FI LED U.S. COURT OF APPEALS ELEV ENT H CI RCUI T MAY 2 2, 20 09 T HOMAS K . KAHN CLERK [PUBLIS H]
IN THE UN ITED STATES COURT OF APPEALS FOR THE ELE VENTH CIRCUIT

__ __ __ __ __ __ __ __ __ __ __ __ No. 0 6- 10 71 5

__ __ __ __ __ __ __ __ __ __ __ __ D. C. Dock etNo. 0 4- 00 00 5- CV-HLM-4 JI MM Y LEDFORD, LARRY O'DELL, BRYAN WALKER, DYNAVISION GROUP LLC, SIGNATURE LEASING, L LC,
Pl ai nt iff s- App el la nt s Cro ss -Ap pe ll ees , ve rs us SHELBY PEEPLES, JR., PFLC, LLC, INTERNAL MANAGEMENT, INC., Defen da nt s- App el le es Cro ss -Ap pe ll an ts .

__ __ __ __ __ __ __ __ __ __ __ __ App eal s fr om

th e Uni te d S ta te s Di st ric t Co urt fo r th e North ern Dis tri ctof Ge or gi a

__ __ __ __ __ __ __ __ __ __ __ __ _ (Ma y 22 , 20 09 )Befo re EDMONDSON, Ch ie f Ju dg e, TJOFLAT an d GIB SON, Cir cu itJu dg es . * TJOFLAT, Cir cu itJu dg e: Inth is cas e, two pa rti es , X andY, each own eda fi fty perc en t i nt eres t i n a li m it edli ab il it y

co m pa ny tha t m anuf

actur edan d s ol d c arp et s. X pr ov id edth e fin an ci ng ; Y ran th e co m pa ny andm ark et edit s p ro du ct . The p art ie s h ada bu y -s el l ag reem en t t ha t en ab le d e it he r party to b uy ou t t he ot he r atan y ti m e b y off eri ng to pu rch as e th e o th er’s i nt eres t i n t he co m pa ny at a s etpri ce. Aft er re cei vi ng an of fer, the off

eree wou ldhave th irt y

da y s i n wh ic h t o a ccep t t he off er o r el ectto pu rch as e th e o ffer or ’s in te res t atth e sa m e se t p ric e. Y off eredto pu rch as e X’s in te res t fo r $3 .5 m il li on . X dem an de d t o kno w whe th er Y wou ldbe bo rro win g the fun ds fro m Z, who e arl ie r ha d e xp res se d a n in te res t i n p ur ch as in g t he co m pa ny. Y sai d t ha t n ei th er Z no r an y on e el se wou ld be pro vi di ng th e m on ey . X ask edZ if h e was fin an ci ng Y; Z sa idno . X, un ab le to op erat e th e fac to ry an d m ark etit s p ro du ctwitho utY or
so m eo ne with Y’s ex pe rti se , hadto sel l an d t he refo re ac cep te d Y’s o ffer . Prio r to th e d at e se t fo r th e cl os in g, h owe ve r, X to ldY th atitwou ldno t g o fo rwardwith th e cl os in g u nl es s Y rep res en te d t ha t n o thi rdpa rty was p ro vi di ng th e fu nd s t o p ay

Honora ble J ohn R. Gibson, United States Circuit J udg e for the Eighth Circuit, sit ting by * designation. 2X. Y resp on de d t ha t i t h adno ob li ga ti onto di sc lo se th e so ur ce o f it s fu nd s an d

th atX was b ou ndby con tra ctto tra ns fer i ts in te res t t o Y u nc on di ti on al ly. X taci tl y ag reedby app eari ng at t he clo si ng an d t ran sf erri ng it s i nt eres t t o Y. X subs eque nt ly learn edth atZ hadpro vi de d t he pu rch as e p ric e an d, fo ll owi ng th e cl os in g, h adacqui redth e fac to ry ’s ass et s an d h ire d Y t o ru n t he bu si ne ss . After d is co ve rin g Z’s in vo lv em en t, X to okY to co urt. In a co m pl ai nt fil edinst at e co urt, X al le ge d t ha t Y b reac he d afiduc ia ry du ty to t el l i t t ha t Z h ad fin an cedth e p ur ch as e o f it s i nt eres t, an d m or eo ve r, th atY’ s fa il ur e to di sc lo se Z’ s in vo lv em en t fr au du le nt ly induc edX to sel l i ts in te res t t o Y. X als o b ro ug htsu it 1 ag ai ns t Z in fed eral di st ric t co urt, the cas e n ow b efo re u s, cl ai m in g t ha t Z v io la te d fed eral sec ur it ie s l aw, st at e se cu rit ie s l aw, an d s ta te co m m on law b y

