Filed: January 7, 1997

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 96-1010

(CA-95-378)

Alan H. Gasner, et al,

Plaintiffs - Appellants,

versus

The Board of Supervisors of the County of

Dinwiddie, Virginia, etc., et al,

Defendants - Appellees.

ORDER

The Court amends its opinion filed December 31, 1996, as

follows:

On page 2, section 2, line 3 -- "Robert E. Payne, District

Judge" is corrected to read "James R. Spencer, District Judge."

On page 3, section 1, line 12 -- "Scott S. Bliss" is corrected

to read "Steven S. Biss."

On page 26, first full paragraph, line 9 -- the word "pendant"

is corrected to read "pendent."

For the Court - By Direction

/s/ Patricia S. Connor
Clerk
PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

ALAN H. GASNER; SIGNET TRUST

COMPANY, as Trustee under,

Indenture of Trust dated April 15,

1993, with the Industrial

Development Authority of

Dinwiddie County, Virginia,

Plaintiffs-Appellants,

v.

THE BOARD OF SUPERVISORS OF THE

COUNTY OF DINWIDDIE, VIRGINIA, in

their official capacity; CHARLES W.

BURGESS, JR.; DEWEY P. CASHWELL;

THE INDUSTRIAL DEVELOPMENT

AUTHORITY OF DINWIDDIE COUNTY,

VIRGINIA, a political subdivision of

No. 96-1010

the Commonwealth of Virginia;

CARTER KAPLAN AND COMPANY, a

Virginia Limited Partnership;

CARKAP, INCORPORATED, a Virginia

Corporation; WILLIAM P. CARTER;

ROBERT R. KAPLAN; EMS

ENGINEERING, P.C., a New York

Professional Corporation; VIRGINIA

BIO-FUEL CORPORATION, a Virginia

Corporation; FUNNELL INDUSTRIES,

INCORPORATED, a New York

Corporation; BARRY H. FUNNELL;

HARVEY T. BAXTER, III; HIRSCHLER,

FLEISCHER, WEINBERG, COX & ALLEN,

P.C., a Virginia Professional

Corporation; DAVID F. BELKOWITZ;
SANDS, ANDERSON, MARKS & MILLER,

P.C., a Virginia Professional

Corporation; DANIEL M. SIEGEL; THE

COUNTY OF DINWIDDIE, a Political

Subdivision of the Commonwealth

of Virginia,

Defendants-Appellees,

and

FREDERICK C. MALONEY; SHARON M.

MALONEY,

Parties in Interest.

Appeal from the United States District Court

for the Eastern District of Virginia, at Richmond.

James R. Spencer, District Judge.

(CA-95-378)

Argued: October 31, 1996

Decided: December 31, 1996

Before MURNAGHAN and NIEMEYER, Circuit Judges, and

HARVEY, Senior United States District Judge for the District of

Maryland, sitting by designation

_________________________________________________________________

Affirmed by published opinion. Senior Judge Harvey wrote the

majority opinion, in which Judge Niemeyer joined. Judge Murnaghan

wrote a dissenting opinion.

_________________________________________________________________

COUNSEL

ARGUED: Stephen Atherton Northup, MAYS & VALENTINE,

Richmond, Virginia, for Appellants. J. Jonathan Schraub, ROBINS,

 2
KAPLAN, MILLER & CIRESI, Washington, D.C.; Heman A. Marshall, III, WOODS, ROGERS & HAZLEGROVE, P.L.C., Roanoke,

Virginia; Gary Alvin Bryant, WILLCOX & SAVAGE, P.C., Norfolk,

Virginia, for Appellees. ON BRIEF: Robert L. Brooke, Alan D.

Wingfield, MAYS & VALENTINE, Richmond, Virginia; Murray H.

Wright, Jonathan S. Geldzahler, WRIGHT, ROBINSON, MCCAMMON, OSTHIMER & TATUM, Richmond, Virginia, for Appellants.

Danny M. Howell, ROBINS, KAPLAN, MILLER & CIRESI, Washington, D.C.; Frank K. Friedman, WOODS, ROGERS & HAZLEGROVE, P.L.C., Roanoke, Virginia; Stephen T. Gannon, L. B. Cann,

III, LECLAIR RYAN, JOYNES, EPPS & FRAMME, P.C., Richmond, Virginia; Daniel A. Gecker, Steven S. Biss, MALONEY,

BARR & HUENNEKENS, P.C., Richmond, Virginia, for Appellees.

_________________________________________________________________

OPINION

HARVEY, Senior District Judge:

This litigation arose as a result of the financial failure of an anaerobic composting facility (the "Facility") constructed by a private firm

for the purpose of processing the solid waste of a Virginia county.

Bonds issued to finance the purchase and installation of equipment for

the Facility were defaulted when the venture failed. Bondholders then

filed suit in the United States District Court for the Eastern District

of Virginia, alleging violations of federal securities laws and Virginia

state law. Named as defendants in the action were the County, the

industrial development authority which had issued the bonds, the

bond underwriter, attorneys for some of the parties and various other

individuals and corporate entities.

Motions to dismiss and for summary judgment were filed by the

defendants. Following a hearing, the district court granted defendants'

motions for summary judgment. This appeal followed. Because we

find no merit to any of the errors assigned by the appellants, we

affirm the judgments entered below.

I

In an effort to satisfy its governmental function of disposing of

trash generated by its residents while complying with recycling

 3
requirements imposed by the State, Dinwiddie County, Virginia (the

"County") developed a plan for the construction and operation of a

facility which would process the County's solid waste without the use

of costly landfills. Virginia Bio-Fuel Corporation ("VBFC"), a private

corporation, was engaged to construct and operate the Facility. The

County's existing landfill was to be closed, a concrete building was

to be constructed on the site and VBFC was to install equipment

designed to combine biodegradable waste with sewage sludge to

create mulch. It was decided that the project would be financed by

means of tax free municipal bonds to be issued by the Industrial

Development Authority of Dinwiddie County (the "Authority"), a

political subdivision of the Commonwealth of Virginia. The Authority had been established to further industrial development in the

County, by serving, inter alia, as a vehicle whereby private businesses might secure tax exempt financing.

