[00:00:02] Speaker 03:
The next case on our docket is the Oklahoma Police Pension and Retirement System versus Play Tags Inc.

[00:00:11] Speaker 03:
Will the council come forward?

[00:01:07] Speaker 03:
If the appellants are ready, you may come forward.

[00:01:28] Speaker 00:
Good morning.

[00:01:29] Speaker 00:
Jeffrey A. Dubbin for Appellant.

[00:01:31] Speaker 00:
May it please the Court, I'd reserve five minutes for rebuttal.

[00:01:35] Speaker 00:
I'd like to begin with the procedural error below.

[00:01:37] Speaker 00:
The district court allowed two Rule 12 motions against the same complaint, contrary to Rule 12's plain text and structure, this court's precedent and Rule 1's direction to interpret the rules for judicial efficiency and fairness.

[00:01:51] Speaker 00:
Affirming the procedure below would open the floodgates of litigation, muddy up this court's precedent, and multiply the expense of bringing any claim to federal court.

[00:01:59] Speaker 00:
Fortunately, Rule 12H2 says directly that the failure of state of claim defense can be raised only once against the same complaint.

[00:02:07] Speaker 00:
And I'd like to add to what's in the briefs by pointing out, Rule 12H2 doesn't mention Rule 12B6.

[00:02:15] Speaker 00:
It says, failure of state of claim defense may be raised in a Rule 7 pleading in a Rule 12C motion or at trial.

[00:02:25] Speaker 00:
or of course we do argue is disjunctive it means only once out of those three scenarios and it's clear from the absence of

[00:02:33] Speaker 00:
mention of role 12B, which of course is an opportunity to raise the argument that the complaint fails to state a claim, that what the drafters of the role are explicitly contemplating here is that that defense was omitted from that previous motion.

[00:02:49] Speaker 00:
That's exactly the way.

[00:02:50] Speaker 00:
Yes?

[00:02:51] Speaker 03:
I just had a question.

[00:02:51] Speaker 03:
It seems like the district court dismissed your claims for failure to prosecute.

[00:02:56] Speaker 03:
And I don't think I saw anywhere in your

[00:02:59] Speaker 03:
briefings where you have challenged that ruling.

[00:03:03] Speaker 03:
And so I guess I'd just ask you, why do you think the district court abused its discretion in making that decision?

[00:03:09] Speaker 00:
No, Your Honor, that's why the district court denied a sleeve to amend after dismissing the scheme claim.

[00:03:15] Speaker 00:
It was because we made the intentional decision not to amend after dismissal of everything but the scheme claim in the first motion.

[00:03:23] Speaker 00:
Now, that decision that we- Yes, I realize that's what I was asking about.

[00:03:29] Speaker 00:
Right, of course.

[00:03:30] Speaker 00:
We were facing an order that made manifest errors of law when it granted defendants 12b6 motion.

[00:03:39] Speaker 00:
Despite being told what the right law was and it seemed to be, however, did let the scheme claim through by denying the motion with respect to that it also allowed all the CWs who support that claim as well pled.

[00:03:53] Speaker 00:
seemed like it was the best that we were going to do at the time.

[00:03:56] Speaker 00:
And frankly, in retrospect, still does, especially given what we know now about the order of judgment on the pleading.

[00:04:03] Speaker 00:
So with regard to leave to amend, he did reach that ruling.

[00:04:08] Speaker 00:
We think it's an error, but it's not related to the Rule 12 issue.

[00:04:14] Speaker 03:
So I guess I'm not appreciating.

[00:04:16] Speaker 03:
What is the egregious procedural mistake that the district court made?

[00:04:21] Speaker 00:
It allowed two Rule 12 motions against the same complaint.

[00:04:24] Speaker 00:
First, under Rule 12B6, which it denied with regard to the scheme claim.

[00:04:29] Speaker 00:
Then it allowed defendants a second opportunity to move to dismiss the scheme claim.

[00:04:33] Speaker 03:
On the judgment on the pleadings.

[00:04:34] Speaker 00:
Under judgment on the pleadings.

[00:04:35] Speaker 00:
Once again, asserting only the same identical argument, failure to state a claim on which relief can be granted.

[00:04:40] Speaker 00:
Now, Rule 12 does not allow that, and this court's precedent does not allow that.

[00:04:44] Speaker 00:
in the apple decision it read twelve well twelve eight specifically we say this every as saying that the failure state acclaim defense can be raised only if not brought

[00:04:56] Speaker 00:
previously under Rule 12b, and this court's alphabet decision did not allow defendants a second Rule 12 motion against a scheme claim that their Rule 12 motion failed to target on the merits.

