Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-05-07181/USCOURTS-caDC-05-07181-0/pdf.json

Nature of Suit Code: 470
Nature of Suit: Civil (Rico)
Cause of Action: 

---

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 23, 2007 Decided March 23, 2007

No. 05-7181

ELLIPSO, INC.,

APPELLEE

v.

JOHN B. MANN AND

MANN TECHNOLOGIES,

APPELLANTS

Appeal from the United States District Court

for the District of Columbia

(No. 05cv01186)

David P. Durbin argued the cause for appellants. With

him on the briefs was Thomas A. Mauro.

Natalie O. Ludaway argued the cause for appellee

Ellipso, Inc. With her on the brief was Matthew H. Goodman.

Before: GRIFFITH and KAVANAUGH,Circuit Judges, and

EDWARDS, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge GRIFFITH.

GRIFFITH, Circuit Judge: This appeal challenges a

USCA Case #05-7181 Document #1030372 Filed: 03/23/2007 Page 1 of 11
2

1

 Neither Patterson, Consulting Management, nor

Registry Solutions have appealed the grant of the preliminary

injunction. 

preliminary injunction to preserve assets for a potential

judgment against the appellants. In the underlying dispute,

Ellipso, Inc. (“Ellipso”) claims that appellants Mann

Technologies (individually “Mann Technologies”) and its

managing partner, John Mann, (referred to here jointly as “Mann

Tech”) fraudulently induced Ellipso to enter a loan agreement

secured by shares Ellipso held in another company. In the

matter on appeal before us, Ellipso alleged that Mann Tech was

selling those shares and diverting the proceeds, and persuaded

the district court to freeze those assets. Mann Tech asks us to

set aside the injunction, arguing that the district court erred

when it held that Ellipso had demonstrated a substantial

likelihood of success on the merits of its underlying fraud claim,

that Ellipso would suffer irreparable harm absent the injunction,

and that Mann Tech would not be injured by the injunction. We

affirm the district court’s order because the appellants have not

shown that the district court abused its discretion. 

I.

On June 14, 2005, Ellipso, a telecommunications

company that specializes in satellite communications products

for cellular phone companies, filed a complaint against

appellants John B. Mann and Mann Tech, and against Robert

Patterson, Consulting Management, Ltd., and Registry Solutions

Co.1

 Ellipso claimed, among other things, that it was

fraudulently induced to enter a loan agreement with the

appellants and sought various remedies including rescission of

the loan. In 2002, Ellipso was struggling financially and hired

Robert Patterson to secure financing from investors, which

USCA Case #05-7181 Document #1030372 Filed: 03/23/2007 Page 2 of 11
3

Patterson did. Patterson put together a deal in which Mann Tech

loaned Ellipso $90,000, secured by more than 492,000 shares of

publicly-traded ICO Global Communications Holding Ltd.

Stock (“ICOHA shares”) that Ellipso held. At the time of the

loan agreement in January 2004, the ICOHA shares were valued

at about $180,000, twice the amount of the loan. While he was

acting as Ellipso’s agent in securing the financing from Mann

Tech, Patterson had a financial interest in Mann

Tech—unknown to Ellipso—and stood to benefit from the loan.

According to Ellipso, Patterson presented the loan as Ellipso’s

only feasible financing option, and Ellipso relied on Patterson’s

expertise when agreeing to it. Ellipso claims that Patterson took

advantage of his insider’s knowledge of Ellipso’s precarious

financial condition to benefit himself by persuading Ellipso to

enter the loan agreement. The month following the loan

agreement, Patterson strengthened his financial interest in Mann

Technologies when he and John Mann incorporated Mann

Technologies in Nevada. According to Ellipso, Patterson

continued to take advantage of his dual interests in Ellipso and

Mann Technologies to harm Ellipso and benefit himself by

persuading Ellipso to transfer title and possession of the ICOHA

shares to Mann Technologies in August 2004. A month later,

Patterson, on behalf of Mann Technologies, and Ellipso

executed a joint sales order permitting the sale of 25,000 of

those shares. Sometime thereafter (the record is not clear) Mann

Tech sold off nearly another 453,000 ICOHA shares and

transferred some of the resulting proceeds to other accounts

(again, the record is not clear as to the precise amounts or

accounts). Mann Tech counters that it was entitled to sell the

shares because their value had fallen below $10,000 and Ellipso

had failed to make a single payment on the loan, both grounds

for default under the agreement. When Ellipso moved for a

preliminary injunction in August 2005, the price of ICOHA had

rebounded dramatically, and the total market value of the shares

that Ellipso pledged as collateral exceeded $2,500,000. 

