Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-91-04052/USCOURTS-ca10-91-04052-0/pdf.json

Parties Involved:
Prudential-Bache Securities, Inc.
Appellee
Rebel Enterprises
Appellant
State Street Bank and Trust Company
Appellee
Kevin Weed
Appellee

Document Text:

FIL~ UNITED STATES COURT OF APPEALS Uni(cd States Co~<?! Appeals 

Tenth C1r,u1, 

FOR THE TENTH CIRCUIT 

REBEL ENTERPRISES, INC., 

Plaintiff-Appellant, 

v. 

PRUDENTIAL-BACHE SECURITIES, INC.; 

KEVIN WEED; STATE STREET BANK AND 

TRUST COMPANY, 

Defendants-Appellees. 

MAR 3 0 1992 

ROBERT L. HOECKEE 

> Clerl~ ) 

) 

) 

) No. 91-4052 

) (D.C. No. 87-CV-981) 

) (D. Utah) 

) 

) 

) 

) 

ORDER AND JUDGMENT* 

Before EBEL, BARRETT, Circuit Judges, and KANE,** District Judge. 

**Honorable John L. Kane, Jr., Senior District Judge, United 

States District Court for the District of Colorado, sitting by designation. 

After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); 10th Cir. R. 34.1.9. 

submitted without oral argument. 

The case is therefore ordered 

* This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, 

except for purposes of establishing the doctrines of the law of 

the case, res judicata, or collateral estoppel. 10th Cir. R. 

36.3. 

Appellate Case: 91-4052 Document: 010110239090 Date Filed: 03/30/1992 Page: 1 
Plaintiff appeals the district court's order granting 

Defendants' motion for summary judgment on Plaintiff's claim that 

Defendants violated § lO(b) of the Securities Act of 1934, 

15 U.S . C. § 78j(b), and Securities and Exchange Commission Rule 

1 lOb-5, 17 C.F.R. § 240.lOb-5. The issue presented on appeal is 

whether the district court erred in determining, as a matter of 

law, that Plaintiff failed to establish that Defendants acted with 

the requisite scienter to violate§ lO(b) and Rule lOb-5. Upon 

consideration of the record and the parties' appellate arguments, 

we affirm. 

This court will review the district court's summary judgment 

determination de nova, viewing the record in the light most 

favorable to the nonmoving party. Deepwater Invs., Ltd. v . 

Jackson Hole Ski Corp., 938 F.2d 1105, 1110 (10th Cir. 1991). 

Summary judgment is appropriate only when there is no genuine 

issue of material fact and the moving party is entitled to 

judgment as a matter of law. Fed . R. Civ . P . 56(c). 

In order to recover damages under§ lO(b) and Rule lOb-5, 

Plaintiff must establish, by a preponderance of the evidence, 

Herman & MacLean v. Huddleston, 459 U.S. 375, 387-90 (1983), that 

Defendants, in connection with the purchase or sale of securities 

and acting with scienter, made f a lse representations concerning a 

material fact upon which Plaintiff justifiably relied to its 

detriment. Grubb v . Federal Deposit Ins. Corp., 868 F.2d 1151, 

1162 (10th Cir. 1989). The scienter requirement can be satisfied 

1 The district court also dismissed without prejudice 

Plaintiff's state law claims for lack of pendent jurisdiction. 

2 

Appellate Case: 91-4052 Document: 010110239090 Date Filed: 03/30/1992 Page: 2 
either by establishing that Defendants acted with the intent to 

deceive, manipulate, or defraud, Ernst & Ernst v. Hochfelder, 425 

U.S. 185, 193 (1976), or that Defendants acted recklessly, 

Hackbart v. Holmes, 675 F.2d 1114, 1117-18 (10th Cir. 1982) . 

Recklessness is established by conduct which is an extreme 

departure from the standards of ordinary care and which presents a 

danger of misleading buyers or sellers that is known to Defendants 

or is so obvious that Defendants must have been aware of it. Id. 

at 1118. Mere negligent conduct, however, is not sufficient to 

impose liability under§ lO(b) and Rule lOb-5. Farlow v. Peat, 

Marwick, Mitchell & Co., No. 89-6310, slip op. at 7-8 (10th Cir. 