[00:05:08] Speaker 00:
Here, appellees filed three simultaneous Rule 12b-6 motions.

[00:05:13] Speaker 00:
None targeted the scheme on the merits.

[00:05:15] Speaker 00:
There was, of course, that solitary footnote based on abrogated law which did not address the merits.

[00:05:21] Speaker 00:
And that done, it was reversible error to give appellees a second chance to argue that the same complaint failed to state a claim.

[00:05:28] Speaker 00:
They should have brought those arguments in their first motion, C, Rule 12, G2.

[00:05:36] Speaker 00:
Now here, without that second motion below, the scheme claim would still stand.

[00:05:41] Speaker 00:
Rightfully so, this court should reinstate it because of the procedural error.

[00:05:44] Speaker 00:
And with it, this court should reinstate the claim against Apollo and the executive defendants for controlling

[00:05:50] Speaker 00:
the scheme.

[00:05:51] Speaker 00:
This is claim two.

[00:05:52] Speaker 00:
The first order below should never have dismissed the control person claim against Apollo, particularly not after assuming as true the facts of control, which the Apollo and executive defendants below did not contest and continue not contesting on appeal.

[00:06:10] Speaker 00:
So given the manifest procedural error below regarding rule

[00:06:14] Speaker 00:
We think that it should result in rule in claims one with regard to the scheme and claim to with regard to control person allegations being reinstated switching to the merits.

[00:06:25] Speaker 00:
I'd like to augment the briefs a little bit by just taking a step back and discussing play ages.

[00:06:30] Speaker 00:
business in general, 95% of its business is leasing slot machines to casinos, which create revenue according to the laws of probability and how good are PlayAGS's terms with those casinos.

[00:06:44] Speaker 00:
And that is measured by RPD.

[00:06:47] Speaker 00:
So the company's two main value propositions to investors are how good is the RPD and how fast can the footprint grow without sacrificing RPD because it's easy to see

[00:06:58] Speaker 00:
how the company could temporarily grow its footprint by letting casinos lock in better terms, which makes future RPD drop inevitably, and the company has no way out unless it jettisons those bad leases disadvantageously.

[00:07:13] Speaker 00:
As pled, investors believed PlayAGS's growth was genuine and not at the expense of RPD, and that impression was based on Appellee's actions, omissions, and statements.

[00:07:24] Speaker 01:
So Council, I...

[00:07:26] Speaker 01:
You're under Rule 9b and the heightened pleading requirements for fraud, correct?

[00:07:31] Speaker 00:
Let me actually get into my question.

[00:07:36] Speaker 01:
I only really saw two more specific allegations here that jumped out at me from the complaint.

[00:07:45] Speaker 01:
One of them was about the internal growth projections and what led to a, I guess like an internal McKinsey study that then led to something that went to some investors.

[00:07:55] Speaker 01:
And then secondly, an allegation about certain

[00:07:58] Speaker 01:
Fourth quarter sales being moved over to the first quarter of the following year, you know 400 units apart from those two I had a Strug I was struggling to try to find specific allegations that linked to alleged false

[00:08:14] Speaker 01:
or misleading public statements.

[00:08:18] Speaker 01:
Can you clarify?

[00:08:20] Speaker 00:
Yes, Your Honor.

[00:08:20] Speaker 00:
And so first of all, with regard to those facts, I think they are much broader than that, more detailed than that.

[00:08:26] Speaker 00:
It's not only projections which were multiplied, but all of the on-the-ground data that supported those projections is the allegation given to us by reliable CW-12.

[00:08:34] Speaker 00:
Furthermore, with regards to sales being stolen from future quarters and moved into previous quarters,

[00:08:40] Speaker 00:
the allegation is not simply that it happened at one time january of twenty nineteen to december twenty that is one specific example provided by two different cw's but as a matter of fact that multiple cw's but what what what about the growth projections link that up to what specific public statements were known at the time and and and intentionally false or misleading the growth projection specifically your honor is

[00:09:07] Speaker 00:
The fact, it's the deceptive or manipulative act supporting the scheme liability allegation under rule 10b, 5a, and c. It is not specifically one of the reasons why any particular false and misleading statement, any particular statement during the class period was false and misleading.

[00:09:23] Speaker 00:
However, I will say it does support the allegation under, this is our claim three and four under the Securities Act, that when these SPOs happened,

[00:09:36] Speaker 00:
Those the offering documents pursuant to which Apollo's shares were flooded into the market were required to disclose any known trends or uncertainties and the absence of a materially known trend or uncertainty from those documents is recoverable under the Securities Act.