USCA Case #05-7181 Document #1030372 Filed: 03/23/2007 Page 3 of 11
4

Ellipso moved for a preliminary injunction to ensure that

the remaining ICOHA shares held by Mann Technologies and

the proceeds from those that had been sold would be protected

while Ellipso pursued its claims against Mann Tech and

Patterson. Ellipso argued that only an injunction freezing Mann

Technologies’ assets would guarantee satisfaction of any

judgment on its claims. The district court agreed, concluding

that (1) Ellipso had shown a likelihood of success on the merits

of its fraud claim because Patterson had not disclosed his dual

role to Ellipso, see Ellipso, Inc. v. Mann, No. 05-cv-1186, slip

op. at 5-6 (D.D.C. Nov. 2, 2005) (“Ellipso I”); (2) there was a

likely threat of irreparable injury to Ellipso from Mann Tech’s

further sale of the ICOHA shares because they were Mann

Technologies’ only substantial assets, see id. at 4; (3) the

balance of hardships favored Ellipso because without an

injunction Ellipso might not be made whole and an injunction

would harm no business interests of Mann Technologies, which

would be allowed to hold on to the shares, see id. at 6-7; and (4)

the public interest in preventing fraud favored granting an

injunction, see id. at 7. Mann Tech filed a motion for

reconsideration of the preliminary injunction arguing that new

evidence showed that Ellipso knew of Patterson’s dual role and

with that knowledge actually affirmed the loan agreement by

continuing to act under its terms, eliminating rescission as a

remedy. The district court rejected Mann Tech’s motion for

reconsideration and held that the “purportedly new facts” would

not change its conclusion that Ellipso had demonstrated a

substantial likelihood of success on the merits of its fraud claim.

Ellipso v. Mann, No. 05-civ-1186, slip op. at 3 (D.D.C. Nov. 14,

2005) (“Ellipso II”). Mann Tech timely appealed to this Court.

II.

“We review the district court’s weighing of the

preliminary injunction factors under the ‘abuse of discretion’

USCA Case #05-7181 Document #1030372 Filed: 03/23/2007 Page 4 of 11
5

standard.” Serono Labs., Inc. v. Shalala, 158 F.3d 1313, 1318

(D.C. Cir. 1998) (quoting Transohio Sav. Bank v. Dir., Office of

Thrift Supervision, 967 F.2d 598, 614 (D.C. Cir.1992)). We

review factual determinations “under the clearly erroneous

standard,” while questions of law are reviewed “essentially de

novo.” Id. (internal quotation marks and citations omitted).

When deciding whether to grant a preliminary injunction, the

district court must examine whether “(1) there is a substantial

likelihood plaintiff will succeed on the merits; (2) plaintiff will

be irreparably injured if an injunction is not granted; (3) an

injunction will substantially injure the other party; and (4) the

public interest will be furthered by the injunction.” Id. at 1317-

18 (citing Wash. Metro. Area Transit Comm’n v. Holiday Tours,

Inc., 559 F.2d 841, 843 (D.C. Cir. 1977)). A court must balance

these factors, and “[i]f the arguments for one factor are

particularly strong, an injunction may issue even if the

arguments in other areas are rather weak.” Id. at 1318 (quoting

CityFed Fin. Corp. v. Office of Thrift Supervision, 58 F.3d 738,

746 (D.C. Cir. 1995)).

