again my name is press that permit please the court i'd like to present on the behalf of the appellate process here the circuit court of cook county we believe made a series of reversible errors each of which independently would warrant derivative action that was brought in under delaware law because here on consulting group although it's headquartered here in illinois was incorporated under delaware law so delaware substantive law applies to the demand futility requirement under delaware law if shareholders required to make a demand on the board prior to bringing a shareholder derivative suit unless there is reason to believe they demand would be futile here demand was futile because a majority of the directors on the here on consulting group board were not independent they were not independent because they received director fees which were abnormally high  ranging for five of the six members of here on board anywhere between three hundred twelve thousand dollars and three hundred seventy thousand dollars so our allegation was that due to these abnormally high director fees a majority of the board we are it is a high hurdle to allege demands utility it must be alleged with particularize facts and we believe that we met this burden because with respect to the director fees we showed with a comparison  director fees of here on to the largest fortune five hundred companies that your arms director fees far exceeded those of those other companies and by the way those other companies have revenues and market that's a fact we presented a chart that insists the numbers yes correct numbers exist those were from publicly publicly available filings in addition we also submitted a survey or rather a study that was performed by fortune magazine which showed that in the year two thousand and eight i think it was four percent of the publicly traded companies in the s and p five hundred i believe is a survey of close to five hundred companies four hundred ninety one i believe  that about four percent have director fees of four hundred thousand dollars or higher now you're on skis we're not at the four hundred thousand dollars level but they certainly approach that they were between three hundred twelve thousand again and three hundred seventy thousand averaging over three hundred thirty thousand and we clearly believe that this would give a reasonable shareholder reason to doubt the independence of those directors the general rule under delaware rock is that outside directors are presumed independent and the receipt of ordinary or typical director fees is not enough to raise a reasonable doubt as to their independence there is no dispute as to that general rule inside directors however the ones who are full time employees of the corporation are under delaware law not independent for purposes of demand this is a common sense rule basically the rationale behind it is that if your first time job is that your a employee of corporation and you're also a director that to take action in response to a preset demand you might jeopardize your full time employment of course full time employment is what we used to pay our bills and to fund educations and it's  common sense rule that does not apply with respect to outside directors however the dental records have repeatedly emphasized that that is not an unvarying rule that is not a mechanical presumption and that using the can textual approach that delaware law requires a director based on fees which exceed those which are typical or customary even if they're an outside director can be deemed not independent for person purposes of demand futility a no no that's not our claim this is of course a case that's been brought in the illinois state court but brought under delaware substantive law the demand futility analysis is a substantive delaware and now it says that is to be determined under delaware substantive law of course illinois procedural rules apply to the case as well for procedural matters and the error of the the the first error that we believe the court made in which we've written about in our papers was that the court used the procedural rule to dash six one nine to admit and substantively consider a declaration presented by the defense which showed that two other companies which the defendants claim are peers of of here on pay director fees that were comparable to those of here on as a threshold matter the court should not have even considered this substantively because by doing so using an illinois procedural that that's true but it can't use it to alter the delaware substantive test which is what happened in this instance however let's just assume for the sake of argument that the court acted properly in admitting those items and substantively considering them let's just assume that that's true the court yet again made an error because the court drew inferences from that information in the defendant's favor the court can't do that at the pleading stage at the pleading stage the plaintiffs are entitled to  reasonable inferences and what the court did when it saw this evidence of two other companies that pay director fees that were comparable to here on's the court inferred that that meant that here ons director fees were typical that's not the proper entrance we never allege that here on paid the highest director fees in the country we net we never made that out as a matter of fact as i as i mentioned just a minute ago we submitted a study that shows that some companies paid four hundred thousand dollars or more the difference is that here on and a couple of other companies that they submitted happen to all pay high director fees there were fourteen other peers that are listed in here ons publicly traded filings that the defendants did not submit to the court where the director fees are markedly lower the not to proceed on a motion to dismiss when the defense argues there was no demand me yes but the distinction that i would draw for the court is that the defendants didn't merely submit public filings what they really submitted was an analysis that was an analysis of director compensation that was designed to say hey here on the rector compensation is the same as other companies it's not unusually high and how is it different in your submission to the top fortune twenty fifteen of them or was it lester us right because we're the plaintiffs and we're entitled to the benefit of all of the reasonable inferences and the defendants use that analysis to obtain inferences in their favor which they are not entitled to and this actually is best illustrated by the option backdating cases which we cited in our