In December of 1992, the Authority issued $1,120,000 in bonds to

finance the closure of the County's existing landfill (the "Closure

Bonds"). In March of 1993, the Authority issued $1,230,000 in bonds

to finance the construction of the building which would house the

new composting Facility (the "Building Bonds"). In April of 1993, the

Authority issued $3,000,000 in bonds to finance the acquisition of

recycling and co-composting equipment to be installed in the building

then under construction (the "Equipment Bonds"). The Equipment

Bonds were issued pursuant to the terms of an Offering Statement

dated April 15, 1993. It is the Equipment Bonds which are at issue

in this case.1

Proceeds received by the Authority as a result of the sale of the

Equipment Bonds were to be loaned by it to VBFC which was to use

the funds to acquire and install the necessary recycling and composting equipment. VBFC had entered into an Operations Contract with

the County whereby the County was to pay VBFC a fixed rate for

waste disposed of in the Facility. Although the Equipment Bonds

were issued by it, the Authority was obligated to pay the principal of

_________________________________________________________________

1 The Building Bonds and the Closure Bonds were issued by the

Authority with financing to be provided by the County. Unlike these

County obligations, the Equipment Bonds were not backed by the full

faith and credit of the County.

 4
and the interest on the Bonds only from funds received from VBFC

under the Note which VBFC had executed in favor of the Authority.

Thus, the obligation for payment of such principal and interest was,

under the Offering Statement, essentially that of VBFC.

From the outset of its operation of the Facility, VBFC encountered

serious problems. The materials used proved to be of poor quality.

VBFC lacked sufficient financial resources to permit it to operate,

mainly because it had been unable to secure contracts with other

counties for the processing of their waste. Sufficient revenue was

therefore not forthcoming for the operation of the Facility, and funds

were not available for payment of principal and interest to bondholders. In October of 1994, the project was abandoned, resulting in a

default of the Equipment Bonds.

Alan H. Gasner ("Gasner") is the holder of $955,000 of the Equipment Bonds. Signet Trust Company ("Signet") is Trustee under the

Indenture Trust covering the Bonds. Gasner and Signet filed a complaint and later an amended complaint in the United States District

Court for the Eastern District of Virginia seeking compensatory damages arising as a result of the bond default.2 Named as defendants,

inter alia, were the County, the Authority, VBFC, and Carter Kaplan

& Company, L.P. ("Carter Kaplan"), the brokerage firm which had

underwritten the issuance of the bonds.3 

_________________________________________________________________

2 Gasner sued on his own behalf and on behalf of a class of similarly

situated persons.

3 Also named as defendants were the Board of Supervisors of the

County (the "Board"), Charles W. Burgess, Jr. (the County Administrator), Dewey P. Cashwell (the former County Administrator), Carkap, Inc.

(the general partner of Carter Kaplan), William P. Carter and Robert R.

Kaplan (officers of Carter Kaplan), EMS Engineering, P.C. (an engineering firm), Funnell Industries, Inc. (manufacturer of the equipment used

in the facility), Barry H. Funnell (an officer, director and owner of Funnel and of VBFC), Harvey T. Baxter (an officer, director and owner of

VBFC), Hirschler, Fleischer, Weinberg, Cox & Allen, P.C. (a law firm

which served as counsel for the underwriter and as bond counsel), David

F. Belkowitz (an attorney employed by the Hirschler, Fleischer firm),

Sands, Anderson, Marks & Miller, P.C. (the law firm which served as

counsel for both the County and the Authority), and Daniel M. Siegel (an

attorney employed by the Sands, Anderson firm).

 5
In Count 1 of their amended complaint, plaintiffs claimed that

defendants had violated § 10(b) of the Securities Exchange Act of

1934, 15 U.S.C. § 78(j) and Rule 10b-5, 17 C.F.R. § 240.10b-5 (hereinafter the "Rule 10b-5 claim"). It was alleged in Count 1 that all

defendants had made or caused to be made untrue or misleading statements or omissions of material fact in connection with the issuance

of the Equipment Bonds.

Count 2 of the amended complaint charged a violation of § 12(2)

of the Securities Act of 1933, 15 U.S.C. § 77l(2). It was alleged in

Count 2 that the County, the Board, the Authority, VBFC and Carter

Kaplan had sold the Equipment Bonds by means of untrue statements

of material fact and by means of wrongful omissions.4

Count 3 charged a violation of § 12(1) of the Securities Act of

1933, 15 U.S.C. § 77l(1). It was alleged in Count 3 that the County,

the Board, the Authority, VBFC and Carter Kaplan were sellers of

securities with respect to the issuance of the Equipment Bonds and

that the Bonds had not been properly registered as required by § 5 of

the 1933 Act.5

Counts 4 through 16 of the amended complaint asserted pendent

claims under Virginia law pursuant to the district court's supplemental jurisdiction. Claims of violations of the Virginia Securities Act,

fraud, breach of contract, attorney malpractice, engineer malpractice,

conversion, tortious interference with contract, breach of fiduciary

duty and wrongful taking of trust property were included in those

Counts.

At an early stage of the case, defendants filed motions to dismiss

or for summary judgment. Since affidavits and exhibits had been submitted in support of these motions, they were treated by the district

court as motions for summary judgment under Rule 56, F.R.Civ.P.

Following a hearing, the district court issued a Memorandum Opinion

_________________________________________________________________

4 Count 2 further alleged that defendants Funnell, Baxter and Carter

Kaplan were secondarily liable under § 15 of the 1933 Act.

5 Count 3 further alleged that defendants Funnell, Baxter and Carkap

were secondarily liable as controlling persons of VBFC or Carter

Kaplan, pursuant to § 15 of the 1933 Act.

