remaining elements of the 10b-5 claim. Although their motion specifically requests
that we parse out any elements of the claim for which there is no genuine issue of
material fact and grant summary judgment as to those elements, such a request is both
inappropriate and unavailable under the Federal Rules. See, e.g., Joslyn Mfg, Co. v.
Liberty Mut. Ins. Co., 939 F. Supp. 603, 610 (N.D. Ill. 1996) (stating that “[a] party
cannot obtain summary judgment on a portion of a claim.”). Alpart’s motion for
summary judgment as to liability under Count I is denied in its entirety.
CONCLUSION

Based on the foregoing analysis, the parties’ cross-motions for summary

judgment are denied. Alpart’s motions to strike portions of the declarations of

Defendants Hays and Abboud are denied as moot.

Charles P. Kocoras
Chief Judge
United States District Court

Dated: NOV 1.9 2003

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description of the financing referenced in the August 13 press release and letter, as well
as copies of all financing commitments. Itis undisputed that the only written document
that Lincoln had at this time was the August 10 letter from Sun Trust. On August 15,
Lincoln wrote a reply letter, which stated,

We previously provided you with evidence of our ability to complete a

transaction, which you ignored ... At the appropriate time we will file all

of the required filings and disclosures and will comply with all our legal

obligations...We again urge the Board to meet with us, our bankers and

attorneys as soon as possible to heed the direction of your shareholders
. .. We are committed to completing this transaction. We view our offer

as in the best interests of Hartmarx, its shareholders, employees and

customers. We await your call as to the time and place of a meeting.

The letter did not include a copy of the August 10 letter, nor any other information
about funding for the acquisition.

On August 15, Hays requested that Sun Trust help the acquisition effort by
writing a letter to Lincoln. Hays stated that “[t]he help for which we are asking does
not bind your bank to anything other than . . . to walk through due diligence; and, after
due diligence, if you feel you want to make the loan, you will.” Hays went on to
indicate that Lincoln had not yet selected its equity partners, and that Lincoln had not
chosen between the two banks (Sun Trust and Bank of America) who had expressed

interest in providing finances. He asked that the desired letter to Lincoln state that

“{iJn connection with your offer to acquire the shares of Hartmarx Corporation, this


support of their motion, Defendants argue that Alpart has no evidence that they
engaged in reckless behavior; Alpart, in arguing this portion of its motion, argues that
the available evidence can only be interpreted as recklessness on the part of the
Defendants.
A. Defendants’ Motion

The cornerstone of Defendants’ motion for summary judgment is an assertion
of the defense of good-faith reliance on the professional opinions of the attorney and
public relations expert they retained in connection with their acquisition efforts.
However, to establish this defense, Defendants must at minimum demonstrate that they
relied on their counsel’s advice that their chosen course of action was legal. See SEC
v, Goldfield Deep Mines Co. of Nevada, 758 F.2d 459, 467 (9th Cir. 1985). Aside
from the difficulties of establishing a party’s good faith on summary judgment, it is
apparent from the particulars of this case that issues of fact surround the availability of
this defense. First, Isaac Neuberger, Lincoln’s attorney, testified not that he rendered
alegal opinion to Defendants that the words used were not misleading, but instead that
the crafters of the August 13 statements gave no thought to their impact on prospective
shareholders or the legal ramifications thereof. (Neuberger Dep., p. 107, In. 5-6).
Second, the oft-repeated qualifications of Mr. Abboud and Mr. Hays as thoroughly

seasoned businessmen raise more than a metaphysical doubt that they blithely followed

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one month later, Hartmarx stockholders who had purchased shares after the August 13
press release filed a three-count complaint, alleging violations of both federal and state
law. On April 18, 2002, we dismissed Counts II and III. The parties now each move
for summary judgment on the remaining count.
LEGAL STANDARD

Summary judgment is appropriate only if there is no genuine issue of material
fact and the moving party is entitled to judgment as a matter of law. See Fed. R. Civ.
Proc. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). In seeking
a grant of summary judgment the moving party must identify “those portions of ‘the
pleadings, depositions, answers to interrogatories, and admissions on file, together with
the affidavits, if any’ which it believes demonstrate the absence of a genuine issue of
material fact .” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (quoting Fed. R.
Civ. Proc. 56(c)). This initial burden may be satisfied by presenting specific evidence
on a particular issue or by pointing out “an absence of evidence to support the non-
moving party’s case.” Celotex, 477 U.S. at 325. Once the movant has met this burden,
the non-moving party cannot simply rest on the allegations in the pleadings, but “must
set forth specific facts showing that there is a genuine issue for trial.” Fed. R. Civ.
Proc. 56(e). A “genuine issue” in the context of a motion for summary judgment is not

simply a “metaphysical doubt as to the material facts,” Matsushita Elec. Indus. Co.,

