[00:00:06] Speaker 00:
Good morning, and may it please the court.

[00:00:09] Speaker 00:
My name is Raj Mathur, and I represent the appellant, Christine Pino, in this matter.

[00:00:14] Speaker 00:
If I may, I'd like to reserve five minutes for rebuttal.

[00:00:17] Speaker 04:
Go ahead, please.

[00:00:17] Speaker 00:
There are two buckets of statements in this case.

[00:00:20] Speaker 00:
Cardone's factual debt statement, which is not governed by Omnicare, and Cardone's projections about returns and distributions, which are governed by Omnicare.

[00:00:31] Speaker 00:
I'm going to begin with the first bucket.

[00:00:33] Speaker 00:
Cardone told investors that he was responsible for the debt of the funds.

[00:00:39] Speaker 00:
That is a statement of fact which Pino 1 held was actionable and false.

[00:00:46] Speaker 00:
On remand, Pino made precisely the same allegations about that statement.

[00:00:52] Speaker 00:
Even though Omnicare does not apply to it, the district court dismissed those allegations as immaterial.

[00:00:59] Speaker 00:
That was error for two reasons.

[00:01:01] Speaker 00:
First, the district court dismissed those allegations using the very same inferences, Cardone-friendly inferences, which this court held were error in Pino 1.

[00:01:12] Speaker 00:
In the first appeal, the district court dismissed these allegations because of the post-surrounding context.

[00:01:19] Speaker 00:
and purportedly backwards-looking nature.

[00:01:22] Speaker 00:
That is quoted on page six of our reply brief.

[00:01:25] Speaker 00:
This court reversed, holding that the allegations are actionable and that the district court, the first appeal, failed to interpret these allegations in the light most favorable to Pino.

[00:01:38] Speaker 00:
On remand, faced with the same allegations, the district court threw the same inferences about the post context and its backwards-looking nature.

[00:01:48] Speaker 00:
That was error.

[00:01:50] Speaker 00:
The post is material for the same reason that it is false, because it plausibly suggests that investors are not on the hook for the fund's debt.

[00:02:02] Speaker 00:
That is not true.

[00:02:02] Speaker 00:
At best, the post context is a question of fact that could not be resolved as a matter of law.

[00:02:10] Speaker 00:
I'll turn next to

[00:02:12] Speaker 00:
the Omnicare bucket, and there's two categories of allegations.

[00:02:15] Speaker 01:
Mr. Arthur, would you, do those arguments also go to the question of the asset liability issue?

[00:02:22] Speaker 00:
They do, they apply equally to that allegation, Your Honor, yes.

[00:02:25] Speaker 01:
Also addressed previously and actionable, and so it stays in here as your argument?

[00:02:32] Speaker 00:
That's correct.

[00:02:32] Speaker 00:
Pino One directly held that that allegation too is actionable and was an untrue statement of fact.

[00:02:40] Speaker 00:
Within the Omnicare bucket, there's broadly two categories of allegations.

[00:02:44] Speaker 00:
One is about omissions, and the other is about subjective falsity.

[00:02:49] Speaker 00:
I'm going to begin with omissions.

[00:02:51] Speaker 00:
The district court dismissed Pino's omissions claim because he knew or should have known about the SEC's determination.

[00:03:00] Speaker 00:
But Pino alleged that he did not know.

[00:03:03] Speaker 00:
That's on page 123 of the record, paragraph 104 of the second amended complaint.

[00:03:08] Speaker 00:
It was directly contrary to Pino's allegations.

[00:03:11] Speaker 00:
As to whether he should have known, Omnicare did not establish that categorical rule because Omnicare did not concern the omission of a public fact at all.

[00:03:23] Speaker 00:
The Supreme Court had no opportunity to establish such a rule.

[00:03:26] Speaker 00:
And that rule of constructive knowledge is directly at odds with decades of this court's precedence.

[00:03:34] Speaker 00:
in particular about the fraud on the market principle.

[00:03:37] Speaker 00:
And if I may, I'd like to just take a moment to explain why the fraud on the market principle is so important to this appeal.

[00:03:46] Speaker 04:
So your comment there that we have decades, you're talking about section 12, which is kind of an unusual or different section than we often see in securities fraud cases.

[00:03:57] Speaker 04:
So you're saying they're basically

[00:04:00] Speaker 04:
It doesn't matter that it was in these public filings or that it was out there as long as the individual alleges that he or she didn't know.

[00:04:10] Speaker 04:
Is that all that needs to be alleged?

[00:04:12] Speaker 00:
That's exactly right, Your Honor.