brief a couple of them just to just to rattle them off not my head one is below versus sharp another one it is edmonds versus getty and another one is lynch versus rawls very analogous situation where the defendant submitted a competing analysis of stock option grants again all the data was based off publicly available information publicly available filings in each of those instances where the plaintiff submitted an analysis that said it's likely that these options were manipulated and the defendant submitted a competing analysis that said no it's not in each of those instances the courts ruled that they could not review or accept any d we did not file a formal motion for leave to and amend rather in our motion to dismiss opposition and i also i believe that the motion to dismiss hearing and i could be mistaken about that because i do not argue and i was in that hearing  there was not a formal motion made rather there was a request in the motion to dismiss opposition that stated that if the court for any reason felt that it was going to grant any of the motions in part that we respectfully request lead to a believe that that request was also made on the record at the motion to dismiss hearing as well sufficient pleading is your honor i'm not sure what the illinois procedure is but we we did not make a formal motion to for lea because under delaware law there is no rule that says that a prior dismissal on the man's utility grounds especially one that was for different reasons and rationale in one case than has been presented in another  case well because it fever here argument that's what's really the reason that i would know what the legal reason is that our demand futility argument the one that i was just talking about with respect to the directors and their director fees was not addressed in the what i'll call the other derivative case and again delaware courts have not directly addressed this issue but delaware courts have as our paper show indicated that just because there's a  our main demands utility theory there were several that were raised in the amended complaint but the main one is that a majority of the board is not independent due to its director fees but that's an issue with some of them so weigh in and those are not addressed in our that i don't know how to respond because again i don't know what what was said at the at the hearing i'd have to look at the transcript very very closely in any event that the other distinct error that we'd like to discuss with the court is the circuit court's adoption in toto of the summary of the audit committees internal investigation at europe again this was a pleading motion and on that pleading motion the court made a factual finding that the board of directors of huron had no knowledge of the alleged accounting scheme as it was occurring this was a distinct reversible error which even if the court were unwilling to accept our other arguments we believe warrants reversal  there was not a motion to strike or a formal objection but certainly in our motion to dismiss opposition we argued that the court could not adopt those findings but for the same reason i discussed before that defendants are not entitled to inferences at the pleadings that much less a factual finding that what their investigation concluded was actually true again this is a delaware corporation and these directors and officers elected to form here on as a delaware corporation which which has real meaning under delaware rock a board has the option of forming a special it a geisha committee in response to a shareholder derivative suit the board did not decide to do that here a special education committee is the only instance in american jurisprudence where a defend form a committee and then conduct its own investigation and terminate a lawsuit based on what it finds it is the only such instance the defendants rejected that option not a reason they rejected it it's probably pretty obvious because when you form a special education committee there's a cost that goes with that too the cost is that you have to make a record of your findings you have to make a record of your independence both the plaintiffs and the court get to review that record and the plaintiffs are entitled to discovery the defendant  court to reach inferences in their favor of no wrongdoing based on a summary of an audit committee report that was contained in a company's public filings and the delaware chancery court held that in order to reach the inference is that the defendants were requesting in their brief he would have to find that the audit committee was independent he had to find that they conducted a full good faith investigation and that their findings were fair and reasonable as opposed to a quote litigation inspired whitewash oh well that's a very big picture again in response to just say similar now we we demand money we demand justice in the corporate world when at the end when you're either i will not hide what i do for a living i am a attorney with a plaintiff firm that specializes in shareholder derivative litigation we make demands all the time we make demands when we take a look at the board and we believe that a demand is warranted when we take a look at a board and we believe that we've met the that we can meet the exception we don't bother months how long does it really take a corporation to pick to tell guys like you to say no we're not giving because that's a very interesting question sometimes we don't get a response at all sometimes we get a response within a month most of the time i would say about a year but certainly that would be quicker than two years and eight respond by saying bay on what this board was being paid we saw no reason to make a demand but if we had made a demand your honor i have seen hundreds of demands made i have never seen one accepted never i've never seen it so why not do it you know that the demand it is a high hurdle as i started out with in my presentation to allege demand futility it is in a much higher hurdle to allege demand refusal because of that business judgment will protect a presumption  the board's response basically if you want to win in the demand refusal context you have to demonstrate that the board did not investigate in good faith did not make its decision in good faith and that is an incredibly states and shareholder derivative case is what you'll find in that most demand utility cases the court finds that the man was required but there's a number of cases where the man's excuse in the demand refused contacts the percentage of successful plaintiff tries to argue in his papers just a few