6-



will confirm that you have available to you $130,000,000 to cover the purchase of the
shares pursuant to your offer. . ..” Hays closed by noting that “we need to bring [the
Hartmarx board] to the decision of dealing with us.” It is undisputed that Sun Trust
never sent the requested letter, and E. Donald Besch, a director in the Sun Trust
structured finance group who oversaw Sun Trust’s potential involvement as a lender
in the Hartmarx acquisition, stated that a letter containing words to the effect of those
in Hays’ request would not have accurately reflected the state of Sun Trust’s
involvement at that point in time.

On August 22, Lincoln sent another letter to Hartmars, stating that “[a]s part of
the exchange of confidential information, we would certainly be able to satisfy your
concerns about our ability to finance this transaction . . . $70 million in cash equity is
already committed.” It is undisputed that Lincoln did not receive written commitments
from KPS or Stephens until August 28 and September 14, respectively.

Ultimately, Lincoln decided to obtain its funding not from Sun Trust but from
Bank of America, who initially expressed its willingness to fund the transaction in a
letter dated September 7, 2001, and the relationship was finalized shortly thereafter.
Also on September 7, Hartmarx announced that it had terminated discussions with
Lincoln and filed suit for violation of federal securities laws in connection with

Lincoin’s representations of the financing for the proposed acquisition. Approximately

5-



essential elements of this claim are as follows: (1) Defendants made a false statement
or omission (2) of a material fact, (3) with scienter, (4) in connection with the purchase
of securities, (5) upon which the class members relied, and (6) that reliance
proximately caused the class’s injuries. Otto v, Variable Annuity Life Ins. Co., 134
F.3d 841, 851 (7th Cir. 1998). Alpart moves for summary judgment of liability,
addressing each of the six elements; Lincoln for the converse, attacking only the
sufficiency of Alpart’s proof that Defendants acted with scienter. Given the
Defendants’ choice and the effect of a conclusion that the presence of a genuine issue
of material fact as to scienter would preclude the entry of summary judgment for Alpart
as well, we address our initial attention to the third element.

Inthe context ofa 10b-5 action, scienter means that a defendant acted with intent
to deceive, manipulate, or defraud. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193,
96 S. Ct. 1375, 1381 (1976). Intent can be shown by recklessness, i.e., a disregard of
a danger that buyers will be misled that is obvious enough that a reasonable person
would be legally charged with realizing that danger. Sundstrand Corp. v, Sun
Chemical Corp., 553 F.2d 1033, 1045 (7th Cir. 1977). Scienter can be shown either
through direct evidence or by indirect evidence giving rise to an inference of its

presence. See, e.g., Herman & MacLean v. Huddleston, 459 U.S. 375, 390 n.30, 103

S. Ct. 683 (1982); Renovitch v. Kaufman, 905 F.2d 1040, 1046 (7th Cir. 1990). In

-8-



Minute Onder Foran (06/97)

United States District Court, Northern District of Illinois

Name of Assigned Judge Sitting Judge if Oth
= Magistrate Judge Charles P. Kocoras than Assigned Judge
CASE NUMBER 01 C 7832 DATE 11/19/2003
CASE In Re: Hartmarx Securities Litigation
TITLE
[in the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature

MOTION: of the motion being presented.]

DOCKET ENTRY:

(1) a Filed motion of [ use listing in “Motion” box above.]

(2) im) Brief in support of motion due

@) oO Answer brief to motion due. . Reply to answer brief due.

4) Qo Ruling/Hearing on set for at .

(S) | | Status hearing set for 12/3/2003 at 9:30 A.M..

(6) 0 Pretrial conference[held/continued to] [set for/re-set for] on set for at :

(7) oOo Trial[set for/re-set for] on at

(8) Qo [Bench/Jury trial] [Hearing] held/continued to at

(9) o This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

OFRCP4(m) OLocal Rule 41.1 OFRCP41(a)(1) O FRCP41(a)(2).

(10) ff [Other docket entry] Ruling held. ENTE! (8) : The parties’ cross-
motions (Docs 63-1 & 70-1) for summary judgment are denied. Alpart’s motions (Docs 80-1 & 83-1)
to strike portions of the declarations of Defendants Hays and Abboud are denied as moot. All other
pending motions are moot.

(il) ff [For further detail see order attached to the original minute order.]

