good morning morning may please the court my name is doug will and i represent the plaintiffs to individual i'm sorry institutional investors of and international the district court heard in denying our post judgment motion to file an amended complaint on futility grounds now as far as from as far as securities fraud cases go this is a relatively straightforward and not overly complex cos the fraud here is that  the endo purchased a company par pharmaceuticals and they intended to combine it with their existing and most important business division quality test and we allege simply that they failed to allege they felt to disclose that they were going to make fundamental changes to quality tests business model and when those changes were later revealed to the market the stock dropped and investors suffer the last sounds to me like a strategy making these changes to the company what we're saying is when they make those fundamental changes to the company's most important business division that they have a duty to disclose those to investors he did say in several places that the the consummation of the takeover car was transformation no i found that word more than once didn't that tell you that things would change one when we're not coming here saying that they weren't allowed to make changes or they are reasonable investor would not expect changes to occur what we're saying here is transformational as the defendants used it is they're transforming their existing company into an industry leader they're taking these two very disparate companies with different business models putting together very few overlaps magic they say they're going to maintain the magic that both of these companies had what that doesn't tell to a reasonable investor is as soon as the transaction is closed they're going to dismantle the very business that formed the basis of the company before that executive or palmer become the chief chief executive of the combined company that's true have told you something about the direction they were going that was not withheld that information know that certainly not but what we're saying is when the transaction the transaction closed on september twenty eighth they're saying all this is going to be trans transformational we're going to have this bigger and stronger company with all of these benefits that the two companies bring they're going to complement each other and then three days after that they  existing company that is something that in the context of what investors understood about that company quality test what is significant material and not disclose that we say that is information they should have of how important this company was it was fifty percent of their revenues analysts described it as a gold mine so what we're saying is the quality of the quality is an absolute gold mine it was fifty percent of the company's revenues so when you look at the statements that they're making about the company they're giving investors a sense of stability and consistency following this very big merger but what they're not telling them is that as soon as this as soon as this is closed that they're to fire the top the two top they're going to cut an entire regional sales force and they're going to discontinue drugs and we say that's not just business strategy that's continue they're going to discontinue some and the way it turned out it certainly everything was cut on the quality side and everything pretty much stayed the same on the par side and i think if you look how the investors reacted when those disclosures were made that they were shocked and the stock dropped a nick when the company said at the end of the class period hey we shifted early in the class period we made this decision to shift our the business model of quality test that the november again this is thirty eight days after the the the transaction closed they said oh by the way we have this ninety one million dollar charge based on certain decisions that were made with respect to quality test so we say the stock dropped after that because the market was rightly surprised that there was this huge charge yes but we're saying investors were still in the dark as to what exactly caused that now what our complaint alleges and what must be taking this true at the motion to dismiss stage is that we say it's because of the undisclosed gutting of quality tests that they they drop customers they cut certain drugs they got rid of the sales people not surprisingly that not our case our case that they could have had the best intentions of making this maneuver that's not what our cases are cases they failed to disclose it they failed to disclose it to the market and why did they fell to the school is it because they knew how the market would react it's not that they didn't know this information they had planned this from the beginning of the transaction you alleging that they knew the market would like transformation well i guess i'm alleging based upon how they reacted when the truth came out that the stock dropped thirty nine percent so if you look at why wouldn't they disclose this ahead of time just because investors were very keen on why and how quality test performed because it was such an important part of the business so when you look at everything in context they the market certainly they didn't are our theory is they didn't disclose this because they knew how the market would react but when things got to the point where they were so bad they said oh by the way we had this shift in the business model the market reacted and therefore the stock dropped the result has nothing to do with the reasons the business judgment as to why they make it they could have sabotaged this business any way they want our fundamental argument is they fail to disclose those decisions to the investors but with respect to just with my limited time if unless if the court has any questions on the item three zero three claim which we brought in the amended complaint and which there is certainly some overlap between the two but the district court didn't even address the specifics of the real three claim we laid out in our initial brief how we played all the elements of that and in our reply brief very specifically rebutted that there was no