[00:04:13] Speaker 00:
Section 12 is unusual in that it does not require an investor to prove that something was in the public record.

[00:04:24] Speaker 00:
That does not foreclose a claim.

[00:04:26] Speaker 00:
That was this court's teaching in Casella v. Webb.

[00:04:29] Speaker 00:
And it's because in a Section 12A2 case, Your Honor, the plaintiff does not need to prove reliance.

[00:04:37] Speaker 00:
and therefore does not invoke the fraud on the market presumption.

[00:04:39] Speaker 00:
And this court was clear in Miller v Thane, that's the second footnote of Miller, that in a non-fraud on the market case, the fact that truthful available information is somewhere available on the market does not relieve- But isn't that almost encouraging sort of willful blindness that SEC letter was publicly available for over a year before Pino invested?

[00:05:04] Speaker 02:
So why shouldn't we follow rookie and say, well, look, it was reprinting.

[00:05:08] Speaker 02:
That would be pointless, costly, and have some responsibility on investor to do some due diligence on basic documents like what's posted on Edgar.

[00:05:17] Speaker 00:
Two points, your honor.

[00:05:19] Speaker 00:
First, this is a question about the reasonable investor, whether a reasonable investor looking at Cardone's Instagram post would know to go look at Edgar, not just at the offering circular, but a draft offering circular.

[00:05:31] Speaker 00:
and then in exchange with the SEC is a question of fact.

[00:05:35] Speaker 00:
Cardone in his Instagram post did not direct investors to read anything else, let alone go on Edgar.

[00:05:41] Speaker 00:
and read earlier exchanges with the SEC.

[00:05:45] Speaker 00:
And that one sentence in Rupke, your honor, which is in fact a quotation from the Seventh Circuit's decision in Wiglos, does not create the categorical rule that was adopted below.

[00:05:56] Speaker 00:
The Fifth Circuit, in caps, was clear that where that one sentence comes from, that decision did not concern an omission claim at all.

[00:06:04] Speaker 00:
It was about

[00:06:06] Speaker 00:
compliance with SEC rules, and CAHPS clearly said that there is no categorical prohibition on a plaintiff stating an omissions claim based on a publicly available fact.

[00:06:17] Speaker 00:
It was error for the district court to conclude otherwise.

[00:06:23] Speaker 00:
I'll turn next to the second category of allegations within the Omnicare bucket, and that is subjective falsity.

[00:06:31] Speaker 00:
Pino's second amended complaint plausibly alleges subjective falsity.

[00:06:36] Speaker 00:
And here's why.

[00:06:37] Speaker 00:
Cardone in his draft offering materials for Fund 5 represented to investors that they would achieve a 15% internal rate of return.

[00:06:47] Speaker 00:
And to back up that projection, he included his entire investment track record.

[00:06:52] Speaker 00:
That's on pages 325 to 329 of the record.

[00:06:56] Speaker 00:
The SEC reviewed all that and said,

[00:07:00] Speaker 00:
Cardone did not have a basis to make that projection.

[00:07:04] Speaker 00:
And it gave him a choice.

[00:07:06] Speaker 00:
He could either provide additional justification, or he could withdraw the representation.

[00:07:12] Speaker 00:
He chose the latter.

[00:07:13] Speaker 00:
Never again in an SEC filing did Cardone project a 15% IRR.

[00:07:19] Speaker 00:
And yet he went on social media months later and made not only that projection, but more aggressive projections.

[00:07:25] Speaker 04:
Couldn't he subjectively

[00:07:29] Speaker 04:
believe these claims, but choose not to push back.

[00:07:35] Speaker 04:
I mean, for whatever unusual thought process that might contain.

[00:07:42] Speaker 00:
It is a reasonable inference based on the allegations and the complaint that that was not the case.

[00:07:47] Speaker 00:
Even if that were plausible, Your Honor, that is a question about Cardone's state of mind that could not be resolved

[00:07:53] Speaker 00:
at the pleading stage.

[00:07:55] Speaker 00:
At the pleading stage, the defendant cannot merely offer some other possibly plausible alternative based on conjecture not alleged in the complaint and obtain dismissal on that ground.

[00:08:06] Speaker 00:
Even if there are two plausible explanations for the conduct here, the case must proceed.

[00:08:11] Speaker 00:
And that follows directly from the Supreme Court's holding in Virginia bank shares, which made clear that at the pleading stage,

[00:08:18] Speaker 00:
A securities plaintiff is very unlikely to have anything other than circumstantial evidence about a defendant's state of mind.

