FILED

U.S. COURT OF APPEALS

ELEVENTH CIRCUIT

MAY 22, 2009

THOMAS K. KAHN

CLERK

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

________________________

No. 06-10715

________________________

D. C. Docket No. 04-00005-CV-HLM-4

JIMMY LEDFORD, 

LARRY O'DELL, 

BRYAN WALKER, 

DYNAVISION GROUP LLC, 

SIGNATURE LEASING, LLC, 

Plaintiffs-Appellants 

Cross-Appellees, 

versus

SHELBY PEEPLES, JR., 

PFLC, LLC, 

INTERNAL MANAGEMENT, INC., 

Defendants-Appellees

Cross-Appellants. 

________________________

Appeals from the United States District Court

for the Northern District of Georgia

_________________________

(May 22, 2009)
Before EDMONDSON, Chief Judge, TJOFLAT and GIBSON, Circuit Judges.

*

TJOFLAT, Circuit Judge:

In this case, two parties, X and Y, each owned a fifty percent interest in a

limited liability company that manufactured and sold carpets. X provided the

financing; Y ran the company and marketed its product. The parties had a buy-sell

agreement that enabled either party to buy out the other at any time by offering to

purchase the other’s interest in the company at a set price. After receiving an

offer, the offeree would have thirty days in which to accept the offer or elect to

purchase the offeror’s interest at the same set price.

Y offered to purchase X’s interest for $3.5 million. X demanded to know

whether Y would be borrowing the funds from Z, who earlier had expressed an

interest in purchasing the company. Y said that neither Z nor anyone else would

be providing the money. X asked Z if he was financing Y; Z said no. 

X, unable to operate the factory and market its product without Y or

someone with Y’s expertise, had to sell and therefore accepted Y’s offer. Prior to

the date set for the closing, however, X told Y that it would not go forward with

the closing unless Y represented that no third party was providing the funds to pay

Honorable John R. Gibson, United States Circuit Judge for the Eighth Circuit, sitting by *

designation.

2
X. Y responded that it had no obligation to disclose the source of its funds and

that X was bound by contract to transfer its interest to Y unconditionally. X tacitly

agreed by appearing at the closing and transferring its interest to Y. 

X subsequently learned that Z had provided the purchase price and,

following the closing, had acquired the factory’s assets and hired Y to run the

business. After discovering Z’s involvement, X took Y to court. In a complaint

filed in state court, X alleged that Y breached a fiduciary duty to tell it that Z had

financed the purchase of its interest, and moreover, that Y’s failure to disclose Z’s

involvement fraudulently induced X to sell its interest to Y. X also brought suit 1

against Z in federal district court, the case now before us, claiming that Z violated

federal securities law, state securities law, and state common law by denying

involvement in the transaction and causing X to sell its interest to Y. 

X lost both cases on summary judgment. Both courts concluded that Y’s 2

alleged misrepresentation about Z’s involvement in the buy-out did not cause X to

sell its interest. Rather, X sold because it was in X’s economic self-interest to do

so. X needed Y’s skills; had X purchased Y’s interest, it would have had no one

 Invoking the same fiduciary duty and fraudulent inducement theories, X also claimed 1

that Y had wrongfully obtained the parcel of real estate on which the carpet factory was located. 

 X lost its state case with the exception of a claim against Y involving the real estate 2

referred to supra note 1. That claim is still pending in state court. 

3
to run the carpet factory or to market its product. X therefore had no economically

viable option but to sell. 

After the district court granted Z summary judgment, Z moved the court to

sanction X and its counsel under the Private Securities Litigation Reform Act

(“PSLRA”), Rule 11 of the Federal Rules of Civil Procedure, 28 U.S.C. § 1927,

and the court’s inherent power on the grounds that X neither produced, nor at any

time had available, any evidence to support its allegation that Z’s conduct caused

it to sell its interest rather than buy Y’s interest. The court denied Z’s motion. 

X now appeals the district court’s decision rejecting its claims. Z crossappeals the court’s denial of sanctions under the PSLRA. On X’s appeal, we

dismiss part of X’s claims for lack of subject matter jurisdiction and affirm the

district court’s judgment as to the remainder. On Z’s cross appeal, we conclude

that Z is entitled to sanctions and therefore remand the case for their imposition. 

This opinion is organized as follows. Part I identifies X, Y, and Z and sets

out the events that have given rise to this controversy. Part II canvasses the

3

litigation as it evolved in state court and spread to federal court; describes the state

 In doing so, we are mindful that we are reviewing a summary judgment. Thus, the facts 3

we recite in portraying the relevant events are those established by the evidence, taken in the light

most favorable to the non-movant, X, and the inferences reasonably drawn therefrom. Harris v.

Coweta County,406 F.3d 1307, 1312 (11th Cir. 2005), rev’d on other grounds, Scott v. Harris,

127 S. Ct. 1769 (2007). 

4
trial and appellate courts’ disposition of X’s claims against Y and the district

court’s disposition of X’s claims against Z; and, after that, delineates the issues

that X’s appeal to this court presents. Part III addresses sua sponte whether the

district court had jurisdiction to hear some of the federal securities law claims X

brought against Z and concludes that it did not. Part IV assesses the merits of X’s

appeal as to the remaining securities law claims. Part V examines X’s claim that Z

aided and abetted Y’s breaches of fiduciary duty towards X. Part VI explains why

the district court should have sanctioned X’s counsel, and part VII concludes. 

I.

A.

X is DynaVision Group, LLC (“DynaVision”) and its principal owners,

4

Jimmy Ledford, Larry O’Dell, and Bryan Walker. Y is Brenda Smith, Robert 5

Thomas, and Bryan Owenby. Z is Shelby Peeples. 

 DynaVision and the other LLCs involved in this case were organized under the Georgia 4

Limited Liability Company Act, O.C.G.A. §§ 14-11-100, et seq. 

 Ledford, O’Dell, and Walker each owned 29% of DynaVision. Lamar Dixon and Dan

5

Bowen owned the remaining 13% but had no active participation in the events that gave rise to

the litigation at hand. Under Georgia law, ownership rights in a limited liability company are

referred to as interests, rather than shares, which indicate ownership rights in a corporation. See

O.C.G.A. § 14-11-101 (defining “[l]imited liability company interest” as “a member’s share of

the profits and losses of a limited liability company and a member's right to receive

distributions”); O.C.G.A. § 14-2-140 (defining “shares” as the “units into which the proprietary

interests in a corporation are divided”). 

5
In July 1998, Paul Walker, Bryan Walker’s father, approached Smith,

Thomas, and Owenby, experienced managers in the carpet manufacturing industry

in Dalton, Georgia, with the idea of forming a company to manufacture and sell

carpets to hotels, motels, restaurants, and others engaged in the hospitality

business. Soon thereafter, Smith, Thomas, Owenby, and Paul Walker formed

Signature Hospitality Carpets, LLC (“Signature”), dividing the company’s

interests equally between DynaVision on one hand and Smith, Thomas, and

Owenby on the other. 

6

Under Signature’s operating agreement, Smith, Thomas, and Owenby

managed the company, and DynaVision provided the capital. Signature sold

7

carpet to hospitality customers—mainly through contacts that Smith, who was

well respected in the industry, had previously established—and arranged for

manufacturers in the Dalton area to fill the orders. DynaVision provided the funds

 Smith, Thomas, and Owenby decided to share equal ownership of their one-half interest 6

in Signature; thus, each owned one sixth of Signature. 

 The Georgia Limited Liability Company Act defines an “Operating Agreement” as “any 7

agreement, written or oral, as to the conduct of the business and affairs of a limited liability

company that is binding upon all of the members.” O.C.G.A. § 14-11-101. Signature,

DynaVision, Smith, Thomas, and Owenby entered into the operating agreement under which 

Smith, Thomas, and Owenby commenced running the company on July 9, 1998. This initial

agreement is not part of the record. 

6
that Signature needed to pay the manufacturers by establishing a $200,000 line of

credit at a bank near Dalton, the First National Bank of Chatworth (“FNBC”).8

Signature initially operated out of rented office space; once the company

established itself as a going concern, however, its owners decided to find their

own manufacturing plant. Anticipating that they would be able to acquire a

suitable site in the Dalton area, DynaVision, Smith, Thomas, and Owenby entered

into a new operating agreement (“Operating Agreement” or “Agreement”), on

May 6, 1999. The Agreement referred to Smith, Thomas, Owenby, and

DynaVision as Signature’s “Members,” and Smith, Thomas, and Owenby as the

“Active Members.” It created a six-member Board of Directors, with three 9

directors appointed by DynaVision and three by the Active Members. The Active

Members appointed themselves; DynaVision appointed its accountant, Edward

Staten, and left two of its seats vacant. The Operating Agreement required the

Board to unanimously authorize all of Signature’s actions. This meant that

 Ledford and O’Dell, who managed DynaVision’s affairs, arranged for the line of credit. 8

Paul Walker, who had formed DynaVision, played a limited role in its affairs. He looked after

his son Bryan’s interest in the company, and frequently spoke for Ledford and O’Dell as well as

Bryan. 

 The district court, in its order granting summary judgment, used the term “Active 9

Members” to refer to Smith, Thomas, and Owenby in the aggregate, and both sides have

continued the use of this term in briefing the case to this court. We adopt this use of this term for

the remainder of this opinion. 

7
DynaVision, through Staten, could have blocked any action the Active Members

wanted to take. The Board rarely met, however, face to face or otherwise, so the

Active Members ran Signature’s operations without objection. 

Under the Agreement, Smith was the company’s president and the person in

charge of marketing, Thomas was the vice-president of sales, and Owenby was the

vice-president of manufacturing. A non-solicitation clause provided that if a 10

Member sold his or her interest, that member could not for one year thereafter

“call, solicit, or fulfill orders” from “customers or prospects” of Signature. In 11

 Smith, Thomas, and Owenby worked for Signature in these capacities as full-time 10

employees, terminable at will on the vote of four Board members. Since the Board had but four

members, there was no likelihood that the employment of an Active Member would be

terminated unless DynaVision completely filled the three Board positions it controlled. 

 The no-solicitation clause appears in Article Ten of the Agreement, “Employment of 11

Active Member; Restrictive Covenant; Non-Solicitation; No Publication of Confidential

Information,” as Section 10.4. It reads, in pertinent part, as follows:

No Solicitation of Company Employees or Customers. In the event a Member

sells his Interest in the Company, the Member . . . for a period of one (1) year after

the sale of the Interest, shall not . . . call, solicit or fulfill orders from customers or

prospects who have been contacted by the Company within twenty-four (24)

months prior to the sale of the Interest . . . for the purpose of inducing those

customers or prospects to cease doing business with the Company or to induce

those customers to do business with another in competition with the business of

the Company. . . . 

On its face, section 10.4 appears to apply to DynaVision as well as the Active Members. In

reality, it applied only to the Active Members. DynaVision had no contact with Signature’s

customers and, if it sold its interest, lacked the nohow to compete with Signature. In this

opinion, we therefore treat section 10.4 as applying only to the Active Members. 

8
reality, the clause applied only to the Active Members, since they were the ones

who possessed Signature’s customer contacts. 

12

The Agreement also contained a buy-sell provision, which is at the center of

the present controversy. This provision is contained in Article Nine of the

Agreement, entitled “Transfer and Assignment of Member Interests.” Section 9.5,

“Mandatory Put and Call,” reads as follows:

At any time Dyna-Vision or the Active Members by majority vote

within that group, may set a price per percentage Interest and give

written notice of that price to the other group, (the “Notice of Offer to

Sell or Purchase”). The Members receiving the Notice of Offer to Sell

or Purchase shall have thirty (30) calendar days to decide whether to

sell all their Interest at that price or to purchase all the Interest of the

group giving Notice of Offer to Sell or Purchase at the Price set forth

in the Notice of Offer to Sell or Purchase. If the Members receiving

the Notice of Offer to Sell or Purchase fail to make an election . . . ,

the Members receiving the Notice of Offer to Sell or Purchase shall

have to sell their Interest at the price set forth in the Notice of Offer to

Sell or Purchase.

Following the execution of the Operating Agreement, the parties located a

site for Signature’s manufacturing plant and offices on Green Road in Chatsworth,

Georgia, a short distance from Dalton. To purchase the site, which included a

building that could be converted to accommodate Signature’s requirements, the

 DynaVision needed the non-solicitation clause to protect its investment. Without the 12

clause, the Active Members, especially Smith, who had most if not all of the customer contacts,

could leave the company and immediately compete with Signature, thereby substantially

depreciating the value of DynaVision’s interest in Signature. 

9
Active Members formed another limited liability company, Signature Leasing,

LLC (“Leasing”), with Ledford, O’Dell, and Bryan Walker. On October 19, 13

1999, Leasing purchased the property (“Green Road Property”) with the proceeds

of a $630,000 loan from Dalton Whitfield Bank. Bank employee Cynthia

Trammel managed the paperwork for the loan. Once the building was equipped 14

to manufacture carpets, Signature moved in. 

15

Signature then looked to FNBC for working capital. Over a period of

several months following its occupancy of the Green Road Property, Signature

received several unsecured loans from the bank. In October 2001, Signature

16

asked FNBC for a loan that would pay off its FNBC loans and the balance due on

 Smith, Thomas, and Owenby owned 50% of Leasing in equal shares; Ledford, O’Dell, 13

and Walker owned 50%, presumably in equal shares. 

 According to Trammel on deposition in the state court case, Smith, Thomas, Owenby,

14

Ledford, and O’Dell, whom the bank considered to be Leasing’s principal owners, signed the

note and thereby guaranteed Leasing’s loan. Bryan Walker owned the same interest in Leasing as

Ledford and O’Dell. Why he was not required to sign the note and guarantee the loan is not clear

from the record. There is an inference, however, that Paul Walker had a significant relationship

with the bank and that the bank, acceding to his wishes, was willing to make the loan without

Bryan Walker’s participation. 

 Leasing did not give Signature a formal lease for the property. According to Ledford

15

on deposition in the state court case, Signature paid Leasing each month for use of the property,

but he did not indicate the amount of the payments. 

 Although the notes Signature gave the bank were neither made part of the record nor 16

published via witness testimony, we infer that they were unsecured. We draw this inference

because the bank significantly lowered the interest rate it was charging Signature when it

refinanced Signature’s debt with a loan secured by a deed to secure debt on the Green Road

Property. 

10
the Dalton Whitfield Bank loan, and provide Signature with additional working

capital. In total, Signature needed $911,000. 

At Signature’s request, Trammel, who had moved from Dalton Whitfield

Bank to FNBC the year before, handled the transaction. Trammel informed

Signature that, subject to the approval of the FNBC’s board of directors, the bank

would make the loan on the following conditions: Signature would give the bank a

deed to secure debt on the Green Road Property and Signature’s carpetmanufacturing machines; Smith, Thomas, Owenby, Ledford, and O’Dell (the

“Guarantors”) would sign the note and thus guarantee its payment. Signature 17

and the Guarantors agreed to these conditions, the bank’s board approved the loan,

and Trammel proceeded to prepare for the closing. 

Trammel’s first task was to have FNBC’s counsel, Todd McCain, examine

18

the title to the Green Road Property. After examining the title, McCain sent

Trammel an opinion indicating that Leasing, not Signature, owned the Green Road

Property. Signature therefore could not give the bank a deed to secure the debt

with the property unless and until Leasing conveyed the property to Signature. 

 Trammel apparently agreed to leave Bryan Walker out of the transaction for the same 17

reason he was not required to sign the note for the $630,000 loan the Dalton Whitfield Bank

made to Leasing so it could purchase the Green Road Property. See supra note 14. 

 McCain was the principal attorney in the McCain Law Firm, located in Dalton. 18

11
Trammel overlooked the need for the conveyance, and the loan closed on

October 24, 2001 without Leasing having conveyed the property to Signature. 

Therefore, as part of this transaction, Signature gave FNBC a deed to secure debt

for real property it did not own. A month or so later, Trammel happened to read 19

McCain’s opinion, noted that Leasing, not Signature, owned the Green Road

Property, and realized that Signature’s deed to secure debt was worthless. 

Something had to be done, so Trammel called McCain. In mid-January 2002,

20

McCain sent Trammel the document needed to solve the problem, a warranty deed

conveying the Green Road Property from Leasing to Signature. 

Trammel then contacted Smith, informing her that she and the other

Guarantors would have to return to the bank and sign a “document” that had been

neglected at the closing. The document was the warranty deed, although Trammel

did not explain the document’s significance to Smith at that time. Trammel asked

that Smith pass along this message to the others Guarantors, and Smith did. 

 The note and deed to secure debt were not made part of the record before the district 19

court and thus are not before us.

 Trammel spoke to McCain’s secretary in his absence. Trammel’s testimony on 20

deposition in the state court case is muddled as to precisely what Trammel said to the secretary. 

What is clear is that, in response to Trammel’s call, McCain’s office sent Trammel a warranty

deed, which would convey the property from Leasing to Signature, for Leasing’s execution. 

12
Smith, Thomas, and Owenby promptly went to the bank and signed the

document before a notary public, Angela Garland, and in the presence of a

witness, Trammel. Smith read the document, which bore the heading “Warranty

Deed,” and recognized its significance—that Leasing was conveying the Green

Road Property to Signature to satisfy one of the conditions on which the bank had

made the loan. 

Ledford and O’Dell did not appear to sign the document, so Trammel asked

Smith to remind them to do so. Smith thereupon called Ledford and asked him to

go to the bank and sign what she described as “a document that had been left out

of the closing.” She did not inform Ledford of the document’s legal significance.21

Smith also asked Ledford to contact O’Dell and remind him to sign the document. 

Ledford did so, and, in early February, he and O’Dell separately went to the bank

and signed the warranty deed, also before Garland and Trammel. Trammel

forwarded the executed warranty deed to the McCain firm, which filed it with the

Clerk of the Murray County Superior Court on February 7, 2002. 

 Ledford, apparently curious about why he needed to sign a document at the bank, 21

called Trammel after his conversation with Smith. Trammel told him that there was some

“paperwork” that needed to be signed. She did not inform Ledford of the paperwork’s legal

significance, and Leford made no further inquiry on this point.

13
 Ledford and O’Dell insist that they did not know that they were signing a

warranty deed; moreover, they claim that they had no understanding of the legal

significance of a warranty deed and would not have signed the instrument had they

known that it transferred the Green Road Property to Signature.22

B.

In December 2001, Shelby Peeples, a Dalton businessman with interests in

the carpet-manufacturing industry, contacted Paul Walker and Ledford and

expressed an interest in purchasing Signature. Paul Walker, Ledford, and Peeples

had been involved in several business ventures and were on friendly terms. The 23

three men met at least once during December to discuss the possible sale of

Signature. At some point, Walker informed the Active Members that Peeples

24

had shown an interest in purchasing Signature. 

On January 9, 2002, Paul Walker, Ledford, O’Dell and the Active Members

met and agreed to offer Signature and the Green Road Property to Peeples for

 Both men testified to this effect on deposition in the state court case and in the district 22

court proceeding now under review.

 The Peeples and Walker families had strong personal ties. Bryan Walker, on 23

deposition in the state court case, testified that “the Peeples are like family to me, and Shelby’s

son is my best friend and has been forever.” 

 In these and subsequent meetings involving the disposition of Signature or the Green 24

Road Property, Paul Walker acted for his son Bryan. He also appeared to speak for O’Dell in his

absence. See supra note 8.

14
between $10-12 million. They designated Paul Walker to represent them in 25

negotiations with Peeples. Later that day, Paul Walker, Thomas, and Owenby met

with Peeples and some of his associates. Walker informed Peeples that the Green

Road Property was owned by a separate company but offered to sell both

Signature and the property for $12 million. Peeples rejected the offer. Walker

countered with an offer of $10 million. Peeples rejected that offer as well. 

Peeples then asked Walker if he could meet separately with him and, after that,

with the Active Members. Walker said yes but that Peeples could meet with the

Active Members only once. Walker, having made that point clear, met with

Peeples to discuss the matter. Peeples offered him $2 million for DynaVision’s

interest. Walker apparently felt insulted, so Peeples increased the offer to $2.5

million. Walker rejected it out of hand, and the discussion ended. 

As January wore on, Walker met with Peeples once or twice a week to

discuss some business ventures in which they were involved. During some of

their meetings, Walker asked Peeples whether he had been negotiating with the

Active Members. Peeples said no, but his denial was false. Peeples and the

Active Members had been meeting all along to discuss ways that Peeples could

 The $10-12 million figure was based on the Active Members’, Walker’s, and O’Dell’s 25

off-hand evaluation of the worth of the company absent a formal appraisal. Ledford believed the

company was worth more and opposed selling the company. 

15
acquire DynaVision’s interest in Signature without dealing directly with

DynaVision. Moreover, with the assistance of his lawyer, Peeples had

memorialized the substance of his discussions with the Active Members in a letter,

which he faxed to the Active Members on January 21. 

The letter mapped out the steps that Peeples and the Active Members would

take. First, the Active Members would acquire DynaVision’s interest in Signature

using the Mandatory Put and Call provision of the Operating Agreement. 

According to the letter, “on terms and conditions to be set forth in a definitive,

legally binding, written agreement, . . . a company owned or controlled by . . .

Peeples” would loan $3.5 million to the Active Members “for the purpose of

enabling the Active Members to complete the acquisition of the DynaVision

Interest.” This loan would be made after the Active Members acquired

DynaVision’s interest. Next, Peeples would purchase all of Signature’s assets 26

from the Active Members, forgive the $3.5 million loan, and pay the Active

Members $3 million. The Active Members would remain as managers of 27

Signature under five-year employment contracts, with annual salaries starting at

 The loan would be secured by “a first priority security interest in . . . all of the issued 26

and outstanding interests in Signature [and] a security interest in and to all assets of Signature.”