de nyin g in vo lv em en t i n t he tra ns act io n a ndcau si ng X to sel l i ts in te res t t o Y. X lo stbo th cas es on su m m ary jud gm en t. Both c ou rts co nc lu de d t ha t Y’s 2 al le ge d m is rep res en ta ti on ab ou t Z’s in vo lv em en t i n t he bu y -o utdi d n otcau se X to
se ll it s i nt eres t. Rat he r, X so ldbe cau se itwas i n X’s eco no m ic sel f-i nt eres t t o d o
so . X need edY’ s s ki ll s; ha d X p ur ch as edY’ s i nt eres t, i t wo ul d h av e h adno on e

Invoking the same fiduc iary duty and fr audulent induce ment theories, X a lso claimed 1 that Y had wr ong fully

obtained the pa

rce l of rea l estate on whic h the ca rpet fa ctory

was located. X lost its s tate ca se with the exception of a c laim ag ainst Y involving the r eal e state 2 ref err ed to supra note 1. That cla im is st ill pending in state c ourt. 3to run th e car pe t fa ct ory

or t o m ark etit s p ro du ct . X the refo re h adno eco no m ic al ly vi ab le op ti on bu t t o s el l. Afte r th e d is tri ctco urt g ran te d Z s umm ary jud gm en t, Z m ov edth e co urt t o
sa nc ti on X andit s co un se l u nd er the Pri va te Secu rit ie s Li ti ga ti on Refo rm Act (“ PSLRA”) , Rul e 1 1 o f th e Fed eral Ru le s o f Ci vi l Pr oc edur e, 28 U.S.C. § 1 92 7,
an d t he co urt’s i nh eren t p owe r on th e g ro un ds th atX nei th er p ro du ced , no r atan y ti m e h adav ai labl e, an y

ev id en ce t o s up po rt i ts all eg at io n tha t Z’s co nduc t caus ed itto sel l i ts in te res t ra th er tha n b uy Y’ s i nt eres t. The co urt d en ie d Z’s m ot io n. X no w app eal s t he di st ric t co urt’s d eci si on reject in g i ts cla im s. Z cro ss ap pe al s t he co urt’s d en ia l o f sa nc ti on s u nd er the PSLRA. On X’s ap pe al , we di sm is s p artof X’s cl ai m s fo r la ckof s ub ject m at te r juri sd ic ti on an d a ffi rm th e di st ric t co urt’s jud gm en t as to th e rem ai nd er. On Z’s cro ss ap pe al , we con cl ud e th atZ is en ti tl edto san ct io ns an d t he refo re re m an d t he cas e fo r th ei r im po si ti on . Thi s o pi ni on is org an iz edas f ol lo ws. Part I i de nt ifi es X, Y, an d Z an d s et s
ou t t he ev en ts th atha ve gi ve n ri se to th is co nt ro ve rs y . PartII can va ss es th e 3 li ti ga ti on as i t ev ol ve d i n s ta te co urt an d s pr eadto fed eral co urt; de sc rib es th e st at e

In doing so, w e ar e mindful that we a re r eviewinga summary

judgme nt. Thus, the fac ts 3 we r ecite in por

traying the rele vant eve nts are those established by the evidenc e, take n in the light most favora

ble to the non-movant, X, a nd the infer ence s rea sonably drawn there from. Ha

rris v. Coweta County ,406 F.3d 1307, 1312 ( 11th Cir. 2005), rev’ d on other grounds, Scott v. Harris, 127 S. Ct . 1769 (2007). 4tri al an d app el la te co urts ’ di sp os it io n o f X’s cla im s ag ai ns t Y an d t he di st ric t

co urt’s d is po si ti on of X’s cl ai m s ag ai ns t Z; an d, af te r th at , del in eat es th e is su es th atX’ s ap pe al to th is co urt p res en ts . PartIII ad dr es se s s uasp on te whethe r th e di st ric t co urt h adjuri sd ic ti on to he ar s om e o f th e fed eral sec ur it ie s l aw cl ai m s X br ou gh t ag ai ns t Z an d c on cl ud es th atitdi d n ot . PartIV ass es se s t he m eri ts of X’s ap pe al as t o the rem ai ni ng sec ur it ie s l aw cl ai m s. Part V ex am in es X’ s cl ai m th atZ ai de d a ndab et te d Y’s b reac he s o f fi du ci ary du ty towar ds X. Part VI ex pl ai ns why th e d is tri ctco urt s ho ul d h av e sanc ti on edX’ s co un se l, an d p artVII co nc lu de s. I. A. X is Dy na Vis io n Gro up , LLC (“ Dyna Vis io n” ) an d i ts pri nc ip al own ers , 4 Ji m m y Ledf or d, Larry