disclosure of whether this was an internal business strategy or not they disclose nothing about it they disclosed neither the gentleman had you know if the court wants to take the position based on the strap in a court case  that they don't have to disclose internal business judgment they don't disclose anything specific or general so it's our theory are we submit that we also stated that claim a disclosure based claim under item three good morning your honor some may it please the court my name is roman martinez and i'm here on behalf of the individual defendants a point of theory in this case fails for two overarching reasons first of all none of the statements was misleading or triggered any duty to disclose its internal business plans for how it was going to integrate part and quality test even so and it was transparent and it actually told the market a lot about how part was going to reposition the generics business in light of the in light of the when they decided to give up the goldmine of the locals generics and switch to the high barrier to entry i think that the facts pleaded in the complaint which which for purposes of this discussion we're assuming are true i think they plead a complaint about bad judgment i don't think they complete they plead a complaint about securities fraud and that's your defense that it was just bad judgment we didn't conceal anything we just made a whopping bad mistake our defense is twofold first of all we we didn't mislead anyone and second of all even if a reasonable investor may have been less misled by the comments that were made those the those comments were not made with c enter with the intent to mislead and we just try to the first point because i think it's a very important to be clear about what the legal standard that governs this fraud case is and the legal standard the baseline rule here is that companies don't have a general obligation to disclose their business plans as as this court in the supreme court made clear affirmative disclosure is only required when it's necessary to render certain other statement it's not misleading and what this court has repeatedly said in cases like the c n n san leandro case in the stratum a clear case is that it's especially important not to create a disclosure obligation when we're talking about internal business strategies because that's basically going to require companies to disclose to their competitors sort of their secret plans for maneuvering in the market so here's the question is not whether endo failed to disclose something but rather whether whether endo had a duty to disclose the information in the first place and we would respectfully submit that the answer is no because none of the statements that endo did make was misleading or triggered a duty to disclose now plaintiffs rely on basically on two sets of statements that vague assertions about maintaining the reasonable investor would have interpreted the statements as as promising that no changes would be forthcoming just to start with the maintain the magic statement i mean that is a classic generalized statement of corporate optimism that companies make those kinds of statements all the time and i i'm investing all your retirement savings in a company because the c e o told me he's going to maintain the magic there i think you would probably decide to get a new investment advisor because that wouldn't be a reasonable approach to that investment the other statements that they tend to rely on are statements about the complementarity about par and quality tests and it's certainly true that endo said that part and quality tests were going to be complementary what it meant by that was that they provided different products different portfolios and had slightly different business strategy exported business no i don't think that's true at all your honor i don't think the complaint alleges that that the quality has ceased providing revenues to the company in fact the documents that are cited in the complaint make clear that the company was counting on quality as to provide significant revenues going forward that's the whole problem when that when the guidance had to be revised it was revised because quality has had underperformed the expectations of the company but that just shows that the company had expectations to continue to generate business it's also not true with respect to my friend on the other side it's not true that the company didn't disclose the changes were forthcoming on both the portfolio side what products the business was going to continue to sell the legacy quality as business and on the personnel side the company was actually quite transparent with respect to the portfolio the endo repeatedly made clear that after the acquisition it was going to be looking at the portfolio of products and it was going to be optimizing rebalancing shifting the balance of products to take account of the form of the transformation how exactly they said it was going to be transformational and they said that the acquisition was going to allow the company to reposition quality test and if i could just point you to a couple of statements that were made during the class period well before the end of the class period that my friend relies on in september fifteenth on the conference call with investors endo said this is starts in september tw fifteen and this is that j fifty three and said and i emphasized and this is what the complaint says the likelihood of certain changes within the company including pursuing optimization benefits with the respect to the combined book of business optimization benefits means that we're going to look at the portfolio and we're going to change it because the company was concerned that the commodity products that that that quality has had traditionally been selling were facing increased pricing pressures and they were going to shift to the kinds of products that par was selling rid of the quality quality products but shift the emphasis in nov twenty fifth they said the same thing they said that the commodity products are facing downward pricing pressures and it referred to endos ongoing investors that they were going to limit the gold and have low cost generics and bring in theirs you think this is information that