 The Active Members arrived at the $3 million price for their interest and the $3.5 27

million price for DynaVision’s interest based on their unappraised evaluation of Signature’s

worth. 

16
$160,000 and increasing each year and possible bonuses based on Signature’s

performance. 

28

The letter contained sections entitled “Confidentiality” and “No Discussions

with Others.” The “Confidentiality” section provided, in pertinent part:

[N]one of the parties hereto will . . . (1) disclose or publicize in any

manner (except as may be required by applicable law) that

discussions relating to matters covered [in this letter] or the Loan or

the Acquisition are taking place between or among the Active

Members, the Peeples Group, Signature and/or Buyer, or (2) reveal

the terms or

proposed terms of either this Letter or the Loan . . . to any person or

entity other than [representatives of Peeples who would be

conducting a due diligence investigation into Signature after the

Active Members purchased DynaVision’s interest]. 

The “No Discussion” section stated, again in pertinent part: 

[N]one of the Active Members . . . will, directly or indirectly (i)

negotiate or discuss with any other person or entity any transaction

involving any business combination involving Signature, or (ii)

solicit . . . negotiate . . . or accept any offer, bid or proposal from any

other person or entity respecting any transactions involving a sale of

assets of Signature (except for sales of property in the ordinary course

of business) or any other business combination involving Signature,

or (iii) disclose or reveal . . . [information related to Signature’s

 The bonus, to be shared equally amongst the Active Members, would “equal . . . twenty 28

percent (20%) of the amount by which the net pre-tax profits of [Signature] exceeded One

Million Five Hundred Thousand Dollars ($1,500,000) on an annual basis.” In 2001, Signature

paid the Active Members around $130,000 per year. Under the Operating Agreement, they were

eligible for collective bonuses of 20% of all of Signature’s yearly profits, if between $500,000-

$1,000,000, and 25%, if between $1,000,000-$2,000,000. 

17
financial condition or methods and plans of operations], other than in

the ordinary course of business, to any person or entity not a party to

this Letter in connection with the type of transactions described in

clauses (i) and (ii) above . . . In addition, the Active Members will

immediately cease and cause to be terminated any previously

undertaken or ongoing . . . negotiations with any other person or

entity with respect to any transaction of the type described in the

preceding clauses (i) and (ii) above. 

The letter stated additionally that, “to the extent of any conflict in the

provisions of this Letter and the provisions of the Signature Operating Agreement,

the provisions of the Signature Operating Agreement shall prevail and the

conflicting provision(s) of this Letter shall be void and of no effect whatsoever.” 

After the Active Members received the letter, they continued their

negotiations with Peeples, which, toward the end of January or early February, led

to a verbal understanding. As indicated in the January 21 letter, Peeples would

loan the Active Members $3.5 million to purchase DynaVision’s interests. If the

purchase materialized, the Active Members would cause Signature to sell its assets

to Peeples. 

On February 8, Smith summoned Ledford and O’Dell to discuss tensions

between Ledford and O’Dell and the Active Members. Toward the end of this

meeting, Smith presented Ledford and O’Dell with the Mandatory Put and Call

pursuant to Section 9.5 of the Operating Agreement. The Put and Call informed

18
DynaVision that the Active Members would purchase its interest in Signature for

$3.5 million unless DynaVision opted to purchase the Active Members’ interests

for $3.5 million within thirty days. The Put and Call also stated that if DynaVision

elected to purchase the Active Members’ interests, it would release the Active

Members from their obligations under the Operating Agreement’s non-solicitation

clause. Ledford asked Smith whether Peeples or anyone else would be providing

the purchase price. Smith’s reply, according to Ledford, was that we “are doing

this on our own.” 

29

 Ledford recalled his and O’Dell’s reaction to Smith’s presentation of the Put and Call 29

in testifying on deposition in the state court case:

HORST [Counsel for the Active Members]: So they [the Active Members] talked

to you about these Crescent Extrusions invoices, and then after that discussion,

they hand you the February 8th put-and-call letter?

LEDFORD: Well, it was – Larry [O’Dell] and I were sitting at the table, and

Brenda [Smith] said something to the effect, “we may as well do this now,” or

something. I don’t know. She was standing at that corner of her desk and she

handed the put-and-call to us. I don’t know if we had stopped discussing the

Crescent invoices. I don’t know if we had resolved any – I don’t know. I just

know that we discussed that and then we got the put-and-call.

HORST: What was your reaction when you got the put-and-call?

LEDFORD: I was shocked.

HORST: Why?

LEDFORD: I thought we had a good partnership. 

HORST: What did you say to her when you got it?

LEDFORD: Well, after we read it, I asked if there was anybody else involved or a

third party funding it, and she said “No, this is us. We’re doing this on our own.” 

I said, “Is there any chance that this could be undone?” And I think Larry

[O’Dell] made the comment that “This partnership is over with.” . . . . 

HORST: What else did Mr. O’Dell say at that meeting other than “This

partnership is over with?”

LEDFORD: I don’t recall.

19
On February 22, DynaVision's lawyer, H. Greely Joiner, Jr., wrote a letter

30

to the Active Members stating that because Section 9.5 of the Operating

Agreement precluded the imposition of conditions on a Put and Call, DynaVision

would not honor the Put and Call with the non-solicitation clause condition. The

Active Members tacitly agreed. On February 25, they presented DynaVision with

a new Put and Call at the same price, $3.5 million, but without the requirement

that DynaVision void the non-solicitation clause. Paul Walker and DynaVision

treated this Put and Call as valid. 

DynaVision’s principals were not pleased. They wanted Signature to

continue on, under the Active Members’ management, because they believed that

in time the company would become increasingly profitable. Nonetheless, they

recognized that they had two options—buy or sell—and thirty days to decide. 

They did not want to sell because, as the prices ($12 million and $10 million) Paul

Walker quoted to Peeples in January indicated, they believed their half-interest in

Signature was worth substantially more than $3.5 million. But they did not want

to buy either because they lacked the contacts in the hospitality industry necessary

HORST: Didn’t he say something to the effect that, “Oh, hell, Jim [Ledford], you

know who’s funding this and he’s going to screw us”? 

LEDFORD: He could’ve said something about that. I’m sure we had a real good

idea who was funding it. . . .

 Joiner is a sole practitioner and owner of H. Greely Joiner, LLC. 30

20
to enable them to market Signature’s products with any measure of success. 

Without the Active Members—particularly Smith, with her extensive contacts in

the hospitality industry—DynaVision’s principals knew they could not operate

Signature at a profit. 

31

 Ledford, O’Dell, and Paul Walker all made statements to this effect on deposition in 31

the state court case and, later, in the district court in this case. In his deposition in the state court

case, Ledford testified: 

HORST: At any time did you say, “Hey, I'll kick in $1 million or $100,000 or

some other amount if we can get some other people to kick in some money to buy

out Bob [Thomas], Brenda [Smith] and Bryan [Owenby]”?

LEDFORD: We discussed -- we discussed that, but the first thing was marketing.

If we had marketing, we would have done -- if we could have secured people to

do the marketing, we would have been interested.

HORST: So you needed people who could run the business like Bob, Brenda and

Bryan had?

LEDFORD: We needed people that could run the business, yes, sir.

HORST: Because you within Dynavision didn't have the competency or the skill

set to run Signature Hospitality?

LEDFORD: I didn’t have the experience with the customer base, no sir.

In his deposition in the district court case, Ledford testified: 

SINKFIELD [Counsel for Peeples]: . . . it was marketing help that was the key

factor in your decision to sell rather than buy. Is that a fair statement?

LEDFORD: Had we been able to retain Brenda, we would have purchased the

company.

SINKFIELD: Is it fair to say that marketing help was the key factor in your

decision to sell rather than buy?

LEDFORD: The lack of a marketing group forced us to sell the company.

In his deposition in the state court case, O’Dell testified: 

HORST: Now, DynaVision had the money to pay three and a half million dollars

to the active members, didn't it?

O'DELL: I could have got the money

HORST: Why didn't you . . . . 

O'DELL: Without an operating group, a managing group, that would be most

21
foolish on my part, in my decision or my opinion. . . . . 

HORST: So you didn’t think that if Dynavision bought out Bob, Brenda, and

Bryan, you guys would have the ability to compete with them?

O’DELL: Not without qualified people in that field, no.

HORST: The Dynavision people were not qualified people in that field?

O’DELL: No, they weren't.

In his deposition in the district court case, O’Dell testified: 

SINKFIELD: You are running out of time, correct?

O'DELL: Uh-huh.

SINKFIELD: Now, if you bought out the Active Members for 3.5 to give yourself

time to complete [a deal with a potential third-party buyer for $8 million], that's

what, about a million dollars differential . . . . that you could make just on turning

it over . . . did you ever consider doing that?

O'DELL: Well, that would have been a heck of a gamble to take. I mean, you

could have, obviously, looked at it that way and thought well, I'll maximize this in

another 30 days or 60 days but that would have been a gamble you were taking. I

could have been left with a company without any managers, without anyone that

knew anything about marketing. No, that was – that – I don't think that was an

option we could take. . . .

SINKFIELD: You thought about, but you did not want to take the risk of buying

the Active Members' interest on the potential that you could turn it and either

make a profit or find somebody who could run it in time to keep it from going

under. Is that a fair statement?

O'DELL: Correct. 

In his deposition in the state court case, Walker testified: 

HORST: Well, if you thought the company was worth more than the put-and-call

offer, were you interested in trying to find somebody to lend you the money or for

DynaVision to raise the money to buy out the company?

WALKER: We would have had to have found a marketing group to replace the

existing marketing group. So its more than just the money, its a matter of also

finding a group that can continue to grow the company. 

HORST: You needed to find a marketing group because Dynavision did not have

anybody that was associated with it that had the skill set that Bob, Brenda, and

Bryan did; correct

WALKER: That is correct . . . . 

HORST: So if you thought the offer that the active members made on February

8th of three and a half million dollars was too low, why didn't Dynavision buy the

active members out of Signature Hospitality?

22
Faced with this dilemma, DynaVision’s principals looked for an immediate

buyer who would be willing to pay $10 million for the company. If they could

find a buyer willing to pay as much as $8.5 million, they would opt to buy out the

Active Members for $3.5 million. The $5 million they would net was what they

thought their half of Signature was worth. 

Ledford and O’Dell contacted three firms, Mohawk Carpets, Clay Miller

Carpets, and Matel Carpets, in their search for a buyer. They initially proposed a

$10 million price for Signature, eventually lowering the price to $8.5 million as

the thirty-day Put and Call period drew to a close. As part of his pitch to sell

Signature, Ledford told Jerry Thomas, Matel’s owner, that Thomas ought to buy

Signature to protect his company from Signature’s competition should Signature

WALKER: I don't think that a marketing group could be found in the short period

that they had to look for one. 

In his deposition in the district court case, Walker testified:

SINKFIELD: So to your knowledge, one, you did not seek to borrow money, get a

core investor, or anyone to assist you in buying out the Active Members Group; is

that correct? You didn't personally do that?

WALKER: No.

SINKFIELD: Why not?

WALKER: There is no need to buy out the Active Members without a marketing

group. The ability to obtain a marketing group first was necessary, since none of

the Active -- none of the Dyna-Vision Group were a part of the everyday

management or marketing of Signature Hospitality. 

SINKFIELD: Is there any other reason they you did not personally seek a financial

source to assist you in buying out the Active Members' interest?

WALKER: That would have been the only reason. 

23
fall into Peeples’s hands. Ledford stressed “the dynamics of what might happen 32

should a . . . company like [Signature] fall into the hands of . . . the Peeples

family.” But Thomas was not persuaded, nor was anyone else. With time

33 34

running out, Ledford asked Smith if she would be willing to stay on and run the

company if he and the others bought the Active Members’ interests. Smith was

not interested. 

 Paul Walker and DynaVision’s principals discussed among themselves the

possibility that Peeples had financed the Active Members’ February 25 Put and

Call. Motivated by these suspicions, Walker confronted Peeples directly. Peeples

denied any involvement. At one point, Walker warned Peeples that if he was 35

involved, he would not be getting the Green Road Property, because Leasing

owned it, not Signature. 

 Ledford and O’Dell identified the persons they contacted and spoke to at these three

32

firms. The record does not disclose what was said during the conversations with Mohawk and

Clay Miller; all that the record reveals is what was said in conversation with Jerry Thomas at

Matel. We infer that in making their sales pitches to Mohawk and Clay Miller, Ledford and

O’Dell urged them to consider purchasing Signature in order to avoid competition from Peeples. 

 The quotation is taken from Ledford’s testimony on deposition in the state court case. 33

 Thomas considered the possibility of buying Signature if the Active Members 34

remained with the company, so he met with them to explore that possibility. They were not

interested, so he abandoned the idea. 

 Paul Walker also had previously suspected that Peeples was behind the Active 35

Members’ February 8 Put and Call and confronted him. Peeples had denied any involvement. 

24
C.

On March 27, the thirty-day election period provided by the Put and Call

expired. DynaVision had not exercised its option to purchase the Active

Members’ interests within the election period; consequently, it had to sell its

interest for the $3.5 million Put and Call price. On March 28, DynaVision and the

Active Members began to negotiate the finer terms of the sale.

A few days later, Joiner, presumably representing Ledford, O’Dell, and

Bryan Walker as one-half owners of Leasing, asked Smith if he could draw up a

lease for the Green Road Property between Leasing, as lessor, and Signature, as

lessee. Smith responded that Signature, not Leasing, owned the property. Joiner

checked the title and discovered the warranty deed from Leasing to Signature that

had been recorded on February 7. Paul Walker and Ledford then demanded that

the Active Members consent to a conveyance of the property back to Leasing. The

Active Members refused, explaining that it had been everyone’s intent to transfer

the property to Signature so that Signature could go forward with the FNBC loan

transaction; Signature had to have title to the property in order to give the bank a

valid deed to secure debt. 

Meanwhile, at a meeting of DynaVision’s members, the members

unanimously adopted resolutions authorizing O’Dell and Ledford to “negotiate,

25
execute and convey the interests of Dyna-Vision in Signature . . . to Smith,

Thomas, and Owenby . . . .” The resolutions went on to allow O’Dell and Ledford

to set certain conditions on the conveyance including: 

the repayment of all loans due any [DynaVision] member or any

affiliate of any member; the release of all [DynaVision] members

from any guarantees issued on behalf of Signature to any financial

institution or vendor; the repayment of any and all funds due DynaVision by Signature with respect to any distributions which had not

been authorized by the Board of Directors of Signature; and a longterm Lease Agreement between Signature and Leasing, with a

minimum term of five (5) years at a rental rate of $11,000 per month

plus taxes, insurance, maintenance and repair.

The minutes of this meeting indicate that DynaVision’s members knew that the

transaction would close on April 30. They provided that because O’Dell,

DynaVision’s chairman, would be out of town that day, Ledford would act for

DynaVision in his place.36

After this meeting adjourned, Ledford and O’Dell met with Joiner and 

spelled out several conditions the Active Members would have to meet before

closing. Joiner informed the Active Members of these conditions in an April 11

 The minutes also reflect that Ledford, O’Dell, and Bryan Walker simultaneously held a 36

meeting of Leasing’s members to discuss the status of the Green Road Property. Smith, Thomas,

and Owenby, Leasing’s other members, who, collectively, owned 50% of Leasing, were not

present. Although Leasing’s Operating Agreement is not part of the record, we assume that the

terms of the agreement did not authorize Ledford, O’Dell, and Walker to call a meeting of

Leasing’s members without notifying Smith, Thomas, and Owenby.

26
letter to their attorney, Douglas Krevolin. One called for the Active Members and

DynaVision to execute an agreement Joiner had drafted and enclosed in his letter. 

The agreement contained the following covenant, presumably designed to smoke

out the Active Members’ involvement with Peeples: 

[e]ach Assignee [i.e., Active Member] does hereby represent and

warrant to the Assignor [i.e., DynaVision] that such Assignee has

acquired the Interest from the Assignor for investments solely for said

Assignee’s own account . . . without any intention of conveying . . .

any portion of such Assignee’s Interest, and without the financial

participation of any other Person in acquiring the Assignee’s Interest. 

Another condition required the conveyance of the Green Road Property from

Signature to Leasing. 

Krevolin responded to Joiner’s April 11 letter with a letter dated April 16. 

He informed Joiner that the Active Members would not consent to either of the

two conditions. Responding to the threat implicit in Joiner’s letter—that

DynaVision would not close if the Active Members refused to represent that they

were acquiring DynaVision’s interest without the financial participation of a third

party—Krevolin said this: “If your client is not willing to proceed with the closing

in accordance with the terms of the Operating Agreement, the Active Members

may have no alternative but to seek a court order compelling it to close.” 

27
Joiner informed Ledford of what Krevolin had written and the position that

the Active Members would take if DynaVision refused to close, and Ledford

instructed Joiner to proceed with the closing on April 30. 

D.

In late April, prior to the closing, the Active Members signed two

promissory notes and a collateral agreement. In the collateral agreement, entitled

“Collateral Assignment of Membership Interest,” they pledged, “as record and

beneficial” owner of Signature, all of their ownership interest in Signature as

collateral for a loan of $3.5 million from PFLC, LLC and a loan of $855,000 from

Internal Management, Inc., both companies owned by Peeples. The proceeds of

these loans were to be used, respectively, to pay for DynaVision’s interest in

Signature and to pay the balance due, $855,000, on the loan FNBC had made to

Signature the previous October. 

At some point between the April 30 closing and May 7, the Active Members

and Peeples signed an Asset Purchase Agreement pursuant to which the Active

Members, as owners of all of Signature, caused the transfer of Signature’s assets

to Peeples for $5.75 million. Of that amount, $2.25 million went directly to the 37

 None of the exhibits in the record evidence the disposition the Active Members made,

37

if any, of their interests in Signature after they acquired DynaVision’s interest. The testimony

taken as a whole, however, creates the inference that at some point following the acquisition,

28
Active Members, and $3.5 million served to cancel the loan Peeples had made to

enable them to buy out DynaVision. The agreement also contained Peeples’s

promise to indemnify the Active Members for any expenses, including those

arising from litigation, they might incur as a result of the transfer of the Green

Road Property from Leasing to Signature. 

Contemporaneous with the execution of the Asset Purchase Agreement,

PFLC, LLC entered into six-year employment contracts with the Active Members,

their compensation to consist of $118,000 signing bonuses, initial salaries of

$160,000 per year, annual salary increases of $10,000, and bonuses if Signature

made over $1.5 million in pre-tax profits in a calendar year. 

II.

A.

On November 15, 2002, DynaVision, Ledford, O’Dell, Bryan Walker, and

Leasing filed suit for equitable and legal relief against the Active Members and

Signature in the Superior Court of Murray County, Georgia. The plaintiffs all

retained Joiner as counsel, along with H. Lamar Mixon and David G. H. Brackett,

two partners in Bondurant, Mixon and Elmore, LLP. Their complaint was 38

they transferred Signature’s assets to PFLC, LLC. 

 DynaVision amended its complaint on December 27, 2002. Our references to the 38

complaint are to the amended complaint.

29
framed in four counts and asserted six claims, all on behalf of the plaintiffs both

individually and collectively. Four claims were based on Leasing’s conveyance 39

of the Green Road Property to Signature; two involved the transfer of

DynaVision’s interest in Signature to the Active Members. We begin with the

claims regarding the Green Road Property. 

The first claim was that Leasing, and Ledford, O’Dell, Smith, Thomas, and 40

Owenby as owners of interests in Leasing, mistakenly executed the warranty deed

conveying the Green Road Property to Signature and thus were entitled to a

rescission of that transaction. The second claim was that Smith induced Ledford

41

and O’Dell to execute the warranty deed by falsely representing that FNBC needed

a corrective document without warning that the document was in fact a warranty

deed. The third claim was that Smith and the Active Members breached their

42

fiduciary duties to Leasing, causing Leasing to lose the value of the Green Road

 Although the complaint is not clear on this point, we assume that each plaintiff 39

asserted each of the claims we describe, such that the complaint contained 30 causes of action in

all. 

 We place plaintiffs’ claims in an order different from the order in which they appear in 40

several of the counts of the complaint. The first claim appears in Count One. 

 This claim appeared in Count Two. The complaint implied, if not alleged, that 41

Thomas and Owenby were vicariously responsible Smith’s conduct, as described in claims two

and five. For relief on this and the remaining claims described infra, plaintiffs sought

compensatory and punitive damages. 

 This claim appeared in Count Four.

42

30
Property, on two occasions—when Smith induced Ledford and O’Dell to sign the

warranty deed under false pretenses and when the Active Members refused to

 cause Signature to return the property to Leasing. The fourth claim was that

43

Signature, Smith, Thomas, and Owenby were unjustly enriched by the acquisition

of the Green Road Property. 

The fifth and sixth claims involved the transfer of DynaVision’s interest in

Signature. The fifth claim, a fraud claim, alleged that upon presenting the 44 45

conditional Put and Call on February 8, 2002, Smith falsely stated that the Active

Members were “doing this on our own,” intentionally inducing DynaVision to sell

its interest. The sixth claim alleged that by failing to disclose their discussions

46

and final arrangements with Peeples, the Active Members breached fiduciary

 This claim appeared in Count Three.

43

 We describe these claims in the text as the Murray County Superior Court and the 44

Georgia Court of Appeals, in Ledford v. Smith, 618 S.E.2d 627 (Ga. Ct. App. 2005), framed the

claims in their final dispositions. 