minutes ago that a demand would have been futile because he runs directors were incapable of impartially considering a demand but any challenge to the impartiality of here on store ector is unreasonable as a matter of law under the circumstances presented here here on support is made up entirely of outside directors who are presumed to be independent and disinterested when here on suburban board learned of a potential accounting issue in late spring two thousand and nine it promptly asked its audit to compile a committee to conduct a broad investigation the audit committee retained outside accounting and legal experts to help in its work at the end of the investigation the audit committee and the board concluded that the company had made accounting errors and needed to restate its historical financial results the board publicly announced the restatement as well as the details of its investigation in conclusions and at the same time that it made that announcement it also announced the resignation of prior management and the implementation of new control procedures to prevent similar accounting mistakes going forward in light of all these voluntary and affirmative steps that the board took steps that to borrow a phrase that the plaintiff is there several times in its briefs clearly rock the boat at the company there is no reasonable basis from which to draw the inference pressed by plaintive that the board could not have properly evaluated the shareholders demand that's and to the extent there was that sort of challenge that's not something that plaintiff raised below and he did challenge this affidavit on many or decoration on many grounds i think about five hundred to six one nine section  talk about so there is a litigation and you know their jurisdiction which just seems you know initially we actually tried to say the federal case in favor of the state case because the state case was ahead of the federal case judge lo denied our motion because at that time the federal case had a proxy claim a federal securities claim and she said based on that she wasn't going to stay the federal case and then the next opportunity we had to prevent present the issue was this appeal class action which the companies addled i think more than a year ago at this point there was the federal derivative class action which was i believe four complaints consolidated into one and then there's this current action and this is the last held that where the federal court that rendered the judgment was exercising diversity jurisdiction which is what judge buffalo is exercising federal law incorporates the rules of preclusion applied by the state in which the rendering court sets now would be  well the other case that i think would be helpful as is city of chicago versus st john's united church of christ which is for a way to illinois at three thirty five zero five and that second district two thousand and ten compensation creates a compromising interest is extraordinarily high it's that you have to show that fees are so lavish that a mechanical application of the presumption of impartiality would be totally at variance with reality i think a really important point is that there is no case and no court of delaware law that has ever found that the size of director's fees standing alone were sufficient to defeat the demand requirement that no case is done it and we don't think there's anything about the facts presented here that would make this an appropriate case for that kind of decision the other thing is we think it is perfectly appropriate for a judge a grin to have considered the earnhardt declaration and othe c filings we think it's appropriate under illinois law we think it's appropriate under delaware law but it doesn't really matter because even if you exclude the earnhardt declaration as we argue in our papers and that's of pages twenty t twenty eight of our papers because i know time is short but as we argue there even without the earnhardt declaration plaintiffs don't come close to meeting the standards that would be required to defeat demand futility based on the size of knew or should have known about the accounting issues that led to the restatement they make that claim based on the ten k so all judge even does in his opinion is say i'm going to read th document that plaintiffs rely on and i'm going to see if it supports that very conclusory allegation that iran's directors knew or should have known what judge a grand then says is i've read the document and it doesn't say that at all it says the opposite it doesn't say the directors were aware that in certain instances management wasn't aware and in certain instances they may have been aware but they misapplied the appropriate counting literature so he's not in  seeing he's not engaging in a battle of the inferences he's not doing any of those things he's simply looking at the the inferences the plaintiffs are asking him to draw and determining whether they're reasonable  of outside directors and that's the point in time where you look at the composition of the board i believe today there is a single inside director but it but at the time period when they would have been making their demand which is the relevant time period all outside director s plaintiff does try i believe and i believe it's to come within this compensation plus line of cases does try to say that your ons directors were paid more the same as or more and it's  executives but that's really objective lee in accurate when he when plaintiff makes that comparison he excludes equity compensation for ons executives so he compares their base salary to the full compensation packages that the directors receive compensation in equity we've pointed out there is mistake at least two times now and plaintiff has never corrected that error when you look at total compensation packages  hurons executives twice as much as its directors if you look just of base salary or that if you take out equity the director the executives make three times as much as your ons directors the other thing is you know the idea of an inside director it all goes back to the inability to be impartial perhaps because you're worried about losing your fulltime job or you're beholden to somebody again this board at the time of the r statement announced the resignations of management is just impossible to see and you know i think this is why plaintiffs can't allege it out of quickly how they're beholden to anybody they made a  restatement which plaintiff alleges drastically impacted the stock price for here on securities that has a direct impact on the directors compensation they