 6
and Final Order on December 7, 1995, granting the defendants'

motions for summary judgment. The Court ruled (1) that Counts 1

and 2 of the amended complaint should be dismissed with respect to

all defendants because the defendants had made no material misrepresentations or omissions in the Offering Statement; (2) that, alternatively, Count 1 should be dismissed as to all defendants because

plaintiffs had failed to demonstrate loss causation; (3) that, alternatively, Count 1 should be dismissed as to the County and certain other

defendants because they had no affirmative duty of disclosure; (4)

that, alternatively, Count 2 should be dismissed as to the County, the

Board and the County Administrator because they were not statutory

sellers under § 12(2); (5) that Count 3 should be dismissed because

the issue presented was not ripe for decision and there was accordingly no case and controversy before the court; and (6) that the pendent state law claims should be dismissed without prejudice inasmuch

as the federal claims were being dismissed with prejudice.

This appeal followed.

II

Appellants first challenge the district court's determination that

plaintiffs' Rule 10b-5 and § 12(2) claims must fail because defendants

made no material misrepresentations or omissions in the Offering

Statement for the Equipment Bonds. Since the decision below was

reached by way of the district court's granting of defendants' motions

for summary judgment, the standard for review is de novo. Schatz v.

Rosenberg, 943 F.2d 485, 489 (4th Cir. 1991), cert. denied, 503 U.S.

936 (1992). What must be determined on this record is whether in

opposing defendants' motions, plaintiffs presented evidence of sufficient "caliber and quantity" that a reasonable jury could return a verdict for the plaintiffs. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,

248, 254 (1986).

To establish liability under Rule 10b-5, a plaintiff must prove the

following elements: (1) that in connection with the purchase or sale

of a security the defendant made a false statement or omission of

material fact; (2) with scienter; (3) upon which the plaintiff justifiably

relied; and (4) that proximately caused plaintiff's damages. Hillson

Partners Ltd. Partnership v. Adage, Inc., 42 F.3d 204, 208 (4th Cir.

 7
1994); Schatz, 943 F.2d at 489. To establish liability under § 12(2),

a plaintiff must prove (1) that defendant offered or sold a security; (2)

by the use of any means of communication in interstate commerce;

(3) through a prospectus; (4) by making a false statement or omission

of material fact; (5) the untruth of which was known by defendant but

not known by plaintiff; and (6) that caused plaintiff's damages. Ballay

v. Legg Mason Wood Walker, Inc., 925 F.2d 682, 687-88 (3d Cir.),

cert. denied, 502 U.S. 820 (1991).

For a misrepresentation or omission to violate both Rule 10b-5 and

§ 12(2), it must be material. The question of materiality is an objective one, involving the significance of an omitted or misrepresented

fact to a reasonable investor. TSC Industries, Inc. v. Northway, Inc.,

426 U.S. 438, 445 (1976).6 A misrepresented or omitted fact is material if there is a substantial likelihood that a reasonable investor would

have been caused by disclosure of the truthful fact to change his decision to purchase the security. Id. at 449; Walker v. Action Industries,

Inc., 802 F.2d 703, 706 n.6 (4th Cir. 1986), cert. denied, 499 U.S.

1065 (1987). Disclosure of the true facts or of the omitted fact must

have been viewed by the reasonable investor as having significantly

altered the "total mix" of information made available. TSC Industries,

426 U.S. at 449.

In contending that appellees' motions for summary judgment

should have been denied, appellants rely on several statements in the

Offering Statement claimed to be misrepresentations and one omission. First, they assert that appellees misrepresented the anaerobic

composting technology by labeling it as "proven." Second, they contend that appellees misrepresented the commercial viability of the

Facility. Third, they assert that appellees omitted to state that the State

of Virginia would issue to the Facility only a one-year experimental

operating permit.

_________________________________________________________________

6 In TSC Industries, the Supreme Court articulated the standard for

determining when an omission would be considered material for purposes of a claim under § 14(a) of the 1934 Act. Subsequently, the

Supreme Court expressly adopted the TSC Industries standard of materiality "for the § 10(b) and Rule 10b-5 context." Basic, Inc. v. Levinson,

485 U.S. 224, 232 (1988).

 8
The Offering Statement dated April 15, 1993 is some 49 pages in

length and contains detailed information relating to the issuance of the

bonds by the Authority. Attached to the Offering Statement is a Feasibility Statement submitted by EMS Engineering, Inc. Appellants

claim that the following statements contained in the concluding paragraph of the Feasibility Statement are material misrepresentations:

The co-composting and materials recovery equipment are

proven technology and are being used in other facilities.

(p. 4)

* * *

[W]e have compared the design and engineering aspects of

the Facility to existing operational facilities in New York,

California and Europe and have incorporated the same

proven aspects of engineering and design into the Facility.

(p. 4)

Following abandonment of the project, the County hired Organic

Waste Systems ("OWS"), a Belgian waste management consulting

firm, to evaluate the Facility and make recommendations for its possible future use. On May 30, 1995, OWS issued a 51-page Report entitled "Evaluation of Materials Recovery and Co-composting Facility

at Dinwiddie County." Appellants did not submit any affidavit of an

expert in opposing appellees' motions for summary judgment. Rather,

in arguing that certain statements in the Offering Statement are false,

appellants relied on the following selected portions of the OWS

Report:

The technology of dry anaerobic digestion was an emerging

technology at the time of selection. (p. 5).

* * *

. . . the development in the U.S. of anaerobic high solids

digestion systems has virtually stagnated and has been limited to some small pilot scale experiences. (p. 10).

* * *

 9
None of the existing technologies were [sic ] actually proven

over a long period of time and no long term reliable investment and operating costs were available. (p. 12).

According to appellees, substantial evidence before the district

judge established that the technology in question was not "experimental" and "unproven." Appellees refer to the following statements in

the OWS Report:

Anaerobic dry digestion facilities, started up or contracted

for at the same time [as the VBC Facility], have shown to

be very successful, indicating that a viable technology was

available. Anaerobic composting as a general technology

has now been widely accepted in Europe and is considered

to be a viable alternative to conventional aerobic composting. (p. 5).