 This claim appeared in Count Two. 45

 This claim appeared in Count Four.

46

31
duties imposed by the Operating Agreement, the Georgia Limited Liability

47

 Plaintiffs’ theory that the Active Members had a fiduciary duty under the Operating 47

Agreement to disclose their final arrangement with Peeples, and that they breached that duty, is

based on Section 9.2 of Article Nine of the Operating Agreement, entitled “Right of First

Refusal,” and two of its parts, Sections 9.2.1 and 9.2.3. These two sections state:

 9.2.1 Notice of Intended Disposition. No Member in the Company

may sell less than all their Interest, and in the event a Member

receives a bona fide offer from any person in an arms length

transaction to purchase all of the Interest which they own in the

Company and if the person receiving the offer of purchase desires

to sell all the Interest that is the subject of the offer, notice of the

desire to sell the Interest shall be given in writing to the other

Members and the terms of the offer, which notice shall include the

price offered, the name of the offeror, and the payment terms (the

“Notice of Intended Disposition”). 

 9.2.3 Option to Purchase – Sale by Active Member other than Dyna-Vision.

Dyna-Vision shall have the right to purchase all of the . . .

Interest[s] to be sold at the same price and under the same terms

and conditions as described in the [Active Members’] Notice of

Intended Disposition. The election to purchase by Dyna-Vision

shall be exercised by giving written notice to [the Active] Members

within . . . thirty (30) calendar days after receipt of [the Notice of

Intended Disposition]. 

The Active Members did not consider their discussions with Peeples and his offer to loan

them the funds to acquire DynaVision’s interest as a “bona fide offer” to purchase their interests

in Signature so as to require them to notify DynaVision pursuant to Section 9.2.1; hence, they did

not notify DynaVision of the discussions. Accordingly, to prevail on their sixth claim based on

Sections 9.2.1 and 9.2.3, plaintiffs would have to prove that, prior to March 27 (when

DynaVision became obligated to sell its interest), Peeples made the Active Members a bona fide

offer to purchase their interests at a set price and on set terms, that they “desire[d] to sell” their

interests to Peeples, that Section 9.2.1 therefore obligated them to notify DynaVision of the offer,

that their failure to notify DynaVision breached that obligation, and that but for the breach,

DynaVision would have exercised its right of first refusal and bought the Active Members’

interests at the price and on the terms indicated in Peeples’s offer. Under this scenario, the

Active Members’ February 25 Put and Call would become a nullity, replaced by the triggering of

Section 9.2.3 of the Operating Agreement. That is, DynaVision would have purchased the

Active Members’ interests pursuant to Section 9.2.3 instead of selling its interest pursuant to the

Section 9.5 Put and Call provision.

32
Company Act, and Georgia common law. 48

On August 13, 2003, after the parties had joined the issues, plaintiffs

49

moved the state court for leave to amend their complaint to add Peeples and his

two companies, PFLC, LLC and Internal Management, Inc., as co-defendants.50

Plaintiffs represented that they had not learned of Peeples’s involvement until the

day before, August 12, when they took Owenby’s deposition and Owenby testified

that Peeples had provided the funds to enable the Active Members to trigger the

Put and Call. 

51

 The Act imposes a general duty of loyalty on the members and managers of a limited 48

liability company but does not explicitly create a duty to disclose particular facts. O.C.G.A. §

14-11-305 describes this duty as follows:

In managing the business or affairs of a limited liability company:

(1) A member or manager shall act in a manner he or she believes in good faith to

be in the best interests of the limited liability company and with the care an

ordinarily prudent person in a like position would exercise under similar

circumstances. A member or manager is not liable to the limited liability

company, its members, or its managers for any action taken in managing the

business or affairs of the limited liability company if he or she performs the duties

of his or her office in compliance with this Code section. 

 Defendants’ answers are not in the record. We infer from what is in the record, and in 49

the Georgia Court of Appeals opinion in Ledford v. Smith, that the Active Members denied the

allegations underpinning plaintiffs’ several causes of action. 

 Neither plaintiffs’ motion for leave to amend nor the proposed amended complaint are 50

in the record. The record does include, though, the superior court’s October 29, 2003 order

denying plaintiffs’ motion, and that order addresses the argument plaintiffs made in support of

the motion. 

 Defendants deposed Ledford on the same day, August 12. 51

33
The state court heard oral argument on the motion on September 25, 2003,

after discovery had closed. It denied the motion on October 29, 2003, 52

concluding that DynaVision “knew or should have known” at the time it filed its

complaint that Peeples was “involved.” In its order, the court noted that plaintiffs,

in their complaint, had alleged that a third party had been involved in negotiations

with the Active Members and DynaVision in early January 2002 over a possible

purchase of Signature, but that these negotiations were unsuccessful. Further, they

had alleged, “upon information and belief,” that a third party had financed the

Active Members’ acquisition of DynaVision’s interest in Signature and, after the

Active Members had DynaVison’s interest in hand, had purchased Signature’s

assets. In addition, Ledford had deposed that he knew that Peeples was involved

in the January negotiations. It should have been obvious to DynaVision that since

Peeples was involved in the January negotiations, he was the party that likely

financed the Active Members and purchased Signature. In addition, the court

reasoned, adding Peeples as a party at that late stage of the litigation, after

discovery had closed, would cause Peeples undue prejudice. 

 Discovery closed on September 7, 2003. The discovery included the taking of the 52

depositions of Peeples, the Active Members, DynaVision’s principals, and Paul Walker. 

34
Plaintiffs moved the court to reconsider its ruling. The court denied their

motion on March 8, 2004. In its order, the court was highly critical of plaintiffs’

delay in attempting to join Peeples as a party defendant:

[As a result of Ledford’s deposition testimony] the Court [in its

October 29 order] concluded that the Plaintiffs knew of the

involvement of the Peeples Group, at the time the original Complaint

was filed . . . . The Plaintiffs then waited nine months, until August

13, 2003, before filing for leave to amend. The Plaintiffs had

carefully waited until after the deposition of Shelby Peeples [on June

27, 2003] and until after the close of discovery to have their motion

heard [on September 25, 2003]. In making the October 2003 ruling,

this Court determined that the Plaintiffs engaged in a deliberate

scheme to delay joinder without excuse or justification. Therefore,

the Court finds that the [Plaintiff’s] failure to offer evidence of excuse

or justification is an independent reason that the Plaintiffs’ Motion

[for Reconsideration] should be denied. 

B.

1.

On January 7, 2004, while their motion for reconsideration was pending in

state court, plaintiffs, still represented by Joiner, Mixon, and Brackett, brought the

instant lawsuit against Peeples, PFLC, LLC, and Internal Management, Inc. in the

United States District Court for the Northern District of Georgia. The complaint 53

 We are unable to discern from the allegations of plaintiffs’ complaint the nature of the 53

claims asserted, if any, against PFLC, LLC and Internal Management, Inc. We assume that they

were made parties defendant solely for purposes of declaratory or equitable relief involving the

title to the Green Road Property or the status of DynaVision’s former interest in Signature. 

Because such relief has not been forthcoming, and because plaintiffs do not contend on appeal

that the district court erred in denying relief against those two defendants, we omit further

35
was framed in 116 paragraphs and seven counts. Each count incorporated by

reference each preceding count, such that Count Seven amalgamated and asserted

all of the claims of the preceding counts. 

Plaintiffs’ complaint is a “shotgun” pleading in that it lumps multiple claims

together in one count and, moreover, appears to support a specific, discrete claim

with allegations that are immaterial to that claim. See, e.g., Byrne v. Nezhat, 261

F.3d 1075, 1128-32 (11th Cir. 2001). When faced with a complaint like the one

here, in which the counts incorporate by reference all previous allegations and

counts, the district court must cull through the allegations, identify the claims, and,

as to each claim identified, select the allegations that appear to be germane to the

claim. This task can be avoided if the defendant moves the court for a more

definite statement or if the court, acting on its own initiative, orders a repleader. 

In this case, Peeples did not move the court for a more definite statement,

nor did the court require one on its own initiative. Consequently, it is left to this

panel to identify in the first instance what plaintiffs were claiming. We do so by

proceeding allegation by allegation and count by count, weeding out and

disregarding as extraneous the allegations that have no bearing on a claim. 

reference to them. 

36
We begin this process with Count One, which alleged three violations of the

federal securities laws. First, after the Put and Call offers of both February 8

54

and February 25, Peeples denied any involvement in the Active Members’ plan to

acquire DynaVision’s interest, thereby violating section 10(b) of the Securities

Exchange Act of 1934 (the “1934 Act”) and Rule 10b-5(b) promulgated

 Count One incorporated by reference the first eighty-one paragraphs of the complaint. 54

Those paragraphs alleged, in substance and not in the order we indicate, that (1) on February 8,

2002, Smith falsely told Ledford and O’Dell that the Active Members, in issuing the Put and

Call, were “doing this on our own” and that no third party was involved; (2) on several occasions

between February 8 and March 27, 2002, Peeples falsely told Paul Walker and/or Ledford that he

was not involved in the Active Members’ issuance of the Put and Call; (3) the statements made

in (1) and (2) above were made with the intent to induce detrimental reliance; (4) plaintiffs did in

fact rely on these statements to their economic detriment; (5) Peeples and the Active Members

conspired to defraud DynaVision of its interest in Signature by making these statements and by

failing to disclose the terms of the January 21 letter and the Asset Purchase Agreement; (6)

Peeples is liable for the Active Members fraudulent conduct because he controlled such conduct

within the meaning of 15 U.S.C. § 78t under the terms of the January 21, 2002 letter and the

Asset Purchase Agreement; (7) Peeples is liable for the Active Members’ fraudulent conduct

under the doctrine of respondeat superior; (8) the Active Members breached their obligations to

DynaVision under Sections 9.1 and 9.2.1 of the Operating Agreement by not informing plaintiffs

that Peeples was funding the February 8 Put and Call and that he had offered to purchase

Signature’s assets from the Active Members; (9) Peeples is liable for this breach as the Active

Members’ co-conspirator and/or aider and abettor; (10) the Active Members breached their

fiduciary duty to plaintiffs by not revealing that Peeples was providing the funds for their

acquisition of DynaVision’s interest in Signature and had agreed to purchase Signature’s assets

following their acquisition; (11) Peeples is liable for this breach under the doctrine of respondeat

superior, as a co-conspirator, and as an aider and abettor; (12) the Active Members, acting under

Peeples’s control and direction or in conspiracy with him, fraudulently induced Ledford and

O’Dell to execute the warranty deed by which Leasing conveyed the Green Road Property to

Signature; (13) the Active Members, acting under Peeples’s control and direction or in

conspiracy with him, breached their fiduciary duty to plaintiffs by not informing Ledford and

O’Dell that the instrument they signed at FNBC was a warranty deed and of the legal

consequences that would adhere to their signing it.

37
thereunder. Second, Peeples “directly or indirectly control[led] the activities of

55

the Active Members” using the “Confidentiality” and “No Discussions with

Others” provisions of the January 21 letter, the “secret discussions” of January and

February 2002, and the Asset Purchase Agreement. As such, Peeples was

responsible for the Active Members’ conduct in violation of section 10(b) and

 Section 10(b) of the 1934 Act, 15 U.S.C. § 78j(b), makes it unlawful: 55

To use or employ, in connection with the purchase or sale of any security

registered on a national securities exchange or any security not so registered, or

any securities-based swap agreement (as defined in section 206B of the

Gramm-Leach-Bliley Act [15 U.S.C.S. § 78c note]), any manipulative or

deceptive device or contrivance in contravention of such rules and regulations as

the Commission may prescribe as necessary or appropriate in the public interest or

for the protection of investors.

Rule 10b-5, 17 C.F.R. § 240.10b-5, was promulgated under section 10(b) and provides:

It shall be unlawful for any person, directly or indirectly, by the use of any means

or instrumentality of interstate commerce, or of the mails or of any facility of any

national securities exchange, 

(a) To employ any device, scheme, or artifice to defraud, 

(b) To make any untrue statement of a material fact or to omit to state a material

fact necessary in order to make the statements made, in the light of the

circumstances under which they were made, not misleading, or 

(c) To engage in any act, practice, or course of business which operates or would

operate as a fraud or deceit upon any person, in connection with the purchase or

sale of any security.

“Rule 10b-5 encompasses only conduct already prohibited by section 10(b). Though the

text of the Securities Exchange Act does not provide for a private cause of action for section

10(b) violations, the [Supreme] Court has found a right of action implied in the words of the

statute and [Rule 10b-5].” Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., ___ U.S.

___, 128 S. Ct. 761, 768, 169 L. Ed. 2d 627 (2008) (citations omitted). In this opinion, we refer

to the section 10(b) and Rules 10b-5(a) and (b) claims in this case as claims under Rules 10b-5(a)

and/or (b). 

38
Rule 10b-5(b) as a “controlling person” under section 20(a) of the 1934 Act.

56

Specifically, Peeples was responsible for Smith’s statement that we are “doing this

on our own” and the Active Members’ breach of their fiduciary duty to

DynaVision. Third, Peeples and the Active Members engaged in a “scheme,

device, and artifice to defraud” DynaVision, in violation of section 10(b) and Rule

10b-5(a). 

In support of their 10b-5(a) claim, plaintiffs, in their opposition to Peeples’s

motion for summary judgment, identified three components of the “scheme”: (1)

Peeples and the Active Members agreed not to disclose their negotiations, as

evidenced by the January 21 letter; (2) Peeples and the Active Members used the

Put and Call provision “to improperly exclude DynaVision from participating in

the sale of [Signature] to Peeples;” and (3) Peeples and the Active Members

collaborated to “deceive the individual Plaintiffs into signing [the] Warranty

Deed.”57

 Section 20(a) of the 1934 Act, 15 U.S.C. § 78t(a), provides: 56

Every person who, directly or indirectly, controls any person liable under any

provision of this chapter or of any rule or regulation thereunder shall also be liable

jointly and severally with and to the same extent as such controlled person to any

person to whom such controlled person is liable, unless the controlling person

acted in good faith and did not directly or indirectly induce the act or acts

constituting the violation or cause of action.

 The complaint, in contrast to what plaintiffs stated in their opposition to Peeples’s 57

motion for summary judgment, simply averred that “[t]hrough the activities described above, the

39
Finally, the plaintiffs alleged that the misrepresentations, omissions, and

scheme described in Count One caused DynaVision to sell its interests and suffer

injury. Paragraph 64 of the district court complaint stated: 58

Based upon the false and misleading information concerning

[Signature] and the source of funding for the buy/sell offers, which

had been provided by the Active Members and Defendants, and in

reliance on their misrepresentations that there was no offer to

purchase [Signature] outstanding, DynaVision chose to sell its

interest in [Signature], rather than purchase the interest of the [Active

Members]. As a result, in late March 2002, DynaVision became

contractually required to sell its interest in [Signature] to the Active

Members pursuant to the terms of the [Signature] Operating

Agreement.59

Counts Two through Five alleged causes of action under Georgia common

law and statutory provisions. Count Two, “Violation of the Georgia Securities

60

Act,” alleged that the same conduct that gave rise to the Count One claims for

Defendants employed a scheme, device, and artifice to defraud that, in fact, operated as a fraud

upon DynaVision.” 

 The plaintiffs described the Active Members’ misrepresentations, made by Smith, the 58

scheme to defraud, and the manner in which these wrongs caused injury in almost the same way

they had done so in state court.

 Similarly, paragraph 90 of the district court complaint stated: “DynaVision relied on the 59

Active Members’ misrepresentations. DynaVision made its decision to sell under the put and

call based on the false representations that there were no outstanding offers to purchase

[Signature] and, in particular, no offers from a strategic purchaser such as the Defendants.” 

Although paragraphs 64 and 90 refer to statements made by the Active Members, the only

conceivably actionable statement in the evidence is Smith’s February 8 statement to Ledford and

O’Dell that the Active Members were “doing this on our own.” 

 These counts, like Counts Six and Seven, incorporated by reference all antecedent 60

allegations of the complaint. 

40
relief rendered Peeples liable to plaintiffs under the Georgia securities laws.

61

Count Three, “Conspiracy to Defraud,” alleged that Peeples conspired with the

Active Members to (1) fraudulently induce DynaVision to sell its interest in

Signature and (2) fraudulently induce Leasing to convey the Green Road Property

to Signature. Count Four, “Aiding and Abetting Breach of Fiduciary Duties,”

alleged that the Active Members, aided and abetted by Peeples, breached the

following duties: (1) the fiduciary duty to DynaVision to inform it that Peeples

was supporting the February 25 Put and Call, and (2) the fiduciary duty to

Leasing, and Ledford and O’Dell as Leasing’s part owners, to inform them that the

document they signed at FNBC was a warranty deed, and (3) the fiduciary duty to

Leasing to cause Signature to convey the property back to Leasing. Count Five,

“Tortious Interference with Business Relations,” alleged that Peeples tortiously

interfered with the Active Members’ business relations with DynaVision. Count

Six, “Attorneys’ Fees,” sought plaintiffs’ expenses, including attorney’s fees,

incurred in prosecuting Counts One through Five. Count Seven, “Punitive

Damages,” sought punitive damages as to each of plaintiffs’ claims on the ground

 Plaintiffs alleged a violation of the Georgia Securities Act, O.C.G.A. § 10-5-12(a)(2). 61

Section 10-5-12 is “Georgia's equivalent of Rule 10b-5. A plaintiff must prove essentially the

same elements under the state provision as he must prove under the federal provision.” Pelletier

v. Zweifel, 921 F.2d 1465, 1511 (11th Cir. 1991). 

41
that the “[d]efendants have acted in bad faith and have been stubbornly litigious

and caused Plaintiffs unnecessary trouble or expense.” 

On March 9, 2004, the day after the state court refused to reconsider its

October 29, 2003 order denying plaintiffs’ motion for leave to join Peeples as a

party defendant, Peeples moved the district court to dismiss plaintiffs’ complaint. 

Alternatively, he requested that the district court stay further proceedings pending

the state court’s resolution of Ledford v. Smith. He requested a stay because the

Active Members had moved the state court for summary judgment, which, if

granted, could settle through issue preclusion some of the factual issues involved

in plaintiffs’ district court claims. The state court heard argument on the summary

judgment motions on April 1, 2004. On May 17, 2004, the district court denied

Peeples’s motion to dismiss and, alternatively, for a stay. On June 6, 2004,

Peeples answered plaintiffs’ complaint.

62

 Peeples’s answer responded to each of the complaint’s 116 paragraphs, admitting or 62

denying the allegations of the paragraph or stating that the defendant was without knowledge

sufficient to form a belief as to the truth of the allegations. The answer also contained twentynine “defenses,” in three categories: (1) four were affirmative defenses either asserting or

implying that the complaint failed to state a claim for relief; (2) six were confession and

avoidance defenses; and (3) nineteen constituted general denials. The answer was a shotgun

pleading in the sense that many of the defenses in the first two categories failed to identify the

claim or claims for relief to which they were responding. This, coupled with the shotgun manner

in which plaintiffs chose to frame their complaint, may explain why the district court waited until

the case was submitted on motion for summary judgment to attempt to sort out the parties’

claims and defenses. 

42
2.

On May 18, 2004, the state court ruled on the pending motions for summary

judgment. It granted defendants summary judgment on the fourth and fifth claims

and on the sixth claim in part. It denied summary judgment on the first, second

and third claims and on the sixth claim in part on the ground that material issues of

fact remained to be litigated. Regarding the sixth claim, the court found that the

Active Members had a fiduciary duty to inform DynaVision of Peeples’s

involvement under the Limited Liability Company Act and Georgia common law,

but not under the Operating Agreement. 

Plaintiffs appealed the court’s dismissal of the fifth claim, that the Active

Members fraudulently induced DynaVision to part with its interest in Signature. 

The Active Members cross-appealed the court’s disposition of the first claim, that

Leasing conveyed the Green Road Property due to mutual mistake; the second

claim, that Smith fraudulently induced the transfer of the Green Road Property to

Signature by misrepresenting the warranty deed; and part of the sixth claim, that

the Active Members breached a fiduciary duty to inform DynaVision of Peeples’s

participation. Plaintiffs did not appeal the court’s disposition of their fourth claim,

unjust enrichment through the transfer of the Green Road Property, and the Active

Members did not appeal the court’s denial of summary judgment on plaintiff’s

43
third claim, that the Active Members had breached a fiduciary duty to Leasing,

O’Dell, and Ledford with respect to the transfer of the Green Road Property. 

While these appeals were pending in the Georgia Court of Appeals, the district

court set February 26, 2005 as the discovery deadline. 

3.

On July 12, 2005, the Georgia Court of Appeals handed down its decision. 

Ledford v. Smith, 618 S.E.2d 627 (Ga. Ct. App. 2005). The court affirmed the

summary judgment for the Active Members on plaintiffs’ fifth claim, reversed the

denial of summary judgment on plaintiff's second claim (effectively granting the

Active Members judgment on that claim), and reversed part of the sixth claim. 

After the decision, only the plaintiffs’ first claim, which alleged that Leasing

conveyed the Green Road Property because of mutual mistake, survived.

63

The court of appeals explained why it held for the Active Members on all

but plaintiffs’ first claim. It began with plaintiffs’ sixth claim, that the Active

Members had a fiduciary duty under the Limited Liability Company Act and

common law to disclose their negotiations with Peeples. After observing that

 As to that aspect of the first claim, the court concluded that unresolved material issues 63

of fact precluded summary judgment.