No notices required, advised in open court.
No notices required, umber of notices
Notices mailed by judge's staff.
Notified counsel by telephor V2 Q
lephone.

o | Docketing to mail notices. \p
Mail AO 450 form, docketing {ry inints 0
Copy tdge/magistrate judge.

oo date mailed notice
SCT depu's SNLGRICT Oa aD
Date/tinne'reveived in
central Clerk's Office aling deputy inna



Neuberger, we cannot agree with Defendants that no reasonable factfinder could
conclude that they acted with a recklessness severe enough to be the “functional
equivalent of intent.” Sundstrand, 553 F.2d at 1045. Alpart has advanced sufficient
evidence that the words used had the potential to mislead and that the Defendants’ gave
no thought to whether they would. This is enough to withstand Defendants’ motion
for summary judgment.

B. Alpart’s Motion

In support of its averment that Defendants acted with scienter, Alpart points to
the multiple revisions of the August 13 statements as well as the content of those
revisions. Alpart also notes the extensive backgrounds of Hays and Abboud in the
banking and finance industry to indicate that they would have been aware of the shades
of meaning of the various versions of the draft statements. They also point out that
there were no formal written commitments issued at the time the August 13 statements
were released to the public. In addition, Alpart relies on the statements of attorney
Neuberger discussed above.

Defendants respond that Alpart is not entitled to summary judgment on the issue
of scienter because, in their view, their August 13 statement is facially accurate and
correctly describes the state of their financing at the time it was issued. They contend

that KPS and Stephens had agreed to provide the necessary equity, but simply had not

-ll-



the advice of their retained professionals. See SEC v. Steadman, 967 F.2d 636, 642
(D.C. Cir. 1992). While we do not make any ultimate decisions about the viability of
these assertions, they do not require a grant of summary judgment in Defendants’
favor.

Defendants also claim that the available evidence actually militates against a
finding of recklessness. They contend that the sheer number of drafts of the August 13
statement (10) indicates that they took great care in drafting the language, not that they
threw the letter together willy-nilly at the last minute. However, Defendants’ argument
ignores the substance of the revisions: such as “proposal” transforming into “offer” and
“can put up” becoming “have committed.” Defendants also gloss over the content of
a June 21 letter written by Abboud, in which he described the state of the funding with
words such as “proposal,” “indicating confidence,” and “may be financed.” We are
unpersuaded that these terms are the functional equivalent of “we have arranged
financing to cover the purchase,” etc. The ultimate wording of the release also starkly
contrasts the much more tentative terms contained in Hays’ letter to Sun Trust written
two days after the initial press release. The letter clearly indicates that Lincoln had not
yet chosen a financial lender, Sun Trust had not committed to anything other than
performing due diligence regarding the proposed loan, and Lincoln had not yet selected

its equity partners. In light of these comparisons, as well as the statement of attorney

-10-



Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986); rather, “[a] genuine issue exists
when the evidence is such that a reasonable jury could find for the non-movant,”
Buscaglia v. United States, 25 F.3d 530, 534 (7th Cir. 1994). When reviewing the
record we must draw all reasonable inferences in favor of the non-movant; however,
“we are not required to draw every conceivable inference from the record—only those
inferences that are reasonable.” Bank Leumi Le-Israel, B.M. v. Lee, 928 F.2d 232, 236
(7th Cir. 1991).

When parties file cross-motions for summary judgment, each motion must be
assessed independently, and denial of one does not necessitate the grant of the other.
M. Snower & Co. v. United States, 140 F.2d 367, 369 (7th Cir. 1944). Rather, each
motion evidences only that the movant believes it is entitled to judgment as a matter
of law on the issues within its motion and that trial is the appropriate course of action
if the court disagrees with that assessment. Miller v, LeSea Broadcasting, Inc., 87 F.3d
224, 230 (7th Cir. 1996). With these principles in mind, we turn to the parties’
motions.

DISCUSSION

Both motions revolve around Count I of the Consolidated Amended Complaint,

which alleges a violation of Rule 10b-5 of the Securities and Exchange Act of 1934.

17 C.F.R. § 240.10b-5. When customized with the particulars of the instant case, the

-7-



acquire Hartmarx. The two formed Lincoln and began contacting potential funding
sources about backing the deal. These included Sun Trust as well as equity investors,
including a private fund known as the KPS Special Situation Fund (“KPS”) and an
entity known as the Stephens Group (“Stephens”), about backing the deal. On August
10, 2001, Sun Trust sent a letter to Hays indicating a desire to participate as well as a
belief that the transaction can be performed according to specified terms. It is
undisputed that the letter did not represent a formal commitment from Sun Trust to
provide the money Hays had requested.

