express scripts and its largest most important client anthem contrary to express scripts repeated public statements to investors in this ten b securities fraud case these companies were locked in a massive fifteen billion dollars dispute time can you describe what the deal was worth on an annual basis over the ten year course of the contract i think the best way to look at the magnitude of the deal is to look at express scripts admission at the end of the class period that if they would have given them the three billion dollars per year discount that anthem was seeking they would have been losing money on this contract can you please give me an idea of the amount of money that was each year was sure worth i don't have that committed to memory but but it's in the complaint and what i'm saying to the court is that express scripts wasn't even earning three billion in profit per year you can't answer my question is that  i i can i can try to find it in the pleading absolutely but you know because there were there were figures about revenues plus profits related to it and you know fifteen billion dollars swing is a large swing over you know it's a large number period but context is helpful sure and in terms of context this was the largest customer of express scripts it represented as much as one third of their profits so if we take the anthem request and we eliminate the profit on the on the contract we get but the company losing so in terms of the anthem related revenues in two thousand and thirteen through two thousand and sixteen we're talking between twelve and seventeen billion of revenues per year from anthem on this contract to express scripts so three billion dollars off of twelve material number but the materiality i think has to be tied to the profits because the profits here were one third of even offer express scripts per year per year on this contract so this was a very very significant event there's another way we know the significance of this event because when anthem went public with its three billion dollars per year request that revealed something to wall street that wall street didn't know when the stock price reflects that as well but you could turn  a different question which is i had difficulty understanding this read to me more like one nine hundred thirty three act in the one nine hundred thirty four act complaint because you point to different allegations you make different allegations about false statements that were false at different points along in the class period but it wasn't clear to me what rule you were espousing what point you know this became a fraudulent scheme with scienter and with loss causation and someone which is kind of a floating you know these false statements were made about have negotiations were going and how strong the relationship was between anthem and express scripts so you know it what point was there an affirmative february express scripts came out and talked about how great the relationship was how very very solid it was they had been talking for four months by that time did they have an affirmative obligation to disclose at the course of these complicated negotiations with huge client over it i mean that seems country to the interest of investors you don't want to skew the actual negotiations they absolutely could have declined to comment but that's not what they did they made selective comments making it seem as if everything was going well in this negotiation they called the negotiation productive they called it current by the time of the first game and they had been speaking for four months by the time of the second same they had been speaking for six months by the time of december when they said they were excited to keep going with the current productive negotiation they have been speaking for over a year so this was a very hostile locked dispy and if it was there then to investors of the whole class period for them to announce that they were having unproductive negotiations with anthem ok so wall street was very specifically focused on this contract and it was trying to project if the contract was going to be huge renewed beyond the ten year term so they were analysts that were making specific earnings estimates especially because this is one third of the profits of the company how much is this contract going to be worth to express scripts after the end of the first term so the investors were very focused on how things were going they would ring up anthem every quarter they would say how are your relations going with and then your most important client i'm sure it's great and instead of being honest or refusing to answer express scripts actually played along and created this this this false situation back to the first back to the first pricing negotiation was two to allow accounting for an a contract that has an assumed five year term built into it beyond a ten year contract is misleading and it's a violation of both gap and the securities law you know you've got a period of time to negotiate this and there are also there were also statements along the way that in essence saying we can't guarantee that we will resolve this but we are trying well you know if they would have said we are trying that would be one thing but what they said is we are engaged in good faith productive negotiations we have a great relationship with anthem our relationship is very very solid it is business as usual so your honor respectfully if they would have said we're trying and we don't know and we're going to counter this contract during its ten year term i would agree with you instead they accounted for this contract not for the ten year term but as if it would be renewed for another five years and they did everything to create the appearance to investors and we see this because when they speak the complain is replete with analysts picking up on what they are saying and using it for their forecasting this is one third of their profits you see every issue a qualified opinion p w c issued an annual opinion but there is no evidence at this point in the case that p t c knew what was going on in this bitter negotiation there's absolutely no evidence that the back and forth where these parties are refusing to speak to each other was was made aware to have to sign off on the it's conformance to gap and the financial statements conforms to gap yes but that doesn't mean they were prevented and  includes the reasonable probability about the fifteen year duration of and value of the contract the f c c asked about the fifteen year contract at the very inception they told the f c c it's based on a high probability the contract would be renewed for at least five more years we have no reason at this point apt require a high probability gap required at least a probability