O’ Dell , andBry anW al ke r. Y is B ren daSm it h, Ro be rt 5 Tho m as , andBry anOwenb y . Z is Sh el by Peep le s.

Dy naVision and the othe r L L Cs involved in thi s case wer e org anized under the Geor g ia 4 L imited L iability

Company

Act, O.C.G.A. §§ 14- 11-100, et seq. L edfor d, O’De ll, and Walker ea ch owne d 29% of Dy naVision. L amar

Dix on and Da

n 5 Bow en owne d the re maining 13% but had no ac tive participation in the events that g ave rise to the litigation at ha

nd. Under

Geor g ia law, owne rship rights in a limi ted liability company are ref err ed to as intere sts, rather tha n share s, which indicate owner ship rights in a c orporation. See O.C.G.A. § 14-11- 101 (def ining “ [l ]i mited liabilit y

company interest” a s “a me mber’s sha re of the profits and losses of

a limited liabilit y

company and a me mber' s right to rece ive distributions ”); O.C.G.A. § 14- 2-140 (de fining“shar es” a s the “units into which the proprie tary interests in a c orporation are divided” ). 5InJu ly 199 8, Paul W al ke r, Bryan W al ke r’s fathe r, ap pr oa ch edSm it h,

Tho m as , andOwenb y , exp eri en cedm an ag ers in th e car pe t m anuf

actur in g i ndus try in Dalt on , Geor gi a, wit h t he id ea o f fo rm in g aco m pa ny to m anuf

actur e an d s el l carp et s t o h ot el s, m ot el s, re st au ran ts , andot he rs en ga ge d i n t he ho sp it al it y bu si ne ss . Soo n t he reaf

te r, Sm it h, Th om as , Owenb y , andPau l Walk er fo rm ed Si gn atur e Hos pi ta li ty Carpe ts , LLC (“ Si gn atur e”), d iv id in g t he co m pa ny’ s in te res ts equa ll y

be twee n DynaVis io n o n o ne ha ndan d S m it h, Th om as , and Owenb y onth e o th er. 6 Und er Si gn atur e’s op erat in g a gr eem en t, Sm it h, Th om as , andOwenb y
m an ag edth e co m

pa ny, andDy

na Vis io n p ro vi de d t he cap it al
. Sig na tu re s ol d 7 carp etto ho sp it al it y

cu st om ers —m ai nl y

th ro ug h c on ta ct s t ha t Sm it h, wh o was well res pe ct edin th e in du stry , hadpre vi ou sl y est ab li sh ed

—an d arran ge d fo r
m anuf actur ers in th e Dal to n a rea t o fi ll th e o rd ers . Dy na Vis io n p ro vi de d the fun ds

Smit h, Thomas, and Ow enby decide d to share e qual owner ship of their one- half intere st 6 in Signature ; thus, each owned one sixth of Si gnature . The Ge org ia L imited L iability Company

Act def ines an “ Oper atingAgree ment” as “ any 7 agree ment, written or or al, as to the c onduct of the business a nd aff airs of a limit ed liability company that is binding upon all of the me mbers.” O .C.G.A. § 14-11-101. Signature , Dy naVision, Smith, Thomas, and Ow enby enter ed into the oper atingagree ment under which Smit h, Thomas, and Ow enby commence d runningthe company on J uly 9, 1998. This initi al agree ment is not part of the re cord. 6th atSig na tu re n eed edto pay th e m anuf

actur ers by establ is hi ng a $2 00 ,00 0 l in e o f cred itat aba nkne ar Dal to n, t he Fir stNati on al Ban k o f Ch atworth (“ FNBC” ). 8 Si gn atur e in it ia ll y

op erat edou t o f ren te d o ffi ce s pa ce; on ce the co m pany
es tabl is he d i ts el f as a go in g c on cern , ho wev er, i ts own ers de ci de d t o fi ndth ei r
own m anuf

actur in g p la nt . Ant ic ip at in g t ha t t he y wou ldbe ab le to acqui re a
su it ab le si te in th e Dal to n a rea, Dyna Vis io n, Sm it h, Th om as , andOwenb y en te red in to a ne w op erat in g a gr eem en t (“ Ope rat in g Ag reem en t” or “ Agr eem en t” ), on May 6, 19 99 . The Ag reem en t re ferr edto Sm ith, Th om as , Owenb y , and Dyna Vis io n a s Si gn atur e’s “ Mem be rs ,” an d S m it h, Th om as , andOwenb y as t he