44
default fiduciary duties are trumped by an operating agreement, Ledford, 618 64

S.E.2d at 636, the court explained that Signature’s Operating Agreement allowed 65

the Active Members to obtain Peeples’s assistance in funding the Put and Call. 

Citing Section 7.3 of the Operating Agreement, which authorized the Active

 O.C.G.A. § 14-11-305(1), which imposes a general duty of loyalty on the managers of 64

a limited liability company, see supra note 48, is subject to modification as follows: 

(4) To the extent that, pursuant to paragraph (1) of this Code section or otherwise

at law or in equity, a member or manager has duties (including fiduciary duties)

and liabilities relating thereto to a limited liability company or to another member

or manager:

 (A) The member’s or manager’s duties and liabilities may be expanded,

restricted, or eliminated by provisions in . . . a written operating agreement;

provided, however, that no such provision shall eliminate or limit the liability of a

member or manager:

 (i) For intentional misconduct or a knowing violation of law; or

 (ii) For any transaction for which the person received a personal benefit in

violation or breach or any provision of a written operating agreement; and

 (B) The member or manager shall have no liability to the limited liability

company or to any other member or manager for his or her good faith reliance on

the provisions of a written operating agreement, including, without limitation,

provisions thereof that relate to the scope of duties (including fiduciary duties) of

members and managers. 

 

O.C.G.A. § 14-11-305(4) (emphasis added). 

 The Ledford court explained the basis for this policy: 65

[t]he contractual flexibility provided in [O.C.G.A. § 14-11-305] is consistent with

O.C.G.A. § 14-11-1107(b) of the [Limited Liability Company] Act which

provides that: “It is the policy of this state with respect to limited liability

companies to give maximum effect to the principle of freedom of contract and to

the enforceability of operating agreements.”

Ledford, 618 S.E.2d at 636 (quotation omitted).

45
Members to “engage in all . . . other business ventures . . . but no Active Member

shall engage in businesses similar to the business of the [Signature] by competing

with the business of the Company,” the court reasoned that: 

This provision gave the Active Members wide latitude to engage in

all other business activities except those “similar to the business of”

[Signature], that is, a “competing” carpet company. The provision

was broad enough to allow the Active Members to negotiate with

Peeples for the purpose of obtaining financing to fund their buy-out

of Dyna-Vision's interest in [Signature]. This activity did not

“compete” with [Signature]; thus, it did not fall within the exception.

Any fiduciary duty of disclosure that the Active Members’ may have

owed Dyna-Vision with respect to such a business arrangement was

eliminated by the terms of an operating agreement that allowed the

business activity which occurred. See Stoker v. Bellemeade, 272

Ga.App. at 824, 615 S.E.2d 1 (members of an LLC did not breach

fiduciary duties by participating in other allegedly competing real

estate developments because operating agreement allowed them to do

so). 

Ledford, 618 S.E.2d at 636. 

The court also rejected plaintiffs’ argument that the Operating Agreement’s

Right of First Refusal provision, in Section 9.2.1, created a fiduciary duty that

required the Active Members to disclose their intention to sell Signature's assets to

Peeples. The court explained:

As the superior court correctly concluded, this provision was plainly

“intended to prevent outsiders from buying into [Signature]. In this

way, the Members maintained control over who their business

‘partners’ were to be.” Because the Active Members' proposed

buy-out of Dyna-Vision's interest would not allow a third party to buy

46
into [Signature] and become Dyna-Vision's business partner, the

purpose of the right of first refusal was not implicated. Therefore,

[Section] 9.2.1 did not require the Active Members to disclose to

Dyna-Vision how it intended to finance its buy-out offer.

Id. at 634. 

Turning to plaintiffs’ fifth claim, that the Active Members fraudulently

induced DynaVision to sell its interest, the court held that summary judgment was

appropriate because the Active Members’ failure to inform DynaVision of their

deal with Peeples did not cause DynaVision’s decision to sell. Once the Active

Members invoked the Operating Agreement’s Put and Call provision, 

DynaVision, by its principals’ own deposition testimony, had no feasible option

but to sell its interests. As the court observed: 

Moreover, both Ledford and O’Dell deposed that, even if they could

have raised the money to buy out the Active Members, owning

[Signature] without the Active Members would have been “foolish”

and “made no sense” because the Active Members were the heart of

[Signature’s] value. As O’Dell admitted “we didn't really have a

choice . . . . We didn’t have a management group . . . . The day the put

and call came in, I wouldn’t give two cents for finding a group to

replace them.” Because Peeples’s involvement did not affect the

value of the Active Members’ interest, it was immaterial. Or, stated

differently, [plaintiffs] cannot show that they suffered any damage as

a result of their alleged reliance on the Active Members’ affirmative

misrepresentation that Peeples was not involved in the buy-out. . . .

Consequently, they could not prove causation or damages, which

were essential to their fraud claims. 

Id. at 634-35.

47
The court then addressed the plaintiffs’ second claim, that Smith, and thus

the Active Members, fraudulently induced Leasing to sign the warranty deed at

FNBC by asking Ledford and O’Dell to sign the deed without disclosing the

nature of the document. Because it found no evidence of misrepresentation, the

court concluded that on this claim, the Active Members were entitled to summary

judgment. It held: 

In this case, the evidence shows that FNBC, on its own initiative,

drafted the warranty deed and asked all the parties to the loan closing

to sign this “corrective paper.” Although Ledford and O'Dell contend

they signed the document because Smith asked them to do so, the

evidence only shows that Smith was relaying the bank's request.

There is no evidence in the record that Smith caused the deed to be

drafted, acted in concert with the bank, or misrepresented or

concealed the document's nature. In fact, it appears from the record

that Smith was as ignorant of the document’s significance as Ledford

and O’Dell. Under these circumstances, we see no evidence of a

fraudulent statement or the concealment of a material fact that Smith

was under a duty to disclose.

Id. at 636-37. 

4.

On July 15, 2005, shortly after the Georgia Court of Appeals’s opinion

issued, Peeples’s counsel sent a letter to plaintiffs’ counsel, requesting that

plaintiffs dismiss all claims against Peeples. On July 25, plaintiffs’ counsel

responded, stating that nothing in the court’s opinion warranted dismissal and that

48
they had moved the court of appeals for reconsideration. On July 28, 2005, the

motion for reconsideration was denied. On August 1, Peeples’s counsel again

wrote plaintiffs’ counsel, asking that plaintiffs agree to a stay of proceedings in the

district court. Plaintiffs’ counsel rejected that request the next day; they planned

to petition the Supreme Court of Georgia for a writ of certiorari. 

On September 22, Peeples moved the district court for summary judgment

on all of plaintiffs’ claims. In the brief accompanying the motion, Peeples cited

the court of appeals’s Ledford decision and stated:

Should the Georgia Supreme Court deny Plaintiffs’ petition for

certiorari or affirm the Georgia Court of Appeals' order, then

Plaintiffs’ derivative liability claims in the federal action are

collaterally estopped. In the absence of affirmance or denial, the

reasoning of the Georgia Court of Appeals, the applicable Georgia

law as cited, and the conclusions reached on the undisputed facts as

present in this case are instructive and may be considered by this

Court.

On October 31, plaintiffs’ counsel responded to this statement in their brief

in opposition to Peeples’ motion for summary judgment:

As an initial matter, throughout their brief, the Defendants refer to an

Opinion of the Georgia Court of Appeals in a state court proceeding

between the Plaintiffs and the Active Members . . . . The state court

case has no effect on the central securities fraud claims in this action;

the opinion is not binding on this Court. Furthermore, a petition for

certiorari has been filed with the Georgia Supreme Court seeking to

49
correct the multitude of legal and factual errors contained in that

opinion.66

On November 18, the Georgia Supreme Court denied plaintiffs’ petition for

certiorari review in the state court case. Ten days later, plaintiffs moved the Court

to reconsider its decision. The court denied plaintiffs’ motion on December 16. 

67

The denial operated to make the court of appeals’s Ledford decision binding

authority on matters of Georgia law. See Lexington Developers, Inc. v. O’Neal

Const. Co., Inc., 238 S.E.2d 770, 770–771 (Ga. Ct. App. 1977).

On December 22, the district court, in a comprehensive sixty-eight page

order, granted Peeples’s motion for summary judgment on all of plaintiffs’

claims. Using the doctrine of collateral estoppel, the court disposed of Count

68

Three, that Peeples conspired with the Active Members to defraud DynaVision

into selling its interest in Signature, and Count Five, that Peeples tortiously

69

 Peeples’s counsel responded to this position on November 30, adhering to what they 66

had stated in People’s September 22 brief and informing the district court that the Georgia

Supreme Court had denied certiorari review.

 On December 2, the district court ordered counsel to inform it instanter of the supreme 67

court’s disposition of the motion.

 The court entered a final judgment for Peeples the same day.

68

 The court granted Peeples summary judgment on the Count Three claims that he had 69

conspired with the Active Members fraudulently to induce Leasing to convey the Green Road

Property to Signature on the ground that plaintiffs abandoned that claim by failing to support it in

their brief in opposition to Peeples’s motion for summary judgment. 

50
interfered with the Active Members’ business relationship with DynaVision. The

court rejected plaintiffs’ Count Four claims, that Peeples aided and abetted the

Active Members’ breach of fiduciary duties, on the ground that Georgia law did

not recognize such claims. The court disposed of Counts One and Two, charging

Peeples with securities fraud, on the grounds that plaintiffs failed to demonstrate a

genuine issue of material fact as to the several elements of those claims.70

5.

On January 9, 2006, Peeples moved the district court pursuant to Rule 59(e)

of the Federal Rules of Civil Procedure to alter and amend its judgment. He

argued that, with respect to plaintiffs’ federal securities law claims in Count One,

the court had failed to issue the findings required under the PSLRA. The PSLRA

requires a district court, upon final adjudication of a federal securities law claim,

to “include in the record specific findings regarding compliance by each party and

each attorney representing any party with each requirement of Rule 11(b) of the

Federal Rules of Civil Procedure as to any complaint, responsive pleading, or

dispositive motion.” 15 U.S.C. § 78u-4(c)(1). Peeples urged the court to sanction

 Although the district court’s December 22 order made no explicit reference to Counts 70

Six and Seven, the court’s disposition of Counts One, Two, and Four and its invocation of the

doctrine of collateral estoppel to dispose of Counts Three and Five implicitly disposed of those

two counts, which sought, respectively, attorney’s fees and punitive damages.

51
plaintiffs and their counsel for failing to comply with Rule 11. He also requested

sanctions for the Count One claims pursuant to 28 U.S.C. § 1927 and the district

court’s inherent power.71

Plaintiffs and their attorneys filed separate responses to Peeples’s request

for attorney’s fees and expenses under the PSLRA. Plaintiffs, represented in the

matter of sanctions by new attorneys, claimed that they did not misrepresent the

historical facts to counsel, did not advise counsel regarding the law, and were not

responsible for the manner in which counsel litigated the case. Relying on our

decision in Byrne v. Nezhat, 261 F.3d 1075 (11th Cir. 2001), plaintiffs averred

that sanctions against them would not be appropriate. In their separate response,

plaintiffs’ attorneys asserted, in essence, that a reasonably competent attorney

would have recognized that the claims set out in Count One of the complaint were

cognizable under the federal securities laws. 

 On March 21, 2006, the district court granted Peeples’s motion to the

extent that it sought PSLRA findings, but refused to sanction plaintiffs or their

counsel, finding that they had acted in compliance with Rule 11 in pleading and

prosecuting their case. 

 Peeples did not move the court to imposes sanctions under Rule 11(b), § 1927, or the 71

court’s inherent power with respect to plaintiffs’ prosecution of Counts Two through Seven of

the complaint. 

52
6.

All five plaintiffs now appeal the district court’s disposition of each of their

claims. Their brief, however, presents no argument as to Counts Three and Five

through Seven. We therefore treat as abandoned their appeal of the district court’s

disposition of those counts. We also treat as abandoned the appeal of the court’s

disposition of plaintiffs’ claims under two of the federal securities laws. As noted,

Count One contained claims under section 20(a) of the 1934 Act and Rules 10b5(a) and (b). Plaintiffs’ brief presents no argument in support of their section

20(a) and Rule 10b-5(a) claims, and, as in the case of Counts Three and Five

72

through Seven, we deem the appeal of the court’s disposition of those claims to

have been abandoned. Accordingly, what remains are plaintiffs’ Count One

73

claims under Rule 10b-5(b); their Count Two claims under the comparable

Georgia securities law provision; and part of their Count Four claim, that Peeples

aided and abetted the Active Members’ breach of their fiduciary duty regarding

 The district court did not address explicitly DynaVision’s Rule 10b-5(a) claim. 72

Plaintiffs’ initial brief in this appeal contains no argument in support of the Rule 10b-5(a) claim

qua claim. Instead, the brief refers to a “scheme,” which forms the basis of a Rule 10b-5(a)

claim, in arguing that there was a genuine issue of material fact as to the “reliance” element of

Count One’s Rule 10b-5(b) claim. We therefore treat plaintiffs’ Rule 10b-5(a) claim itself as

having been abandoned. 

 We likewise deem abandoned plaintiffs’ Georgia securities law claims that mirror the 73

section 20(a) and Rule 10b-5(a) claims. See O.C.G.A. § 10-5-12(a)(2)(A)-(C).

53
the handling of the Green Road Property. Peeples cross-appeals the district

74

court’s refusal to sanction plaintiffs and their counsel as required by the PSLRA

for prosecuting Count One of the complaint. 

Our review proceeds as follows. We first consider our jurisdiction over

plaintiffs’ Count One 10b-5(b) claims. Next, we move to plaintiffs’ Count Four 75

aiding and abetting claims. After that, we take up the PSLRA sanctions issues. 

III.

Before we assess the merits of plaintiffs’ Rule 10b-5(b) claims, we address a

threshold question: whether we have subject matter jurisdiction, under 28 U.S.C. §

1331 and 15 U.S.C. § 78aa, to entertain the claims. Hernandez v. Att’y Gen., 76 77

 Plaintiffs did not brief, and therefore abandoned, the issue of whether the district court 74

erred in dismissing the claim that Peeples aided and abetted the Active Members’ breach of a

fiduciary duty to inform DynaVision’s principals that Peeples was providing the $3.5 million the

Active Members needed to close the purchase of DynaVision’s interest.

 What we say about the merits of the Count One claims applies to plaintiffs’ Count Two 75

Georgia securities law claims. See GCA Strategic Inv. Fund, Ltd. v. Joseph Charles & Assocs.,

Inc., 537 S.E.2d 677, 682 (Ga. Ct. App. 2000) (“To evaluate a claim of securities fraud under

OCGA § 10-5-12(a), we look to the similar elements a plaintiff must allege under section 10(b)

of the Securities Act of 1934. . . .”).

 Section 1331 states: “The district courts shall have original jurisdiction of all civil 76

actions arising under the Constitution, laws, or treaties of the United States.”

 Section 78aa states, in pertinent part: “The district courts . . . shall have exclusive 77

jurisdiction of violations of this chapter or the rules and regulations thereunder, and of all suits in

equity and actions at law brought to enforce any liability or duty created by this chapter or the

rules and regulations thereunder.”

54
513 F.3d 1336, 1339 (11th Cir. 2008) (“[W]e must inquire into subject matter

jurisdiction sua sponte whenever it may be lacking.”). 

We find the answer to that question in two Supreme Court decisions, Blue

Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 95 S. Ct. 1917, 44 L. Ed. 2d

539 (1975), and Bell v. Hood, 327 U.S. 678, 66 S. Ct. 773, 90 L. Ed. 939 (1946). 

Under Blue Chip Stamps, a plaintiff must be a purchaser or seller of a security to

have a private cause of action under Rule 10b-5. Here, one seller, DynaVision,

sold, at most, one security, a fifty-percent interest in Signature. Accordingly,

DynaVision, as the seller of a security, had standing to sue Peeples under Rule

10b-5. Ledford, O’Dell, Walker, and Leasing (“co-plaintiffs”) did not.78

The district court should have recognized this at the time it considered and

ruled on Peeples’s motion to dismiss the complaint. After concluding that co79

 Ledford, O’Dell, and Walker alleged, albeit by implication, that the loss DynaVision 78

sustained as a result of Peeples’s securities fraud violations was passed on to them through their

ownership interests in DynaVision, in that the loss diminished the value of their interests. In

other words, they are like the shareholders of a corporation that sold securities it owned in

reliance on a third party misrepresentation made in violation Rule 10b-5(b) and who, as a result,

incurred a loss. Under Blue Chip Stamps, however, such derivative injury to shareholders is not

directly compensable under Rule 10b-5. 

 See Fed. R. Civ. P. 12(b)(6). Peeples’s motion was addressed to plaintiffs’ entire 79

complaint. As for the Count One claims, the memorandum of law accompanying the motion

argued that DynaVision’s sale of its interest to the Active Members was not a “securities

transaction” and, therefore, Peeples’s alleged misrepresentations were not made “in connection

with” the purchase or sale of a security as required by Rule 10b-5. The memorandum did not

argue that co-plaintiffs were barred from suing under Rule 10b-5 because they were not sellers of

a security. 

55
plaintiffs failed to state a claim under Rule 10b-5, the court should have moved to

the question of whether to dismiss their claims for want of subject matter

jurisdiction under Rule 12(b)(1) of the Federal Rules of Civil Procedure. Bell v.

80

Hood holds that “a suit may sometimes be dismissed for want of jurisdiction

where the alleged claim under the Constitution or federal statutes clearly appears

to be immaterial and made solely for the purpose of obtaining jurisdiction or

where such a claim is wholly insubstantial and frivolous.” 372 U.S. at 682-83, 66

S. Ct. at 776. (emphasis added.). The word “may” implies that the dismissal of a

claim for want of jurisdiction is committed to the sound discretion of the district

court. But, just as in any instance where a district court has discretion, that

discretion can be abused. Here, co-plaintiffs’ federal securities fraud claims were

plainly and indisputably frivolous. They were, in the Supreme Court’s words, “so

patently without merit as to justify . . . the court’s dismissal for want of

jurisdiction.” Id. Moreover, no amendment of the complaint could possibly have

cured its patent, and fatal, deficiency, that co-plaintiffs lacked standing to sue. In

 Prior to considering the question of whether to dismiss the claims for want of 80

jurisdiction, the court had to “assume jurisdiction to decide whether the allegations state a cause

of action on which the court could grant relief.” Bell v. Hood, 327 U.S. at 682, 66 S. Ct. at 682. 

The district court did so here. Its determination that co-plaintiffs had stated a case for Rule 10b-5

relief eliminated the necessity of considering whether jurisdiction under 28 U.S.C. § 1331 and 15

U.S.C. § 78aa was lacking.

56
such an extreme case, the district court abused its discretion in failing to dismiss

co-plaintiffs’ Count One claims for want of jurisdiction. 

Co-plaintiffs’ inability to invoke the district court’s jurisdiction under 28

U.S.C. § 1331 and 15 U.S.C. § 78aa for Count One did not foreclose their right to

litigate the claims asserted in Counts Two through Seven. Despite the fact that

Counts Two through Seven do not implicate a federal question, they are joined in

the case by a series of jurisdictional steps. First, because DynaVision sold a

security, the district court had jurisdiction under 28 U.S.C. § 1331 and 15 U.S.C. §

78aa to adjudicate DynaVision’s Count One securities fraud claims. Second, the

court therefore had supplemental jurisdiction under 28 U.S.C. § 1367 to 81

adjudicate any other claims DynaVision had against Peeples that were “so related

to” the Count One claims that they formed part of “the same case or

controversy.” DynaVision’s claims in Counts Two through Seven, given the 82

 The complaint alleged that the district court had jurisdiction over all non-federal 81

claims plaintiffs were asserting under “the principles of pendent and ancillary jurisdiction” and

contained no reference to 28 U.S.C. § 1367, the provisions of which had superceded pendent and

ancillary jurisdiction. 

 Section 1367 states, in pertinent part: 82

(a) . . . in any civil action of which the district courts have original jurisdiction, the

district courts shall have supplemental jurisdiction over all other claims that are so

related to claims in the action within such original jurisdiction that they form part

of the same case or controversy under Article III of the United States Constitution.

Counts Two through Seven incorporated by reference the federal securities fraud claims

57
manner in which the complaint presented them, appear to have been so related to 83

DynaVision’s Count One’s allegations, that they formed part of the same case or

controversy described in Count One. Finally, Rule 20 of the Federal Rules of

84

Civil Procedure authorized co-plaintiffs to join DynaVision as plaintiffs in Counts

Two through Seven since their claims arose out of “the same transaction,

occurrence, or series of transactions or occurrences” forming the predicate for

asserted in Count One, and Counts Three through Seven incorporated the claims of all 

antecedent counts. See supra part II.B.1. The Count One claims were not culled out of Counts

Two through Seven by the court on its own initiative or via a motion by Peeples for a more

definite statement. Our discussion in the text proceeds under the assumption that the district

court struck the Count One claims from Counts Two through Seven, and, moreover, struck from

Counts Three through Seven all claims incorporated by reference. 

 See supra part II.B.1. 83

 As indicated supra part II.B.1, Count Three contained two “Conspiracy to Defraud” 84

claims, one brought by DynaVision and the other by Leasing. The Leasing claim appears to fall

without the court’s section 1367 supplemental jurisdiction. Count Four also contained two

“Aiding and Abetting” claims, one brought by DynaVision and the other by Leasing, Ledford,

and O’Dell. The Leasing, Ledford, and O’Dell claim, like Leasing’s Count Three claim, appears

to fall without the court’s section 1367 jurisdiction. Peeples did not object to the court’s

entertainment of these non-supplemental jurisdiction claims. Due to this and the shotgun nature

of the complaint’s allegations, we decline to explore the matter further. 