Mann Tech challenges the district court’s determination

that Ellipso has shown a substantial likelihood of success on the

merits of its fraud claim, that Ellipso would be irreparably

harmed without the injunction freezing Mann Technologies’

assets, and that Mann Technologies would not be harmed by the

injunction. We examine these arguments in turn and find each

lacks merit.

As to the merits of the fraud claim, Mann Tech argues

first that Ellipso failed to prove, as is required for fraud, that it

reasonably relied on Patterson to accept Mann Tech’s loan. See,

e.g., Alicke v. MCI Commc’n Corp., 111 F.3d 909, 912 (D.C.

Cir. 1997). Mann Tech alleges that Ellipso had been willing to

accept a previous similar loan offered by another prospective

investor (Argyll Equities LLC). Because Ellipso was willing to

USCA Case #05-7181 Document #1030372 Filed: 03/23/2007 Page 5 of 11
6

accept this previous similar loan, so the argument goes, the

district court was mistaken to conclude that Ellipso relied on

Patterson to accept a substantially similar loan from Mann Tech.

Mann Tech also argues that Ellipso could not have reasonably

relied on Patterson because it knew of his prior felony theft

conviction and disbarment. We need not consider either

argument because “[i]t is well settled that issues and legal

theories not asserted at the District Court level ordinarily will

not be heard on appeal.” District of Columbia v. Air Florida,

Inc., 750 F.2d 1077, 1085 (D.C. Cir. 1984) (citations omitted).

Mann Tech failed to raise either reliance argument in its

opposition to Ellipso’s motion for a preliminary injunction, at

the district court’s hearing on the injunction, or in its motion for

reconsideration. They were both raised for the first time on

appeal. The district court clearly did not err in failing to

consider arguments that Mann Tech failed to present. Although

Mann Tech did note in its opposition to a preliminary injunction

that it was disputed when Ellipso became aware of Patterson’s

criminal history, it did not argue that reliance on Patterson

would have been unreasonable. Instead, Mann Tech’s argument

about the likelihood of success on the merits of the fraud claim

focused on whether Ellipso could prove the facts necessary to

justify rescission. See Opposition of Defendants John B. Mann

and Mann Technologies, LLC to the Plaintiff’s Motion for

Preliminary Injunction at 4-5, No. 05-civ-1186 (D.D.C. Sept. 27,

2005). Even had Mann Tech preserved its reliance arguments,

it would not be entitled to the relief it seeks because it is by no

means apparent from the record what effect, if any, the Argyll

loan offer had on Ellipso’s reliance on Patterson or when Ellipso

in fact discovered Patterson’s conviction and disbarment.

Mann Tech argues next that Ellipso did not show a

likelihood of success on its fraud claim because it had, in fact,

affirmed the loan agreement with full knowledge of Patterson’s

dual roles with Ellipso and Mann Technologies. Mann Tech is

USCA Case #05-7181 Document #1030372 Filed: 03/23/2007 Page 6 of 11
7

correct that if Ellipso continued to perform under the contract

after learning of Patterson’s conflict, Ellipso cannot then seek

rescission of the contract:

Where a party to an executed contract discovers

a material misrepresentation made in the

execution of the contract, that party may elect

one of two mutually exclusive remedies. He

may either affirm the contract and sue for

damages, or repudiate the contract and recover

that with which he or she has parted. 

Dean v. Garland, 779 A.2d 911, 915 (D.C. 2001) (quoting

Dresser v. Sunderland Apartments Tenants Ass’n, 465 A.2d 835,

840 (D.C. 1983)). If the fraud victim “affirms the contract

through continued performance, that party is precluded from

seeking rescission.” Id. (citing Dresser, 465 A.2d at 840 nn.16

& 17).

Mann Tech argues that the August 2004 transfer of the

ICOHA shares and the September 2004 sale of 25,000 of them

were acts affirming the loan agreement because Ellipso agreed

to them with full knowledge of Patterson’s interest in Mann

Technologies. It relies on two documents to make its case.