“ Acti ve Mem

be rs .” It cr eat eda si x- m em be r Bo ardof Di rect or s, wi th th ree 9 di rect or s ap po in te d b y

Dy na Vis io n a ndth ree b y

th e Act iv e Me m

be rs . The Act iv e Mem be rs ap po in te d t he m se lv es ; Dyna Vis io n app oi nt edit s ac co un ta nt , Edward St at en , andlef

t t wo o f it s s eat s v acan t. The Oper at in g Ag reem en t re qu ire d t he Bo ardto un an im ou sl y

au th or iz e al l o f Si gn atur e’s act io ns . This m ean t t ha t

L edfor d and O’ Dell, who mana g ed Dy naVision’s af

fairs, a rra ng ed for the line of c redit. 8 Paul Walker, who had f

ormed Dy naVision, played a limited role in its aff airs. He looked af

ter his son Bryan’s inter est in the company , and fr equently spoke for L edfor d and O’ Dell as we ll as Br yan. The district cour

t, in its order

grantingsummary

judgme nt, used the term “ Active 9 Members” to refe r to Smith, Thomas, and Ow enby in the ag greg ate, a

nd both sides have continued the use of this term in briefingthe ca se to this court. We adopt this use of this term for the re mainder of

this opini on. 7Dyna Vis io n, t hr ou gh Sta te n, co ul d h av e b lo ck edan y act io n t he Acti ve Mem

be rs
wan te d t o t ak e. The B oa rdrare ly m et , ho wev er, fac e to face or o th erwi se , so th e Acti ve Mem

be rs ranSig na tu re’s o pe rat io ns witho utob jecti on . Und er the Agre em en t, Sm it h was th e co m pa ny’ s p res id en t an d t he pe rs on in ch arg e o f m ark et in g, Th om as was t he vi ce-p res id en t o f sa le s, an d Owen by was th e vi ce-p res id en t o f m anuf

actur in g. A no n- so li ci ta ti on claus e p ro vi de d tha t i f a

1 0 Mem be r so ldhi s o r he r in te res t, tha t m em be r co ul d n otforon e y ear t he reaf te r

“ cal l, s ol ic it , or fu lfi ll ord ers ” fro m “ cu st om ers or p ro sp ect s” of S ig na tu re. In 1 1

Smit h, Thomas, and Ow enby worke d for Signature in these ca pacities a s full-time 1 0 employees, te rminable at will on the vote of four B oard me mbers. Since the B oard ha d but four members, ther e wa s no likelihood that the employ ment of an A ctive Membe r would be terminated unle ss Dy

naVision completely

filled the three Boa

rd positions itcontrolled. The no-solicitation cla

use appe ars in Ar

ticle Ten of

the Agree ment, “Employ ment of 1 1 Active Me mber; Restrictive Covena nt; Non-Solicitation; No Publication of Confidential Information,” a s Section 10.4. It rea ds, in pertinent par t, as follows: No Solicitation of Company Employees or

Customers. In the eve nt a Member sells his Intere st in the Company , the Member . . . for a period of one (1) year

afte r the sale of

the Intere st, shall not . . . call, solicit or fulfill orders fr om customers or prospec ts who have be en conta cted by the Company

within twenty -four

(24) months prior to the sale of the Intere st . . . for the purposeof inducingthose customers or pr ospects to ce ase doingbusiness 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 appe ars to apply to Dy naVision as we ll as the Active Me mbers. In rea lity , it applied only

to the Active Me mbers. Dy naVision had no c ontact with Signature’s customers a

nd, if it sold it s interest, lac ked the nohow to c ompete with Signature. In this opinion, we there fore treat section 10.4 as apply ing only to the Active Me mbers. 8real ity , th e cl au se ap pl ie d o nl y to th e Act iv e Me m

be rs , si nc e th ey

were the on es who po ss es se d S ig na tu re’s cu st om er co nt act s. 1 2 The Agre em en t al so co nt ai ne d abu y -s el l p ro vi si on , whi ch is at the cen te r of th e p res en t co nt ro ve rs y . This pro vi si on is co nt ai ne d i n Art ic le Nin e o f th e Agr eem en t, en ti tl ed“ Tran sf er an d As si gn m en t o f Mem be r In te res ts .” Sect io n 9 .5,