[00:09:52] Speaker 00:
This is a different claim that we make and we allege that the arbitrary multiplying of

[00:09:58] Speaker 01:
internal goals and as well as this procedure where the company How did that manifest in public is what I'm trying to get at so I take it you're not leaning so much into Rule 10b false statements, but and it's more of a fraud scheme liability theory, but how did that manifest to harm the public?

[00:10:18] Speaker 00:
It's both of those, Your Honor.

[00:10:20] Speaker 01:
Well, I haven't heard you mention a specific public statement in the past three times.

[00:10:24] Speaker 00:
Well, a specific public statement, I would like to address that.

[00:10:27] Speaker 00:
Lopez says every quarter, this is the number of units we added this quarter.

[00:10:32] Speaker 00:
But what he knows, because he was personally involved in moving those units from future quarters into the quarter he was reporting financial results for, is that they weren't genuine.

[00:10:41] Speaker 00:
Those units that he reported as

[00:10:44] Speaker 00:
quarterly growth, and the allegations every quarter, not just that December to January quarter, but every single one, that he was not only personally involved at that point, but he was in meetings where this was discussed every quarter of the class period.

[00:10:57] Speaker 00:
This is alleged in paragraphs 125 to 130 of the complaint.

[00:11:01] Speaker 00:
CW12 at paragraph 129 says that it happened each quarter and that it was done at the behest of the senior vice presidents and Lopez himself.

[00:11:14] Speaker 01:
Five also alleges each quarter that's paragraphs 129 to 130 and Of course our CW those are those sufficient for a rule 9b or heightened analysis that it's just Generally every quarter some things were moved over sales from one to the to the next is that is that enough in general?

[00:11:35] Speaker 00:
Cw6 says that it was done as an illusion that you know that that that these sales did were not genuine they did not happen in the quarter in which

[00:11:43] Speaker 00:
the defendants were saying they were happening and this was to give the appearance of faster growth which matters to investors but it was a false appearance and now if we transport ourselves to the end of the class period where the news is and this is as soon as Apollo finishes the second SPO unloading its shares revenue growth did not and unit growth and RPD did not lightly taper off they ceased immediately they went from growing growing growing to

[00:12:10] Speaker 00:
Growing 30% 40% greater and greater and greater to zero and our PD went from this high this large and growing number to actually not just stopping but shrinking.

[00:12:23] Speaker 00:
This is consistent with a

[00:12:25] Speaker 04:
three-pronged pump-and-dump scheme catching up with the company, not... Am I correct that Lopez and Aciona, I hope I'm pronouncing that right, did not sell any of their own stock during the class period?

[00:12:39] Speaker 00:
No, Your Honor.

[00:12:40] Speaker 00:
That fact is not in evidence anywhere.

[00:12:42] Speaker 00:
It was a reversible error for the district court to say so in its order.

[00:12:47] Speaker 00:
This is a complete violation of what this court said clearly in the Erexigen case, which is that

[00:12:52] Speaker 00:
defendants are not entitled to just come up with their own facts, based on nothing in the record, not even judicial notice, nothing at all.

[00:12:59] Speaker 00:
And it's completely contrary.

[00:13:02] Speaker 00:
It's to contradict the well-planned allegation that the motive was to satisfy Apollo's

[00:13:08] Speaker 00:
a sale of stock for great benefit and Apollo controlled to play age yes in this matter.

[00:13:14] Speaker 03:
Can I ask you to please address our court's recent ruling in Pirani versus Slack?

[00:13:21] Speaker 03:
It seems like our circuit has now clarified that stock tracing is a required element for stating a Section 11 and a Section 12A claim.

[00:13:33] Speaker 03:
And so I'm curious as to why.

[00:13:37] Speaker 03:
Is that case not dispositive of your statutory standing argument here?

[00:13:43] Speaker 00:
That was the law of the circuit even before Pirani, Your Honor.

[00:13:46] Speaker 00:
And my client, the lead plaintiff, standing for the second SPO, which we agree he didn't purchase directly pursuant to, is a relevant

[00:13:58] Speaker 00:
at the pleading stage where this court's decision in Melendrez and its later interpretation of that in the Nunez case says clearly that a lead plaintiff doesn't need standing on every claim that he's going to bring.

[00:14:10] Speaker 00:
it's it's it's it's only a matter of whether they adequately represent the rest of the class but i'm just says once he has standing on his own claims and he does we at least alleged very clearly that he directly purchased in the first test p l from defendant appellee do it being securities for the offering price paying no commission meaning it was a direct and i see my time training i would like to still reserve some time for a bottle

[00:14:34] Speaker 00:
But Melendez makes clear that that's the end of the inquiry for standing constitutional or statutory, and the Nunez case applies it to statutory standing.