First, Mann Tech points to the September 2004 joint sales order

signed by Ellipso’s chief executive officer, David Castiel, for

Ellipso and by Patterson for Mann Technologies. Mann Tech

argues that Patterson’s signature for Mann Technologies gave

Ellipso notice of his dual role. The sales order, however, is

hardly unequivocal evidence that Ellipso knew of Patterson’s

financial interest in Mann Technologies, and it says nothing

about what Ellipso knew about Patterson’s conflict in January

2004, when Ellipso entered the loan agreement with Mann Tech.

Patterson brokered the original loan agreement for Mann at

Ellipso’s direction, and it was not unreasonable to assume that

USCA Case #05-7181 Document #1030372 Filed: 03/23/2007 Page 7 of 11
8

Mann Tech would permit Patterson to act as its agent in any

future transactions regarding the loan. Second, Mann Tech

relies on an October 20, 2004 email from Ellipso’s Castiel to

Patterson, which it argues shows that Ellipso knew of

Patterson’s dual role, perhaps as early as June 2004, and did not

object: “My understanding,” Castiel wrote to Patterson, “was

that you were ‘covered’ as you indicated to me starting in June

through a variety of sources, including . . . TRSC/Mann Tech (of

which you are a substantial holder as well) . . . .” Email from

David Castiel, Chief Executive Officer, Ellipso, to Robert

Patterson (Oct. 20, 2004) (emphasis added). There are,

however, two equally plausible readings of this email depending

on how one interprets the phrase “starting in June”: (1) if the

phrase refers to when Castiel became aware of Patterson’s

interest in Mann Technologies, it could reasonably be read to

mean that Ellipso knew in June 2004, two months before it is

alleged to have affirmed the agreement, that Patterson was a

principal in Mann Technologies; or (2) if the phrase refers to

when Patterson gained a financial interest in Mann

Technologies, it could be reasonably read to mean that Ellipso

found out at some later date (no later than October 20, 2004) that

Patterson had been a principal in Mann Technologies since June

2004. This second reading is critical because it undermines

appellants’ argument that the August 2004 share transfer and

September 2004 joint sale were done with knowledge of

Patterson’s dual role. Under this interpretation, therefore, these

actions do not affirm the loan agreement because each was made

before Ellipso had learned of Patterson’s dual role and fraud. It

is the appellants’ burden to show that Ellipso knew of

Patterson’s dual roles before the actions Mann Tech argues

affirmed the loan agreement. It has failed to do so. The district

court was not clearly erroneous in so concluding.

In considering Mann Tech’s motion for reconsideration

of the grant of the preliminary injunction, the district court

USCA Case #05-7181 Document #1030372 Filed: 03/23/2007 Page 8 of 11
9

limited its analysis to what Ellipso knew about Patterson’s

interest in Mann Technologies at the time of the loan agreement,

see Ellipso II at 3 (noting that “purportedly new facts . . . fail to

show that Ellipso knew of Patterson’s dual role at the time of the

negotiation and execution of the loan agreement”), and did not

expressly address whether Ellipso knew of Patterson’s dual roles

at the time of the August 2004 share transfer and September

2004 joint sale, the lynchpin of Mann Tech’s argument that

Ellipso affirmed the loan agreement. The district court’s failure

to address the affirmation argument directly makes our task

more difficult. Given the narrow confines for our review of a

preliminary injunction, a statement by the district court that the

proffered evidence was insufficient to support Mann Tech’s

theory that Ellipso affirmed the loan agreement with knowledge

of Patterson’s dual roles would have made our task more

straightforward. The district court did, however, implicitly find

in its decision to grant the preliminary injunction that Ellipso

had not affirmed the contract when it concluded that the

“defendants are unable to rebut that plaintiff did not know at the

time of the negotiation and execution of the loan agreement on

January 30, 2004 and thereafter.” See Ellipso I at 6 (emphasis

added). Given the ambiguity of the October 2004 email, we

cannot determine that the district court’s factual determination

regarding when Ellipso became aware of Patterson’s dual roles

was clearly erroneous.