likelihood that it would require each quarter for them to reassess the situation kept it require a high probability to know what their investors understood from their statements to the f c c they were public as they were basing it on a high probability they said this was the most probable outcome gap required that this be assessed for the most likely outcome each quarter and they're there there is it is inconceivable that by the december of two thousand and fifteen when they have not even negotiated for over a year since the demand was made in october of two thousand and fourteen that they would continue to account for this as if it was likely going to be extended we're talking they can even agree on the pricing in the original contract but their accounting for it is if it's been renewed for another five years the reaction of wall street is quite revealing in this situation when when that when anthem goes public and not express scripts by the way and talks about the nature of this dispute there four days of statistically significant declines in the face of quite a shock by wall street as to what's happening here when the complaint goes public we have the back and forth detail of what was happening and that again leads to a statistically significant reaction tha defendants just to answer your question judge carney the revenue between twenty twelve and twenty sixteen it ranged from about thirteen billion dollars per year in revenue to seventeen billion dollars a year in revenue  and with even going above a billion in some places and several billion hundreds of millions of dollars in earnings it's a complicated structure in terms of how you calculate revenue and earnings but we are talking about that size of a magnitude i also think judge corning your point about it seeming like a thirty three act case because the briefing in the complaint starts with some duty to disclose and then we discuss and as we noted in our twenty eight j letter yesterday that courts within this circuit and the affirm and last week of judge sullivan's decision in federal gas says there is no duty to disclose the status of ongoing negotiations in fact the case they primarily rely on judge man's decision in high crush she herself dismisses the earlier section eleven claims they are because even though there were foolish statements about the relationship but the customer relationship was strained that they were accused of breaches there she dismisses those saying there's no duty to disclose breaches unless the relationship itself is at risk so let's break down the clasp or let's go back to the very beginning my friend says let's look at the february twenty fifth statements well what does mr queller a senior vice president of sales in oral statement at an investor day this is how they begin their class period not with the statement one of the f c c filings but an oral statement made an investor day where mr keller says i know amp the made mention about contract negotiation we're not going to talk about that i don't think it's appropriate to talk in public about the negotiations but he says the relationship is very very solid we're helping them roll out new states with the memory group and it's business as usual we're working with them very very closely so if you could ski actually you know accepting your position that there was no duty to disclose nonetheless representatives that express scripts went forward and described the course of negotiations in december twenty second twenty fifteen in particular that representations made that this was very early on and they were continuing productive discussions which in fact they've been stonewalling since march why isn't that an actionable misstatement judge carney first go back to mr pass remarks where they say we're currently in discussions he says we're currently in discussions with them regarding the periodic pricing provisions that set a four twelve anthem itself in january of twenty sixteen after these statements and this is on pages eight fifty eight five six eight to six nine and a five five three the general counsel ban to this matter that we are engaged with with the e s i that's i thought about the record that anthony had been reaching out to express and getting no response in january sixteenth that wrong with all due respect your honor i think those are characterizations of a negotiation that doesn't go well plaintiff's complaint says express trips didn't engage there were multiple meetings they're claiming they didn't engage because they didn't accept the three billion dollar demand being made  on them when amp them through out the entire class period is telling their shareholders we're only looking to get about five hundred to seven hundred million dollars a year in savings which would have potentially gotten a deal done in their negotiations their starting with three billion but to sit here and say there was no engagement is not true in fact throughout two thousand and fifteen amp them themselves on page forty nine says they're optimistic they're going to get something done on five fifteen we remain on track a five fifty that's year so throughout this class period them saying that but what is the statements again that mr possum we're currently in discussions consistent with what amp i'm still good shareholders we're excited to continue productive discussions with them but then he says based on the range of variables that could influence our discussions with amp them we are unable to provide a timetable or the likely financial terms of it successful negotiation and then the early on statement is mr wentworth c e o in a q and a again in an oral response to a question when asked whether and was reflected in the twenty sixteen guidance he says it was not included in the guidance because we're very early on in the process and we're working our way through it so there is just too many variables at this juncture when they already a year into it but they don't have they don't know where it's going to end up that's the point so they the very very solid comment was made a year before the impasse and what they're talking about in the very very solid he specifically says i'm not talking about the negotiations i'm talking about twenty fifteen to one hundred seventy five million claims a year they're processing one hundred thirty thousand fully insured groups i believe the the revenue we discussed for twenty fifteen was sixteen point six billion dollars a year they're saying we're working closely with this company and just like in federal gas it was an important enough relationship that they were confident that they would try and reach a resolution and again this is a year before the end of the impasse and i think point is to a lot of that they take adventure from the end and then