didn't they didn't hesitate to make that decision in two thousand and nine and there's absolutely no reason to believe and also on a failure to state a claim in that case as this one what was alleged was that the executives at some knowledge in some cases but not others but did not appreciate the consequences of that knowledge and so there was no knowing violation and so in terms of one case from ten years ago as a summary judgment case where there were many complicated factual issues as justice quinn notes and as hundreds of cases of held this dismissal can be affirmed on any grounds and come to that this court should consider any grounds based on the record that would justify affirming those grounds are before the court they've been fully briefed at least by one side and plaintiffs you know lateral choice not to brief that shouldn't change that so less than any questions that's have placed the court i will be very very brief as well these arguments do parallel those of the other defendants and we certainly agree the circuit court's order should be affirmed but position on this appeal is also unique two reasons first p t c is an independent third party an outside auditor and so it does have arguments that are slightly different than those of the company its officers and directors among other things whether or not directors could have been impartial in evaluating whether or not to see themselves or their fellow directors for compensation reasons or any other reason has no bearing on whether they could have been impartial visa v p w c second plaintiffs have failed at every stage of this litigation including this appeal to address p w c's unique position and arguments plaintiffs have been completely silent with respect to p w c and therefore cannot possibly show that reversal of the circuit court's order is warranted with respect to demand could have been excused with respect to p c as a third party or how the conclusory allegations in their complaint could possibly state a claim against he w c so in short p t c maintains that even if this court were to find that demand and i just have a few quick points to respond to arguments that are raised by the various defense counsel first first with respect to counsel for the company and for most of the individual defendants the court sorry the court heard from independence analysis is can textual in nature and it's case by case on an individual basis and none of the cases that the defendants have provided the court with presented the scenario where directors admittedly were paid high just like you know the decision to create s l c or not create an s l c you have to sleep in the bed that you make and they choose to pay their directors high so that they can retain and track talented people ok that's fine but the reality is when a shareholder sees what they're paying those directors for that there's a cost and the cost is that their independence is going to be reasonably called into question so there's no case that addresses that exact scenario the second point that i'd like to make goes to the the court's acceptance of the audit committee conclusions defense counsel characterized it as as not drawing an inference or making a factual finding the plain language of the court's opinion makes it very clear that the co director defendants including the directors on the compensation committee and aware of the redistributions once they learned of their extent the entire board decided to replace here on c e o c f o and c e o and to implement new oversight procedures that's a factual finding by the court that the board had no knowledge or involvement in the accounting scheme as it occurred the court can't make that kind of finding on the plate at the pleading stage based on an audit committee report if there was an s l c report that's a different story but again there's more s l see here  the final point i'd like to make response in response to counsel for the company and for the individuals is that they talked about the attorney cited the the director fees as being significantly less than what the  executives at here on were making so in other words you know we've alleged that the directors are being paid by executives and they're saying no no no that's only if you look at the base salaries if you look at the equity based compensation then you know there's and it's not even close well the equity based compensation in this case as we allege in our complaint was based on false financial results the equity based portion of the direct of of sorry the executive compensation was based on the company's net revenues and its earnings per share which were falsified to eight significant degree between the years two thousand and six and two thousand and eight and the first quarter of two thousand and nine the company's net income i believe was reduced by fifty seven percent to fifty seven percent or fifty seven million dollars but in any event it's half essentially half so if you were to have the equity based compensation that executives received during that time period i think the executive compensation would start to look a whole lot more like the directors told compensation substance of claims that our briefing the only reason we didn't do that is because the the court never got to it there was no reason to brief up something that the court never addressed in the record our motion to dismiss opposition is there it very clearly explains why we village claims upon which relief can be granted and again we submit that they said it's telling that we didn't address this we think it's telling that they did our appellate brief deals with all sorts of errors that the court made and they largely disregard of those and brought up a whole set of issues that the court never even got to we think that's what's telling and again if you were to look at our motion to dismiss opposition i don't think there's any question that there's claims that have been raised that upon which relief can be granted this is a claim based on a restatement of thirteen fiscal quarter at here on at which again compensation was paid based on those false financial results that's a that's clearly unjust enrichment claim there's no mens rea a requirement for an unjust enrichment claim  again you have an admission that the financial results were inadequate that they can't be relied upon that the company's internal controls were inadequate we've raised claims for breach a few sherry duty both for issuing face a misleading statements that if you say you are right that's correct that's correct thank you thank you this case will be taken under advisement and this