“ Man da to ry

Pu t an d C al l,” r ead s as fol lo ws: At an y ti m e Dyna -Vis io n o r th e Act iv e Me m be rs by m ajor it y

vo te wit hi n t ha t g ro up , m ay

seta pr ic e p er p erce nt ag e In te res t an d g iv e writ te n n ot ic e o f th atpri ce t o t he ot he r gr oup, (t he “Not ic e o f Offerto Sel l o r Purch as e”). Th e Me m be rs rece iv in g t he Not ic e o f Offerto Sel l orPu rch as e sh al l h av e th irt y (30 ) cal en dar da y s t o d eci de whet he r to se ll all th ei r In te res t atth atpri ce o r to pu rch as e al l the Int eres t o f th e gr oup g iv in g No ti ce o f Offerto Sel l o r Purch as e atth e Pri ce s etforth in th e Not ic e o f Offerto Sel l o r Pu rch as e. If th e Me m be rs rece iv in g th e Not ic e o f Offerto Sel l o r Pu rch as e fai l t o m ak e an ele ct io n . . . , th e Me m be rs rece iv in g t he Not ic e o f Offerto Sel l o r Pu rch as e sh al l ha ve to sel l t he ir I nt eres t atth e p ric e se t fo rth in th e Not ic e o f Offer to Sel l o r Purch as e. Fo ll owi ng th e ex ecu ti on of t he Oper at in g Ag reem en t, the pa rti es lo cat eda si te forSig na tu re’s m anuf actur in g p la ntan d o ffi ces on Green Ro adin Ch at swo rth , Geo rg ia , a sh ort d is ta nc e fro m Dalt on . To pu rch as e th e si te , whi ch in cl ud eda bu il di ng th atco ul d b e co nv ert edto acco m m od at e Si gn atur e’s requi rem en ts , th e
Dy naVision nee ded the non- solicitation clause to protec t its i nvestment. Without the 1 2 clause , the Active Me mbers, espe cially Smit h, who had most if not all of the c ustomer contac ts, could leave the company

and immediately

compete w ith Si gnature , there by substantially depre ciatingthe value of

Dy naVision’s intere st in S igna ture. 9Acti ve Mem be rs form edan ot he r li m it edli ab il it y co m pa ny, Sig na tu re Leas in g, LLC (“ Leas in g” ), wit h Led fo rd , O’ Dell , andBry anW al ke r. On Oct ob er 1 9, 1 3 19 99 , Leasi ng pu rch as edth e p ro pe rty (“ GreenRo adPro pe rty”) with t he pro ceed s of a $6 30 ,00 0 l oa n fr om

Dalt on Whi tfi el d B an k. Ba nkem pl oyee Cynt hi a Tramm el m an ag edth e p ap erwo rkfor th e lo an . Once th e b ui ld in g was equi pp ed

1 4 to m anuf actur e car pe ts , Sig na tu re m ov edin
. 1 5 Si gn atur e th enlo ok edto FNBC fo r worki ng cap it al . Over ape rio d o f
se ve ral m on th s fo ll owi ng it s o ccupa nc y of t he Green Ro adPro pe rty, Sig na tu re
rece iv edsev eral un se cu redlo an s fr om th e b an k. In Oct ob er 2 00 1, Si gn atur e

