of the government consulting to the valuation of the government contracting division and the commercial division the c e o provided to the fairness expert an eleven percent growth estimate now these are government contracts as the court knows well twenty percent revenue that actually took place was something that he'd planned for that directly shows the falsity of the two thousand and eight statement so it wasn't just good business it was so he underestimated it at the time he it was valued that's exactly right your honor by deflating the value of the shares the retired shareholders didn't get the fair value and only it in rich to the core management including c e o schrader throughout the process by taking back the stock you p or by seniority isn't quite right the the awards were given in the same amount every year to people who held the same level title within the partnership but it wasn't by seniority it was by your performance in the firm help how far you advance so they had one partners l two partners you know through the lead partner ranks and then they had senior partners that you could get a note it's a bonus rather then  a grant to everyone and the same level it was a discretionary bonus that was given every year nobody was promised anything and when the management fixed the amount of the bonus they fixed a certain amount for the l one partner's a certain amount for the l two partners a certain amount for the s one partner's the senior partners and so on but my point is simply that your advancement through those ranks was not lockstep by seniority it was a function of your performance within the firm now it has been settled law for almost four decades now that stock option plans like this one don't trigger arista and if you just march through the statutory criteria we think that it's clear why there are two subsections the first covers plans that provide retirement income to employees it has been settled since murphy versus an exco in one nine hundred eighty that that section was intended to cover plans whose primary purpose was to retirement income and not plans that were designed for other purposes but that just incidentally made some payments after retirement otherwise arisa would cover everything in the world arista would cover the practice of paying dividends to your shareholders or argument is that the purpose of this was to retain experienced person now with an incentive rather than a retirement plan exactly your honor like many of the decided cases this was a plan that was structured in order to incentivize some of the most valuable officers of the firm to stay and spend their career at booz allen rather than leaving and go somewhere else and i would do generous pension plan do exactly the same thing but i wouldn't leave after twenty nine years if after thirty i can get a nice pension but will show your honor if what you are  offering to the employees is innocent incentive to stay in order to get a generous pension after you retire then that is a retirement plan this is a stock options plan it granted stock options that's all it did it granted them while the employees were wrong would usually get stock options you can exercise them based upon certain requirements that don't necessarily entirely carli with terminations of employment you're  awards were given during employment they were exercised during employment and once you exercise the option and you pay the money you own the stock you own it while you are employed everything happened under section ten deve the plan if you sell one share of which is maybe what's a little bit unique about this plan which is the other very important purpose of this plan is to raise all of the equity capital the booz allen needed for its business the participants in this plan were the only shareholders and all of the  equity working capital that that was alan needed in its business came from the participants in this plan obviously use alan needed to discourage people from dumping the shares right away because they needed that capital has nothing to do to make sure that does not have to rely on or public sale of stock exactly around or they wanted to be wholly owned by their officers in many respects they thought of themselves at this point as a partnership and they wanted to be wholly owned by their current officers in order that any plan to the stand that to the extent that is a result of surrounding circumstances result in a different of income for periods extended to the terminations of covered employment or beyond discouraging people from selling does not necessarily events a desire to provide retirement income it is even more consistent with what the announced purposes of what was alan said it was doing which is to raise capital and incentivize people to stay when and but what of that is in fact a circumstance and it is a surrounding circumstance that does result in different of income for periods extending to the termination of coverage employed ok let's talk about what  there's absolutely no deferral of anything here your honor all that this plan does is grant stock options that's what it grants it grants them while you are employed you have them you purchased the stock and then you own it along with all of the benefits of stock ownership including voting the case for instance it was eighteen t s practice of paying part of the long distance bill of its retirees and and the fifth circuit said that's not a deferral of income because you had no right to receive it while you were employed it's just a promise to do something after you retire so subsection two is not triggered now a plan like that might very well trigger subsection one in some circumstances if it is intended to provide retirement income it actually for strange reasons didn't and in that case  one in two or in the alternative that's right but in this case subsection one is not triggered because the primary purposes of the plan were not to provide retirement income and subsection two is not triggered because there is no giving up of something that you were entitled to now in order to get something later to the contrary you got everything that you were entitled to you actually received under this plan while you were employed and i think there's an important conceptual confusion in this case that can be cleared up if you think about the value represented in the shares in sort of three buckets so there is the the money that the employee pays to booze allen for the shares that's not a benefit under the  it's it's a cost to the employed is what they pay for the asset they're getting the opportunity to buy is a benefit at the market right if that were so the second aspect of the value that's being converted here is the discount right so most of the stock was purchased at something less than half of book value at the time of purchase that value represented the difference between what you pay and what you get is a benefit under this plan but it's not defer it is conferred immediately when you well and its balance sheet grows and its book value grows that's not a benefit conferred on a continual basis by the plan it's just capital appreciation in the capital gain embedded in the asset when all pensions are alike you contribute money and you hope it appreciates in value before you have to draw to hell isn't it the same well if your honor is referring to a traditional four a one k where you can make contributions so