use the statements that were made at the beginning because what's made a year later in february of twenty sixteen and this may be one of the most egregious examples of taking a statement out of context there's a risk factor contained in express scripts twenty fifteen ten actively engaged in good faith discussions with amp them and intend to comply with the requirements of the agreement anthem has made public statements threatening litigation at this time we were unable to provide a timetable or an estimate as to the potential outcome of these events any of which could result in a material adverse effect on our business in a result of operations so what a point of say they say in february of two thousand and sixteen you told the public you were actively engaged in good faith discussions and that's false misleading but when you read the statement they say well we're engaged in these discussions they have a meeting set up in a few weeks they had a mediation in november they say well we're still engaged in these discussions they're threatening us with breaches do not need to be disclosed happens all the time recognizing business judge pauley in the in the river of bent burch case you know if there's not imminently to geisha if it's not relationship and even judge man's decision and i crush says the same thing these types of operational breaches go back and forth throughout but you're talking about over a year before they even threatened litigation so that it again the operational breaches we would argue there's nothing in the complaint to allege the magnitude of them nothing to allege that they could have been cured instead they take anthems post class period end of class period complaint with all of its own adjudicated allegations and try and bring them forward a year obligation but to sit down in good faith and try and negotiate repricing your friend also points out that makes the argument that the fact that mr passed described the fifteen billion concession as ludicrous and yet that was anthems continued position over the course of more than a year also makes it misleading to describe the negotiations when speaking up about his ongoing productive and good faith there's been no movement judge carney the anthem is publicly saying what they're looking for is five hundred to seven hundred million dollars a year that's what they're telling their public shareholders in their f c c filings and otherwise the fact that in a contract negotiation they're starting at  dollars is not only ludicrous but it doesn't suggest that with these multiple meetings that they may not be productive with all due respect to my friend i've been to many mediations with this firm where their numbers start off quite ludicrous and we end up with the with the resolution gap requirements they are the i'm selves are subject to santa fe were judged carney interest parker wrote that opinion and faith and all sorts of things and again on page and i'll conclude with this on page seven five five to seven five six what plaintiffs leave out of the original s c c letter even though that's well before the class period is even there and tim says we do not know with certainty that this contract will be renewed or renewed what the exact length of the new contract will be and therefore they use a probability adjusted measurement they never say there's a high probability it's going to be five years with that will rest on our papers for the remainder thank you thank you to hear the yes thank you  the district court summary of the facts in this case was actually quite accurate in terms of summarizing what was in the complaint but then the district court shifted from the facts at issue here are the very specific facts to a more general question as to when you have to disclose a dispute with  fraud in this case for months had gone by before the first class period statement when express scripts called the relationship great very very solid they had not been negotiating what do you point to in your allegation to suggest that the people making those statements didn't actually believe them i actually optimistic about concluding a favorable agreement with them well first of all that they could have been optimistic about concluding a farewell agreement fine but they could not be allowed to to deceive investors as to what was going on at the time that is my point what are the facts that they knew they were directly copied in correspondence this was the this even though this record agreed was a core important contract to the company they were all aware of it they were negotiating their names were in that were in the emails they were at the meetings and them said to express scripts as late as december second you haven't even made a single counter to us you haven't even responded to our demand going back to october of two thousand and fourteen  council just referred to the company so we don't know if there will be a contract unable to predict those statements take away a lot of what you are right i don't think they do for two separate reasons so so first imagine a scenario where a company says we don't know what's going to happen but we're negotiating and in fact they were not negotiating that's what this case is about they were not talking to each other what about all what about the statements from anthem saying publicly that it is negotiated that is not true your honor and them says we have been trying to get them to engage for a long time we have been unable to the general counsel and tim says what do i do they won't respond to my demand i guess i'll go to litigation and he says that in january two thousand sixteen anthem is not saying that they're negotiating or they're successfully negotiating if anthem was telling its investors it was looking for less five to seven hundred million a year there is no evidence that express scripts use that information within them to say ok will you take the five or seven hundred million a year instead of three billion there is no evidence of that in the record moreover i want to make this second point which is express scripts as counterclaim says that anthem behaved in bad faith and them rejected five offers to make in response to your honor's question is the accounting here also require them to take a look at the accounting each quarter they were accounting for this contract not based on its ten year term but they were spreading out the costs over a fifteen year term there was no valid basis for them to do that under gap unless there was a likelihood of an extension they couldn't agree on prices on contract number one but they were counting as if there's going be a contract number two and that was false and misleading and it was clearly what wall street was taking into account when they were looking at this company