[00:08:25] Speaker 00:
And that is exactly what Pino has put forward here.

[00:08:29] Speaker 02:
I thought that the Ninth Circuit in Ray Sentry Aluminum Company securities litigation said that where there's two possible explanations, one of which is true and one of which results in liability,

[00:08:42] Speaker 02:
The plaintiffs can't offer allegations that are merely consistent with their favorite explanation, but also consistent with the alternative explanation.

[00:08:48] Speaker 02:
You have to do something more to satisfy Twombly and Iqbal.

[00:08:51] Speaker 00:
And this court has made clear, Your Honor, that the plausible alternative explanation that a defendant offers must be so convincing that the plaintiff's explanation is implausible.

[00:09:01] Speaker 00:
That's the Starr-Vibaca decision, 652 after 1202.

[00:09:06] Speaker 00:
At best, you have two plausible explanations here that a jury must decide after Cardone is subject to cross-examination about his state of mind.

[00:09:18] Speaker 02:
But this case is you have to exclude the other possibility.

[00:09:23] Speaker 02:
How do you exclude the other possibility here?

[00:09:26] Speaker 02:
I mean, the internal rate return ended up being true, right?

[00:09:30] Speaker 02:
Actually, it was a 24% return or something along those lines.

[00:09:33] Speaker 02:
So how do you exclude his possibility that I thought that was going to come true, and it did?

[00:09:39] Speaker 00:
It is not true, Your Honor, that the rates of return that Cardone projected have, in fact, come true.

[00:09:45] Speaker 00:
Cardone relies for that proposition

[00:09:47] Speaker 00:
on projections about rates of return.

[00:09:50] Speaker 00:
Investors have not, in fact, obtained 18% or 24% internal rates of return.

[00:09:56] Speaker 00:
They cannot liquidate their investments today.

[00:09:59] Speaker 00:
They have been paid only distributions, which are far less half of what Cardone was promised.

[00:10:06] Speaker 00:
That argument, Your Honor, is also a red herring, because this Court does not need to decide

[00:10:12] Speaker 00:
the objective truth or falsity of the statements today.

[00:10:15] Speaker 00:
That inquiry is based on the falsity of the statements at the time that they were made.

[00:10:22] Speaker 00:
And that is clear from this court's decision in Finjen, where the court was presented with projections through 2024 in early 2023.

[00:10:31] Speaker 00:
And the court did not say that the plaintiff on that basis cannot state a claim.

[00:10:36] Speaker 00:
The court looked to the company's likely future performance to determine objective falsity, because falsity is measured on the day a statement is made.

[00:10:48] Speaker 00:
I'll reserve the balance of my time.

[00:10:50] Speaker 00:
Thank you.

[00:10:51] Speaker 02:
You have four minutes and 28 seconds.

[00:11:04] Speaker 03:
May it please the court, Lisa Bune with King and Spalding on behalf of Defendants Apaliz, which I shall jointly refer to as Cardone today.

[00:11:12] Speaker 03:
I want to first address an argument and some of the judge's questions with respect to Section 12 and being able to easily plead around it by just saying, I didn't know.

[00:11:24] Speaker 03:
First of all, Section 12 is fairly unusual.

[00:11:27] Speaker 03:
You see much more of Section 11 and Section 10B.

[00:11:31] Speaker 03:
Section 12 here, the language that we're looking at is the exact same as section 11.

[00:11:35] Speaker 03:
And so those two statutory sections should be considered in conjunction here.

[00:11:42] Speaker 03:
They both have the section that you have to have an untrue statement of fact.

[00:11:48] Speaker 03:
And then they have in parens in both, which has the meaning of

[00:11:52] Speaker 03:
unless the purchaser actually knows of such untruth or omission.

[00:11:56] Speaker 03:
And it is that that plaintiffs are referring to here by saying that you have to have actual knowledge of an omission.

[00:12:07] Speaker 03:
Section 11 and Section 12, Omnicare was a Section 11 case.

[00:12:12] Speaker 03:
That decision looked to the misstatement of fact provision of the statutory section.

[00:12:18] Speaker 03:
So that is what we are looking at here.

[00:12:21] Speaker 03:
And as the court said in Omnicare, to plead an omission, it is no small task.

[00:12:26] Speaker 03:
What Pino wants to do here is make it a very easy task.

[00:12:30] Speaker 03:
According to them, all you would have to do to plead an omission under Omnicare that gets passed a motion to dismiss is simply to state, I didn't know.

[00:12:40] Speaker 03:
I had no actual knowledge.

[00:12:43] Speaker 03:
That is not what Omnicare holds.