58
DynaVision’s claims. Except as to Count One, therefore, we have jurisdiction to 85

consider co-plaintiffs’ claims. 

86

IV.

With jurisdiction established, we now turn to plaintiffs’ remaining securities

fraud and aiding and abetting claims. We address these claims in turn, affirming

the district court’s grant of summary judgment for Peeples.

A.

In a typical section 10(b) civil action for a violation of Rule 10b-5(b), a

plaintiff must prove (1) a material misrepresentation or omission by the defendant,

(2) scienter, (3) a connection between the misrepresentation or omission and the

purchase or sale of a security, (4) reliance upon the misrepresentation or omission,

 Rule 20, as it existed at the time plaintiffs filed their complaint, stated, in pertinent 85

part:

(a) Permissive Joinder. All persons may join in one action as plaintiffs if they

assert any right to relief jointly, severally, or in the alternative in respect of or

arising out of the same transaction, occurrence, or series of transactions or

occurrences and if any question of law or fact common to all these persons will

arise in the action. 

 The Georgia securities law cases have adopted Blue Chip Stamps’s holding that only a 86

buyer or seller of a security has standing to sue under Georgia’s version of Rule 10b-5. Bell v.

Sasser, 520 S.E.2d 287, 292 (Ga. Ct. App. 1999). Co-plaintiffs’ Count Two claims fail under

Fed. R. Civ. P. 12(b)(6) because co-plaintiffs were not involved in the sale of a security. 

59
(5) economic loss, and (6) loss causation. Stoneridge Inv. Partners, LLC v.

Scientific-Atlanta, __ U.S. __, 128 S. Ct. 761, 768, 169 L. Ed. 2d 627 (2008). 

87

To establish a genuine issue of material fact as to the reliance element,88

plaintiffs had to present evidence that, in conversations with Paul Walker, 89

Peeples stated that he was not involved in the Active Members’ attempt to acquire

DynaVision’s interest in Signature, that his statements were false, that

 The literal definition of a security under the 1934 Securities and Exchange Act, as 87

codified in 15 U.S.C. §78c(a)(10), does not include an interest in a limited liability company. 

See Nelson v. Stahl, 173 F. Supp. 2d 153, 164 (S.D.N.Y. 2001) ("The Exchange Act's definition

of security does not refer to membership interests in limited liability companies."). Nonetheless,

plaintiffs asserted in their complaint and in briefing to the district court that DynaVision's interest

in Signature was a security. Peeples did not question this assertion, nor did the district court 

analyze this issue sua sponte.

Our independent research of this issue indicates that whether DynaVision's interest could

be considered a security is problematic. We are satisfied, however, that plaintiffs’ allegation that

DynaVision’s interest was a security passes the threshold test set forth in Bell v. Hood. See

Williamson v. Tucker, 645 F.2d 404, 416 (5th Cir. May 1981) (holding that the plaintiff’s

allegation that joint venture interests were securities was not so obviously frivolous as to fail the

low jurisdictional bar in Bell v. Hood). In the absence of any briefing on this issue by the parties

and in light of our resolution of plaintiffs' Rule 10b-5(b) claims in favor of Peeples, we see no

need to decide whether DynaVision’s interest was a security. 

 The district court used the term “transaction causation” in referring to the reliance

88

element. That terminology is irrelevant, as “[t]ransaction causation” is no more than “another

way of describing reliance.” Robbins v. Koger Properties, Inc., 116 F.3d 1441, 1447 (11th Cir.

1997); see also Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 341-342, 125 S. Ct. 1627,

1631 (2005) (explaining that reliance is one of the elements of a Rule 10b-5 claim and is “often

referred to in cases involving public securities markets (fraud-on-the-market cases) as

‘transaction causation’”). 

 We refer to all five plaintiffs. Our Bell v. Hood jurisdictional ruling that struck co- 89

plaintiffs’ claims from Count One has no effect on their Count Two claims under the Georgia

Securities Act. 

60
DynaVision’s principals reasonably relied on the statements, and that because of 90

that reliance, the principals caused DynaVision “to engage in the transaction in

question.” Robbins v. Koger Properties, Inc., 116 F.3d 1441, 1447 (11th Cir.

1997) (quotation omitted). Put another way, plaintiffs had to demonstrate that but

for Peeples’s statements, DynaVision would not have sold its interest but, instead,

would have bought the Active Members’ interests. Huddleston v. Herman &

MacLean, 640 F.2d 534, 549 (5th Cir. Mar. 1981), rev’d on other grounds, 459

U.S. 375 (1983) (“Reliance is a causa sine qua non, a type of ‘but for’

requirement: had the investor known the truth he would not have acted.”). 

After carefully considering the evidence before it, the district court

concluded that no genuine issue of material fact existed as to this element:

Peeples’s denial of any involvement in the Active Members’ plan did not cause

DynaVision to sell its interest. The court explained:

The evidence in the record, viewed in the light most favorable to

Plaintiffs, shows that Plaintiffs themselves did not have the necessary

experience, marketing skills, and expertise to run [Signature] in the

absence of the Active Members, and that Plaintiffs’ attempts to obtain

a management group and necessary personnel to work with

 In an action for damages under Rule 10b-5(b) based on the defendant’s 90

misrepresentation, the plaintiff must show that he “reasonably relied on and was injured by the

misstatement.” Pelletier v. Zweifel, 921 F. 2d 1465, 1510 (11th Cir. 1991). In the Rule 10b-5

context, we have used the words “justifiably relied” as the equivalent of “reasonably relied.” 

E.g., Bruschi v. Brown, 876 F.2d 1526, 1528 (11th Cir. 1989). Thus, “reasonably” and

“justifiably,” for Rule 10b-5 purposes, express the same element. 

61
[Signature] were unsuccessful. Plaintiffs themselves testified that it

would be foolish or risky to purchase the Active Members’ interests

in [Signature] without having a management group or marketing

group in place to replace the Active Members. Although Plaintiffs

summarily contend that they would have acted differently if they had

known of Defendant Peeples’ involvement, that summary and

conclusory contention is not sufficient to allow Plaintiffs to avoid

summary judgment. Indeed, knowledge of Defendant Peeples’s

involvement would not have changed the fact that Plaintiffs did not

have the necessary experience, marketing skills, and expertise to run

[Signature], and that Plaintiffs’ attempts to obtain a management

group and necessary personnel to work with [Signature] were

unsuccessful. The failure to disclose Defendant Peeples’ involvement

thus did not cause Plaintiffs’ decision to sell Plaintiff DynaVision’s 

interest under the February 25, 2002, Put and Call . . . .91

B.

To obtain a reversal of the district court’s resolution of the reliance issue,

plaintiffs must satisfy us that the evidence in the record creates a jury issue as to

whether DynaVision would have purchased the Active Members’ interests, rather

 This is essentially verbatim what the Georgia Court of Appeals said in Ledford, that 91

DynaVision would have sold its interest notwithstanding Peeples’s involvement. Ledford, 618

S.E.2d at 634-35; see also supra part II.B.2. The court of appeals, after considering the evidence

in the light most favorable to plaintiffs, inferred this ultimate fact because the evidence pointed to

the fact as a matter of law. The question for the district court was whether it should invoke the

doctrine of collateral estoppel and conclusively rely on the court of appeals’statement of ultimate

fact in determining whether, in resolving plaintiffs’ Rule 10b-5(b) claim (and the comparable

Georgia securities law claim), DynaVision’s principals would have sold DynaVision’s interest

notwithstanding Peeples’s denial of involvement. The district court invoked the doctrine in

deciding plaintiffs’ claims in Counts Three and Five, but not in deciding any of the factual issues

involved in plaintiffs’ federal and state securities laws claims. We decline to consider the

doctrine’s application to those claims as a matter of efficiency since the parties have not briefed

the issue.

62
than sell its interest, had Peeples told Paul Walker and Ledford that he was

providing the Active Members the $3.5 million they needed to close the

transaction. There is no direct evidence that DynaVision would have elected to

buy the Active Members’ interests had Peeples admitted that he was providing the

money. Because there is no direct evidence that DynaVision would have elected

to buy, we ask whether such election can be inferred from the record. Specifically,

we ask whether it can be inferred as an ultimate fact from the subsidiary,

circumstantial facts shown by the evidence, viewed in the light most favorable to

plaintiffs. 

Plaintiffs argue that circumstantial facts sufficient to create the inference are

present. Peeples argues that they are not, that the circumstantial facts create the

contrary inference: DynaVision sold because doing so was in the economic selfinterest of its principals, and it would not have elected to buy even if it had known

of Peeples’s involvement.

In assessing these opposing positions, our first task is to identify the

circumstantial facts that the evidence establishes as a matter of law. Once that is

done, we determine whether it would have been permissible for a jury to draw the

inference that DynaVision would have elected to purchase the Active Members’s

63
interests had it known that Peeples was providing the $3.5 million that enabled the

Active Members to close. 

The evidence discloses three sets of circumstantial facts, with inferences

flowing from each set. We summarize each set in the headings of the following

subparts and conclude that, as a matter of law, DynaVision’s principals would

have sold even if they had known about Peeples’s involvement. 

1.

DynaVision lacked the expertise necessary to operate Signature’s factory and

market Signature’s product. Consequently, if the Active Members left, there

would be no one to run the company, and Signature’s value would rapidly decline.

There is no dispute regarding the roles that DynaVision’s principals and the

Active Members performed for Signature. The principals functioned as

Signature’s financiers. By establishing the $200,000 line of credit, they were able

to provide Signature with the funds required to start the business and pay the bills

until carpet sales generated enough income to cover the company’s operating

expenses. The Active Members were the managers of the enterprise. Owenby and

Thomas handled the manufacturing and sales. Smith, the company’s president,

was in charge of marketing, since she was well and favorably known in the

hospitality industry and thus capable of attracting a considerable volume of

business. 

64
By their own admission in depositions taken in the state court case and in

this case, DynaVision’s principals could not, themselves, replace the Active 92

Members, most notably Smith, for the principals had no experience in

manufacturing carpet and were virtually incapable of marketing Signature’s

products. Ledford testified that the principals had no “experience with [the]

customer base” and therefore could not run the company. He emphasized Smith’s

key role in marketing Signature’s products, stating that “had we been able to retain

Brenda, we would have purchased the company.” Paul Walker said that “none of 93

the DynaVision Group were a part of the everyday management or marketing of

Signature” and that this “was [the] only reason” why DynaVision did not elect to

purchase the Active Members’ interest after the Put and Call issued. O’Dell

admitted that DynaVision’s principals were not qualified to run the company. 

In addition to this testimony, DynaVision’s principals’ conduct towards the

Active Members spoke volumes about how important the principals felt it was to

 This testimony appears in the question and answer format appearing supra note 31. 92

 The expert opinion testimony DynaVision proffered to the district court concerning 93

Signature’s value buttressed the fact that Signature’s value was tied to the Active Members’

management, marketing skills, and good will. DynaVision’s expert, in estimating that Signature

was worth $14 million, assumed not only that the Active Members would remain with the

company but also that Smith would increase her ownership interest in Signature to the point that

the firm would qualify as minority owned, and therefore receive additional revenue – presumably

from sales set aside for minority-owned entities. The expert provided no estimation as to

Signature’s value without the Active Members’ presence. 

65
keep the Active Members in the company, at least until the principals themselves

decided to sell. The principals included in the Operating Agreement a provision 94

that made it highly unlikely that the Active Members would leave Signature before

the principals were ready to sell. If an Active Member sold his or her interest in

the company, Section 10.4 of the Agreement would preclude that Member from

competing with Signature for a period of one year. Because they were not 95

financially independent, the Active Members would presumably need to find other

employment in the carpet business upon leaving the company. Lying idle for a

year would be burdensome, and an Active Member would therefore think twice

before leaving Signature. 

The principals also included a provision to make it hard for the Active

Members to buy out DynaVision before DynaVision was ready to sell. Section 9.1

of the Operating Agreement addressed the possibility that the Active Members

might attempt to buy DynaVision’s interest pursuant to the Section 9.5 Put and

 Under the “Right of First Refusal” provision of the Operating Agreement, if 94

DynaVision’s principals obtained a bona fide offer to sell DynaVision’s interest in Signature, and

they desired to sell the interest, they would have to notify the Active Members who, in turn,

would have the right to purchase DynaVision’s interest at the price set in the bona fide offer. See

supra note 47. Oddly enough, this right of first refusal would not be triggered if DynaVision’s

principals received a bona fide offer to sell their interests in DynaVision and decided to accept it. 

In other words, DynaVision’s principals could sell their interests in Signature in two ways: (1)

causing DynaVision to sell its interest in Signature, which would trigger the Active Members

Right of First Refusal; or (2) selling their interests in DynaVision, which would not.

 See supra note 11. 95

66
Call provision. DynaVision’s principals knew the Active Members lacked the

personal resources sufficient to make an offer that DynaVision’ principals would

be tempted to accept; consequently, the Active Members would have to borrow

96

the money to fund any buy-out. Obtaining a conventional loan from a bank or 97

 In Ledford’s state court deposition, he testified as follows: 96

HORST: Did it make any difference to you whether there was a third party

involved in funding Bob, Brenda, and Bryan’s offer to purchase Dynavision . . . .

LEDFORD: Yes, it would make a difference to me. 

HORST: Why?

LEDFORD: Because if Bob, Brenda, and Bryan didn’t have financial backing

from them, I don’t think they could have bought our interest and I don’t think this

whole thing would have come up. 

 In Ledford’s district court deposition, he testified as follows: 97

SINKFIELD: Do you know whether collectively and without help from a third

person in some form or the other they had the resources to pay three-and-a-half

million dollars for the Dyna-Vision interest?

LEDFORD: No, sir, I don’t know.

SINKFIELD: You don’t know one way or the other . . . . Did you have any

opinion on the subject at the time?

LEDFORD: At the time we received the Put and Call . . . I had an opinion, yes,

sir.

SINKFIELD: And what was that opinion?

LEDFORD: That they probably could not.

SINKFIELD: And based on that opinion, how did you think they would pay for

the Dyna-Vision interest if y’all decided not to buy them out?

LEDFORD: I didn’t know.

SINKFIELD: Did you have an opinion as to what they would have to do?

LEDFORD: Well, I assumed if they bought us out . . . they would . . . have to

borrow the money. If they couldn’t do that, they would have to get the money

from someone else. 

In Walker’s district court deposition, he testified as follows:

SINKFIELD: So you knew [the Active Members] had to have funding from [an

outside] source, is that correct?

67
other lending institution would require collateral, and the only collateral they had

of significant value was their individual interests in Signature. Section 9.1,

however, barred the Active Members from pledging their interests to a lending

institution. As a practical matter, then, the only way the Active Members could

98

attempt a buy out DynaVision’s interest would be to find someone like

Peeples—someone willing to advance the purchase price on the condition that,

WALKER: If they closed the deal, yes.

SINKFIELD: And you knew, to the best of your knowledge, that they did not have

sufficient resources among themselves to do it without outside funding; is that

correct?

WALKER: I would say with suspicion, they didn’t have. But to my initial

knowledge, no. 

SINKFIELD: But to the best information you had told you they couldn’t fund it

without outside help. Is that correct?

WALKER: To the best information I had, yes. 

 Section 9.1 of Article 9 of the Operating Agreement, “Restrictions on Transfers and 98

Encumbrances,” states, in pertinent part:

The Members have . . . agreed that, without the express written consent of the

Company and all other Members in the Company, they will not transfer, assign,

sell, pledge, encumber, hypothecate . . . any of their Interests . . . except strictly in

accordance with the terms and requirements of the this Agreement, the same being

exhaustive of all methods and means by which such [Interests] may be

transferred. Any purported transfer in violation of any provision herein shall be

void and of no effect, and shall not operate to transfer any title or interest to the

purported transferee. 

Like the Right of First Refusal Provision, supra note 47, this restriction had an uneven effect. 

Although the Active Members would have to obtain DynaVision’s consent in order to pledge

their interests in Signature as collateral for a loan, DynaVision’s principals, namely Ledford,

O’Dell, and Walker, would not have to obtain the Active Members’ consent in order to pledge

their interests in DynaVision—and, indirectly, their interests in Signature—as collateral for a

loan. The Active Members’ consent would be necessary only if DynaVision, itself, wanted to

pledge its interest in Signature as collateral for a loan it was obtaining. 

68
after acquiring DynaVision’s interest, the Active Members would sell him all or

part of the business and agree to stay on and run the company. 

Joiner revealed how indispensable the Active Members were to Signature’s

value in the letter he wrote to Krevolin on April 11, 2002, nineteen days before the

closing was to take place. In the letter, Joiner informed Krevolin that DynaVision

would refuse to close unless the Active Members signed a new agreement with

DynaVision and, as required by that new agreement, represented in writing that

they were acquiring DynaVision’s interest “solely for [their] own account . . .

without the financial participation of [a third party].”99

Although Joiner pointed to nothing in the Operating Agreement that would

require the Active Members to make these representations, he, or his clients,

apparently thought Krevolin would agree that the Agreement, read as a whole,

required that the representations be made. If Krevolin had agreed, he would

100

have advised his clients that they could not honestly make such

 Joiner was probably following Ledford’s instructions. DynaVision’s principals had 99

authorized Ledford to “negotiate, execute, and convey the interests of” DynaVision to the Active

Members “on such terms and conditions and [he] deem[ed] equitable and just.” See supra part

I.C. The representation called for by the new agreement was one of the “terms and conditions”

Ledford insisted on; if not, Joiner thought it up on his own. 

 Neither of plaintiffs’ briefs on appeal mentions the new agreement Joiner sent 100

Krevolin in his April 11 letter. Consequently, we do not know whether plaintiffs’ counsel

discovered something in the Operating Agreement that would have justified Joiner’s demand that

the Active Members make the representations that the new agreement, if executed, would have

called for. 

69
misrepresentations without inviting DynaVision to claim fraud. See McFarland v.

Kim, 275 S.E.2d 364, 366 (Ga. Ct. App. 1980) (holding that misrepresentations

about present state of mind are actionable as fraud). The misrepresentations

would also have given DynaVision an affirmative defense in the event the Active

Members sued for specific performance. Defending an action for fraud or

countering an affirmative defense in a suit for specific performance would be

expensive and could be very unpleasant; Joiner apparently thought Krevolin

would therefore advise his clients to abandon their plans and continue to manage

Signature in partnership with DynaVision. 

Krevolin’s response, in a letter to Joiner dated April 16, was brief: The

Active Members would not make the representations Joiner’s letter was seeking,

and moreover, if DynaVision refused to close, the Active Members would take it

to court. As far as the Active Members were concerned, their business

relationship with DynaVision’s principals was at an end. The principals’ threat of

litigation if the Active Members did not abandon the Put and Call had gone for

naught. Joiner informed Ledford of Krevolin’s response, and, after considering

70
DynaVision’s options, Ledford instructed Joiner to go forward with the closing 101

on April 30, as previously agreed. 

102

2.

DynaVision’s principals could not have persuaded the Active Members to remain

with the company, obtained a management team to replace them, or located a

buyer for Signature, even if Peeples admitted his involvement.

DynaVision’s principals have conceded that they were unable to persuade

the Active Members or Smith individually to remain with Signature and that they

were unsuccessful in finding a suitable management team to replace them. They

likewise have conceded that they had no success in locating a carpet company or

an investor willing to purchase the company. Two of the three carpet

manufacturers Ledford and O’Dell contacted, Mohawk Carpets and Clay Miller

Carpets, expressed no interest in buying Signature, even if doing so meant keeping

 DynaVision’s principals had two options. One was to close the deal and take the $3.5 101

million on the table. If they wanted to sue the Active Members, they could do that later—and

they eventually did. The other option was to refuse to close and defend the Active Members’

expected suit for specific performance. We infer that they eschewed this option because it was

less attractive economically. 

 The record does not reveal what Joiner and Ledford said to one another after Joiner 102

received Krevolin’s letter. We infer that they decided that DynaVision had no basis for refusing

to transfer its interest to the Active Members; the Section 9.5 Put and Call provision of the

Operating Agreement required them to capitulate. On April 25, Joiner wrote Krevolin and

acknowledged that the transaction would close on April 30. His letter made no reference of

Krevolin’s rejection of his demands regarding the representations and the Green Road Property. 

71
the firm out of Peeples’s hands. Jerry Thomas of Matel Carpets expressed

103

interest but only if Smith and the other Active Members would be willing to stay

with Signature, which they were not. 

In their brief to us, however, plaintiffs argue that Ledford and O’Dell would

have been able to find a buyer for $8.5 million if Peeples had simply admitted his

involvement in the Put and Call. With a buyer’s commitment in hand, DynaVision

would have then purchased the Active Members’ interest for $3.5 million and

reaped a $5 million profit. 

Plaintiffs explain that once Peeples admitted his involvement, DynaVision’s

principals would have discovered that he agreed to pay $10 million for Signature

(including $3.5 million to DynaVision). Ledford and O’Dell would have then had

two excellent selling points when offering Signature to Mohawk, Clay Miller, and

Matel. First, because Peeples was going to pay $10 million for Signature, their

asking price of $8.5 million was not only reasonable, it was an exceptional

bargain. Second, Peeples saw Signature as an effective way to reach the

hospitality industry. By buying Signature, Peeples’s competitors could gain entry

to the hospitality market and, at the same time, keep Peeples out. Plaintiffs argue:

 See supra part I.B. 103

72
Had [DynaVision] known the truth, DynaVision’s chances of finding

a buyer willing to pay more than $7 million for [Signature] would

have increased dramatically.