[00:14:43] Speaker 00:
That's this court's decision, and it's cited in the brief.

[00:14:46] Speaker 00:
So that being the case, it's simply to bring these additional claims as something.

[00:14:51] Speaker 00:
My client's appointed by the court as the lead plaintiff of a consolidated action.

[00:14:55] Speaker 00:
It has no choice but to bring its claims as they come, and it's not required to have standing on every claim.

[00:15:02] Speaker 00:
If somebody else who does have statutory standing on the second SPO were to file that claim, it would be consolidated with this case.

[00:15:09] Speaker 00:
And my claim would still be the court appointed lead plaintiff.

[00:15:12] Speaker 00:
And Congress says the lead plaintiff is appointed by having the largest damages, not by having statutory standing on each possible claim.

[00:15:19] Speaker 00:
So there's really no other way for this claim to be brought.

[00:15:21] Speaker 00:
And I don't see Pirani as having any problem with this being assessed at the class certification stage.

[00:15:28] Speaker 03:
Did you want to reserve the balance of your time?

[00:15:29] Speaker 03:
Yes, please, Your Honor.

[00:16:06] Speaker 02:
May it please the court, Genevieve York Irwin from Baker Hall Stettler for the Defendants Appellees.

[00:16:11] Speaker 02:
Plaintiffs have raised an expansive list of issues on appeal, but this is simply a distraction from the fact that this is a fundamentally flawed case.

[00:16:19] Speaker 02:
It was originally a simple false forecast case based on the second quarter 2019 guidance reduction.

[00:16:25] Speaker 02:
Over time, plaintiffs' theory has become untethered from that stock drop and morphed into a years-long pump and dump scheme that simply doesn't make sense.

[00:16:32] Speaker 02:
No 10B defendant is alleged to have dumped any stock or has any other personal financial motive

[00:16:38] Speaker 02:
for the alleged fraud.

[00:16:39] Speaker 02:
No facts suggest that AGS was financially struggling prior to the second quarter of 2019.

[00:16:44] Speaker 02:
And the steady growth that AGS saw in confirmed by audited financials that have never been restated for years leading up to the second quarter of 2019 is totally inconsistent with the idea that it was struggling and trying to hide it.

[00:16:59] Speaker 02:
Judge Mahan's decision below on the motions to dismiss saw this and dismissed appropriately.

[00:17:06] Speaker 03:
Let's talk about this a little bit, because your friend across the aisle is saying there were manifest procedural errors regarding Rule 12.

[00:17:15] Speaker 03:
Can you address that?

[00:17:16] Speaker 02:
Of course.

[00:17:17] Speaker 02:
So Rule 12H2 explicitly permits defendants to challenge the sufficiency of the pleadings at any time up to including trial.

[00:17:25] Speaker 02:
And it identifies a pleading under Rule 7, a motion, a Rule 12C motion, or at trial.

[00:17:32] Speaker 02:
The district court's first opinion didn't decide whether the scheme claim had been adequately pleaded.

[00:17:39] Speaker 02:
He's very clear about that in his second opinion.

[00:17:41] Speaker 02:
That was plaintiff's theory in arguing below, but it was rejected appropriately by the district court because the district court clearly said in that second opinion at the record, page three to four, that he hadn't decided that issue because he felt it was insufficiently briefed.

[00:17:57] Speaker 02:
And so in those circumstances, it was totally appropriate and it actually facilitated the Justin Speedy administration of the case for the court to hear and decide a Rule 12C motion rather than force the court and the litigants to litigate that claim, the only remaining claim in the case.

[00:18:16] Speaker 02:
We don't, in Ray Alphabet and Apple are not to the contrary.

[00:18:19] Speaker 02:
In Ray Alphabet, merely reversed a sua sponte dismissal of a scheme claim that the defendants had failed to target on their 12B motion.

[00:18:28] Speaker 03:
I have another procedural question.

[00:18:30] Speaker 03:
I wanted to ask how were the defendants prejudiced by the

[00:18:36] Speaker 03:
by the plaintiff's failure to amend the complaint after the court's December, I think, 2022 dismissal without prejudice.

[00:18:50] Speaker 03:
The plaintiffs asked to amend the complaint a couple months later in their February, I think it was 2023 response to the motion for judgment on the pleadings.

[00:19:02] Speaker 03:
I'm just trying to figure out, weren't all the defendants still aware that there was a chance they could remain in the lawsuit if the plaintiffs were given another chance to amend the complaint?