* * *

Even though the technology was available and has been

confirmed by further growth in the marketplace, VBC failed

to provide an adequate anaerobic composting system. (p. 5).

* * *

The technology of dry or high-solids digestion of solid

waste in general was at the moment of selection of the proposed technology already more than ten years under development. (p. 9).

* * *

By the summer of 1992, the time of the process selection for

Dinwiddie County, several full-scale plants using the dry

digestion of organic waste were operating in Europe. (p. 9).

* * *

The technology has been established as a proven technology

from a technical point of view. (p. 11).

 10
* * *

. . . the selection was made at a time when the technology

had progressed from a pilot-scale to a full-scale development, with a number of full-scale plants demonstrating the

viability of the technology on a full-scale. (p. 12).

* * *

Plants started up or contracted for around the same time as

the moment of the selection by the county [of] VBC, have

been successful and indicate that the technology for dry

anaerobic composting was available and mature. (p. 13).

Appellees further rely on the affidavit of Luc De Baere, the primary author of the OWS Report, who stated that appellants had misinterpreted the Report.7 Referring to various portions of the Report,

De Baere stated that anaerobic composting technology was not experimental or unproven as of 1993. According to De Baere, anaerobic

dry digestive facilities in Europe which began at the same time as the

Dinwiddie County Facility have proven to be successful, and anaerobic composting technology is widely accepted in Europe.

Appellants further argue that the failure of the Offering Statement

to indicate that the Virginia Department of Waste Management

("DWM") would be issuing only a temporary permit for the Facility

was a material omission. By way of reply, appellees point out that it

was not known when the Offering Statement was issued on April 15,

1993, whether a final permit or a temporary permit would be issued.

In a letter dated January 25, 1993, a representative of Commonwealth

Environmental Associates, Inc. indicated that it was his opinion that

the issue concerning the type of permit to be issued by the DWM

would be resolved shortly in favor of VBFC. In his letter of February

25, 1993, to County Administrator Cashwell and VBFC, an environmental engineer of the Virginia DWM indicated that the VBFC application was incomplete. The County and VBFC were asked to address,

_________________________________________________________________

7 The De Baere affidavit, dated September 27, 1995, was submitted by

appellees as a reply to appellants' opposition to appellees' motions for

summary judgment.

 11
inter alia, the question whether an experimental permit should be

issued. The parties were there invited to make further comments and

address the deficiencies noted so that a full review of the application

could be made. A final decision was not made by the DWM until

later, and the experimental temporary permit itself was not issued

until January 7, 1994, well after the date of the Offering Statement.8

It is not necessary, however, for this Court to decide if a genuine

issue of fact exists as to whether the statements relied upon by the

appellants were false or misleading and as to whether the omission

relied upon pertained to a fact which rendered other statements misleading. We are satisfied on the record before us that the alleged misrepresentations and omission were not material. There is not a

substantial likelihood here that the disclosure of the allegedly false

facts or omitted fact would have been viewed by a reasonable investor

as having significantly altered the total mix of information made

available. TSC Industries, 426 U.S. at 449.

Appellants have based their case essentially on a few isolated passages in the lengthy Offering Statement. In so doing, they have disregarded the "total mix" of available information. The alleged

misrepresentations and omission relied upon by appellants must be

considered in the full context in which they were made. Cautionary

language in an offering document may negate the materiality of an

alleged misrepresentation or omission. In re Donald J. Trump Casino

Securities Lit., 7 F.3d 357, 371 (3d Cir. 1993), cert. denied sub nom.

Gollomp v. Trump, 510 U.S. 1178 (1994). This is the so-called "bespeaks caution" doctrine relied upon by various courts in concluding

that claims of securities fraud are subject to dismissal if cautionary

language in the offering document negates the materiality of the

alleged misrepresentations or omissions. Id.; see also Sinay v. Lamson

& Sessions Co., 948 F.2d 1037, 1040 (6th Cir. 1991); I. Meyer Pincus

& Assocs. v. Oppenheimer & Co., 936 F.2d 759, 763 (2d Cir. 1991);

Romani v. Shearson Lehman Hutton, 929 F.2d 875, 879 (1st Cir.

1991); Luce v. Edelstein, 802 F.2d 49, 56 (2d Cir. 1986); Polin v.

_________________________________________________________________

8 Under Virginia law, the one-year temporary permit was renewable for

three additional years. Variances could thereafter be requested for further

extensions of the permit.

 12
Conductron Corp., 552 F.2d 797, 806 n.28 (8th Cir.), cert. denied,

434 U.S. 857 (1977).

In this case, the Offering Statement is replete with cautionary language, examples of which are as follows:

VBFC presently has no significant assets other than the

Operations Contract and a contract with the County for the

closure of the County's landfill. Since VBFC has no significant source of revenue with which to pay the Note other

than the Revenues and revenues from commercial haulers

and private deliveries, no financial statements for VBFC are

included in this Offering Statement. (p. 11)

* * *

VBFC's ability to repay the Note is entirely dependent on

the volume of solid waste disposed of at, and processed

through, the Building. The County has no historical records

on the volume of solid waste collected by the County and

successfully disposed of at the County landfill. . . . There

can be no assurances that the County will collect sufficient

solid waste for processing at the Facility so that the fees

paid to VBFC under the Operations Contract or that the sale

by VBFC of recycled materials will provide VBFC with

adequate revenues to make the payments due under the

Note. (pp. 13-14)

* * *

In summary, the payment of the principal of, premium, if

any, and interest on, the Bonds predominantly is dependent

upon the operation of the Facility by VBFC in accordance

with the Operations Contract. VBFC is an early stage company with insufficient financial resources to withstand any

significant, adverse, economic developments that directly

affect it or indirectly affect it by impacting its affiliates, specifically Funnell. (p. 17).

