morning may it please the court my name is sam binder off along with my colleague jacobs umansky we represent plaintiffs appellants in this matter this case is about the supreme court's holding in the case fifty third bank third bancorp be due to offer and its articulation of a new pleading standard for a reserve duty of prudence cases how we should understand that standard and how we should apply it in a situation like this one where you have is of the employee stock option plan who are also senior corporate insiders with direct firsthand knowledge that the company is defrauded the market and that therefore the company stock is trading at an artificially inflated price what do hoffer holds is that you want the a pleading standard in these cases that serves both a as a gatekeeper function to keep a flood of cases from being brought but you also don't want to pleading standard that is impossible to meet and that was part of the court's reasoning in rejecting the munge presumption which it said essentially is impossible to plead unless you have a company that is in dire circumstances and what's more having a presumption like that in place for the defense essentially makes the prudent man standard that's supposed to apply obsolete justice kennedy called it in oral argument a coach class trustee essentially the only part of the prudent man standard that an aesop employee stock option plan fiduciary should be exempt from is the requirement to diversify or if you just  store your honor we actually would say that this case is very much like didn't offer in that you had these insiders who are also the fiduciary they have inside information and they know that there is a fraud  about is sort of two situations they call it the actual language is the uses a rock and a hard place and they say in many cases an aesop fiduciary who fears that continuing to invest in company stock may be imprudent and so he finds himself between a rock and a hard place if he keeps investing in scott stock goes down he may be sued for acting imprudently but if the stock goes up he may be sued for dissipating the plan documents and this concern again is reflected in judge kozinski is dissent in the ninth circuit in the engine case where he talks about you you have a situation where a fiduciary might not know whether there's a securities violation he only has reason to suspect there's one in  conditions of uncertainty if you have a an overbroad understanding of what more harm than good means and how to plead it you'll have a situation where you have to do sherry's essentially second guessing the people responsible for making securities  and we agree that you don't want that but that's why we draw distinction why this case is distinct from didn't offer and from and from this court's opinion in lehman brothers because here you have a situation where the and the corporate insider with knowledge of the fraud direct knowledge who is actually participating in the fraud are the same people to draw a contrast the committee that is the aesop fiduciary in this case do it on a twelve b six context well in the twelve b six context you have the p s l r is pleading standard you have to plead that there is fraud that there's actually been fraudulent statements and you have to plead c enter on the part of the people making the statements  in the arista context slightly different you don't have to police the enter but when we argue you do have to plead that you have knowledgeable fiduciary which is not an easy thing to plead that fiduciary is actually know that there is artificial inflation is the standard as articulated by by didn't offer however i would suggest that that is not a standard that creates a situation where any possible situ any fiduciary you can imagine who could somehow come up with a circumstance where it might not do more harm than it might do more harm than good therefore allows the defendants to escape liability it's a reasonable it's a fiduciary who could reasonably believe output in this context and prude sure that disclosure corrective disclosure would would not do more harm than very simply you have three things going on you have people buying plan participants who are buying company stock people holding it and people selling the people buying it are buying it at an inflated price you know this and no matter what happens to the stock down the road those people are being injured in the words of this court they are paying too dearly for the company stock the people holding it does some good us that absolutely the people who are holding it and the correction that will occur when the truth is disclosed will be no greater than the amount by which it efficient markets hypothesis it's the basis for securities law it's quoted in the duden offering that you're not harmed because the inflation is is as artificially inflated so they're just getting back to where they would be without fraud zach leave and the fear that there will be some kind of over correction is without any basis and there's no reason for of for a plaintiff to have to plead around the possibility of an overcorrection didn't offer favorably cites halliburton in talking about a group i pod yes your group that you were taught the sellers there are sellers who are and i am about to run a time and if my answer sellers are arguably benefiting from selling at an artificially inflated price but consider what sort of a rule we're laying down if we say it's ok for a fiduciary to allow a fraud to continue so that his certain plan it please the court richard pepper men on behalf of the defendants appleby's your honor i have four brief points that i would like to cover this morning in response to the plaintiff's arguments  first is since the parties began briefing defendants post dieudonne hoffner motion to dismiss in march of last year the legal authority on which the plaintiff's attempt to base their argument has disappeared in opposing our motion to dismiss in the district court the plaintiff's rott relied primarily on the ninth circuit's two thousand and fourteen amgen decision which they described as being directly on point and the first major post didn't hoffer decision as this court knows earlier this year the supreme court summarily reverse the ninth circuit's amgen decision in their briefs in this court plaintiffs still essentially rely on the same arguments based on the ninth circuit's amgen decision that the supreme court has now rejected they simply no longer cite the ninth circuit's opinion as authority for those arguments but they cannot escape the supreme court's summary reversal in that manner the other case on which plaintiffs primarily relied below was the district court's decision denying defendants motion to dismiss in the b p case and the plaintiffs continue to rely on that decision in their briefs in this court as we explained in our briefs me that more harm than good analysis which i think focus  more harm than good tests as a pleading test that was the express purpose of the article and i understand that but in thinking back to how one would try to apply that in twenty six contacts i mean is it is it questions which are paragraphs eighteen nineteen a complaint though they do allege in paragraph eighteen the longer a fraud goes on the more painful the correction would be as experienced finance finance executives like these two defendants  a paragraph nineteen if defendants had engineer disclosure of the truth prior to that date which is the public disclosure