[00:19:14] Speaker 02:
I don't know that the defendant suffered specific prejudice on that point.

[00:19:18] Speaker 02:
I think the issue is more that plaintiffs had every opportunity to amend this.

[00:19:22] Speaker 02:
I think that when the district court on the motion dismissed, it seemed clear in that opinion that he contemplated additional briefing on all of these issues, that he expected repleting, and that the scheme claim would be sorted out in subsequent motions to dismiss.

[00:19:38] Speaker 02:
And when plaintiff chose not to take that opportunity, he appropriately concluded that it seemed like they didn't have anything more to add at that point, that they chose not to, they chose to pursue the scheme claim instead, and that the appropriate course at that point was to dismiss with prejudice.

[00:20:02] Speaker 03:
Another question I had is, it seems like an argument has been presented that you cannot be held liable under Section 12A2 because defendants were not statutory sellers.

[00:20:20] Speaker 03:
It seems like this whole case is about stock that is being sold on behalf of Apollo.

[00:20:27] Speaker 03:
So I'm just trying to figure out what's your best case that says that company putting stock up for sale does not meet the definition of a statutory seller.

[00:20:37] Speaker 02:
So Pinter versus Dahl is the authority on who is a statutory seller for these purposes.

[00:20:44] Speaker 02:
And Pinter outlines two different ways where you can be a statutory seller.

[00:20:48] Speaker 02:
One is by passing title, or you can also be a statutory seller if you successfully solicited the plaintiff's purchases.

[00:20:56] Speaker 02:
Here, there's a conclusory allegation that one underwriter passed title.

[00:21:00] Speaker 02:
And that's Deutsche Bank.

[00:21:03] Speaker 02:
But there are no facts pled in support of that.

[00:21:06] Speaker 02:
They don't allege whether a plaintiff purchased from Deutsche directly or whether it did so through a broker or a third party, as is often the case.

[00:21:16] Speaker 02:
And there are no allegations as to any other defendant passing title, specifically.

[00:21:21] Speaker 02:
There are also only conclusory allegations with respect to the solicitation prom under Pinter.

[00:21:27] Speaker 02:
The underwriters are alleged to merely have participated.

[00:21:30] Speaker 02:
They assisted with due diligence and they helped prepare offering materials.

[00:21:34] Speaker 02:
Mere participation under Pinter is not enough to be a statutory seller.

[00:21:38] Speaker 02:
And the conclusory allegations for both the Apollo defendants and the AGS defendants are also insufficient.

[00:21:46] Speaker 02:
AGS is alleged to have issued and signed the registration statement, but that is not sufficient to establish the relationship that a statutory seller, that the statutory seller requirement is directed at, which is supposed to be a much more direct relationship.

[00:22:01] Speaker 03:
I had another question.

[00:22:02] Speaker 03:
As you heard me, I asked your friend across the aisle to address the Pirani case and the impact on the plaintiffs here.

[00:22:14] Speaker 03:
He has redirected me to Melendrez.

[00:22:16] Speaker 03:
What's your response to that?

[00:22:18] Speaker 02:
I agree that I don't believe slack changes changes the landscape for these purposes that they are the plaintiff is required to sufficiently alleged statutory standing with respect to both the section 11 and section 12 claims, but I don't.

[00:22:33] Speaker 02:
And our position is that they haven't done so, with respect to the March 2019 SPO.

[00:22:40] Speaker 02:
For the August 2018 SPO, they have alleged that they can trace their purchases to that offering.

[00:22:48] Speaker 01:
But is it your view that a lead plaintiff has to have statutory standing for every single claim that might arise under the class?

[00:22:58] Speaker 02:
Yes.

[00:22:58] Speaker 01:
And does Slack say that?

[00:23:01] Speaker 02:
I don't believe Slack addressed that, but in-ray aluminum in this circuit does say that you are required to be able to trace your purchase to the particular offering at issue.

[00:23:15] Speaker 01:
Which I guess counsel would say they do as to one of the offerings.

[00:23:18] Speaker 01:
Why isn't that enough to establish statutory standing for that plaintiff as to that claim, but also leading the class as to other claims?

[00:23:29] Speaker 02:
Well, Enraged Century Aluminum says it's not.

[00:23:31] Speaker 02:
And I think the reason that makes sense is because Congress enacted the Section 11 and Section 12 regimes with strict liability.

[00:23:41] Speaker 02:
And so it narrowly circumscribed who was allowed to sue on those.

[00:23:45] Speaker 02:
It's not just anybody, but you have to actually be able to trace to the particular offering.