Feb. 13, 1992). 

Plaintiff first argues that summary judgment was 

inappropriate because genuine issues of material fact remained 

unresolved. Although there may have been disputed issues of fact 

remaining concerning other elements necessary to establish a 

violation of§ lO(b) and Rule lOb-5, the district court determined 

that there was no genuine issue of fact concerning the element of 

scienter. 

[T]he plain language of Rule 56(c) mandates the entry of 

summary judgment ... against a party who fails to make 

a showing sufficient to establish the existence of an 

element essential to that party's case, and on which 

that party will bear the burden of proof at trial. In 

such a situation, there can be "no genuine issue as to 

any material fact," since a complete failure of proof 

concerning an essential element of the nonmoving party's 

case necessarily renders all other facts immaterial. 

The moving party is "entitled to a judgment as a matter 

of law" because the nonmoving party has failed to make a 

3 

Appellate Case: 91-4052 Document: 010110239090 Date Filed: 03/30/1992 Page: 3 
sufficient showing on an essential element of [its] case 

with respect to which [it] has the burden of proof. 

Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). 

Plaintiff argues, however, that it does not bear the burden 

of proving scienter. In support of this assertion, Plaintiff 

relies on this court's decision in Hackbart v. Holmes, 675 F.2d 

1114 (10th Cir. 1982). In Hackbart, this court determined that 

scienter sufficient to support liability under§ l0(b) and Rule 

l0b-5 is established, not only by proof of a defendant's intent to 

manipulate, deceive or defraud, but also by proof of a defendant's 

reckless conduct. Id. at 1117-18. One of several reasons for 

this determination was "because requiring the plaintiff to show 

intent would be unduly burdensome." Id. at 1118. 

Plaintiff interprets this statement in Hackbart as relieving 

Plaintiff completely of the burden of establishing scienter as an 

element of its claim of a federal securities violation. This 

court's decision in Hackbart, however, only provided that the 

scienter requirement could be met under a more lenient standard of 

proof. Plaintiff still retains the burden of proving scienter. 

See, e.g., Grubb, 868 F.2d at 1162; Zobrist v. Coal-X, Inc., 708 

F.2d 1511, 1516 (10th Cir. 1983). 

Plaintiff next argues that summary judgment was, 

nevertheless, inappropriate because Defendants failed to support 

the assertion in their motion for summary judgment that they had 

not acted with scienter. Defendants, however, were not required 

to support their summary judgment motion with evidence negating 

Plaintiff's claims. Celotex, 477 U.S. at 323-24. Nonetheless, 

4 

Appellate Case: 91-4052 Document: 010110239090 Date Filed: 03/30/1992 Page: 4 
Defendants, in support of their swnmary judgment motion, did 

submit, in addition to Mr. Weed's affidavit, the deposition 

testimony of Plaintiff's president, Mr. Harrison, which 

contradicted Plaintiff's allegations that Defendants acted with 

scienter. 

In opposition to Defendants' swnmary judgment motion, 

Plaintiff responded by arguing that the issue of scienter was a 

factual issue which could not be resolved on a motion for summary 

judgment. It was, however, Plaintiff's burden, in responding to 

the summary judgment motion, to go beyond the allegations in its 

pleadings and designate specific facts which would establish a 

genuine issue for trial concerning the existence of scienter. See 

id. at 324. "[T]he plaintiff must present affirmative evidence in 

order to defeat a properly supported motion for summary judgment." 

Anderson v. Liberty Lobby, Inc., 477 U. S. 242, 257 (1986). This 

is the case even when the issue involves a party's state of mind. 

Id. at 256 . Because Plaintiff failed to meet its burden in 

responding to Defendants' summary judgment motion, the district 

court did not err in granting that motion. 

The judgment of the United States District Court for the 

District of Utah is AFFIRMED. 

5 

Ente r e d for the Court 

David M. Ebel 

Circuit Judge 

Appellate Case: 91-4052 Document: 010110239090 Date Filed: 03/30/1992 Page: 5