. . . .

Potential buyers and investors would certainly view the [Active

Members’] agreement to sell [Signature] for $10 million to the

Peeples Group as material. Thus, those contacted by DynaVision

during the [thirty-day] election period may have acted differently,

themselves, had they known of the agreement between the Peeples

Group and the Active Members. Such knowledge may have increased

their assessment of the value of the company or validated the value

mentioned by DynaVision. Moreover, knowledge of a strategic

acquisition by Shelby Peeples might have inspired those with

marketing experience to assist DynaVision in order to maintain their

competitive advantage. Knowledge of the truth could have enabled

DynaVision to find a purchaser and/or marketing group for

[Signature].

Appellants’ Br. at 39–40. 

Several flaws in plaintiffs’ argument are immediately obvious. First, there

is no support in the record for the statement that Peeples agreed to pay the Active

Members $10 million for Signature at any time, let alone during the thirty-day

election period. The most Peeples ever offered for Signature was roughly $6.5

million. In the January 21 letter of intent, Peeples discussed loaning the Active

Members $3.5 million to enable them to purchase DynaVision’s interest and then

forgiving the loan and paying them $3 million for Signature’s assets once they

acquired the company. In actuality, Peeples paid around $6 million to acquire 104

 See supra part I.B. 104

73
Signature. Following the closing, he forgave the $3.5 million loan he had given

the Active Members and paid $2.25 million for Signature’s assets. He lowered the

price upon discovering an error in the company’s books. 

 To arrive at the $10 million figure, plaintiffs add the bonuses Peeples

agreed to pay the Active Members under the Asset Purchase Agreement and

employment contracts to the amount he actually paid for Signature’s assets.

105 106

The amount of these bonuses, however, was contingent on Signature’s future

performance; the Active Members would only be eligible if Signature made a

profit above a certain amount on a yearly basis. Consequently, the bonuses are 107

 These agreements are set out in the text supra part I.D. 105

 The Plaintiffs’ brief states: 106

The defendants purchased the assets of [Signature] for consideration that was

valued at over $10 million at the time of their agreement. . . The bonuses in the

Asset Purchase Agreement, which are capped at $5 million, combined with the

direct payments to the Active Members and the forgiveness of the loan used to

buy out DynaVision, exceeds $10 million. 

There is no reference in the Asset Purchase Agreement to any bonuses “capped at $5 million,” so

we assume plaintiffs refer to the bonus provisions referred to supra note 28. 

 The Asset Purchase Agreement states: 107

In addition to the base salary, each of the Active Members shall be entitled to an

annual bonus, equal to twenty percent (20%) of the amount by which the net pretax profits of [Peeples] exceed One Million Five Hundred Thousand Dollars on an

annual basis: provided, however (a) shortfalls in annual net pre-tax profits shall be

carried forward to succeeding years . . . .

The employment contracts add the caveat that “the maximum amount payable by Employer to

74
not part of Peeples’s payment for Signature; they are simply part of the Active

Members’ compensation arrangements for their continued service with the

company. 

Second, plaintiffs have not explained how they would have learned of the

price Peeples intended to pay for Signature. According to the Georgia Court of

108

Appeals, the Active Members had no obligation under the Operating Agreement to

reveal the details of their plan. Ledford, 618 S.E.2d at 633-36. If Paul Walker had

asked about these details, Peeples’s response would therefore undoubtedly have

been that it was none of his business. This is essentially what Krevolin told Joiner

when Joiner demanded that the Active Members represent prior to closing that

they were purchasing DynaVision’s interest “solely for [their] own account” and

“without the financial participation of any other Person,” meaning without

Peeples’s participation. 

Plaintiffs would therefore not have been able to lure potential buyers by

telling them that Peeples offered $10 million for the company. Instead, plaintiffs’

Employee [in bonuses] shall be one [$1.6 million].” 

 In the state court case against the Active Members and Signature, plaintiffs claimed 108

that it was not until August 12, 2003, when they took Owenby’s deposition, that they learned of

the price Peeples paid for Signature and the terms of his employment arrangement with the

Active Members. The next day, they moved the court for leave to amend their complaint to add

Peeples as a party defendant. See supra part II.A. 

75
best selling pitch was the one they actually used: Peeples was going to acquire

Signature, and Peeples’s competitors would benefit economically if they stepped

in, bought the company, and kept it from falling into Peeples’s hands. 

3.

The principals had to choose between purchasing the Active Members’ interest

and risking the loss of their investment or selling their interest for a $3.5 million

profit.

DynaVision’s principals had thirty days to decide whether to buy or sell. 

They opted to sell and received a $3.5 million profit, an extraordinary return on

their initial investment. Ledford and O’Dell also received the release of their

109

obligation to FNBC to guarantee payment of the $911,000 loan the bank had given

Signature. Had they opted to buy instead, they would have assumed the risk that 110

 The record indicates that only a small initial investment was made. DynaVision’s 109

principals (1) obtained the $200,000 line of credit FNBC gave Signature when it commenced

operations, (2) guaranteed, in part, the $630,000 loan the Dalton Whitfield Bank gave Leasing to

purchase the Green Road Property in October 1999, and (3) guaranteed, in part, the $911,000

loan FNBC gave Signature on October 24, 2001. See supra part I.A. 

 Ledford and O’Dell were not entitled to such release. The Section 9.5 Mandatory Put 110

and Call provision specified that the “sale [of DynaVision’s interest] shall be for cash at closing,

but all loans from and guaranties executed by the selling Members must be paid in full and

released prior to closing.” The Operating Agreement defines “Members” as DynaVision, Smith,

Thomas, and Ownby. See supra part I.A. Ledford and O’Dell were members of DynaVision, but

were not Members within the meaning of the above language. Their personal guarantees should

have remained in force. Were DynaVision to have bought the Active Members’ interests instead

of selling out, in addition to paying the Active Members $3.5 million in cash, it would have been

required to obtain their release as guarantors of FNBC’s $911,000 loan to Signature and, further,

to satisfy any obligations they may have incurred on Signature’s behalf in the process of carrying

on the company’s business. 

76
the company would have to close down unless they found a management team to

run it. Moreover, without a management team, they would have had great

difficulty selling the company. Potential buyers, knowing that Signature’s value

was diminishing, perhaps exponentially, would have been able to simply stand by

and wait for the day when the principals had no alternative but to take whatever

price they could get. 

Faced with these alternatives, DynaVision’s principals had to choose the

one that satisfied their economic self-interest: They had to sell. As the Georgia

Court of Appeals, drawing on what Ledford and O’Dell had to say on

deposition, observed: 111

Either the Active Members' interest in [Signature] was worth $3.5

million to Dyna-Vision or it was not. The fact that Peeples financed

the offer could not have materially affected Dyna-Vision's

decision-making with respect to [Signature’s] value, because if

Dyna-Vision chose to buy the Active Member's interest, it could not

force Peeples (or any other prospective buyer) to buy [Signature] for a

fixed price. And there is no evidence in the record that Dyna-Vision

had an interested buyer or that [Signature] had any value to any other

prospective buyer. Moreover, both Ledford and O'Dell deposed that,

even if they could have raised the money to buy out the Active

Members, owning [Signature] without the Active Members would

have been “foolish” and “made no sense” because the Active

Members were the heart of [Signature’s] value. As O'Dell admitted

“we didn’t really have a choice. . . . We didn’t have a management

group. . . . The day the put and call came in, I wouldn't give two cents

 The deposition testimony they gave in state court is part of the record here. 111

77
for finding a group to replace them.” Because Peeples’ involvement

did not affect the value of the Active Members’ interest, it was

immaterial.

Ledford, 618 S.E.2d at 634-35. 

We began this discussion by stating that to obtain a reversal of the district

court’s determination that they failed to create a jury issue as to the reliance

element of their Rule 10b-5(b) claims, plaintiffs had to convince the court that the

evidence, considered in the light most favorable to them, yielded circumstantial

facts from which a jury reasonably could infer that if Peeples had not denied his

involvement in the Put and Call, DynaVision’s principals would have purchased

the Active Members’ interest. Peeples contends that the evidence establishes

circumstantial facts that yield but one inference: DynaVision’s principals had no

option but to sell. We agree. Peeples’s misrepresentations played no causative

role in the DynaVision principals’ decision to sell to the Active Members.

C.

Perhaps realizing the futility of the arguments they have advanced, plaintiffs

present an argument that they failed to present to the district court while it was

considering the merits of their claims. The argument is founded on Section 9.1 of

the Operating Agreement, which precludes a Member from pledging an interest in

78
Signature as collateral for a loan. Plaintiffs contend that the Active Members 112

breached this provision by pledging their interests in Signature as collateral for the

$3.5 million loan they obtained from Peeples. They did not know about the 113

pledge prior to the April 30 closing, they represent, but would have suspected it

had Peeples admitted that he was behind the Put and Call. DynaVision now

argues that had it suspected that the Active Members had pledged their interests in

violation of Section 9.1, it would have rejected the Put and Call. Then, if the

Active Members sued for specific performance, it would have asserted the breach

of Section 9.1 as an affirmative defense, citing the Georgia principle of

equity—that “a party seeking specific performance of a contract must show

substantial compliance with his part of the agreement, and the breach of a material

condition will bar a decree of specific performance.” Saine v. Clark, 219 S.E.2d

407, 408–09 (Ga. 1975). 

 See supra note 98. 112

 Peeples was aware of Section 9.1's prohibition against the Active Members pledging 113

their interests as collateral for a loan. In his January 21, 2002 letter to the Active Members, see

supra part I.A, he stated that, “to the extent of any conflict in the provisions of this Letter and the

provisions of the Signature Operating Agreement, the provisions of the Signature Operating

Agreement shall prevail and the conflicting provision(s) of this Letter shall be void and of no

effect whatsoever.” In other words, if DynaVision should have claimed that the Active Members

had pledged their interests in Signature as collateral for the $3.5 million loan, Peeples would

have treated the loan as unsecured.

79
The allegation that DynaVision’s principals would have rejected the Put and

Call had they suspected a violation of Section 9.1 does not appear in plaintiffs’

complaint as part of the Count One federal securities law claims. Nor was it made

in plaintiffs’ response to Peeples’s motion for summary judgment. Plaintiffs’

114

response on summary judgment does contain a factual statement that the Active

Members pledged their interests in disregard of Section 9.1. This statement,

however, was not made as part of plaintiffs’ argument on the reliance

element—plaintiffs did not assert that but for Peeples’s misrepresentations,

DynaVision would have elected to purchase the Active Members’ interest.115

Moreover, in its order granting Peeples summary judgment, the district court made

no reference to the argument plaintiffs now present, and the plaintiffs did not

move the court pursuant to Rule 59(e) to reconsider its decision on the ground that

it had overlooked the argument.

 The plaintiffs also failed to raise this argument at any time during the state court 114

litigation.

 During oral argument before this panel, Peeples’s attorney told the court that 115

plaintiffs’ counsel was presenting a reliance argument he had not presented to the district court. 

Plaintiffs’ counsel disagreed, and cited a page in plaintiffs’ response to Peeples’s motion for

summary judgment where counsel said the argument appeared. The page contains the factual

statement that the Active Members breached Section 9.1 without any reference to a reliance

argument.

80
The argument appeared for the first time in plaintiffs’ response to Peeples’s

post-judgment motion for PSLRA sanctions. Peeples, in his motion, argued that

plaintiffs lacked a factual basis to assert that DynaVision’s principals relied to

their detriment on Peeples’s misrepresentations. Then, plaintiffs finally argued

that had they known about the misrepresentations, they would have rejected the

Put and Call and refused to close. If the Active Members sued, they would have

pled the breach of Section 9.1 as an affirmative defense. The court’s order

denying Peeples’s motion for sanctions, however, made no reference to this

argument. 

It requires no citation of authority to say that, except when we invoke the

“plain error doctrine,” which rarely applies in civil cases, we do not consider

arguments raised for the first time on appeal. A mere recitation of the underlying

facts, furthermore, is insufficient to preserve an argument; the argument itself must

have been made below. See City of Nephi v. Fed. Energy Regulatory Comm’n,

147 F.3d 929, 933 n.9 (D.C. Cir. 1998) (holding that a party does not preserve an

argument for appellate review by “merely informing the [district] court in the

statement of facts in its opening brief [of the factual basis for the claim]”); Wasco

Products, Inc. v. Southwall Tech., Inc., 166 Fed. App’x 910, 911 (9th Cir. 2006)

(unpublished) (“Although [the argument was] stated in a statement of facts, it was

81
never argued and never ruled upon. Without any proffered explanation for this

default, the argument is waived.”). Here, plaintiffs did not use the factual

statement in arguing the reliance issue. 

Because we are reversing the district court’s rulings on the sanctions issues,

and given what we have said thus far in this opinion, we think it appropriate to say

a word about the reach of Section 9.1. Even if an Active Member had attempted to

pledge of his or her interest in Signature as collateral for a loan without the

consent of DynaVision and the other Active Members, Section 9.1 would have

rendered the pledge “void and of no effect.” If the lender attempted to seize the

interest in Signature to satisfy the debt, DynaVision and the other Active Members

could claim that the pledge was void. If the Active Member paid the loan,

116

however, and no seizure occurred, DynaVision and the other Active Members

could not have suffered injury on account of any Section 9.1 breach. Nor could

DynaVision have used the pledge as the basis for a lawsuit against the breaching

Active Member.117

 If, prior to accepting the collateral, the lender knew that Section 9.1 treated the pledge

116

as void, whether the lender would prevail in a contest with DynaVision would be questionable. 

 To be sure, the Operating Agreement was structured so as to prevent either side, 117

DynaVision or the Active Members, from selling its interest in Signature to a third party if the

other side objected. The Georgia Court of Appeals made this observation in Ledford, in

commenting on the purpose behind Section 9.2 of Article 9, the “Right of First Refusal”

provision. Section 9.2 was “plainly intended to prevent outsiders from buying into [Signature]. 

82
V.

We now address what remains of plaintiffs’ Count Four claims that Peeples

aided and abetted Smith, Thomas, and Owenby in breaching their fiduciary duties

to Leasing and, separately, to Ledford and O’Dell as Members of Leasing.

118

Plaintiffs argue that Peeples aided and abetted two separate breaches of the 

obligation Smith, Thomas, and Owenby assumed under the Limited Liability

Company Act, O.C.G.A. § 14-11-305(1), as members and managers of Leasing, to

“act in a manner” that they “believe[ed] in good faith to be in the best interests” of

the company and “with the care an ordinarily prudent person in a like position

In this way, the Members maintained control over who their business partners were to be.” 618

S.E.2d at 633. However, once the Active Members invoked the Put and Call provision of

Section 9.5 and DynaVision did not elect within 30 days to purchase their interests, “the right of

first refusal provisions of the Operating Agreement [became] moot since DynaVision [was] no

longer . . . an owner in [Signature] possessing a right of first refusal.” Ledford, 618 S.E.2d at

633. The court of appeals’s analysis of the Operating Agreement’s structure is straightforward

and comports with logic and common sense. It should not have come as a surprise to plaintiffs’

counsel.

 As indicated supra part II.B.1, Count Four alleged that Peeples aided and abetted 118

Smith, Thomas, and Owenby in breaching two of their fiduciary duties: to inform the plaintiffs

that Peeples was supporting their Put and Call and to transfer the Green Road Property back to

Leasing. Here, plaintiffs do not challenge the district court’s reliance on the court of appeals’

holding in Ledford v. Smith that the Active Members had no fiduciary duty to inform

DynaVision of Peeples’s involvement. Also, DynaVision obviously cannot state a Count Four

claim about the Green Road Property because DynaVision did not hold an interest in Leasing or

the Green Road Property and, therefore, could have suffered no injury by the alleged breach of

any fiduciary duty in connection with the transfer of that property. Accordingly, the district court

properly dismissed DynaVision’s Count Four claim relating to the Green Road Property. 

83
would exercise under similar circumstances.” We affirm the district court’s 119

dismissal of the claims and hold that Peeples could not have aided and abetted a

breach of fiduciary duty because, as a matter of law, no such breach occurred. 

A.

In support of their aiding and abetting claim, plaintiffs allege two separate

breaches of fiduciary obligation. First, they contend that Smith breached her

fiduciary duty by failing to inform Ledford and O’Dell that the document they

signed before Cynthia Trammel at FNBC was a warranty deed. Had Smith

disclosed the nature of the document to Ledford and O’Dell, plaintiffs submit, they

would not have signed it. Second, plaintiffs contend that Smith, Thomas, and

Owenby breached their fiduciary duties to Leasing, Ledford, and O’Dell by

refusing to convey the Green Road Property back to Leasing, pursuant to Paul

Walker’s demands, after the warranty deed was signed but before the sale of

DynaVision’s interest closed. Plaintiffs’ argue that Peeples aided and abetted

 See supra note 48, for the full text of O.C.G.A. § 14-11-305(1). Leasing’s operating 119

agreement is not part of the record in this case. We assume arguendo that an operating

agreement existed and that Smith, as Leasing’s president, assumed the duties the statute imposed. 

We also assume that Thomas and Owenby were responsible for Smith’s conduct since the

complaint alleged that they were co-conspirators.

84
these breaches so that the Active Members would be in a position to give him title

to the Green Road Property after acquiring DynaVision’s interest. 

120

The district court, concluding that Georgia did not recognize a cause of

action for aiding and abetting the breach of a fiduciary duty, dismissed plaintiffs’

claims. The Georgia Court of Appeals subsequently held, however, in Insight

Technology, Inc. v. FreightCheck, LLC, 633 S.E.2d 373 (Ga. Ct. App. 2006), that

such an aiding and abetting claim is cognizable. 

121

In light of the court of appeals decision in that case, we assume for purposes

of this case that the obligation section 14-11-305 imposes on limited liability

company members and managers is, as plaintiffs’ contend, a “fiduciary duty,” and

 As proof that Peeples induced Smith and the Active Members to commit these 120

statutory breaches, plaintiffs point to Peeples’s January 21 letter of intent to the Active Members,

which plaintiffs describe in their initial brief on appeal as a “contract[] to purchase the Green

Road Property as part of the assets of [Signature]” and the promise Peeples made in the Asset

Purchase Agreement to indemnify the Active Members for any expenses they might incur if held

liable for refusing to accede to Paul Walker and Ledford’s demand that Signature transfer the

property back to Leasing. 

 The elements of the claim are:

121

(1) through improper action or wrongful conduct and without privilege, the

defendant acted to procure a breach of the primary wrongdoer's fiduciary duty to

the plaintiff; 

(2) with knowledge that the primary wrongdoer owed the plaintiff a fiduciary

duty, the defendant acted purposely and with malice and the intent to injure; 

(3) the defendant's wrongful conduct procured a breach of the primary

wrongdoer’s fiduciary duty; and 

(4) the defendant's tortious conduct proximately caused damage to the plaintiff. 

Insight Technologies, Inc. v. FreightCheck, LLC, 633 S.E.2d 373, 379 (Ga. Ct. App. 2006). 

85
we therefore proceed to the merits of plaintiffs’ aiding and abetting claims. As

indicated above, plaintiffs’ claims are founded on two distinct breaches of their

statutory obligation. The breaches have to have occurred; otherwise, Peeples

cannot be held liable for aiding and abetting. We therefore determine whether, as

a threshold matter, a jury reasonably could find, as plaintiffs allege, that Smith

and, subsequently, Smith, Thomas, and Owenby breached the obligations they

assumed under section 14-11-305 as members and managers of Leasing.

 

B.

We begin with plaintiffs’ argument that Smith should have explained the

significance of the warranty deed that Ledford and O’Dell signed before Cynthia

Trammel at FNBC. To analyze this argument, we proceed through the explanation

that, according to the plaintiffs, Smith should have given in order to fulfill her

fiduciary obligations. We then conclude that, as a matter of law, such an

explanation would not have caused the plaintiffs to act differently than they

actually did.

Smith’s explanation, to be complete and leave no stone unturned, would

have taken Ledford and O’Dell back to October 2001, when Ledford, O’Dell, and

the Active Members applied to FNBC for a loan on behalf of Signature. That loan

86
was intended to pay off Signature’s current loans at FNBC, pay off the balance

due on the note Leasing gave the Dalton Whitfield Bank, and provide Signature 122

with additional working capital. Signature needed in excess of $900,000 to

accomplish all of this.

Smith would have reminded Ledford and O’Dell that Cynthia

Trammel—the FNBC officer who processed their loan application and, before

that, handled the loan they had obtained from the Dalton Whitfield Bank for

Leasing—had to submit their application to FNBC’s board of directors for

approval. She would also have explained that the board approved the loan subject

to certain conditions, among them (1) that Ledford, O’Dell, Smith, Thomas, and

Owenby sign Signature’s note, and thus guarantee its payment and (2) that

Signature, joined by Ledford, O’Dell, Smith, Thomas, and Owenby, give the bank

a deed to secure debt on the Green Road Property. This meant that if Leasing

123

held title to the property, it would have to convey the property to Signature so that

 The note was in the principal amount of $630,000, the sum of money Leasing needed, 122

and used, to purchase the Green Road Property. Smith, Thomas, Owenby, Ledford, and O’Dell

had signed the note and guaranteed its payment. See supra note 14. 

 In handling the $630,000 Leasing loan at the Dalton Whitfield Bank, Trammel 123

required the same five individuals sign the note and guarantee its payment. The inference is that

they were responsible for Signature’s business affairs to the same extent they were responsible

for Leasing’s affairs. 

87
Signature, in turn, could deed the property unencumbered to FNBC to secure the

loan. Ledford and O’Dell and the Active Members had agreed to these conditions.