[00:23:49] Speaker 02:
And part of that is that is an appropriate limitation given the stricter liability being applied to the defendants in those cases.

[00:23:59] Speaker 03:
pick who's going to be the lead plaintiff.

[00:24:03] Speaker 03:
You have to make sure now every time that you are traceable to each of the

[00:24:11] Speaker 03:
yes, alleged claims, somehow you were affected by that?

[00:24:16] Speaker 02:
I think that you, yes, that you only have standing with respect to offerings that you actually can trace your purchase to.

[00:24:22] Speaker 02:
And the only cases that they've cited in opposition to that are constitutional or Article III standing cases.

[00:24:28] Speaker 02:
You know, there's nothing, we're not aware of any authority that goes against Henry Century Aluminum on that point.

[00:24:34] Speaker 03:
So if that is the case,

[00:24:39] Speaker 03:
than were limited, in your view, to that August 18th, I guess, 2018.

[00:24:46] Speaker 03:
Yes.

[00:24:48] Speaker 02:
They only have statutory standing to assert that claim, although we believe that none of the defendants are alleged to have been statutory sellers for either of the SPOs.

[00:25:00] Speaker 02:
Maybe I can address quickly confidential witnesses.

[00:25:04] Speaker 02:
The position here is that there are none of the usual red flags for fraud here.

[00:25:08] Speaker 02:
No smoking gun, internal documents, no financial restatements, no motive.

[00:25:12] Speaker 02:
Instead, their case is built entirely on a handful of confidential witnesses whom the district court correctly concluded either lacked personal knowledge or whose allegations were insufficient to show contemporaneous falsity.

[00:25:24] Speaker 04:
I'm sure you're getting there, but it'd be helpful to me if you could go right to confidential witness 12 and particularly this allegation about Lopez asking consultants to leave, to leave the room and then telling everyone, you know, make the numbers higher.

[00:25:39] Speaker 02:
I think, so if you look at those, if the confidential witnesses 12's allegations, all he really says with respect to Lopez is that he said that's too low with respect to the growth projections that CW12 had prepared.

[00:25:53] Speaker 02:
And the complaint itself in footnote two actually explains that what CW12 had done was a bottom-up analysis with respect to growth projections.

[00:26:01] Speaker 02:
That's different from a top-down analysis.

[00:26:03] Speaker 02:
A bottom-up analysis was looking at internal sales data and trying to build, based on that, forward-looking projections.

[00:26:10] Speaker 02:
But the complaint acknowledges that there are other ways to analyze growth projections, including a top-down analysis, which presumably is what executives very likely would bring to that.

[00:26:20] Speaker 01:
I'm not sure.

[00:26:21] Speaker 01:
Why does that matter?

[00:26:22] Speaker 01:
If it's a different type of analysis, why does that somehow fail the heightened pleading standards

[00:26:28] Speaker 02:
I think that the question here, especially with respect to CNTER, is whether holistically it makes sense.

[00:26:34] Speaker 02:
There's a concogent and compelling inference.

[00:26:38] Speaker 01:
I mean, as I understand it, through a bottom-up analysis, there's a certain amount of sales projections as persons in lead of sales teams.

[00:26:45] Speaker 01:
and then he gets into a meeting and he alleges or she alleges that Lopez says that's not enough and suddenly you see this quadrupling of those sales which suggest indicates manipulation.

[00:26:58] Speaker 01:
Why isn't that specific enough on a heightened pleading basis?

[00:27:03] Speaker 02:
I think we, respectfully, we don't believe it does suggest manipulation.

[00:27:07] Speaker 02:
We think that it suggests that he genuinely believed that the projections were too low.

[00:27:11] Speaker 02:
He was looking at projections and believed that they didn't accurately represent the anticipated growth for the company in his larger position.

[00:27:22] Speaker 02:
As I believe came up earlier, there is no allegation that those sales projections were ever made public, that they ever found their way into the marketplace in a way that would have impacted the stock price.

[00:27:34] Speaker 02:
or they would allow plaintiffs to show the market relying on them?

[00:27:38] Speaker 01:
I'm glad you raised that.

[00:27:39] Speaker 01:
I wanted to ask about that, because it did exit the company.

[00:27:43] Speaker 01:
It was external to the company.

[00:27:45] Speaker 01:
I guess the package that was developed went outside the company.

[00:27:49] Speaker 01:
Why isn't that sufficient to be public?

[00:27:50] Speaker 02:
Well, I actually don't agree that it's alleged that it did.

[00:27:55] Speaker 02:
I think there's only a conclusory allegation that CW12 saw a packet that he thought was being sent to the underwriters.