1 6
as ke d F NBC fo r a l oa n t ha t wo ul d p ay off it s FNB C lo an s an d the ba la nc e due on
Smit h, Thomas, and Ow enby owned 50% of L easingin equal shar es; L edfor d, O’De ll, 1 3 and Walker owned 50%, pr esumably in equal shar es. Acc ordingto Trammel on deposition in the state cour t case , Smit h, Thomas, Owe nby , 1 4 L edfor d, and O’ Dell, whom the bank c onsidered to be L easing ’s principa l owners, signed the note and ther eby

guara nteed L easing ’s loan. B ryan Walker owned the same intere st in L easingas L edfor d and O’ Dell. Why he wa s not require d to sign the noteand guara ntee the loa

n is not clear from the r ecor d. There is an infer ence , howeve r, that Paul Walker had a signific ant re lationship with the bank and that the bank, ac cedingto his wishes, was willing to make the loan without Br yan Walker’ s participation. L easingdid not give Signature a for mal lease for the pr operty . Acc ordingto L edfor d 1 5 on deposition in the state court c ase, Signature paid L easing eac h month for use of the proper ty , but he did not indicate the a mount of the pay

ments. Although the notes Signature g ave the bank we re ne ither made part of the rec ord nor 1 6 published via witness testimony , we infe r that they wer e unsec ured. We dra w this infere nce beca use the ba nk signific antly

lowere d the intere st rate it was c harg ing Signature when it ref inance d Signatur e’s de bt with a loan sec ured by a dee d to secure debt on the Gr een Roa d Property
. 10th e Dal to n Whi tfi el d B an k l oa n, an d p ro vi de Sig na tu re wi th ad di ti on al work in g

cap it al . In t ot al , Sig na tu re n eed ed$9 11 ,00 0. At Si gn atur e’s reque st , Tram m el , who ha d m ov edfro m Dalt on Whi tfi el d Ban k t o F NBC the y ear b efo re, h an dl edth e tr an sa ct io n. Tramm el in fo rm ed Si gn atur e th at , subjec t t o t he ap pr ov al of t he FNBC’s b oardof d ire ct or s, the ba nk
wou ldm ak e th e lo anon th e fo ll owi ng co nd it io ns : Si gn atur e wou ldgi ve th e b an k a de edto sec ur e d eb t o n t he Green Ro adPro pe rty andSig na tu re’s car pe tm anuf actur in g m ach in es ; Sm it h, Th om as , Owenb y , Ledfo rd , andO’ Dell (th e

“ Gua ran to rs ”) wo ul d s ig n t he no te an d t hu s g uaran te e it s p aym en t. Sig na tu re 1 7
an d t he Guar an to rs ag reedto th es e co nd it io ns , th e b an k’s b oardap pr ov edth e lo an , an d Tra m m el pro ceed edto pre pa re fo r th e cl os in g. Tramm el ’s firs t t as k was to ha ve FNBC’s co un se l, To ddMcC ai n, ex am in e 1 8 th e ti tl e to th e Green Ro adPro pe rty. A fte r ex am in in g t he ti tl e, McC ai n s en t Tramm el anop in io n i nd ic at in g t ha t Lea si ng , no t Si gn atur e, own edth e Green Ro ad Pro pe rty. Sign atur e th eref or e co ul d n otgi ve th e b an k ade edto sec ur e th e d eb t wit h t he pro pe rty un le ss an d u nt il Leas in g c on ve y edth e p ro pe rty to S ig na tu re.

Trammel a

ppare ntly agree d to leave B ryan Walker out of thetransac tion for the same 1 7 rea son he wa s not require d to sign the note for the $630,000 loa n the Dalton Whitfield Bank made to L easingso it could purchasethe Gre en Road Proper ty . See supra

note 14. McCain was the principal attorney in the McCain L aw F irm, located in Da lton. 1 8 11Tramm el ov erl oo ke d t he ne edforth e co nv ey an ce, an d t he lo anclo se d o n

Octo be r 24 , 20 01 witho utLeas in g h av in g c on ve y edth e p ro pe rty to S ig na tu re. The refo re, as pa rt o f th is tra ns act io n, Si gn atur e g av e FNBC a de edto sec ur e d eb t fo r rea l p ro pe rty it d idno t o wn. A m on th or s o l at er, Tramm el happ en edto read 1 9 McC ai n’s o pi ni on , no te d t ha t Lea si ng , no t Si gn atur e, own edth e Green Ro ad Pro pe rty, andreal iz edth atSig na tu re’s d eedto sec ur e d eb t was wort hl es s. So m ethi ng ha d t o b e d on e, so Tram m el cal le d M cCa in
. In m id -J anua ry 20 02 , 2 0 McC ai n s en t Tramm el th e d oc um en t n eed edto so lv e th e p ro bl em , a warran ty deed
co nv ey in g t he Green Ro adPro pe rty from Leas in g t o S ig na tu re. Tramm el th enco nt act edSm it h, i nf orm in g h er tha t s he an d t he ot he r Gua ran to rs wou ldha ve to return t o t he ba nkan d s ig n a“ do cu m en t” th atha d b een
ne gl ect edat t he clo si ng . The d oc um en t was th e warra nt y de ed , alt ho ug h Tra m

m el di d n otex pl ai n t he do cum en t’s s ig ni fic an ce t o S m it h a t t ha t t im e. Tram m el ask ed th atSm it h p as s al on g t hi s m es sa ge to th e o th ers Guar an to rs , andSm it h d id
.