Next, Smith would have explained that Trammel, having obtained their

consent to these conditions, took the steps necessary to close the transaction. One

was to have the bank’s lawyer, Todd McCain, conduct a title search of the Green

Road Property. McCain conducted a search, issued an opinion, and delivered it to

Trammel. The opinion stated that title to the property was held by Leasing and

that Signature could not give the bank a deed to secure debt unless Leasing deeded

the property to Signature before the loan closed. 

Smith would have gone on to say that the closing went as planned except

that Signature gave the bank a deed to secure debt on property it did not own;

Leasing had neglected to convey the Green Road Property to Signature. Trammel

had overlooked McCain’s caveat that the conveyance occur prior to closing. Her

failure to obtain the necessary warranty deed from Leasing to Signature did not

come to light until later, when she read McCain’s opinion letter. 

Upon reading McCain’s letter, Trammel realized that she had to obtain a

deed from Leasing to Signature so that the deed to secure debt Signature had given

88
the bank would not be worthless. To solve the problem, Trammel called

124

McCain’s office, and it prepared the warranty deed at issue. Trammel then called

Smith. She told Smith that a “document” needed to complete the loan closing had

to be signed and asked her to come to the bank with Ledford, O’Dell, Thomas, and

Owenby for that purpose. Smith immediately informed the others of Trammel’s

request. A day or so later, she arrived at the bank with Thomas and Owenby and

signed the document, the warranty deed, before a notary and a witness. When

Ledford and O’Dell failed to appear, Trammel called Smith again. Smith, in turn,

called Ledford, who contacted O’Dell, and they, too, signed the deed, before the

same notary and witness. At that time, plaintiffs argue, Smith should have

informed them that the document was a warranty deed. 

The position plaintiffs have taken throughout this litigation is that

notwithstanding a full explanation by Smith—that Leasing had to convey the

Green Road Property to Signature so that the $911,000 loan could go

through—Ledford and Smith would not have signed the “document.” We

question whether Ledford and O’Dell would have refused to sign after Smith

informed Trammel of their noncompliance, Trammel referred the matter to the

 The record does not contain a copy of the deed to secure debt Ledford, O’Dell and the 124

others gave the bank; thus, we do not know whether, in signing it, they expressly warranted that

Signature was giving the bank title to property it owned.

89
bank’s lawyer, McCain, and McCain contacted Ledford and O’Dell’s lawyer. 

Ledford and O’Dell’s lawyer would have informed them of the legal consequences

that might flow if they still refused to accede to the conveyance of the Green Road

Property to Signature. In any event, what counsel would have had to say has a

bearing on whether, in the final analysis, Smith’s failure to tell Ledford and O’Dell

that the “document” they were to sign was a warranty deed constituted a breach of

Smith’s section 14-11-305 obligation to “act in a manner . . . she believes in good

faith to be in the best interests of” Leasing and its members, “with the care an

ordinarily prudent person in a like position would exercise.” 

McCain would have told Ledford and O’Dell’s lawyer that Ledford, O’Dell,

Smith, Thomas, and Owenby induced the bank to loan Signature $911,000 on the

condition that Signature give the bank a deed to secure debt on the Green Road

Property. To do that, Signature would have to possess clear title to the property. 

Although the bank insisted that these five individuals guarantee the payment of the

loan by co-signing Signature’s note, their guarantee was not enough; the bank

needed collateral in the form of a deed to secure debt from Signature. Another

reason why the bank needed this additional security is that part of the $911,000

loan would be used to pay off Leasing’s debt to the Dalton Whitfield Bank,

thereby relieving Leasing’s guarantors, including Ledford and O’Dell, of potential

90
liability for Leasing’s non-payment of the debt, and, at the same time, depriving

Signature of the full value of the loan. 

125

McCain would have then observed that, in executing Signature’s deed to

secure debt, Ledford and O’Dell represented that Signature owned the property, on

the surface a false representation. If making such representation was intentional,

as their current position seems to imply, they obtained the bank’s funds under false

pretenses. And, moreover, Leasing lined its pockets, and the guarantors of

Leasing’s debt to the Dalton Whitfield Bank were relieved of potential liability, at

Signature and FNBC’s expense. McCain would inform Ledford and O’Dell’s

counsel of the elements of the federal bank fraud statute, 18 U.S.C. § 1344, that

according to the Eleventh Circuit Court of Appeals, in United States v. De La

Mata, 266 F.3d 1275, 1298 (11th Cir. 2001), makes it a crime to knowingly make

materially false representations to a federally insured bank for the purpose of

 The record does not indicate the balance due on Leasing’s $630,000 note to the Dalton 125

Whitfield Bank. An inescapable inference is that the payoff consumed a goodly portion of the

amount due on that note and that Signature would be deprived of the benefit of the payoff unless

it owned the Green Road Property. Also inescapable is the inference that in inducing the FNBC

to make the loan on the conditions its board of directors dictated, Ledford, O’Dell, Smith,

Thomas, and Owenby were acting as members of Leasing as well as on behalf of Signature. 

91
obtaining money. Ledford and O’Dell might be subject to prosecution even if 126

they intended to repay Signature’s $911,000 loan. 

127

Given the representations Smith and the others made to induce the FNBC to

make the Signature loan and the benefit that inured to Leasing and its guarantors

when its note to the Dalton Whitfield Bank was paid off, we fail to discern how

Smith could be said to have breached her section 14-11-305 obligation to Leasing,

Ledford, and O’Dell. She did precisely what she and the others had promised the

bank they would do. In sum, plaintiffs failed to establish a breach on Smith’s part

and, as a result, failed to make out a case of aiding and abetting against Peeples. 

C.

This brings us to the second alleged breach, the refusal of Smith, Thomas,

and Owenby to accede to Paul Walker and Ledford’s demand that they cause

Signature to convey the Green Road Property to Leasing. According to

128

 Although the record does not reveal that FNBC was insured by the Federal Deposit 126

Insurance Corporation, the probability is that it was. And if not, Ledford and O’Dell would be

amenable to prosecution under Georgia law for theft by deception. See, e.g., O.C.G.A. § 16-8-3;

Gentry v. State, 414 S.E.2d 696, 697 (Ga. Ct. App. 1992).

 See United States v. Hollis, 971 F.2d 1441, 1452 (10th Cir. 1992) (holding that a 127

“person violates the bank fraud statute when he knowingly executes a scheme to obtain money

from a financial institution by means of false or fraudulent representations . . . . [I]f a defendant

knowingly provided materially false information in order to induce the loan, the crime is

complete, and it is irrelevant whether or not he intended to repay or was capable of repaying it.”). 

 Walker and Ledford made this demand on behalf of Ledford, O’Dell, and Bryan 128

Walker, qua Leasing members, after the Put and Call’s 30-day election period ended and

92
plaintiffs, O.C.G.A. § 14-11-305 obligated the Active Members, as members or

managers of Leasing, to make the conveyance. Plaintiffs ignore the fact that

section 14-11-305 actually obligated the Active Members, as managers of

Signature, not to do that: if they had made the conveyance, the Active Members

would, in effect, have given Leasing the part of the $911,000 FNBC loan proceeds

Signature used to pay off Leasing’s note to the Dalton Whitfield Bank while

gaining Signature nothing in return. Given our disposition of the first breach, it

would be inconsistent to hold that section 14-11-305 obligated the Active

Members to cause Signature to transfer the property back to Leasing. The second

breach therefore fails as a foundation for plaintiffs’ second aiding and abetting

claim against Peeples. 

The district court, had it entertained Count Four on the merits, would have

been required to grant Peeples summary judgment. We accordingly affirm its

judgment dismissing the count for failure to state a claim for relief.

VI.

DynaVision became obligated by operation of Section 9.5 of the Operating Agreement to transfer

its interest in Signature to the Active Members. If this were not the case, and DynaVision

maintained its interest in Signature until the April 30, 2002 closing, the Active Members could

not have complied with Walker and Ledford’s demand; Signature could not have conveyed the

Green Road Property to Leasing unless DynaVision’s representative on Signature’s board of

directors, Edward Staten, consented to the conveyance. His consent might be problematic since

not all of DynaVision’s members were members of Leasing as well. 

93
Peeples argues that the district court abused its discretion in refusing to

sanction plaintiffs and their attorneys under the PSLRA for prosecuting the federal

securities laws claims in this case. The PSLRA required the district court, after

129

disposing of those claims, to make “specific findings regarding compliance by

each party and each attorney . . . with each requirement of Rule 11(b) of the

Federal Rules of Civil Procedure as to any complaint, responsive pleading, or

dispositive motion.” 15 U.S.C. § 78u-4(c)(1). Rule 11(b), at the time the

130

district court ruled on sanctions, stated, in pertinent part:

(b) Representations to Court. By presenting to the court (whether

by signing, filing, submitting, or later advocating) a pleading, written

motion, or other paper, an attorney . . . is certifying that to the best of 

of the person’s knowledge, information, and belief, formed after an

inquiry reasonable under the circumstances,– 

 Peeples contends that the district court’s December 22, 2005 order denying plaintiffs’s 129

claims makes it clear that plaintiffs’ federal securities law claims were baseless at the time they

were brought. 

 15 U.S.C. § 78u-4 states in pertinent part: 130

(c) Sanctions for abusive litigation

(1) Mandatory review by court

In any private action arising under this chapter, upon final adjudication of the

action, the court shall include in the record specific findings regarding compliance

by each party and each attorney representing any party with each requirement of

Rule 11(b) of the Federal Rules of Civil Procedure as to any complaint . . . . 

(2) Mandatory sanctions

If the court makes a finding under paragraph (1) that a party or attorney violated

any requirement of Rule 11(b) . . . as to any complaint . . . , the court shall impose

sanctions on such party or attorney in accordance with Rule 11 . . . . 

94
 (1) it is not being presented for any improper purpose, such as to

harass or to cause unnecessary delay or needless increase in the cost

of litigation;

 (2) the claims . . . and other legal contentions therein are warranted

by existing law or by a non-frivolous argument for the extension,

modification, or reversal of existing law or the establishment of new

law;

 (3) the allegations and other factual contentions have evidentiary

support or, if specifically so identified, are likely to have evidentiary

support after a reasonable opportunity for further investigation or

discovery. . . . 

“If after notice and a reasonable opportunity to respond, the court

determines that subdivision (b) has been violated, the court may . . . impose an

appropriate sanction upon the attorneys, law firms, or parties that have violated

subdivision (b) or are responsible for the violation.” Fed. R. Civ. P. 11(c) 131

 This language is from the version of Rule 11 in effect when the district court made its 131

sanctions rulings on March 21, 2006. The present version of Rule 11, effective December 1,

2007, contains this statement after the word “violation”: “Absent exceptional circumstances, a

law firm must be held jointly responsible for a violation committed by its partner, associate, or

employee.” Fed. R. Civ. P. 11(c)(1). 

The current version of Rule 11, with the exception of the above-quoted language and

some stylistic changes, was adopted in 1993. The Advisory Committee’s notes state:

 

The sanction should be imposed on the persons—whether attorneys, law

firms, or parties—who have violated the rule or who may be determined to be

responsible for the violation. The person signing, filing, submitting, or

advocating a document has a nondelegable responsibility to the court, and in most

situations is the person to be sanctioned for a violation. Absent exceptional

circumstances, a law firm is to be held also responsible when, as a result of a

motion under subdivision (c)(1)(A), one of its partners, associates, or employees

is determined to have violated the rule. Since such a motion may be filed only if

the offending paper is not withdrawn or corrected within 21 days after service of

the motion, it is appropriate that the law firm ordinarily be viewed as jointly

responsible under established principles of agency. This provision is designed to

remove the restrictions of the former rule. Cf. Pavelic & LeFlore v. Marvel

95
(2006). The court may not, however, award monetary sanctions against a

represented party for a subdivision (b)(2) violation. Fed. R. Civ. P. 11(c)(2)(A)

(2006). 

With this background in mind, our discussion of the PSLRA sanctions

issues proceeds as follows. First, we recall briefly the federal securities law claims

the complaint presented and why the court denied them. Next, we visit the

findings of fact the district court made in support of its holding that plaintiffs’

counsel satisfied the requirements of Rule 11(b). We determine that the court’s

findings of fact are inadequate but that a remand for further findings is

unnecessary because the record is sufficient to enable us to assess counsel’s

performance. We make that assessment under the objective standard that governs

Entertainment Group, 493 U.S. 120 (1989) (1983 version of Rule 11 does not

permit sanctions against law firm of attorney signing groundless complaint).

The revision permits the court to consider whether other attorneys in the

firm, co-counsel, other law firms, or the party itself should be held accountable for

their part in causing a violation. When appropriate, the court can make an

additional inquiry in order to determine whether the sanction should be imposed

on such persons, firms, or parties either in addition to or, in unusual

circumstances, instead of the person actually making the presentation to the court.

For example, such an inquiry may be appropriate in cases involving governmental

agencies or other institutional parties that frequently impose substantial

restrictions on the discretion of individual attorneys employed by it.

96
the review of Rule 11(b) compliance, and we conclude that the district court was 132

compelled to find that counsel failed to comply with the requirements of the rule. 

A.

The federal securities law claims were presented initially in Count One and

thereafter in Counts Two through Seven, each of which incorporated by reference

all of the complaint’s preceding allegations, including, of course, Count One. For

ease of discussion, we refer to this seven-count assertion of plaintiffs’ federal

securities law claims as the Count One claims. Count One alleged the following: 

First, Peeples’s falsely stated that he was not involved in the Put and Call

that the Active Members issued on February 25, 2002. DynaVision’s principals

reasonably relied on these false statements and, as a result, caused DynaVision

133

to sell its interest in Signature. This rendered Peeples liable to plaintiffs under

Rule 10b-5(b). 

 Rule 11 incorporates an objective standard. Kaplan v. DaimlerChrysler, A.G., 331 132

F.3d 1251, 1255 (11th Cir. 2003); Donaldson v. Clark, 819 F.2d 1551, 1556 (11th Cir. 1987) (en

banc) (“Rule 11 as amended incorporates an objective standard”); Hashemi v. Campaigner

Publications, Inc., 784 F.2d 1581, 1583 (11th Cir. 1986) (holding that Rule 11 incorporates an

objective standard that is more stringent than the original good-faith formula that the district

courts applied prior to the 1983 amendment); Paganucci v. City of New York, 993 F.2d 310,

3112 (2d Cir. 1993) (“[T]he applicable test is whether a reasonably competent lawyer would

have acted similarly.”).

 DynaVision’s principals say that they also relied on Peeples’s similar statement to 133

Paul Walker after the February 8, 2002 Put and Call issued. 

97
Second, Peeples “directly or indirectly controlled the activities of the Active

Members” in their management of Signature’s affairs. This was evidenced by his

January 21, 2002 letter of intent, the “secret discussions” he had with the Active

Members prior to the issuance of the February 25 Put and Call, and the Asset

Purchase Agreement he entered into with them after they acquired DynaVision’s

interest. He thereby became liable, as a “controlling person” under section 20(a)

of the 1934 Act, for the false statement Brenda Smith made to Ledford and O’Dell

on February 8 that the Active Members are “doing this on our own” and for the

Active Members’ failure to disclose the January 21, 2002 letter of intent and

Peeples offer to purchase Signature. 

Third, the Active Members, in violation of Rule 10b-5(a), engaged in a

“scheme, device, and artifice to defraud” DynaVision. Smith made the we are

“doing this on our own” statement pursuant to the scheme, and Peeples, as a

participant in the scheme, became vicariously liable for her statement and for the

Active Members’ failure to disclose the January 21 letter of intent and Peeples’s

offer.

The district court denied the Rule 10b-5(b) claim based on Peeples’s false

statements because the statements played no role in DynaVision’s decision to

98
sell. It denied the section 20(a) claim because DynaVision’s principals did not 134

rely on Smith’s February 8 we are “doing this on our own” statement in electing to

sell DynaVision’s interest and because, as the Georgia Court of Appeals held in

Ledford v. Smith, the Active Members had no duty to disclose their arrangement

with Peeples. Finally, the court denied the Rule 10b-5(a) claim without

explication. 

B.

Although it rejected the Count One claims, the district court declined to

impose sanctions because

[the] evidence in the record . . . permitted Plaintiffs and their counsel

to present reasonable, good faith arguments that Plaintiffs acted as

they did based on Defendant’s conduct, and that Plaintiffs

consequently had satisfied the causation and reliance elements of

their securities law claims. The Court therefore cannot determine that

Plaintiffs and their counsel lacked a reasonable basis in fact for filing

this action, or that Plaintiffs and their counsel knew or should have

known that they lacked a reasonable basis in fact. 

135

 As indicated supra part II.B.6, plaintiffs abandoned their appeal of the district court’s 134

disposition of the Count One claims for relief under section 20(a) and Rule 10b-5(a). 

Nonetheless, since we are reviewing the district court’s refusal to impose sanctions for plaintiffs’

prosecution of those claims, we must determine whether plaintiffs’ counsel satisfied Rule 11(b)’s

requirements in filing them. 

 The district court buttressed its decision by amending its order granting Peeples 135

summary judgment to add the following findings of fact, which relate to the four subdivisions of

Rule 11(b):

(1) Plaintiffs and their counsel did not present this action for any improper

purpose, such as to harass or to cause unnecessary delay or needless increase in

99
In assessing counsel’s compliance with Rule 11(b), the district court failed

explicitly to recognize that each of the five plaintiffs had sought relief under

section 20(a) and Rules 10b-5(a) and (b) and that Count One therefore presented a

total of fifteen claims in all. Instead, the court bunched the fifteen claims together

and considered them as a whole. This is precisely how plaintiffs’ counsel

136

handled the claims in drafting the complaint: They bunched the federal securities

fraud claims together along with allegations that the Active Members, in failing 137

to disclose their arrangements with Peeples, breached the fiduciary duties imposed

on them by the Operating Agreement, O.C.G.A. § 14-11-305, and Georgia

common law, and conspired with Peeples to defraud plaintiffs. 

the cost of litigation; 

(2) The claims and legal contentions presented by Plaintiffs and their counsel in

this action were warranted by existing law or by a nonfrivolous argument for the

extension, modification, or reversal of existing law or the establishment of new

law; 

(3) The allegations and other factual contentions presented by Plaintiffs and their

counsel had evidentiary support or were likely to have evidentiary support after a

reasonable opportunity for further investigation or discovery; and 

(4) Any denials of factual contentions made by Plaintiffs and their counsel were

warranted on the evidence or were reasonably based on a lack of information or

belief.

 In the Brief of Cross-Appellees and Reply Brief of Appellants (“Answer Brief”), in 136

arguing that we should uphold the district court’s denial of sanctions, plaintiffs’ counsel likewise

bunched plaintiffs’ claims together, treating them as a whole. 

 See supra note 54 and accompanying text. 137

100
When faced with incomplete findings of fact, we ordinarily vacate the

district court’s decision and remand the case for further findings, unless the record

has been developed in such a way that the material facts are clear. Here, the

material facts are clear, and further findings are thus unnecessary. We therefore

proceed to assess counsel’s compliance with Rule 11(b) with respect to each

plaintiff’s claims. In doing so, we are mindful that a PSLRA sanctions

proceeding, like a hearing held pursuant to Rule 11(c), is, in essence, a bench trial,

except that, under the PSLRA, the district court has the burden of assessing

counsel’s performance on its own initiative. 15 U.S.C. § 78u-4(c)(1). That a party

has or has not moved the court to impose sanctions pursuant to Rule 11 is of no

moment. 

C.

By the time plaintiffs’ counsel filed the complaint in this case, they were

privy to all of the facts needed to determine whether they could establish any of

the claims Count One alleged. Counsel had acquired those facts initially from

their clients. Thereafter, during discovery in the state court case, they learned of

the details of Peeples’s dealings with the Active Members, including the

negotiations that led to the $3.5 million loan. They also learned of the Asset

101
Purchase Agreement and the employment contracts that the Active Members

entered into with Peeples and PFLC, LLC, respectively. 

In assessing counsel’s compliance with Rule 11(b)’s requirements, the

district court also had become privy to the facts underpinning the Count One

claims. In addition to the deposition testimony taken under the federal discovery

rules, the court had all of the testimony and exhibits that had been presented to the

state court and had a bearing on the Count One claims. Finally, the court had the

benefit of what plaintiffs’ counsel presented in arguing that Peeples should be held

answerable in damages under section 20(a) and Rules 10b-5(a) and (b). 

Accordingly, when it took Peeples’s motion for summary judgment under

advisement and, later, when it conducted its Rule 11(b) assessment of plaintiffs’

counsel’s performance, the district court was as well acquainted with this

historical background as plaintiffs’ counsel were when they filed the complaint in

this case. The court was well equipped to determine whether counsel’s factual

allegations had the evidentiary support required by Rule 11(b)(3). The court was

equally equipped to determine whether, in the language of Rule 11(b)(2), the

Count One claims were “warranted by existing law.”138

 Plaintiffs’counsel have never contended that they brought any of the Count One 138

claims in an attempt to obtain an “extension, modification, or reversal of existing law or the

establishment of new law.” See Fed. R. Civ. P. 11(b)(2) (2006). Rather, they have asserted

102
1.

As noted above, the court, in assessing counsel’s Rule 11(b) compliance,

did not isolate the claims of each plaintiff; instead, it treated the claims as if they

had been brought by one plaintiff. This was error. The court should have

examined each claim of each plaintiff; had it done so, it would have concluded

that the securities fraud claims of DynaVision’s co-plaintiffs’ were patently

frivolous, as we hold supra part III. A reasonably competent attorney would have

reached the same conclusion. When counsel filed the complaint in this case, they

certified that co-plaintiffs’ claims had legal and evidentiary support, as required by

Rule 11(b)(2) and (3). They did so in manifest disregard of the Rule and, for that,

the court should have imposed sanctions. 