[00:28:05] Speaker 02:
He doesn't allege any basis for knowing anything about that.

[00:28:09] Speaker 02:
And I don't believe there's anything sufficiently particular with respect to how that information might have impacted the market.

[00:28:20] Speaker 02:
I believe Sanchez had also raised the CW 11's allegations with respect to sales movement at the end of quarters and I just I would like to point out that CW 5 and CW 6 are two of also speak to

[00:28:38] Speaker 02:
having asked customers to change the sales dates that had been originally scheduled.

[00:28:44] Speaker 02:
But that strongly suggests that the movements we're talking about here, or the changes to the sales dates, were done with customer permission, in which case it's not manipulative or deceptive, or at least certainly isn't sufficiently alleged that it is.

[00:28:57] Speaker 02:
What those CWs indicate is that it was actually done with customer consent, in which case I don't see how

[00:29:04] Speaker 02:
that renders any of the quarterly results that were shared during the class period, false or misleading, or how it could possibly show a manipulative act or see enter for the individual.

[00:29:21] Speaker 02:
And the only 10B defendants whose mental state matters are AGS, defendant Lopez, and defendant Accio.

[00:29:27] Speaker 01:
And what about CW12, the allegation that 400 units were moved from one court to the next?

[00:29:33] Speaker 01:
Is it unclear whether customers might have consented to that or not?

[00:29:38] Speaker 02:
I believe CW11 actually makes that allegation.

[00:29:41] Speaker 02:
I'm sorry, CW11.

[00:29:42] Speaker 02:
And CW11 is very vague, both as to that CW's role in the company.

[00:29:46] Speaker 02:
It just says they were a senior sales employee.

[00:29:50] Speaker 02:
The district court, I think, correctly concluded that those CW allegations from CW11

[00:29:56] Speaker 02:
didn't even satisfy Zucco's threshold requirement of having personal knowledge of the things that CW alleged.

[00:30:01] Speaker 02:
But in any case, I think reading CW 11's allegations with five and six's allegations that movements, that the practice of sometimes asking customers to move sales was done with the customer's consent strongly suggests that there was nothing nefarious going on there.

[00:30:21] Speaker 02:
I think we have a lot of nefarious sounding allegations here that when you dig into them are not actually

[00:30:26] Speaker 02:
No fears.

[00:30:33] Speaker 02:
I'll just add again that with respect to CNTER, there are only two CWs who allege any interaction at all with Mr. Aciona or Mr. Lopez.

[00:30:43] Speaker 02:
That's CW5, who says that he attended meetings with them where asking customers to change sale dates was discussed.

[00:30:51] Speaker 02:
And then CW12, the allegations that we mentioned already of pre-IPO meetings, which we submit do not show any deceptive conduct.

[00:31:01] Speaker 02:
We think that's just some executive

[00:31:02] Speaker 03:
exercising his prerogative to say, I don't agree with these projections.

[00:31:13] Speaker 03:
the best argument why there was no statutory, no seller, no seller, no statutory seller.

[00:31:18] Speaker 02:
No statutory seller.

[00:31:19] Speaker 02:
So we believe all of those allegations are conclusory, effectively, that they are insufficiently particular, but that they fail even rule-aids standard, that the solicitation that is alleged is conclusory and also behind the scenes, that it's not directed at actual buyers.

[00:31:41] Speaker 03:
Thank you.

[00:31:42] Speaker 03:
Thank you.

[00:32:10] Speaker 00:
Your honor, most importantly, there's going to be a sea change in law if we're not too careful here, because CW allegations are not entitled to be scrutinized according to this higher level of, under Silicon Graphics and Zuko and Forescout, this court's entire line of cases for scheme claims or for Securities Act violations, even those that sound in fraud.

[00:32:31] Speaker 00:
And my colleague is asking for that without citing a single case where this court has ever done it.

[00:32:36] Speaker 00:
knows a matter of fact every single case where this court has performed that level of scrutiny on cw allegations are with respect to 10b5b misstatement allegations so insofar as all of these facts support these other claims scheme and for violation of the securities act cw allegations simply have to be taken as true and the reason for this is because all allegations have to be taken as true except psl r a b one says only for

[00:33:06] Speaker 00:
allegations that a false and misleading statement is made under this chapter, and this chapter means the Exchange Act.

[00:33:15] Speaker 00:
It provides three extra requirements for what has to happen, raising the pleading standard.

[00:33:19] Speaker 00:
Congress knows how to raise the pleading standard, and it only did for 10b5b misstatement standard.