The note a

nd deed to se cure debt wer e not made pa rt of the r ecor d befor e the district 1 9 court a nd thus are not be fore us. Trammel spoke to McCain’s sec reta ry in his absence . Trammel’ s testimony on 2 0 deposition in the state court c ase is muddled as to pre cisely what Tra mmel said to the secr etar

y . What is clear is that, in response to Trammel’s c all, McCain’s off ice se nt Trammel a w arr anty deed, which would conve y the prope rty

from L easing

to Signature , for L easing ’s execution. 12Sm it h, Th om as , andOwenb y pro m pt ly w en t t o t he ba nkan d s ig ne d t he do cu m en t b efo re a n ot ary publ ic , Ang el a Garl an d, an d i n t he pre se nc e o f a wit ne ss , Tram

m el . Sm it h re adth e d oc um en t, wh ic h b or e th e h ead in g “ W arra nt y Deed ,” an d re co gn iz edit s s ig ni fic an ce—th atLeas in g was co nv ey in g t he Green Ro adPro pe rty to S ig na tu re t o s at is fy on e o f th e co nd it io ns on whi ch th e b an k h ad
m ad e th e lo an . Led fo rdan d O’Dell di d n otap pe ar t o s ig n t he do cu m en t, s o Tra m m el ask ed Sm ith t o re m in d t he m

to do so . Sm it h t he reupo n c al le d Led fo rdan d a sk edhi m to go to th e b an k a ndsi gn whatsh e d es cri be d a s “ a d oc um en t t ha t h adbe enlef t o ut of th e cl os in g.” She di d n otin fo rm Ledf or d o f th e d oc um en t’s l eg al si gn ifi can ce. 2 1 Sm ith a ls o a sk edLedfo rdto co nt actO’ Dell an d re m in d h im to si gn th e d oc um en t. Led fo rddi d s o, an d, i n e arl y Feb ru ary, he an d O’Dell sep arat el y wentto th e b an k
an d s ig ne d t he warran ty deed , als o b efo re Garl an d a ndTram m el . Tram

m el fo rward edth e ex ecu te d warran ty deedto th e Mc Cai n fi rm , whi ch fil editwith t he Cl erkof t he Mu rray County Supe rio r Co urt o n F eb ru ary 7, 2 00 2.

L edfor d, appar ently

curious about why

he nee ded to sig n a docume nt at the bank, 2 1 called T rammel a fter his c onversation with S mith. Trammel told him t hat there was some “pape rwork” that neede d to be sig ned. She did not inform L edfor d of the pa perw ork’s leg al signific ance , and L efor d made no f urther inquiry

on this point
. 13Ledfo rdan d O’Dell in si stth atth ey di d n otkn ow t ha t t he y

were s ig ni ng a
warra nt y de ed ; m or eo ve r, th ey

cla im th atth ey ha d n o u nd ers ta nd in g o f th e le ga l si gn ifi can ce o f a warrant y de edan d wo ul d n otha ve si gn edth e in st ru m en t h adth ey kn own th atittra ns ferr edth e Green Ro adPro pe rty to S ig na tu re. 2 2 B. InDecem be r 20 01 , She lb y

Peep le s, a Dal to n b us in es sm anwith i nt eres ts in th e car pe t-manu factur in g i ndus try, con ta ct edPau l Walk er an d Led fo rdan d
ex pr es se d a n i nt eres t i n p ur ch as in g S ig na tu re. Pau l Walk er, Led fo rd , andPeep le s ha d b een in vo lv edin sev eral bu si ne ss ve ntur es an d wer e o n fr ie nd ly term s. The 2 3 th ree m enm etat l eas t o nc e dur in g Dec em be r to di sc us s t he po ss ib le sal e o f Si gn atur e. At so m e p oi nt , W al ke r in fo rm edth e Act iv e Me m be rs th atPeep le s 2 4 ha d s ho wn an in te res t i n p ur ch as in g S ig na tu re. On J anua ry