day plan participants would be less so in a twelve b six situation isn't this enough to say well it's not so simple to say what ever it's a big problem you can't disclose it let's look at the circumstances here to see if it could have been in engineer by these fiduciary areas better to have less of a loss than just public disclosure your honor as i read it there are only two paragraphs in plaintiff's two hundred forty three paragraph complaint that go directly to do more harm than good standard i believe there are paragraphs eighteen and two hundred twelve i think paragraph nineteen it doesn't go directly to it but i think the answer to your point your honor is i think the district court got it right here that the allegations in paragraphs eighteen  that has led to securities fraud class action and corporate insiders are typically a receive fight and these very general conclusory allegations in paragraphs eighteen and paragraphs two twelve that sort of s as a a bright line per se rule manner that the disclosure of a fraud is always painful and the stock price will always drop that kind of per se rule is result in the supreme court in both amgen and duden hoffert would have been different for example in amgen there is securities fraud called a class action that had survived a motion to dismiss that in and of itself was not enough i would submit that in recess needs to consider at least three considerations in deciding whether either freezing the plan in its entirety or making some corrective disclosure might do more harm than good and i submit these are the three considerations first the total amount of company stock already held by the plan based on the allegations of the complaint here we know that as of the end of two thousand and eleven the j p morgan company's stock plan held two point three billion dollars in j p morgan stock second would be the extent of the potential losses here you're dealing with an alleged fraud related to a single portfolio in one of j p morgan six business units it's not an  alleged fraud that goes to the core of the company it is a limited potential losses which is why the stock drop over the entire post disclosure period was only sixteen percent th consideration by submitting a risk a need to take into account is the only burr all health of the company if the company is otherwise healthy and expected to do well then the stock price can be expected to rebound after the temporary decline but the second point i'd like to make your honor and use just an announced an area i do share in just now an analysis and includes has been argued this morning it is in effect morphing into a securities fraud case in that statements made on april thirteenth two thousand and twelve inflate the stock price there was a separate securities fraud class action that case settled for one hundred fifty million dollars the plan here and all of the plan participants are included in that settlement class so to the extent that the purchasers in the plan acquire j p morgan stock at a price that was inflated by virtue of the statements at issue in the securities fraud action the april thirteenth two thousand and twelve action the members of the plan the members of the plan can recover pursuant to that settlement to the exact same extent of every j p morgan shareholder this court need not ben to the original standard in order to provide for a remedy here for here we should be focusing on whatever their recent injury years yes your honor and what i would say it is that the b to propose alternative actions here the first in terms of what the arista disclose i think if you look at paragraph two of the complaint the plaintiffs say that what they should have disclosed was j p morgan's quote pernicious risk taking or pernicious speculation were j p morgan wholesale abandonment of its risk management policies if those disclosures had been made at the beginning of the class period here which is actually december two thousand and eleven i mean ou close those kind of disclosures would cause a dramatic decline in the stock price and thereby harm or the two point three billion dollars of stock that the plan already owns the last thing i'd like to obliged to advise the court of the us i was talking about the b p case that was argued on august first of this year and i will say that at the beginning of that argument on august first of this year the panel stated quote we agree with you that's the defendants in that case that the district court applied the wrong standard in the b p case and then the remainder of the argument before the fifth circuit was devoted to the question of whether the fifth circuit should we may in for application of the correct standard or whether the fifth shirt circuit itself should assess the sufficiency of the complaints allegations under the correct standard good test those three factors appear nowhere in didn't offer or amgen or any other case before any other court they appear to have just been manufactured logic to them in terms of evaluating  on the impact there is some but what are the other other factors that a fiduciary should look at and so these three it would depend on the case but we think in this case it's very simple and if you strip away everything you have a stock price that is known to be artificially inflated so you know that purchasers are buying it at an inflated price and you know that the longer that goes on the more of them will buy it and the more will be injured you know that the longer the fraud goes on you will have a harsher correction and which would you rather as a fiduciary have a sooner and softer correction or a longer a later and harsher correction and you know that you can prevent further damage to those planned purchasers by making a disclosure now or at least in your case of wilmont going to his boss the other fiduciary mr brownstein who does have reporting responsibility and saying to him you should make this disclosure because not only is it fraudulent on the market generally but it is also hurting plan participants and we owe them the highest duty known to the law second i was the situation different than the typical case when you're doing well those factors apply to all these cases they will apply to most of them certainly however there will be many cases this is not going to the standard we're articulating is not going to open the floodgates because there will be situations much like the one pleaded in the lehman case where you have a fiduciary who thinks there might be artificial inflation but doesn't know for sure if you think if you can't as a plaintiff plead knowledge certainty on the part of the  then you haven't succeeded under more harm than good because in that case of a do share you really could look at the situation and say well if i do nothing maybe it will turn out there isn't fraud and i'll do an investigation and find out there's no fraud and i don't want to spook the market unnecessarily so it's ok that i did nothing that's not the situation here and that we believe is what didn't offer is trying to distinguish between situations where you think there might be fraud versus situations where you know there's fraud and when you know there's fraud the idea that there's going to be an over correction is has no basis in fact if it does then the efficient markets hypothesis should be thrown out the window because under the efficient markets hypothesis it's only going to decline by the value it's artificially inflated to begin with