[00:12:45] Speaker 03:
Omnicare holds that it is no small task to plead it.

[00:12:49] Speaker 03:
and that you have to plead an omission that goes to the basis of the opinion that would render the opinion misleading when considered in context.

[00:12:59] Speaker 03:
That is not something easy to plead.

[00:13:01] Speaker 03:
They have not pled it here.

[00:13:02] Speaker 02:
I'm confused.

[00:13:04] Speaker 02:
So you're saying that the fact that Cardone did not mention

[00:13:10] Speaker 02:
that the SEC had sent him a letter that his IRR projections had no bases and he withdrew it, that that's an omission that has not been adequately pled?

[00:13:20] Speaker 02:
Is that what you've just argued?

[00:13:22] Speaker 03:
That is not an omission because it's in the public record is the argument.

[00:13:28] Speaker 03:
So you have to, under Omnicare, consider the context of everything.

[00:13:33] Speaker 03:
That SEC letter is in the public record.

[00:13:36] Speaker 03:
This would be a different case if the SEC letter was not in the public record.

[00:13:40] Speaker 04:
Well, so what you're basically saying is that if the information or statement is available elsewhere, that somehow that knowledge is imputed to plaintiff and you can't argue an omission.

[00:13:54] Speaker 03:
On an omission theory, yes, that is what I'm saying.

[00:13:57] Speaker 03:
And the reason is because under Omnicare, so it goes back to the statute.

[00:14:03] Speaker 03:
Statute is specific to a misstatement of fact or omission of fact, with fact being the key piece.

[00:14:12] Speaker 03:
So in Omnicare, the court was deciding, can you have an action that's based on an opinion when the statute itself says fact?

[00:14:20] Speaker 03:
And section 12 is the same.

[00:14:22] Speaker 03:
It also says fact.

[00:14:23] Speaker 03:
And so they said, that's not the end of the inquiry.

[00:14:26] Speaker 03:
Because an opinion confirms one thing.

[00:14:29] Speaker 03:
It confirms that the speaker of that opinion holds that belief.

[00:14:34] Speaker 03:
And so an inquiry around an omission or an opinion always looks to the speaker's belief and whether the speaker held that opinion.

[00:14:45] Speaker 03:
So from Cardone's perspective, here's what you're looking at.

[00:14:49] Speaker 02:
Are you referring to the Omnicare language that says, in other words, a statement of opinion is not misleading just because external facts show the opinion to be incorrect?

[00:14:57] Speaker 02:
What specific language are you referring to?

[00:14:59] Speaker 03:
Give me one second.

[00:15:07] Speaker 02:
Because I think you're merging what they're saying about statements of fact and statements of opinion, omissions of fact and statements of opinion, and I don't think you can do that here between the existence of an SEC letter and internal rate of return predictions.

[00:15:27] Speaker 03:
What I am referring to is the language in the opinion that is at page 184.

[00:15:34] Speaker 03:
and it is discussing the difference between fact and opinion.

[00:15:38] Speaker 03:
So there's a discussion about what's a fact, what's an opinion.

[00:15:40] Speaker 02:
So where does it specifically say, as long as something is in the public record, there can never be an admission?

[00:15:46] Speaker 02:
Where does it say that?

[00:15:48] Speaker 03:
It does not have that specific language.

[00:15:50] Speaker 02:
But that's your argument, correct?

[00:15:52] Speaker 02:
That's your argument.

[00:15:53] Speaker 02:
That is the argument.

[00:15:53] Speaker 02:
OK, so but where do I look in Omnicare?

[00:15:56] Speaker 02:
I have it in front of me, and I'd like to know the specific language that supports that argument.

[00:16:00] Speaker 03:
Sure.

[00:16:00] Speaker 03:
If you look to page 191, it carries over into 192.

[00:16:04] Speaker 02:
You just said 184, so it's not 184, right?

[00:16:07] Speaker 03:
I apologize, Your Honor.

[00:16:08] Speaker 03:
I thought you were asking about the part where the court said that a statement of fact confirms that the, excuse me, that an opinion confirms that the speaker actually holds the stated belief.

[00:16:19] Speaker 03:
With respect to the omission piece, it's on pages 191.

[00:16:23] Speaker 03:
carries over to 192.

[00:16:25] Speaker 03:
And here is where the court is describing that an omission- And what is the specific language, just so I can find it, please?

[00:16:31] Speaker 02:
This is a new argument that I'm not familiar with, so- Sure.

[00:16:34] Speaker 03:
I think there are several pieces to it.