* * *

 13
VBFC has never operated a facility similar to the Facility

. . . (p. 21)

There can be no guarantee that the Building will be completed, and if completed that it will functionally operate as

a solid waste facility or that once operational that it will

generate sufficient revenues to meet operational costs and

repay principal and interest under the Note. . . (pp. 21-22)

We are persuaded that the above cautionary language in the Offering Statement renders immaterial as a matter of law the alleged misrepresentations and omission relied upon by appellants. There is not

under the circumstances here a substantial likelihood that a prospective investor would have viewed the "total mix" of information to

have been significantly altered had such investor known that anaerobic composting technology had not been proven over a long period of

time. Nor would it have made a significant difference to a prospective

investor that the State of Virginia had not by April 15, 1993 finally

decided whether to issue a permanent or an experimental operating

permit.

Relying on Huddleston v. Herman & MacLean, 640 F.2d 534, 543-

44 (5th Cir. 1981), rev'd in part on other grounds, 459 U.S. 375

(1983), appellants argue that only general cautionary language was

contained in the Offering Statement and that the inclusion of such language does not excuse defendants' failure to reveal known adverse

facts. We disagree. These were not merely vague, boilerplate disclaimers. Rather, extensive and meaningful cautionary language was

included in the Offering Statement, and the language used describes

in specific detail the risks which a purchaser would assume by purchasing the Bonds. In particular, purchasers of the Bonds were told

that there could be "no guarantee" that, if completed, the Building

"will functionally operate as a solid waste facility" or that once operational "it will generate sufficient revenues to meet operational costs

and repay principal and interest. . . ." They were further told that

VBFC had never previously operated a facility similar to the one

which was to generate revenue for payment of bond interest and principal. Here, as in Trump, the cautionary statements were tailored precisely to address the uncertainty surrounding repayment of the Bonds

because of the possible inability of VBFC to generate sufficient reve-

 14
nues to make the necessary principal and interest payments. See In re

Donald Trump, 7 F.3d at 372.

The venture failed because of the occurrence of the very same

events outlined as risks in the Offering Statement. As noted, VBFC

had no significant assets other than its contracts with the County. The

sole source of funds for the payment of interest and principal to bondholders was the income which VBFC was to receive from its contracts with the County and from future contracts with other Virginia

counties. County payments commenced in April of 1994, but VBFC

was not thereafter able to secure contracts from other counties.

Because it was under-capitalized and had severe cash flow problems,

VBFC announced in September of 1994 that it was unable to fulfill

its obligations under its contracts with the County. Operations ceased

on October 5, 1994, and the County then stopped making payments.

On October 31, 1994, Signet, as Trustee, declared the Bonds to be in

default.9

For these reasons, we conclude that summary judgment was properly entered by the district court in favor of the appellees as to Counts

1 and 2. Although the total mix of the information made available

warned them of the high risks they were facing, the bond-holders

nonetheless chose to purchase these Bonds. They can hardly now

claim that their losses were, pursuant to Rule 10b-5 and § 12(2), the

result of securities fraud committed by the appellees.

III

Insofar as Count 1 of the amended complaint is concerned, the

entry of summary judgment in favor of defendants is supportable on

another ground. In a suit brought under Rule 10b-5, "the plaintiff

must show both `loss causation -- that the misrepresentations or

omissions caused the economic harm -- and transaction causation --

that the violations in question caused the [plaintiff] to engage in the

transaction in question.'" Bennett v. United States Trust Co., 770 F.2d

308, 313 (2d Cir. 1985), cert. denied, 474 U.S. 1058 (1986) (quoting

_________________________________________________________________

9 In October of 1994, the County, the Authority and Siegel, as escrow

agent, filed suit in the Circuit Court for Dinwiddie County, naming as

defendants VBFC, Funnell, Signet and others.

 15
from Schlick v. Penn-Dixie Cement Corp., 507 F.2d 374, 380 (2d Cir.

1974), cert. denied, 421 U.S. 976 (1975)); Wilson v. Ruffa & Hanover, P.C., 844 F.2d 81, 85 (2d Cir. 1988), vacated on other grounds,

Wilson v. Saintine Exploration & Drilling Corp., 872 F.2d 1124 (2d

Cir. 1989). A direct or proximate relationship between the loss and

the misrepresentation must be shown. Bennett, 770 F.2d at 314.

Here, it was the inexperience of VBFC personnel, the company's

weak financial structure and its inability to secure contracts from others which ultimately caused the failure of the venture. The fact that

the technology was allegedly experimental and unproven had little to

do with the company's collapse. It was not faulty technology which

caused the failure of the venture but rather economic factors. Appellants have not pointed to evidence in the record which would support

their allegation that the proximate cause of their loss was the failure

of the technology to work.

We conclude on this record that appellants have failed to produce

evidence below to show that the alleged misrepresentations or omission proximately caused their damages. Summary judgment as to

Count 1 of the amended complaint was therefore appropriately

entered by the district court in favor of appellees on the alternative

ground that appellants had failed to prove loss causation.10

IV

Count 3 of the amended complaint is brought under § 12(1) of the

1933 Act. Appellants argue that appellees violated this statute by not

registering the Equipment Bonds. It is alleged in Count 3 that "[i]n

the event that interest on the Equipment Bonds are [sic] deemed to be

subject to Federal income taxation, the Equipment Bonds were

required to be, but were not, registered pursuant to Section 5 of the

1933 Act."

The district court dismissed Count 3 on the ground that the issue

_________________________________________________________________

10 Loss causation was not an element of a claim asserted in 1995 under

§ 12(2). Caviness v. Derand Resources Corp., 983 F.2d 1295, 1305 (4th

Cir. 1993).

 16
was not ripe for determination and that therefore no case and controversy had been presented by that claim. We agree.

Rather than asserting in the amended complaint that the interest on

the Equipment Bonds was in fact taxable, appellants instead alleged

that if it be later "deemed" that such interest was subject to federal

income taxation, then the Equipment Bonds "were required to be"

registered. Not only are the allegations of Count 3 based on a hypothetical occurrence, but also appellants have not produced any evidence indicating that the interest in question was indeed subject to

federal taxation.