[00:33:23] Speaker 00:
It says specified statement, the reasons why they're false, misleading, and if you're pleading on a basis,

[00:33:29] Speaker 00:
need to provide your reasons for that basis.

[00:33:30] Speaker 00:
And that PSLRAB1 is cited in every single one of this court's decisions, raising the standard and scrutinizing CWs that way.

[00:33:39] Speaker 00:
It has only ever applied that level of scrutiny to 10B5B statements precisely because

[00:33:45] Speaker 00:
They're raised only for B1.

[00:33:48] Speaker 01:
But we still apply heightened Rule 9B requirements.

[00:33:53] Speaker 01:
Even if you're right that the PSLRA doesn't apply to the fraud scheme claims, we still apply a heightened fraud allegation requirement.

[00:34:00] Speaker 00:
The claims have to be played with particularity, yes, but the CW allegations have to be taken as true.

[00:34:05] Speaker 00:
And Rule 9 applies in many cases other than false and misleading statements.

[00:34:10] Speaker 00:
under the Securities Act or fraud scheme claims under the Exchange Act.

[00:34:14] Speaker 00:
There are many other fraud cases that this Court, I hope, is not intending to all of a sudden also raise the pleading standard for.

[00:34:20] Speaker 00:
Everywhere Rule 9B applies, just to guard variety fraud cases.

[00:34:25] Speaker 00:
The allegations don't get any additional scrutiny there, nor here in scheme places, nor here in Securities Act places.

[00:34:31] Speaker 00:
And I would direct this Court to its opinion in Nolenberg versus

[00:34:37] Speaker 00:
harmonic where it actually was facing both 12B5B misstatements and Securities Act claims.

[00:34:48] Speaker 00:
It had the same CW allegation regarding that the company knew that its sales were declining as a result of the announcement of a merger.

[00:34:56] Speaker 00:
It did not take that fact as true in rejecting the 10B5B claims, but it did take that fact as true

[00:35:03] Speaker 00:
in reversing dismissal of Securities Act claims, actually the same Securities Act claims as here, Section 11, Section 12A2.

[00:35:10] Speaker 00:
And it's of no moment that claims may or may not sound in fraud.

[00:35:14] Speaker 00:
That's just a different thing.

[00:35:15] Speaker 00:
And Congress could have said any claim that sounds in fraud under, could have written PSL or AB1 differently and said any claim that sounds in fraud has to meet these three extra

[00:35:25] Speaker 00:
higher pleading standards, but it only said false and misleading statements under this chapter, meaning the Exchange Act, which means Rule 10b-5b statements.

[00:35:37] Speaker 00:
And this is part of the error below because in the judgment on the pleadings order, the district court,

[00:35:43] Speaker 00:
said that the standards are equal between schemes and misstatements.

[00:35:47] Speaker 00:
And it was wrong.

[00:35:48] Speaker 00:
We told him about PSLRA B1.

[00:35:51] Speaker 00:
We told him that he has to evaluate it differently under the lower standard.

[00:35:54] Speaker 00:
But he did not evaluate the allegations.

[00:35:56] Speaker 00:
He simply said, my previous order on false and misleading statements necessarily and logically requires dismissal of the scheme.

[00:36:05] Speaker 00:
And he also got the elements of a scheme wrong.

[00:36:07] Speaker 00:
And I think that this case presents an important opportunity for this court

[00:36:11] Speaker 00:
to articulate the six elements of a role 10B5A or C, deceptive or manipulative act or scheme or practice or course of business or artifice or device to defraud along the lines that we suggest in the briefs, which my colleagues agree should be the six elements.

[00:36:31] Speaker 00:
But the district court got wrong.

[00:36:32] Speaker 00:
It had four elements.

[00:36:34] Speaker 00:
They were not the same as it should be.

[00:36:36] Speaker 00:
And this court should take advantage of this opportunity to clarify the law.

[00:36:39] Speaker 03:
Thank you.

[00:36:40] Speaker 00:
Thank you very much.

[00:36:41] Speaker 03:
Thank you, Mr. Dubbin and Ms.

[00:36:44] Speaker 03:
York-Irwin.

[00:36:44] Speaker 03:
Appreciate your oral argument presentations today.

[00:36:47] Speaker 03:
The case of Oklahoma Police Pension and Retirement System versus Plate AGS, Inc.

[00:36:56] Speaker 03:
is submitted.

[00:36:58] Speaker 03:
We're going to take a brief recess of 10 minutes and then return for the next argument.

[00:37:06] Speaker 03:
Thank you.

[00:37:07] Speaker 03:
We'll be in recess.