[00:16:35] Speaker 03:
It starts at, actually on 190, it starts, moreover, whether an omission makes an expression of opinion misleading always depends on context.

[00:16:45] Speaker 03:
That is the start of the discussion.

[00:16:48] Speaker 03:
The court goes on to explain, so an omission that renders misleading a statement of opinion when viewed in a vacuum may do so once that statement is considered as is appropriate in a broader frame.

[00:17:02] Speaker 03:
It then goes on, court then goes on to explain that these are not new concepts.

[00:17:06] Speaker 03:
This is based on the restatement of torts.

[00:17:08] Speaker 03:
And in the restatement of torts,

[00:17:10] Speaker 03:
what is looked to, and this is from the bottom of 191, starting at 192, where a speaker holds himself out or is understood as having special knowledge of the matter, which is not available to the plaintiff.

[00:17:25] Speaker 03:
So that is really the key piece here, is plaintiff had available to him

[00:17:32] Speaker 03:
the father who invested, the SEC letter that was out there in the public for over a year.

[00:17:39] Speaker 02:
Okay.

[00:17:39] Speaker 02:
But it also says investors do not and are right not to expect opinions contained in those statements to reflect baseless off the cuff judgments of the kind that an individual might communicate in daily life.

[00:17:50] Speaker 02:
And isn't that what the SEC letter says?

[00:17:53] Speaker 02:
You have no basis to make these internal rate of return projections.

[00:17:57] Speaker 03:
I think the SEC letter needs to be also considered in context.

[00:18:01] Speaker 03:
It is not saying he has no basis.

[00:18:03] Speaker 03:
It is saying you have to consider what fund five is.

[00:18:07] Speaker 03:
Fund five was a real estate investment fund that would go out and purchase properties, rental properties.

[00:18:14] Speaker 02:
Those rental properties would then- It says, we further note you have commenced only limited operations, have not paid any distributions to date, and do not appear to have a basis for such return.

[00:18:23] Speaker 02:
Please revise to remove this disclosure throughout the offering statement.

[00:18:27] Speaker 03:
That is correct.

[00:18:27] Speaker 03:
With respect to Fund 5, at the time the preliminary offering statement was filed, no properties had been purchased and therefore there was no income for no distributions to be made for Fund 5.

[00:18:38] Speaker 03:
It doesn't mean that Cardone in general, given his years of experience and the other funds he has operate, has no basis to know that his investments

[00:18:48] Speaker 03:
and to project that his investments will realize a 15% return over the course.

[00:18:54] Speaker 03:
The SEC was looking at just fund five and the fact that it had not purchased any properties at the time meant that that projection could not go in the offering statement.

[00:19:04] Speaker 04:
I agree with Judge Coe.

[00:19:06] Speaker 04:
This is a twist that I don't think was really laid out.

[00:19:09] Speaker 04:
In fact, when I was reading your brief, it seemed to me you were relying heavily on this segment of the argument on this Casella v. Webb case, correct?

[00:19:19] Speaker 03:
We do not rely on Casella v. Webb, no.

[00:19:22] Speaker 03:
That is Pino's primary case.

[00:19:27] Speaker 04:
What's wrong with that case?

[00:19:29] Speaker 03:
That case does not apply to opinion statements.

[00:19:31] Speaker 03:
That case also looks at the portion of Section 12, which I referred to earlier, which is the parenthetical on a purchaser having knowledge.

[00:19:42] Speaker 03:
Omnicare is the correct case to look at.

[00:19:43] Speaker 03:
That is the case that looks at whether there is a misstatement of fact and how you plead and prove that in the opinion context.

[00:19:51] Speaker 04:
So in your view, the remand with the Omnicare framework would also preclude the current pleadings on omission.

[00:20:03] Speaker 04:
They haven't stated it.

[00:20:05] Speaker 04:
You think that we should have from the district court?

[00:20:07] Speaker 03:
That is correct, Your Honor.

[00:20:08] Speaker 03:
I do not think they have pled.

[00:20:09] Speaker 03:
I think the district court was correct in holding that they did not plead an omission under Omnicare, because there is, when you look at it from the statement of the opinion who, the author of that statement of opinion, Cardone, you look at it from their perspective, the public record has the SEC letter in it.

[00:20:29] Speaker 03:
So it is not an omission.

[00:20:31] Speaker 01:
What do we do?

[00:20:32] Speaker 01:
I guess are you suggesting that Omnicare overruled or conflicts with our views in Miller that the fact that truthful information is available elsewhere does not relieve a defendant from liability for misrepresentations?