Three days later, on August 13, 2001, Lincoln sent a letter to the Hartmarx board
and issued a press release regarding the acquisition. Both documents contained the
following paragraph:

The Lincoln Company LLC, which is the investor group we have

assembled, is made up of The Tom James Company and other investors,

who have committed $70 million in cash equity for this transaction. In

addition, we have arranged financing to cover the purchase, refinance the

existing Hartmarx debt and provide for the working capital needs of the
company. Our offer is subject to our performing limited due diligence of

Hartmarx beyond its present publicly available information, Hartmarx

Board approval of our offer, including a waiver of the Company’s poison

pill rights plan, HSR clearance and completion of a definitive agreement.

The following day, trading of Hartmarx stock increased 81%; the closing price

increased to $3.75 per share, compared to $2.07 per share the day before. That same

day, Hartmarx requested, among other things, that Lincoln provide a detailed

3.



is the principal shareholder of Tom James, another apparel manufacturer. Abboud is
a former member of the Hartmarx board of directors.

In early 2000, Hays became ine ‘iT acquiring Hartmarx. He approached
{
|

Sun Trust Bank (“Sun Trust”) and “Th ‘a regarding a loan to fund the
abo

potential acquisition. On February 23, 2000, Trust issued an engagement letter to

tf

fl

Hays in which it proposed to arrange TM Aisin The engagement letter was never
executed, and Sun Trust did not issue a joan to Hays in 2000. Around the same time
in February 2000, Hays met with the chairman of the Hartmarx board to discuss his
plans to acquire the company. While the parties do not agree on the specifics of
ensuing events, suffice it to say that Hays and the board did not see eye to eye on the
merits of the proposed acquisition. In April 2000, Sun Trust wrote a letter to Hays
regarding the state of their discussions of financing, with the understanding that its
contents could be disclosed to the Hartmarx board. There is no dispute that the letter
was not a loan commitment, nor that Hays knew that it was not a loan commitment.
In May 2000, the board notified Hays that it no longer had any interest in his proposal
or continued discussion of it.

For the remainder of 2000 and into 2001, relations between Hays and Hartmarx

steadily deteriorated. In April 2001, Abboud was not reelected to his position on the

board. Two months later, Abboud formally joined Hays in his renewed effort to

-2-


UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

IN RE:

HARTMARX SECURITIES LITIGATION 01 C 7832

ed

MEM D PINT

CHARLES P. KOCORAS, Chief District Judge: .

<f
This matter comes before the court on cross-motions for summary inden 9
Ga aS
.)
For the reasons set forth below, the parties’ motions are denied. Ss 4°

BACKGROUND

The following summary is derived from the statements of fact filed by the parties
pursuant to Local Rule 56.1. Plaintiff Alpart Trading Company (“‘Alpart”) is a market
making firm in Chicago. Between August 14 and October 8, 2001, Alpart purchased
shares of stock in an apparel manufacturer called Hartmarx Corporation (“Hartmarx”).
In the instant litigation, Alpart represents a certified class of similarly situated
purchasers of Hartmarx stock. Defendant Lincoln Company, LLC (“Lincoln”) is a
limited liability company formed by a group of investors to acquire Hartmarx
Corporation. Defendants Tom James Company (“Tom James”), Spencer Hays

(“Hays”), and A. Robert Abboud (“Abboud”) are founding members of Lincoln. Hays

Ho



reduced those agreements to writing. Furthermore, they have offered evidence that the
term “arranged financing” is broad enough to arguably encompass the state of their
relationships with Sun Trust and Bank of America at the time the release issued. (Hays
Dep. at 83-85; Abboud Dep. at 212-15; Neuberger Dep. at 65-67, 91-93). This point
is not dispositive, as a statement can be literally true and yet still misleading enough
to support liability. See Kas v. Caterpillar, 815 F. Supp. 1158, 1171 (C.D. Ill. 1992),
Furthermore, the statements were made in the context of a document about a publicly
traded stock that was intended for public release. Defendants’ contentions that persons
familiar with the world of finance would understand that the release might not mean
that financing was in place to the extent that funds were immediately available to them
are thus beside the point. Our inquiry focuses on whether there was a danger that a
member of the investing public, who may not be conversant in financial jargon, would
be misled by Defendants’ statements. However, in light of the evidence advanced by
Defendants, as well as the conclusion of the Seventh Circuit that such a construction
is “at least plausible,” we cannot conclude as a matter of law that the impetus of
Defendants’ actions was an intent to deceive the investing public. See Hartmarx Corp.
vy. Abboud, 326 F.3d 862, 869 (7th Cir. 2003).

Our conclusion that Alpart cannot show that there is no genuine issue of material

fact as to Defendants’ scienter obviates any discussion of Alpart’s arguments as to the

-12-