the reason that that sort of plan is covered it is is because you you your contributions are on a pretax basis if you will you designate some portion of your current salary that you were entitled to receive today and you say i don't want to receive that today put it instead into vehicle and at that point it's covered by a receipt doesn't matter whether they put the money in a sock or they may buy stock with it or anything about the portion that the employer contributes to the same kind of plan i think that is that is not relevant the that sort of plan is obviously designed to provide retirement income that's its entire purpose but the case for his uniformly for forty years recognized that stock option grants do not trigger reza in part because they what what the fifth circuit said and murphy very wisely was congress wrote the coverage provision of a ressa so line up with the problems that congress was trying to solve substantively with the arrest of statute what congress was worried about  was the underfunding or mismanagement of funds accumulated to finance future employee benefits congress's concern was that employers were putting in a way enough money or that the funds were being mismanaged by errors stock option plan doesn't involve any of those dangers in the usual option plan result in your having the option to buy stock at a certain point and you buy it has nothing to do with whether you're leaving the company that's right on but that's true here too that you got stock options from booz allen you bought the stock and you own it you were then one of the the only voting so that shareholders but you can't sell it you can't sell it because it was a privately held company and there's no market other it other than the company you could sell it the plan explicitly says you can sell it anytime there were some consequences attached to that because of the purposes of the plan one of its purposes section ten b which are and the three referred to is if you still think you share more your rights to purchase the future shares and that's right or are consistent with the plans purpose of raising capital for the firm not retirement it isn't that kind of a circumstance is that the surrounding circumstances surrounding  property the fact that that property generates future gain for the recipient doesn't mean that any aspect of the bonus has been deferred it's just an inherent actually viewed in the fifth strike its words of the property that was used to pay the bonus if i give you a bonus in the form of a sports car and it appreciates and you later sell it that's capital gain that you experienced but it's not a benefit under this plan this plan works exactly like all of the stock option plans that your honor is referring to you buy the stock and then you own it and you have all of the advantages of stock ownership the stock plan had a feature of requiring you to say two years after departure from the firm which is not traditional and while i'm asking you about that  hon case and the way case that are cited in the briefs both of which held that a ressa doesn't apply that that's not it motivated by a desire to provide retirement income to anyone it was motivated by by bruce allen's desire to be owned by its current officers they wouldn't sell stock to the public the only people who could shares were the people who were currently officers of the firm so if you're no longer an officer of the firm you have to sell has not absolutely nothing to do with retirement and that's the second half of your honor's question i claim before you get to the merits right it's it's untimely it's barred by the release of barb a lot of other things right but on the merits there is no sufficient allegation in this complaint sufficient to survive the that what you're claiming judge kaplan is a very experienced judge he's seen a lot of securities complaints and he recognized that under the reform act which imposes higher requirements in some respects that this was insufficient it's insufficient because it's a classic pleading a fraud by hindsight they have to this one quote that they take out of context where they say that dr schrader said later that the company's performance after the sale was was the result of planning schrader obviously was saying was the booz allen six continued success over the years was the result of kind of careful planning and management of the enterprise not that it's not a confession that he knew in advance that the company was undervalued and why in the world would these people sell their own company for less than it was worth it just it's a classic example of looking at a good outcome they had a they had a good two years their revenue grew and you know we have a disgruntled shareholder who sold two years earlier and then wishes that that were fraud that's never been sufficient but i can't imagine that your honor wants to to reach the merits of that issue because it can i continue a little bit congress doesn't want people to just say you can do for me that's fine the leading cases on on this your honor including the vocal france case from this court but more recently the ninth circuit cases the facebook case and the p case recognize that sophisticated parties represented by counsel in a litigation context can waive securities claims relating to this without a litigation your honor your honor he had already sent a letter threatening litigation had retained counsel with a geisha counsel it was not represented by counsel as to the transaction but he had retained litigation counsel he had threatened litigation and five days later he sued booz allen was obviously in a litigation context and when he turned over signed that release to get his money faster in exchange for twenty two million dollars it was very clear that he knew he was settling securities claims known and unknown to him and you know a lot of money but if you was entitled to a lot more than that and it's not so much and so in fact even where there was a peppercorn or twenty two million dollars doesn't really signify if what he was releasing was his right to assert on securities claims  the future in the leading cases on this say that as to past conduct you can release securities claims known and unknown if you're sophisticated party with counsel in a context we think that that is is true here regardless judge kaplan did not abuse his discretion in finding this application for leave to him and untimely all that they want to talk about is his prejudice but what judge kaplan said was under and the law on this woman versus davis from the supreme court in this court cases too is that although we have to amend is freely granted as justice requires it can be denied on the basis of undue delay dilatory motive bad faith under prejudice or futility and here we have at least undue delay  is not just dilatory your honor it was deliberate he actually pled securities fraud claims in his first complaint in this case and then he dropped them when judge kaplan asked for a consolidated complaint he dropped them in order to wrap those and securities claims are oil and water now after the the reform act but he could have put in the alternative look i think this is rico but if it's not it's a securities case he didn't do that for strategic reasons then he pursues that  conclusion and after it has been dismissed years into the litigation he says i want to go back and start over judge kaplan