2.

This brings us to DynaVision’s claims brought under section 20(a) and

Rules 10b-5(a) and (b). In part IV, we analyzed the evidence bearing on the

reliance element of the Rule 10b-5(b) claim. Plaintiffs claimed the reliance

element was satisfied because but for Peeples’s denial of involvement in the Put

and Call, DynaVision would have purchased the Active Members’ interests. We,

throughout that, under existing law, plaintiffs’ Count One claims were cognizable under section

20(a) and Rules 10b-5(a) and (b). 

103
however, agreed with the district court that, as a matter of law, Peeples’s denial

played no role in DynaVision’s decision to forego the purchase. A reasonably

competent attorney fully aware of the information plaintiffs had provided their

attorneys and the evidence adduced in state court, including the damaging

admissions Paul Walker, Ledford, and O’Dell had made on deposition, would not

have filed this Rule 10b-5(b) claim. Plaintiffs’ counsel nevertheless certified that

the factual allegation that DynaVision opted not to purchase the Active Members’

interests because it relied on Peeples’s misrepresentations had evidentiary support. 

Counsel made the certification knowing that the allegation lacked evidentiary

support and that the claim would fail. For that, sanctions should have been

imposed. 

Plaintiffs’ attorneys argue that Section 9.1 of the Operating Agreement

provided an adequate factual and legal basis for the Rule 10b-5(b) claim. They

contend that if Peeples had admitted that he was loaning the Active Members the

$3.5 million they needed to close, DynaVision’s principals would have (1)

concluded that the Active Members had pledged their interests as collateral for the

loan and thereby breached Section 9.1 of the Operating Agreement, (2) rejected

the Put and Call, and (3) obtained declaratory or injunctive relief barring the

104
Active Members from enforcing the Put and Call. This would have enabled

139

DynaVision to maintain its fifty percent interest in what plaintiffs claimed to be a

$10 million company. 

140

Count One, however, did not allege that Peeples’s misrepresentations kept

DynaVision from going to court and obtaining declaratory or injunctive relief so

that it could maintain the status quo ante. What plaintiffs’ counsel seems to be

141

 In the Answer Brief, plaintiffs’ counsel repeat what they told the district court during 139

the post-judgment PSLRA proceeding: Peeples’s “misrepresentations . . . prevented the plaintiffs

from discovering facts that would have allowed them to forestall the forced sale of their interests

in [Signature].” Answer Brief at 8. Had they known that Peeples was loaning the Active

Members the $3.5 million they needed to purchase DynaVision’s interest, “the plaintiffs . . .

could have used state court remedies to block the put and call. . . . . The record indicates that the

plaintiffs would have done just that.” Id. at 19. “The plaintiffs likely would have obtained

injunctive relief based on the Active Members’ pledge of their interests in violation of the

[Signature] Operating Agreement.” Id. at 20. 

 As counsel state in the Answer Brief, plaintiffs would have “challenged” the Put and 140

Call “to maintain DynaVision’s ownership in a company that they valued as at least $10 million

at the time. Because they did not want to take $3.5 million for an asset they believe to worth

more, the plaintiffs would have” gone to court. And, having obtained a ruling nullifying the Put

and Call, they would have “pursued . . . several other avenues of relief against the Active

Members, principally the right of first refusal.” Brief at 20. 

 As indicated supra parts I.C and IV.B.1, Joiner’s April 11 letter to Krevolin revealed 141

that Joiner and DynaVision’s principals had given considerable thought to resisting the Put and

Call and, if necessary, obtaining a court order declaring it “null and void” on the ground that the

Active Members had breached Section 9.1 of the Operating Agreement. DynaVision’s principals

knew that the Active Members lacked the resources to fund the $3.5 million purchase price and

therefore had to borrow the money – if not from Peeples, then from some other person or a

lending institution. Peeples’s denial that he was providing the funds was therefore immaterial;

whether he, another person, or a lending institution was providing the money, DynaVision’s

principals knew that the Active Members would be obtaining a loan and more than likely

pledging their interests in Signature as collateral. When, in his April 16 letter replying to

Joiner’s letter of April 11, Krevolin called Joiner’s bluff and stated that the Active Members

would take Joiner’s clients to court if DynaVision refused to close, DynaVision’s principals

105
saying, then, is that they could have presented a claim they did not bring and that,

because the claim they did not bring had merit, they satisfied Rule 11(b)’s

concerns. Such an argument could not serve as a justification for suing Peeples

142

under the federal securities laws. 

3.

Plaintiffs’ brief on appeal does not challenge the district court’s adverse

dispositions of the claims DynaVision brought under section 20(a) and Rule 10b5(a). Therefore, as for those dispositions, the appeal is deemed abandoned and 143

the district court is affirmed. This does not relieve us, however, of the task of

determining whether, in filing and prosecuting the section 20(a) and Rule 10b-5(a)

claims, counsel disregarded Rule 11(b)’s requirements.

We first examine DynaVision’s section 20(a) claim—that the Active

Members, while under Peeples’s control, breached a fiduciary duty to the

plaintiffs. This claim had two parts. The first part asserted that the Active

Members breached a fiduciary duty by failing to disclose the contents of the

chose to take the $3.5 million that was lying on the table and sue later. 

 In the Answer Brief, counsel refer to Rule 10b-5(b) twice, but do so in the context of 142

the claim they did not bring – that Peeples’s misrepresentations kept plaintiffs from taking the

Active Members to court. Brief at 13, 18. The Answer Brief contains no reference to section

20(a) and Rule 10b-5(a).

 See supra note 72 and accompanying text. 143

106
January 21 letter and Peeples’s offer. Because Peeples controlled the Active

Members at the time of the breach, he became secondarily or derivatively liable to

DynaVision. The second part asserted that Peeples was liable, as a controlling

person, for Smith’s we are “doing this on our own” statement, a misrepresentation

actionable under Rule 10b-5(b) because it caused DynaVision to forego

purchasing the Active Members’s interests.

144

We determine whether a reasonably competent attorney would have brought

this two-part section 20(a) claim against Peeples by considering first whether

Peeples was a controlling person as defined by section 20(a).

In this circuit, a defendant is liable as a controlling person under

section 20(a) if he or she “had the power to control the general affairs

of the entity primarily liable at the time the entity violated the

securities laws . . . [and] had the requisite power to directly or

indirectly control or influence the specific corporate policy which

resulted in the primarily liability.” 

Brown v. Enstar Group, 84 F.3d 393, 396 (11th Cir. 1996). In the situation at

145

hand, “at the time the entity violated the securities laws” refers to February 8,

 See supra part II.B.1. 144

 To state a section 20(a) claim, the plaintiff must establish that the defendant “had the 145

power to control the general business affairs” of the controlled person, and “had the requisite

power to directly or indirectly control or influence the specific corporate policy which resulted in

the primary liability” of the controlled person. Theoharous v. Fong, 256 F.3d 1219, 1227 (11th

Cir. 2001); see also Musick, Peeler & Garrett v. Employers Ins. of Wausau, 508 U.S. 286, 296,

113 S. Ct. 2085, 2091, 124 L. Ed. 2d 194 (1993).

107
2002, when Smith uttered the we are “doing it on our own” statement. “[T]he

entity primarily liable” refers to Smith and, because she allegedly spoke for

Thomas and Owenby, the Active Members. 

DynaVision posited that the following pieces of evidence established that

Peeples controlled the Active Members’ behavior in managing Signature and in

dealing with DynaVision: (1) the January 21 letter of intent; (2) the “secret

discussions” with the Active Members in January and February of that year; and

(3) the Asset Purchase Agreement made after the Active Members acquired

DynaVision’s interest. The Asset Purchase Agreement was circumstantial proof

of the non-binding discussions Peeples had with the Active Members before they

issued the Put and Call, but it did not make him a controlling person at the time the

Active Members committed the acts that allegedly rendered them primarily liable

under Rule 10b-5. Neither did the secret discussions. The problem with relying

on the January 21 letter of intent is the caveat appearing at the end of the letter:

“to the extent of any conflict in the provisions of this Letter and the provisions of

the Signature Operating Agreement, the provisions of the Signature Operating

Agreement shall prevail and the conflicting provision(s) of this Letter shall be

void and of no effect whatsoever.” Peeples’s lawyers drafted this language. They

had read the Operating Agreement and were especially sensitive to its provisions. 

108
They were particularly attuned to the affirmative obligations that the Agreement

imposed on the Active Members and the extent to which it restricted their

activity— for example, to the prohibition on the Active Members pledging their

interests in Signature as collateral for a loan. The caveat served to ensure that

nothing Peeples had written, or that the parties had discussed, could be considered

as interfering with the Active Members’ obligations to Signature and its Members. 

Peeples’s lawyers wanted to avoid exposing their client, and the Active Members

as well, to litigation. 

A reasonably competent attorney would have rejected the idea that Peeples

was a controlling person and, for that reason alone, would not have filed the Count

One section 20(a) claim against Peeples. Even if Peeples had been a controlling

person, however, the Active Members never breached any fiduciary duty, and

Peeples therefore could not be secondarily liable. 

The argument that the Active Members breached a fiduciary duty, like the

argument that Peeples was a controlling person, lacked any legal or evidentiary

support. Smith’s “doing it on our own” statement was not actionable under Rule

10b-5(b) because it had nothing to do with DynaVision’s decision to sell its 146

 Smith’s statement could not be actionable under Rules 10b-5(a) and (c), and 146

plaintiffs’ counsel has not contended that it was.

109
interest in Signature rather than purchase the Active Members’ interests. Absent

147

Smith’s primary liability under Rule 10b-5(b), Peeples could not be held

secondarily liable under section 20(a). 

Similarly, reasonably competent counsel would have concluded that there

was no support for the allegation that the Active Members had fiduciary a duty to

disclose the January 21 letter and Peeples’s “offer.” Such a disclosure is not

required by Georgia common law, the Limited Liability Act, the Operating

Agreement, or Rule 10b-5. In Ledford v. Smith, the Georgia Court of Appeals

rejected the argument that the Limited Liability Act and/or the Operating

Agreement required the Active Members, as fiduciaries, to disclose their pre-Put

and Call negotiations or understandings with Peeples. 618 S.E. 2d at 635-36.148

Reasonably competent counsel would therefore have concluded that Rule 10b-5

jurisprudence provided no support for the fiduciary duty DynaVision asserts. 

 The district court held as a matter of law that Smith’s statement had no causative 147

relationship to DynaVision’s decision to sell its interest. The court obviously felt that her

statement had far less probative value with respect to the “reliance” element of a Rule 10b-5(b)

claim than Peeples’s misrepresentations, which failed the reliance test as a matter of law. 

 See supra part II.B.3. Although the court of appeals did not address the question of 148

whether the common law imposed the fiduciary duty plaintiffs asserted, it is obvious that the

Limited Liability Act, which explicitly addresses the duties managers of a limited liability

companies owe the company and its members, superceded whatever the common law may have

prescribed. In any event, plaintiffs’ counsel cited nothing to the contrary to the district court or to

this court on appeal. 

110
DynaVision argues that, under the Supreme Court’s decisions in Affiliated

Ute Citizens v. United States, 406 U.S. 128, 92 S. Ct. 1456, 31 L. Ed. 2d 741

(1972), and its progeny, e.g., Chiarella v. United States, 445 U.S. 222, 100 S. Ct.

1108, 63 L. Ed. 2d 348 (1980), the Active Members were fiduciaries and that their

silence—their failure to disclose the gist of their discussions and arrangements

with Peeples—rendered them liable under Rule 10b-5. These cases are inapposite.

It is true, as the Chiarella Court stated, that 

[A]dministrative and judicial interpretations have established that

silence in connection with the purchase or sale of securities may

operate as a fraud actionable under § 10(b) [of the 1934 Act] despite

the absence of statutory language or legislative history specifically

addressing the legality of nondisclosure. But such liability is

premised on a duty to disclose arising from a relationship of trust and

confidence between parties to a transaction. Application of a duty to

disclose prior to trading guarantees that corporate insiders, who have

an obligation to place the shareholder’s welfare before their own, will

not benefit personally through fraudulent use of material, nonpublic

information. 

445 U.S. at 230, 100 S. Ct. at 1115-16. 

A reading of the Operating Agreement makes it clear, however, that the

Active Members, vis-a-vis DynaVision, were not akin to corporate insiders; nor

149

 The Active Members were not the functional equivalent of corporate insiders who 149

“‘take advantage of [inside] information by trading without disclosure.’” Securities and

Exchange Commission v. Adler, 137 F.3d 1325, 1333 (11th Cir. 1998) (quoting Chiarella, 445

U.S. at 228, 100 S. Ct. at 1114). 

111
was DynaVision like a corporation shareholder. Signature’s six-person Board of

Directors was divided equally between the Active Members and DynaVision. The

Active Members appointed themselves; DynaVision filled only one of its spots,

appointing its accountant, Staten, and left the other two vacant. This did not give

the Active Members the upper hand because the Agreement specified that the

Board had to approve “all” of Signature’s “actions,” which meant that, if the

Active Members agreed to an action, Staten had to agree too, or that action could

not be taken. In short, DynaVision had an equal voice in the conduct of

Signature’s affairs and unlimited access to Signature’s business records and

financial information. 

DynaVision suggests that by engaging in secret negotiations with Peeples

and involving him in the Put and Call, the Active Members became the equivalent

of company insiders and therefore assumed a duty of disclosure. The Georgia 150

Court of Appeals rejected this idea with the observation that Section 7.3 of the

Operating Agreement “allow[ed] the Active Members to negotiate with Peeples

 Plaintiffs attribute significance to the fact that on January 9, 2002, after Peeples

150

rejected Paul Walker’s consecutive offers to sell Signature—first for $12 million, then for $10

million—and then asked Walker for permission to meet separately with the Active Members,

Walker, speaking for DynaVision’s principals, told him that he could meet with them only once. 

DynaVision’s principals “trusted” Peeples to abide by Walker’s instruction, and assuming that

Peeples communicated the instruction to the Active Members, they, too, were trusted. This,

however, could not have turned the Active Members into fiduciaries.

112
for the purpose of obtaining financing to fund their buy-out of DynaVision’s

interest.” Ledford, 618 S.E.2d at 636.

151

If Section 7.3 did not make it clear that the Active Members could negotiate

with Peeples in secret, however, Section 9.2, entitled “Right of First Refusal,”

did. Section 9.2 gave a Member the right to receive a “bona fide offer” from a 152

third party to purchase the Member’s interest without informing the other

Members of the offer. If a Member had the right to receive an offer, it also had the

right to solicit an offer and, in doing so, to negotiate with the third party in secret. 

The Member’s duty to inform the other Members of an offer would not arise

unless and until the Member “desire[d]” to accept the offer, at which point the

Member would have to notify the other Members of the offer. The notice would,

in turn, trigger the other Members’ right of first refusal. 

In the scenario before us, the Active Members exercised their right to

negotiate with Peeples in secret. Peeples made an offer, but it was not an offer to

purchase the Active Members’ interests and thus did not trigger an obligation to

notify DynaVision. Even if we were to assume that Peeples made an offer

(evidenced by the January 21 letter of intent and the other pieces of evidence

 See also supra part II.B.3. 151

 The relevant provisions of Section 9.2, Sections 9.2.1 and 9.2.3, are set out supra note 152

47. 

113
plaintiffs cite), the Active Members’ failure to disclose it to DynaVision would not

render the Active Members amenable to suit under Rule 10b-5, for they would not

have breached a fiduciary duty. Perhaps DynaVision could sue them for breach of

contract, but it evidently declined to bring that cause of action in Ledford v.

Smith. 

153

In sum, DynaVision’s section 20(a) claim was baseless on two grounds: (1)

Peeples was not a controlling person, and (2) neither Smith nor the Active

Members could have been held primarily liable under Rule10b-5. A reasonably

competent attorney, aware of the evidence at plaintiffs’ counsel’s disposal prior to

filing suit, would have recognized this and declined to prosecute the claim.

4.

Having concluded our analysis of the section 20(a) claim, we turn to the

claim DynaVision brought under Rule 10b-5(a). Rule 10b-5(a) proscribes a

“device, scheme, or artifice to defraud.” To recover under this rule, the plaintiff

must show not only that the defendant concocted a plan to defraud, but that the

plan was successful—that is, that the defendant, acting with scienter,

 As noted supra part II.A, in the sixth claim of their complaint in Ledford v. Smith, 153

the Active Members’ failure to disclose provided the basis for alleging a breach of fiduciary duty. 

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misrepresented a material fact on which the plaintiff relied to his detriment. See 154

Ziemba v. Cascade Int’l, Inc., 256 F.3d 1194, 1202 (11th Cir. 2001). The

misrepresentations DynaVision relied on to establish this claim were those Peeples

and Smith made. They were not actionable because DynaVision did not rely on

them in electing not to purchase the Active Members’s interest. DynaVision’s

Rule10b-5(a) claim had no foundation in the evidence. The district court rejected

the claim without discussion, because none was required. The court should have

gone one step further and found that counsel ignored Rule 11(b)(3)’s admonition

in bringing it. 

For the foregoing reasons, we conclude that a reasonably competent

attorney would not have filed and prosecuted DynaVision’s Count One claims

because the attorney could not certify that the claims had the evidentiary support

required by Rule11(b)(3), or the Count One claims of co-plaintiffs because the

attorney could not certify that those claims had the evidentiary support required by

Rule 11(b)(3) and were warranted by existing law. The district court was 155

 See supra part IV.A. 154

 Furthermore, although the preceding discussion focuses on the securities fraud claims 155

brought against Peeples, the record contains nothing to support plaintiffs’ securities fraud claims

brought against the other two defendants, PFLC, LLC and Internal Management, Inc. See supra

note 53. The complete absence of evidentiary support for these claims provides an additional

basis for sanctions.

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therefore required by the PSLRA to sanction plaintiffs’ counsel, H. Greely Joiner,

LLC., and H. Lamar Mixon, David G.H. Brackett, and their law firm, Bondurant,

Mixon & Elmore, LLP. 

5.

We now consider whether the district court should have sanctioned

plaintiffs as well as their attorneys. A plaintiff is subject to monetary sanctions if

the plaintiff misrepresented the facts alleged in the complaint. See Byrne v.

Nezhat, 261 F.3d at 1117–18. In this case, we assume that what the individual 156

plaintiffs and Paul Walker told plaintiffs’ counsel prior to filing suit was

essentially what they stated on deposition in state court and repeated on deposition

in the district court, to-wit: DynaVision chose to sell its interest because it would

have “made no sense,” it would have been “foolish,” to elect the Put and Call

option to purchase the Active Members’ interests. These were straightforward,

157

damaging admissions. The decision of these laymen to file suit and to continue on

to the end here was made on the advice of counsel. That said, we find no basis for

imposing monetary sanctions on plaintiffs.

 As indicated in the text supra, under the version of Rule 11 in effect at the time the 156

district court made its sanctions rulings, monetary sanctions could not be awarded against a

represented party for a violation of Rule 11(b)(2). 

 See supra notes 29, 95, 96 and accompanying text. 157

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The PSLRA presumes that “for substantial failure of any complaint to

comply with any requirement of Rule 11(b) . . . [the appropriate sanction] is an

award to the opposing party of the reasonable attorneys’ fees and other expenses

incurred in the action.” 15 U.S.C. § 78u-4(c)(3)(A)(ii). On receipt of our 158

mandate, the district court shall determine the attorney’s fees and expenses to

Peeples incurred in defending the Count One claims. 

VII.

The judgment of the district court disposing of plaintiffs’ claims in favor of

Peeples is AFFIRMED. The district court’s order on sanctions is REVERSED,

and the case is REMANDED for the imposition of sanctions on plaintiffs’ Count

One claims.

SO ORDERED.

 This presumption may be rebutted upon proof by the attorney against whom sanctions 158

are imposed that “the award of attorneys’ fees and other expenses will impose an unreasonable

burden on that party or attorney and would be unjust, and the failure to make such an award

would not impose a greater burden on the party in whose favor sanctions are to be imposed.” 15

U.S.C. § 78u-4(c)(3)(B)(i). 

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EDMONDSON, Chief Judge concurring in the result in part and dissenting in part:

I concur in the result affirming summary judgment in favor of Defendants. But I

cannot agree that Plaintiffs’ lawyers must be sanctioned. I do not think that all Plaintiffs

sought relief for securities fraud in the complaint; I instead read the complaint to assert

those claims only on behalf of Plaintiff DynaVision Group, LLC: the undisputed seller of

the security at issue here. Nor do I accept that no “reasonably competent lawyer” standing

in the shoes of Plaintiffs’ lawyers would have brought the claims for securities fraud. The

claims could have seemed arguable at the time Plaintiffs sued Defendants in federal court:

for example, no court had then ruled on the damaging effect of Plaintiffs’ testimony in the

related state case. Furthermore, it is important that the district court denied sanctions. As 

a matter of doctrine, we must afford the district court some deference about sanctions. 

See Indus. Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434, 1448 

(11th Cir. 1998) (“The decision whether to impose Rule 11 sanctions is left to the district

court’s sound discretion.”). Because I see no abuse of discretion in the decision of the

district court declining to sanction Plaintiffs’ lawyers, I dissent from the part of today’s 

decision that concludes otherwise.

I would affirm the whole judgment – including the denial of sanctions – of the

district court.

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