[00:20:49] Speaker 03:
Miller is not an opinion case, so Omnicare does not, there can't be a conflict because it is looking at different types of statements.

[00:20:57] Speaker 01:
But I guess why not?

[00:21:00] Speaker 01:
I take it that the fact of the letter with respect to the omission goes to, in an opinion, it goes to the fact that

[00:21:12] Speaker 01:
the person opining had good reason, knew of the fact that that opinion was called into doubt.

[00:21:22] Speaker 01:
That's what the letter is doing for purposes of the opinion.

[00:21:25] Speaker 01:
It's not setting up, sure, it's not setting up, it's not falsifying the statement, and we're outside of fraud on the market theory, but why isn't the letter helpful in establishing that as an opinion?

[00:21:42] Speaker 03:
So I think opinions are a different animal.

[00:21:45] Speaker 03:
And so I think you really do have to look at opinions as a different animal.

[00:21:49] Speaker 03:
And the reason for that is what I had referred to earlier.

[00:21:51] Speaker 01:
But at the pleading stage, so he's offering an opinion about that the SEC has told him appears to be unsubstantiated.

[00:22:01] Speaker 01:
So why doesn't that get them to at least fact finding with respect to whether that was a material omission as an opinion?

[00:22:09] Speaker 01:
The fact that it's an opinion seems to cut both ways.

[00:22:12] Speaker 03:
I think the fact that it's going from Omnicare and Miller back to that question, I think that they are very different things because Miller addresses a statement of fact, Omnicare addresses a statement of opinion, and when you're looking at an opinion,

[00:22:30] Speaker 03:
This is why it's so important in Omnicare's language as to why an opinion is different from a fact.

[00:22:35] Speaker 03:
And that is because an opinion confirms only one fact.

[00:22:40] Speaker 03:
This is how you even get liability for an opinion in the first place.

[00:22:44] Speaker 03:
And that is that the speaker actually holds the stated belief.

[00:22:47] Speaker 03:
And so that's where the inquiry is focused on an opinion basis versus where you have a statement of fact that's just

[00:22:55] Speaker 03:
It's clearly in the statute.

[00:22:57] Speaker 03:
It's not governed by Omnicare's analysis of opinion.

[00:23:01] Speaker 01:
Why isn't that enough at the pleading stage to establish, as your friend says, get more information about that kind of state of mind question with respect to the opinion?

[00:23:15] Speaker 03:
because the Private Securities Litigation Reform Act holds that you're not entitled to discovery unless you can state a claim that survives a motion to dismiss.

[00:23:24] Speaker 03:
And here, their omissions theory does not survive the motion to dismiss because there was no admission.

[00:23:30] Speaker 03:
It's something in the public record when you consider it from Cardone's perspective, who is the speaker of the opinion.

[00:23:37] Speaker 01:
Yeah, I guess, as Judge McKeown said, this is kind of a new area for us to sort out.

[00:23:42] Speaker 01:
And of course, under both

[00:23:44] Speaker 01:
We're dealing with opinions, and we're dealing with Section 12.

[00:23:46] Speaker 01:
A lot of the background we have here are fraud cases, and so this is not fraud.

[00:23:52] Speaker 01:
Why shouldn't that be different, where we're simply trying to figure out, as an opinion, what's in his head?

[00:23:57] Speaker 01:
I mean, what's your best case?

[00:24:00] Speaker 01:
with respect to Section 12, misstatements and an opinion outside of Omnicare.

[00:24:07] Speaker 01:
That would be my answer.

[00:24:09] Speaker 01:
But I think as my colleagues have explored with you, Omnicare can't be read that strongly, I think.

[00:24:16] Speaker 03:
I think Omnicare can be read that strongly.

[00:24:19] Speaker 03:
If you look at the provision of the language in section 11, the actual text of the statute that Omnicare is addressing, it is the same as what is in section 12.

[00:24:29] Speaker 03:
So I think Omnicare can be read that

[00:24:32] Speaker 03:
strictly as applied to section 12.

[00:24:34] Speaker 02:
You know, I've just read 190 to 194 and I disagree with you.

[00:24:37] Speaker 02:
I don't see it saying that as long as it's in the public record, there can be no liability.

[00:24:41] Speaker 02:
I see statements like, liability may result from omission of facts, for example, the fact that the speaker failed to conduct any investigation that rebut the recipient's predictable inference.

[00:24:51] Speaker 02:
I see statements like, the investor must identify particular material facts going to the basis for the issuer's opinion, facts about the inquiry the issuer did or did not conduct, or the knowledge it did or did not have, whose opinion, omission makes the opinion statement at issue misleading to a reasonable person.