Article III of the Constitution limits the "judicial power of the

United States to the resolution of `cases' and`controversies.'" Valley

Forge Christian College v. Americans United for Separation of

Church and State, Inc., 454 U.S. 464, 471 (1982). An allegation of

a possible future injury does not satisfy the requirements of Article III

of the Constitution. Whitmore v. Arkansas, 495 U.S. 149, 158 (1990).

Dismissal for lack of ripeness is appropriate where nothing in the

record shows that appellants have suffered any injury thus far and the

future effect of the law relied upon remains wholly speculative.

Socialist Labor Party v. Gilligan, 406 U.S. 583, 589 (1972).

Here, it is apparent that no case and controversy is presented by

Count 3, which is based on a hypothetical claim not ripe for adjudication. We therefore conclude that the district court properly dismissed

Count 3 of the amended complaint.11

V

Relying on Rule 56(f), F.R.Civ.P., appellants argue that they were

denied an adequate opportunity to undertake discovery to support

_________________________________________________________________

11 Appellees further argue that the County, the Board, Cashwell and

their attorneys owed no affirmative duty of disclosure under Rule 10b-5

and that these defendants are not statutory sellers under § 12(2) of the

1933 Act. In view of our determination that for other reasons summary

judgment was properly entered by the district court in favor of all defendants as to Counts 1 and 2 of the amended complaint, it is not necessary

to address these alternative arguments.

 17
their opposition to appellees' dispositive motions. Rule 56(f) provides

as follows:

When Affidavits are Unavailable. Should it appear from

the affidavits of a party opposing the motion that the party

cannot for reasons stated present by affidavit facts essential

to justify the party's opposition, the court may refuse the

application for judgment or may order a continuance to permit affidavits to be obtained or depositions to be taken or

discovery to be had or may make such other order as is just.

Although dispositive motions were filed at an early stage of the

case, much discovery had been undertaken by the appellants before

a hearing was held by the district court on the motions. At the time

of the filing of their amended complaint on May 22, 1995, appellants

had propounded interrogatories and requests for the production of

documents. Most of the appellees responded to this discovery, and a

large number of documents were produced.

After various appellees had filed dispositive motions, appellants,

on July 11, 1995, filed a motion asking the Court to hold a pretrial

conference concerning the timing of summary adjudication under

Rule 56. Inter alia, appellants asserted that they had not yet had a reasonable opportunity for discovery. In a Memorandum Opinion

entered on July 27, 1995, the district court denied that motion, noting

that appellees had a right "to test swiftly the legal soundness of the

charges made against them." Appellants were specifically put on

notice that the court would consider the pending dispositive motions

"beyond the bare four corners of their Amended Complaint." The

court instructed appellants that, if they determined that a complete

response to appellees' motions would be impossible without further

discovery, they should submit appropriate affidavits to that effect pursuant to Rule 56(f).

Thereafter, on August 25, 1995, appellants filed an opposition to

appellees' pending dispositive motion together with affidavits. Some

sixty exhibits were submitted. One of the affidavits requested that

counsel be permitted to undertake further discovery pursuant to Rule

56(f). However, that affidavit did not identify by name any expert, nor

did it indicate the substance of any expert's opinion to be submitted

 18
by way of affidavit. On November 9, 1995, a hearing was held on all

pending motions to dismiss or for summary judgment. Some six days

later, appellants filed a supplemental affidavit pursuant to Rule 56(f).

In that affidavit, counsel did identify certain experts and indicated

counsel's belief that these experts would render opinions favorable to

appellants if a continuance were granted and if further discovery were

permitted. No such further period of discovery was allowed by the

district judge. The Court's Memorandum Opinion granting defendants' motions for summary judgment was entered on December 7,

1995. Appellants argue that the district court erred in denying their

request for a continuance pursuant to Rule 56(f).

Denial of a Rule 56(f) request is reviewed under an abuse of discretion standard. Nguyen v. CNA Corp., 44 F.3d 234, 242 (4th Cir.

1995); Strag v. Board of Trustees, 55 F.3d 943, 953 (4th Cir. 1995).

We conclude that under the circumstances here, the district judge did

not abuse his discretion in denying appellants' request for a continuance so that further discovery could be undertaken.

It was after the hearing had been held on defendants' motions for

summary judgment that appellants asked that the case be continued

so that their identified experts could visit the site of the Facility and

finalize their opinions. Appellants had been warned by the court's ruling of July 27, 1995 that they should prepare appropriate responses

to appellees' dispositive motions, including appropriate affidavits.

Nevertheless, no affidavit of any expert was submitted, and no expert

was even identified when, a month later in August of 1995, appellants

filed their opposition to appellees' motions for summary judgment

together with supporting papers. The hearing on the motions was held

some two and one-half months later, and it was after that hearing that

appellants requested a continuance so that their experts could complete their investigations. Appellants have not explained why necessary investigations by their experts could not have been completed

many months earlier so that appropriate affidavits of their experts

could have been submitted before the hearing. The adverse party

opposing a motion for summary judgment must under Rule 56(c) file

a responding affidavit "prior to the day of hearing. . . ."

In view of these circumstances, we conclude that the district court

did not abuse its discretion in declining to permit appellants to under-

 19
take further discovery pursuant to Rule 56(f) before ruling on appellees' motions for summary judgment.

VI

For the foregoing reasons, we affirm the judgments entered below.12

AFFIRMED

MURNAGHAN, Circuit Judge, dissenting:

I respectfully dissent in part. I disagree with Part II of the majority's opinion, which affirms the district court's grant of summary judgment to all of the Appellees on Counts 1 and 2, the Rule 10b-5 and

§ 12(2) claims, on the ground that the Appellees made no material

misrepresentations or omissions in the Offering Statement for the

Equipment Bonds. The majority's opinion relies on the "bespeaks

caution" doctrine and holds that cautionary language in the Offering

Statement renders immaterial the Appellees' representation that the

technology was proven. The majority opinion, however, erroneously

applies the bespeaks caution doctrine.