pressed him hundred read the transcript judge kaplan pressed for what is the explanation for this delay that you want to assert securities claims which if you look at the proposed amended complaint the securities claims are just a reframing of the rico claim that he actually asserted this notion that he didn't know enough facts to plea to security scams of course he did he just played them in the a tax case when he is their income for purposes of determining when a stock plan is a pension plan and the law provides the answer and a clear one the eight circuit in  is a quote participants in the program redeemed shares while employed so there is no deferral in that case providing present income he circuit equates redemption of shares with income it goes on in that same decision to use dentists accountants lawyers and everybody else and nothing is more common than that you become a member of a group or a partnership and you contribute capital usually over time because nobody has a been saying none of that is in this record but let me go on we do have unique circumstances including the oral threats not every plant has a penalty not every plan has an expressed discouragement of sales and i didn't have  chance to mention before we have to ship people can't pull their capital out and remain partners that's not how it's done because otherwise everybody would pull their capital out and say one at one of my other partners when you kick in the capital if your honor if this court rather were to rule in my favor by finding that there has been a deferral of income because the because of the penalty and the threats and the like and the pay for not selling here that was one hundred percent deferral as pled and as sworn to you would be consistent with the eighth circuit m an egg or you'd be consistent with multiple department of labor opinions you'd be consistent with the hondas asian illinois the johnson decision and out of the district was more common in a partnership agreement of any kind of a partnership than saying that the partners have to have to kick and have to kick in capital and leave it there while they wish to be members of the of the enterprise and  take it with them when they when they leave the common or and that that's you know everything here and in fact that is a difference of income because ordinarily people say well you you're making seventy five thousand dollars you know this and hahn and others have informed us as well as the department of labor that it into specifically your own regarding stock plans not some other plans that if there are prohibitions on sales of stock that and that result in the deferral and here it was one hundred percent which  add also exempts us if this were a bonus and it's not then you have a pension plan and you're drawing that distinction on the basis of the fact that it's stock but this it reso wording doesn't talk about stock it talks about whether whether they were there or there is a plan that that its surrounding circumstances results in the deferral of income to periods leading up to terminations and you're saying well you know this is not an ordinary partnership arrangement because it involves stuff but what i just read you didn't have anything to do with what i'm saying what i'm saying your honor is that the cases and the authority is clear that the fact that it's a stock plan doesn't mean it can't be a pension plan and in fact the a circuit and others say  your honor if i could i want to follow up on your question from earlier if i could i don't don't worry about the red light your honor asked earlier when i listed the three factors that cause one hundred percent deferral here and your honor asked a question about whether or not oral statements as opposed to something in the plan or otherwise in writing could be a ben things the department of labor this is on page forty one of our brief the department of labor in three different opinions has said this and i beg your indulgence start a stock purchase plan that was not by its express terms subject to a risk that could be considered in a recipient and here's the quote if an employer or any person acting directly or indirectly in the interest of the employer prevents or discourages participants from selling their shares that's three department of labor opinions interpret ing surrounding circumstances tell us that an oral admonition against stock stock sales is indeed a surrounding circumstance be taken into account you just read that now would you kindly explain to me why that the department of labor  interpretation would not potentially result in a plan b coming into resupplying on monday and anonymous a plan to say that's not the circumstances here the i understand that what we do we're not dealing and if if the policy of the company changed and the plan remained on it's face precisely the same you're saying that according to the parliament of labor it would oscillate between being in a recent plan and not being interested let me draw a line that would writing so it's not a question of who said what in the hall room and you had in the hallway rather you have expressed discouragement in writing so here the oral admonitions should be taken in the context of you have the employer implementing making very clear to its employees that we need a business when we said we expected you hold those oral statements your honor we are we mean business and don't you forget the penalty so where you can draw the line is we're not relying just on the oral statements those oral statements back up and are consistent with and highly plausible in light of the penalty and the written discouragement so there's the l we're not relying simply on oral statements but they are awfully powerful surrounding circumstances when added to what's already in the plan and that draws the line which would end any potential slippery slope i believe your hon they had to do with misrepresentations made to him to force him to resign that was his theory that's it remember he didn't know about the false it is the information circulating yet totally different had to do with his shadow stock judge kaplan implored counsel below truncate this you know blunderbuss of a complaint and counsel did in fact do that he cut those out the new securities claims are much more well pled your honor and they go to things that we're now hearing about were simply taken out of context i think i don't think we've got a real good answer to judge pullers question about you know what about this statement for fifteen years who's alan averaged eighteen percent revenue growth all of a sudden there's a sale now we're going to go down to eleven percent what happens twenty percent increase where there's smoke there's fire on or if we took it out of context we should get the opportunity to post to get documents and a further probe these statements that we've alleged with particularly in the complaint finally  honour's i'd like to just point to the rico claims there was a very comprehensive decision that came out this summer incinerate private reply brief it's the menzies decision in the northern illinois it went through the one nine hundred sixty four c exception and gave clarity through legislative history that congress was not intending to to stop any type of rico claims when there happen to be securities fraud as part of the racketeering enterprise and we've asked your honour's to follow the mentees decision