[00:25:09] Speaker 02:
Reading the statement fairly and in context, I just do not see

[00:25:13] Speaker 02:
your proposition here.

[00:25:14] Speaker 02:
An issuer must as well desist from misleading investors by saying one thing and holding back another.

[00:25:20] Speaker 02:
I don't see anything in here that, in my view, personal opinion, supports your reading.

[00:25:28] Speaker 02:
But let me ask you a question about whether Mr. Cardone would be personally responsible for the debt.

[00:25:35] Speaker 02:
When I look at Pino 1, it specifically says

[00:25:40] Speaker 02:
that the FAC plausibly alleged that these statements were untrue statements of fact.

[00:25:50] Speaker 02:
Pino 1 did not allow the relitigation of statement of facts.

[00:25:54] Speaker 02:
It allowed the relitigation of opinion statements under Omnicare.

[00:25:59] Speaker 02:
And so when I see that Mr. Cardone is now relitigating that who's responsible for the debt, the answer is Grant.

[00:26:08] Speaker 02:
It seems like that is in violation of the instruction from Pino 1.

[00:26:14] Speaker 02:
I know he puts it under the umbrella of materiality.

[00:26:17] Speaker 02:
But saying, oh, it was true, this was my understanding, that is, in my view, fighting the prior panel's ruling on this point.

[00:26:28] Speaker 03:
So with respect to materiality, the opinion in Pino 1 nowhere held that the debt statement was material.

[00:26:37] Speaker 03:
It specifically says untrue statement of fact.

[00:26:40] Speaker 02:
It does not say, but, but his, his argument is not on materiality.

[00:26:44] Speaker 02:
It's like, well, I understood that for my portion that I would be responsible that is fighting the falsity or truthness of the statement.

[00:26:52] Speaker 02:
I know you're calling it materiality, but that's still challenging the holding of the prior ninth circuit panel, which said these are untrue statements of fact that have been plausibly alleged.

[00:27:04] Speaker 03:
I would like to point your honor to the Hewlett-Packard decision, which is 845 F3 1268.

[00:27:10] Speaker 03:
There the court confirmed, and this is a quote, context more appropriately factors into the question of whether an alleged misrepresentation was material to investors, not into whether a statement itself could be a misrepresentation.

[00:27:26] Speaker 03:
And so the context that we are arguing as to why the debt statement is not material

[00:27:32] Speaker 03:
absolutely does go to materiality, and not whether that snippet of information is that plaintiffs pull out of context, whether that standing alone is a misstatement of fact.

[00:27:44] Speaker 03:
The court has already held that it is.

[00:27:45] Speaker 03:
But when you consider that into the entire context of the post, which does go to materiality under both Hewlett-Packard, also the Casella v. Webb decision, there it said that statements cannot be considered in isolation.

[00:27:59] Speaker 03:
They must be viewed in the context of the total presentation

[00:28:02] Speaker 03:
and context does go to materiality.

[00:28:06] Speaker 04:
If our chief presider would present me another question.

[00:28:10] Speaker 04:
I had a question really about the subjective falsity.

[00:28:13] Speaker 04:
We've spent most of this time talking about the omission.

[00:28:16] Speaker 04:
Would you just comment briefly on that aspect of pleading related to subjective falsity?

[00:28:25] Speaker 03:
Yes, your honor.

[00:28:26] Speaker 03:
So on subjective falsity, all they have alleged here is that it was not reasonable for Cardone to believe the statement because of the SEC letter.

[00:28:37] Speaker 03:
But this court in City of Dearborn versus Align made clear that Omnicare does not allow a plaintiff to allege any more that an opinion is false because it lacks a reasonable basis.

[00:28:50] Speaker 03:
you have to allege that the speaker did not hold the belief.

[00:28:55] Speaker 03:
And there is nothing in the complaint at all to say that Cardone did not believe the projections were true.

[00:29:02] Speaker 03:
In fact, when you consider all of what is alleged, that the preliminary statement had the 15% IRR, that the post-SEC letter statements also say 15% IRR, really the only reasonable inference from those alleged facts,

[00:29:19] Speaker 03:
is that he absolutely did believe in the 15% IRR.

[00:29:23] Speaker 03:
And in fact, the funds are on track to meet that.

[00:29:27] Speaker 02:
Thank you.

[00:29:28] Speaker 02:
Thank you.

[00:29:28] Speaker 02:
Any further questions?

[00:29:29] Speaker 02:
You're over three minutes over your time.

[00:29:31] Speaker 02:
Thank you.

[00:29:31] Speaker 02:
Thank you.