I.

Rule 10b-5, promulgated under the Securities Exchange Act of

1934, and § 12(2) of the Securities Act of 1933 both require the plaintiff to prove that the defendant made an untrue statement of material

fact or omitted a material fact necessary to make the statements true.

17 C.F.R. § 240.10b-5(b) (1996); 15 U.S.C.A. § 77l(2) (West 1981).

"Materiality" for purposes of the securities laws is a "fact-specific

inquiry" that "depends on the significance the reasonable investor

would place on the withheld or misrepresented information." Basic

Inc. v. Levinson, 485 U.S. 224, 240 (1988). The plaintiff must demonstrate that a "substantial likelihood" exists that disclosure of the true

facts "would have been viewed by the reasonable investor as having

_________________________________________________________________

12 We are further satisfied that the district court acted within its discretion in dismissing without prejudice the pendent state law claims asserted

in Counts 4 through 16 of the amended complaint. See 28 U.S.C.

§ 1367(c)(3).

 20
significantly altered the `total mix' of information made available."

TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976).

Statements of fact and statements of opinion can both be material.

However, "[m]isstatements or omissions regarding actual past or

present facts are far more likely to be actionable than statements

regarding projections of future performance." Malone v. Microdyne

Corp., 26 F.3d 471, 479 (4th Cir. 1994).

In the instant case, the Feasibility Statement attached to the Offering Statement represented that the technology employed in the Facility was "proven" and was being used in "existing operational

facilities." The Appellants contend, however, and provide supporting

evidence to prove, that the technology was, in fact, experimental and

unproven.

In support of their motions for summary judgment, the Appellees

submitted an expert's affidavit which stated that, in the expert's opinion, the technology was proven. Specifically, the affidavit stated that

"anaerobic composting was not, as of 1993, an `experimental' technology as that term is used and understood in the industry."

In opposition to the Appellees' motions, however, the Appellants

submitted a report, prepared by the County's expert, entitled "Organic

Waste Systems" (the "OWS Report"). The OWS Report contradicts

key representations of the Offering Statement regarding the Facility's

"anaerobic digester co-composting" equipment. In particular, the

OWS Report states that "[n]one of the existing technologies [as of

1993] were actually proven over a long period of time and no longterm reliable investment or operating costs were available." In addition, the OWS Report states that the "technology of dry anaerobic

digestion was an emerging technology at the time of selection" and

that the development in the United States had been "limited to some

small pilot-scale experiences."

The majority correctly points out that the OWS Report also contains passages that support the Appellees' argument that the technology in question was proven. However, we have held that on summary

judgment the nonmoving party is entitled:

to have the credibility of his evidence as forecast assumed,

his version of all that is in dispute accepted, all internal con-

 21
flicts in it resolved favorably to him, the most favorable of

possible alternative inferences from it drawn in his behalf;

and finally, to be given the benefit of all favorable legal theories invoked by the evidence so considered.

Charbonnages de France v. Smith, 597 F.2d 406, 414 (4th Cir. 1979).

In the instant case, the Appellants at least raised a genuine issue of

fact as to whether the statements that they relied upon misrepresented

the nature of the technology in the proposed investment.

The Appellants also adequately established that a reasonable investor likely would have considered this information "material." Experimental technology generally has a greater risk of failure than proven

technology. More importantly, the success of the technology in the

instant case bore directly on the risk of the investment. The sole

source of revenues for repayment of the Equipment Bonds was the

payments that VBFC would receive from the County under the Operations Contract. VBFC had no other significant sources of revenue or

assets. However, the County would only pay VBFC under the Operations Contract if the VBFC successfully processed the trash in the

Facility. Thus, if the technology failed, so would the revenues for

repayment of the Equipment Bonds. A substantial likelihood exists

that a prospective investor would have viewed the "total mix" of

information to have been significantly altered if the investor knew

that the technology was experimental and had not been proven. TSC

Industries, Inc., 426 U.S. at 449.

Contrary to the majority's reasoning in Part II of its opinion, the

"cautionary statements" in the Offering Statement do not render the

Appellees' misrepresentations immaterial. The bespeaks caution doctrine provides that certain misrepresentations in offering documents

do not establish securities fraud liability when they are accompanied

by meaningful warnings that clearly "bespeak caution." In re Donald

J. Trump Casino Sec. Litig., 7 F.3d 357, 364 (3d Cir. 1993), cert.

denied sub nom. Gollomp v. Trump, 510 U.S. 1178 (1994). As the

Third Circuit stated, "`bespeaks caution' is essentially shorthand for

the well-established principle that a statement or omission must be

considered in context, so that accompanying statements may render

it immaterial as a matter of law." Id. Courts apply the narrow, factintensive bespeaks caution defense on a case-by-case basis. See, e.g.,

 22
Harden v. Raffensperger, Hughes & Co., 65 F.3d 1392, 1404 (7th Cir.

1995); Rubinstein v. Collins, 20 F.3d 160, 167-68 (5th Cir. 1994);

Trump, 7 F.3d at 371.

However, the bespeaks caution doctrine only applies to alleged

misrepresentations regarding "soft," forward-looking statements, such

as forecasts, opinions, and projections. For example, in Trump, 7 F.3d

at 369-71, the Third Circuit held that an allegedly false statement that

the issuer "believed" that it would generate sufficient funds in the

future to repay the principal and interest on the bonds at issue was not

actionable in view of disclosures "bespeaking" caution about the prediction. The Trump court held that forward-looking statements will

not form the basis for a securities fraud claim if those statements are

accompanied by meaningful cautionary statements. Id. at 371. The

Fifth Circuit similarly has held that the bespeaks caution doctrine

addresses "situations in which optimistic projections are coupled with

cautionary language." See Rubinstein, 20 F.3d at 167 (emphasis

added). See also Sinay v. Lamson & Sessions Co., 948 F.2d 1037,

1040 (6th Cir. 1991) ("Economic projections are not actionable if they

bespeak caution."); In re Worlds of Wonder Sec. Litig., 35 F.3d 1407,

1413 (9th Cir. 1994) (holding that the bespeaks caution doctrine

applies when the defendants' forward-looking representations contain

sufficient cautionary language), cert. denied sub nom. Miller v.