Finally, Mann Tech argues that the district court erred in

finding that Ellipso would be irreparably injured without the

injunction and that Mann Technologies would not be harmed by

the injunction. Mann Tech alleges that the court failed to

consider the possible harm to Mann Technologies’ business

interests from the injunction by depriving it of the benefit of the

increase in the value of the risky shares it took as collateral. But

the district court found that “Mann Tech has no business

operations and its only significant assets are Ellipso’s ICOHA

USCA Case #05-7181 Document #1030372 Filed: 03/23/2007 Page 9 of 11
10

Shares and the cash proceeds from its sale of approximately

200,000 ICOHA Shares.” Ellipso I at 4. At oral argument,

counsel for the defendants was asked specifically whether it was

true that Mann Technologies had no significant assets other than

the disputed shares. He responded that, “At the time [of the

injunction], your Honor, that was [] correct.” Recording of Oral

Argument at 7:37. Given that Mann Technologies had no other

assets from which Ellipso might satisfy a judgment and Mann

Technologies had no apparent business use for these assets, we

conclude that the district court did not err in finding that the

balance of hardships favors Ellipso because Ellipso may be

irreparably harmed without an injunction freezing those assets

while Mann Technologies would not be irreparably harmed.

III.

Had Mann Tech been able to prevail on its argument that

Ellipso affirmed the loan agreement, it would have been in a

position to launch a persuasive challenge to the power of the

district court to freeze its assets. An injunction freezing assets

is only permissible when a party has demonstrated an equitable

claim to the assets. See Grupo Mexicano de Desarrollo, S.A. v.

Alliance Bond Fund, Inc., 527 U.S. 308, 332-33 (1999) (holding

that a court may not enter an injunction freezing assets in action

for damages where there is no equitable interest in frozen

assets); cf. Deckert v. Independence Shares Corp., 311 U.S. 282,

289-90 (1940) (permitting an injunction freezing assets because

it assisted the ultimate equitable relief of rescission). If Ellipso

had in fact affirmed the loan agreement, Ellipso’s sole remedy

for fraud in the inducement of that contract would have been

damages—a legal remedy, see Dean, 779 A.2d at 915 (holding

that party affirming contract is precluded from later seeking

rescission); it would have been unable to show the equitable

interest in the shares held by Mann Tech necessary to support

the equitable remedy of an injunction. But Mann Tech never

USCA Case #05-7181 Document #1030372 Filed: 03/23/2007 Page 10 of 11
11

2

 Mann Tech only argued that an injunction was not

appropriate because it believed there existed an adequate legal

remedy, not because there existed no equitable interest. See

Opposition of Defendants John B. Mann and Mann

Technologies, LLC to the Plaintiff’s Motion for Preliminary

Injunction at 3-4, No. 05-civ-1186 (D.D.C. Sept. 27, 2005). 

made that argument,2

 and so its challenge of the preliminary

injunction fails not only because it could not undermine

Ellipso’s showing of likely success on the merits, our holding

here, but also because Mann Tech waived any objection to any

asserted misuse of the court’s equitable powers. See, e.g., Atlas

Life Ins. Co. v. W.I. Southern, Inc., 306 U.S. 563, 568 n.1 (1939)

(noting that unlike federal subject matter jurisdiction, “the

parties may waive their objections to the equity jurisdiction by

consent, or by failure to take it seasonably”) (citations omitted);

Conn. Gen. Life Ins. Co. v. New Images of Beverly Hills, 321

F.3d 878, 882 (9th Cir. 2003) (finding argument that district

court lacked the equitable authority to issue injunction because

“true gravamen” of complaint was for money damages was

waived because it was raised for the first time on appeal);

Quenzer v. United States (In re Quenzer), 19 F.3d 163, 165 (5th

Cir. 1993) (noting that the principle that appellate courts do not

consider issues raised for the first time on appeal “applies with

even more force when [courts] address questions of the proper

exercise of the equitable powers of the court”). 

IV.

Because we cannot conclude that the district court

abused its discretion, we affirm the grant of the preliminary

injunction.

So ordered.

USCA Case #05-7181 Document #1030372 Filed: 03/23/2007 Page 11 of 11