[00:29:33] Speaker 02:
You have four minutes and 28 seconds left.

[00:29:35] Speaker 02:
Go ahead, please.

[00:29:37] Speaker 00:
Thank you.

[00:29:38] Speaker 00:
I'll make three points in rebuttal.

[00:29:39] Speaker 00:
And I'd like to begin with the Supreme Court's decision in Omnicare.

[00:29:43] Speaker 00:
On page 187 of Omnicare, the court held that if

[00:29:48] Speaker 00:
The issuer, and this is going into page 190, if the issuer made the statement in the face of its lawyer's contrary advice or with the knowledge that the federal government was taking the opposite view, the investor has cause to complain.

[00:30:02] Speaker 00:
He expects not just that the issuer believes the opinion, however irrationally, but that it fairly aligns with the information in the issuer's possession at that time.

[00:30:12] Speaker 00:
That is exactly the allegation here.

[00:30:14] Speaker 00:
The federal government, the SEC, told Cardone that

[00:30:17] Speaker 00:
It was taking the opposite view.

[00:30:20] Speaker 00:
He had no basis, in fact, to make this projection.

[00:30:22] Speaker 00:
He failed to disclose that.

[00:30:23] Speaker 00:
My friend relies on the language on the following page, page 190, about a speaker holding himself out or being understood as having special knowledge of the matter not available to the plaintiff.

[00:30:38] Speaker 00:
That sentence, which in fact is a quotation from Prosser and Keaton on torts, makes clear that the focus is on the speaker.

[00:30:48] Speaker 00:
the issuer.

[00:30:49] Speaker 00:
Cardone did hold himself out as having special knowledge not available to unaccredited investors like Pino.

[00:30:55] Speaker 00:
He told them that he was Nostradamus, that he was predicting the future when making these returns.

[00:31:02] Speaker 00:
Under Omnicare, that is one contextual fact that supports the plausibility of omissions liability here.

[00:31:09] Speaker 00:
My friends take the statutory text of 1282,

[00:31:14] Speaker 00:
which contains an affirmative defense about individual knowledge and transformed that into a blanket rule of constructive knowledge.

[00:31:23] Speaker 00:
This court in Casella made clear that there is no such requirement for 1282 and it does not matter whether it concerns opinions or non-opinion statements because the court is bound by the plain text of the statute which does not impose a barrier, a constructive knowledge barrier.

[00:31:42] Speaker 00:
I'll address also the debt statement.

[00:31:45] Speaker 00:
Judge Koh, you asked about that.

[00:31:47] Speaker 00:
All of the arguments that my friend on the other side made are about factual questions, about what the post may have meant, how it can be understood.

[00:31:56] Speaker 00:
That is all for the jury.

[00:31:58] Speaker 00:
This court's holding in Penal 1 that the statement was false and actionable.

[00:32:03] Speaker 00:
And it made that holding that it was actionable.

[00:32:06] Speaker 00:
Following hearing these very arguments, Cardone in his answering brief in the first appeal made these arguments.

[00:32:13] Speaker 00:
This court rejected them holding that the statement is actionable.

[00:32:18] Speaker 00:
And I'll turn last to subjective falsity.

[00:32:22] Speaker 00:
It is not just the SEC's determination that supports the plausibility of Pino's allegations.

[00:32:29] Speaker 00:
It is Cardone's entire course of conduct here.

[00:32:32] Speaker 00:
It is clear that Cardone really wanted to make this claim to investors.

[00:32:38] Speaker 00:
His entire solicitation strategy is premised on projecting returns and distributions, the extraordinary returns that they will achieve.

[00:32:48] Speaker 00:
If he had any justification for making that projection, he would have proffered it to the SEC when the agency asked, but he did not.

[00:32:59] Speaker 00:
decision is helpful to look at in context.

[00:33:02] Speaker 00:
And this is his letter response to the SEC in which he defends many other of the representations that he made.

[00:33:10] Speaker 00:
He fights back against the SEC about other findings in their letter to him.

[00:33:16] Speaker 00:
But this one stands alone in that he immediately backs away and he never again makes that projection in an SEC document.

[00:33:27] Speaker 00:
If the court has no further questions, we ask that you reverse.

[00:33:30] Speaker 00:
Thank you.

[00:33:31] Speaker 02:
Any questions?

[00:33:33] Speaker 02:
OK.

[00:33:33] Speaker 02:
Thank you all.

[00:33:34] Speaker 02:
Thank you to everyone for your helpful arguments.

[00:33:37] Speaker 02:
And we're adjourned for the day.