you've just read is enough to give an early warning to investors i think that those are just two examples that have six or seven others i think throughout this period i think the company was transparent about the big picture issues one they said that the quality of legacy business which which they did like and which had been performing well their their analysis was that this business was facing increased pricing pressures it was not going to be as profitable perhaps as it had been in the past that was the whole strategic rationale for buying part they synergies in the workforce as you noted your honor they put the head of part in charge of the combined business which was a clear signal and they said repeatedly throughout the fall of twenty fifteen we're going to change the portfolio we're looking at the portfolio we want to optimize the portfolio and we want to emphasize the par products and they made this so both that with respect to the portfolio and with respect to the personnel the company was absolutely transparent but you only only care about transparency if you think there was a duty to disclose in the first place require no your honor because the law i think the law from this court is very clear that when you have a an internal business strategy which is what we're talking about here there is no suit the baseline is not that there is an obligation to disclose that the what the court has placed very clear limits on case the strap in a clear case san leandro makes clear that the outer limits of when you need to disclose an internal business strategy are with the situation that came up in the time warner case and that's basically when you are telling the market you're going to you're hyping strategy when really are considering strategy b but there wasn't that now what happened here we were not hyping one strategy and secretly considering another strategy we were making generalized statements about maintaining the magic and then we were telling the market what  strategy we were actually going to pursue and so for those reasons there was no misleading statement here but i think there's a second and very important independent reason why the decision should be affirmed and that's that has to do with with c enter here there's no reason to believe that and i was actually actively trying to deceive anyone which is essentially what the other side has to prove they need to prove an extreme they need to allege an extreme departure from ordinary standards of care that approximates actual intent and there's nothing like that here most importantly you there were so many other good reasons that the complaint was futile that the proposed it was futile we briefly enter as well in our in with respect to the third amended complaint it raises a pure legal issue of the sufficiency of the allegations and we think that this court could we do as you as the court knows you described we do have to i have to discuss what i'm describing is that the ordinary rule here is we have to accept there are allegations of bad business judgment as given for purposes of the argument here our port point is that even if you take those allegations as given they haven't stated a claim for fraud because there was no duty to disclose it in fact even if there was a duty we actually satisfied it second they haven't shown that we acted in bad faith that we acted with c n n or the bottom line is at worst we made a bad business decision but there's no allegation of securities fraud here how let me ask you extra record stock we gained its previous position after the class period you don't i'm not sure exactly where the stock is today i think that the about before you go further certainly and i guess that would start that i agree with what with what judge winter said is this is c n two was not the basis of the court's decision we did not raise it in the first instance so i think if you are going to and that which was the first complaint after the only dismissal order in this case but i would suggest that we do a lead see enter here based upon a reckless failure in the face of a known or obvious duty to disclose and again we allege that they were facts known to the c entered here and it dovetails a lot with the falsity is that they did not disclose not because they didn't know the underlying information they did not disclose because they knew the impact that it would have on the market now what i'm saying is they were at a minimum they were they didn't disclose this information because they knew how the market would react as we because they knew it was a bad idea why wouldn't they just go well they didn't disclose because you know investors had an expectation based upon the statements that they made that they were not going to be what you say that they knew simply you know i wouldn't say that they knew it would have on the company's business in that when you fire the top two sales people when you discontinue and drop a number of drugs when you drop a number of business there are certainly going to be a negative reaction to that  if i could just address one question that you raise is when you asked my opposing counsel whether this was enough it clearly wasn't enough they said talking about optimization of drugs doesn't give investors any inkling that these very fundamental changes to the most important business segment of the company were going to drastically change nothing that they said if you look at the statements just take the september twenty eighth statements which is the day they announced that the transaction closed they're still talking very positively they're creating a very false impression about what this company is going to look like three days later they fire all these people nothing that investors were told about that  they had any inkling that they knew that was going to happen not until when they said at the very end oh we had this shift in business models that the market was very surprised in the stock drop so there was no transparency here and certainly as the class period went on and the effects were happening in november they knew that you know they announced a ninety one million dollar charge and yet they still didn't tell investors that it was the result of what they view the decisions that they made earlier