Pezzani, 116 S.Ct. 185 (1995).

The bespeaks caution doctrine does not apply to misrepresentations

regarding known, historical facts. The Fifth Circuit, for example,

stated that "the inclusion of general cautionary language regarding a

prediction would not excuse the alleged failure to reveal known material, adverse facts." Rubinstein, 20 F.3d at 171. The Seventh Circuit

also has held that the bespeaks caution doctrine does not, as a matter

of law, render misrepresentations of "hard" fact immaterial. See

Harden, 65 F.3d at 1405-06. The First Circuit similarly has explained

that the bespeaks caution doctrine cannot render a false statement of

present fact immaterial as a matter of law. See Shaw v. Digital Equipment Corp., 82 F.3d 1194, 1213 (1st Cir. 1996).

A district court similarly held that the bespeaks caution doctrine

does not justify dismissal of a complaint where a plaintiff contends

that the defendants concealed or misrepresented current events and

 23
business conditions. See J/H Real Estate, Inc. v. Abramson, 901

F.Supp. 952, 956 (E.D. Pa. 1995). That court held that the "doctrine

applies only where forecasts or projections are accompanied by sufficient cautionary language. In other words, the misleading statements

must be `forward-looking' before the `bespeaks caution' doctrine can

be invoked." Id. (internal citations omitted).

The bespeaks caution doctrine should not apply to the alleged misrepresentations in the instant case. The Appellants premise liability on

the Appellees' misrepresentation of current and existing facts regarding the experimental nature of the technology. The Feasibility Study

represented that the technology employed in the Facility was "proven"

and used in "existing operational facilities," and the Appellants have

raised at least a genuine issue of fact that the technology was not

proven and had only been used in small, pilot-scale facilities. Unlike

the cases that the district court and the majority opinion cite, the

instant case does not involve predictions about future events. Rather,

it involves misrepresentations about known, historical facts. "Proven"

describes an established fact, not a forward-looking projection. Thus,

since the Appellants sufficiently proved, for purposes of summary

judgment, that the Appellees misrepresented and hid present facts that

would have allowed the Appellants to make an informed judgment as

to the extent of the risk, the surrounding cautionary language could

not have rendered the statements immaterial as a matter of law. The

inclusion of such cautionary language regarding predictions of the

Facility's future success does not excuse the Appellees' alleged misrepresentation of current and existing facts regarding the nature of the

technology.

Therefore, I think that the district court erred in granting summary

judgment to all of the Appellees on Counts 1 and 2, the Rule 10b-5

and § 12(2) claims, on the ground that the Appellees did not make a

material misrepresentation or omission.

II.

I do, however, agree with Part III of the majority's opinion, which

affirms the district court's grant of summary judgment to all of the

Appellees on the Rule 10b-5 claim on the additional ground that the

Appellants failed to demonstrate loss causation. Thus, I would also

 24
affirm the district court's grant of summary judgment to all of the

Appellees on Count 1, the Rule 10b-5 claim, but I would do so only

on the ground that the Appellants failed to establish loss causation.

III.

As the majority opinion notes, however, loss causation was not an

element of a claim under § 12(2) at the time that the Appellants commenced the instant suit. Since then, Congress has amended § 12(2) to

require proof of loss causation. See 15 U.S.C.A. § 77l(b) (West Supp.

1996). However, the amendment does not apply to suits, such as the

instant one, commenced before December 22, 1995. Therefore, the

Appellants' failure to demonstrate loss causation is not fatal to their

§ 12(2) claim.

The district court properly granted summary judgment to the

County and the Board on the § 12(2) claim on the ground that they

are not statutory sellers of securities under § 12(2). Section 12(2)

imposes liability on "[a]ny person" who"offers or sells a security" by

means of a prospectus that includes a material misrepresentation or

omission. 15 U.S.C.A. § 77l(2) (West 1981). Thus, § 12(2) limits liability to those who "offer or sell" securities.

In Pinter v. Dahl, 486 U.S. 622, 641-47 (1988), the Supreme Court

addressed the scope of "offer or sell."* The Supreme Court held that

an individual who passes title in a security to a buyer for value and

an individual who engages in solicitation both qualify as one who "offers or sells." Id. The district court in the instant case correctly found

that the County and the Board did not "offer or sell" the Equipment

Bonds because they neither solicited nor passed title to the Appellants. The Appellants failed to establish any contact between themselves and the County or the Board prior to the sale. Thus, I would

_________________________________________________________________

* The Supreme Court actually decided Pinter under § 12(1) of the

Securities Act of 1933, which also limits liability to those who "offer or

sell" securities. See 15 U.S.C.A. § 77l(1) (West 1981). Pinter's reasoning, however, applies with equal force to cases under § 12(2). See Cortec

Indus. Inc. v. Sum Holding L.P., 949 F.2d 42, 49 (2d Cir. 1991); In re

RAC Mortgage Inv. Corp. Sec. Litig., 765 F.Supp. 860, 865 (D. Md.

1991).

 25
affirm the district court's grant of summary judgment to the County

and the Board on the § 12(2) claim.

However, as stated above, I think that the district court erred in

granting summary judgment to the remaining Appellees on the

§ 12(2) claim on the ground that the Appellees did not make a material misrepresentation. Since the bespeaks caution doctrine does not

properly apply to the instant case, I would reverse the district court's

grant of summary judgment to the remaining Appellees on Count 2,

the § 12(2) claim. Since I would reverse the district court's dismissal

of the federal § 12(2) claim, I would also reverse the district court's

dismissal of the pendent state law claims asserted in Counts 4 through

16 of the amended complaint.

 26