9, 2 00 2, Paul W al ke r, Ledf or d, O’Dell an d t he Acti ve Mem be rs
m etan d a gr eedto off

er Si gn atur e an d t he Green Ro adPro pe rty to P eep le s fo r

Both men te stified to this effec t on deposition in the state c ourt ca se and in the district 2 2 court proc eeding

now under

revie w. The Pee ples and Walker f amilies had strongpersona l ties. Bryan Walker, on 2 3 deposition in the state court c ase, te stified that “the Pee ples are like family to me, and Shelby ’s son is my best frie nd and has be en for ever .” In these a

nd subsequent mee tings involvingthe disposition of S igna ture or the Gre en 2 4 Road Property , Paul Walker ac ted for his son B ryan. He also appe are d to speak for O’De ll in his absenc e. See supr a note 8. 14be twee n $ 10 -1 2 m il li on . They des ig na te d P au l Walk er t o re pr es en t t he m in 2 5
ne go ti at io ns with P eep le s. Lat er tha t d ay , Pau l Walk er, Tho m as , andOwenb y m et wit h P eep le s an d s om e o f hi s as so ci at es . W al ke r in fo rm edPeep le s t ha t t he Green Ro adPro pe rty was o wne d b y a se pa rat e co m

pany bu t o ffer edto sel l b ot h Si gn atur e an d t he pro pe rty for $ 12 m il li on . Peep le s re jecte d t he off

er. W al ke r
co un te redwith a n o fferof $ 10 m il li on . Peep le s re jecte d t ha t o fferas we ll
. Peep le s t he n a sk edW al ke r if he co ul d m eetsep arat el y with h im an d, af te r th at , wit h t he Acti ve Mem

be rs . W al ke r sa idy es bu t t ha t Pe ep le s co ul d m eetwith t he Acti ve Mem

be rs on ly onc e. W al ke r, ha vi ng m ad e th atpo in t cl ear, m etwith Peep le s t o d is cu ss th e m at te r. Peep le s o ffer edhi m $2 m il li on for

Dy na Vis io n’s in te res t. Walk er ap pa ren tl y fel t i ns ul te d, s o P eep le s i nc reas edth e o fferto $2 .5
m il li on . W al ke r reject editou t o f ha nd , andth e d is cu ss io n e nd ed
. As J anua ry

wore on , W al ke r m etwith P eep le s o nc e o r twi ce a wee k t o di sc us s s om e b us in es s v en tu res in whi ch th ey were i nv ol ve d. Du rin g s om e o f th ei r m eet in gs , W al ke r as ke d P eep le s wh ethe r he ha d b eenne go ti at in g wi th th e Acti ve Mem

be rs . Peep le s s ai d n o, b uthi s d en ia l was fal se . Peep le s an d t he Acti ve Mem

be rs ha d b een m eet in g a ll alo ng to di sc us s ways th atPeep le s co ul d The $10-12 million figure w as base d on the Active Me mbers’, Walker ’s, and O’ Dell’s 2 5 off- hand eva luation of the worth of the company

absent a formal a ppraisal. L edfor d believed the company was wor th more and oppose d selling the company . 15acqui re Dyna Vis io n’s i nt eres t i n S ig na tu re wi th ou t d eal in g d ire ct ly w it h

Dyna Vis io n. Mo reo ve r, wit h t he ass is ta nc e o f hi s l awy er, Pee pl es ha d
m em or ia li zedth e subs ta nc e o f hi s d is cu ss io ns with t he Acti ve Mem be rs in a le tt er, whi chhe fax edto th e Act iv e Me m be rs on Jan ua ry

21
. The let te r m ap pe d o utth e st ep s t ha t Pe ep le s an d the Acti ve Mem be rs wou ld ta ke . Firs t, the Acti ve Mem be rs wou ldacqui re Dyna Vis io n’s i nt eres t i n S ig na tu re
us in g t he Man da to ry

Pu t an d C al l p ro vi si on of t he Oper at in g Ag reem en t. Acco rd in g t o t he let te r, “ on term s an d c on di ti on s t o b e se t fo rth in a de fin it iv e, le ga ll y bi nd in g, wri tt enag reem en t, . . . a com pany owne d o r co nt ro ll edby .
. . Peep le s” wou ldlo an$3 .5 m il li on to th e Act iv e Me m be rs “ fo r th e p ur

po se of
en ab li ng th e Act iv e Me m be rs to co m

pl et e th e acqui si ti on of t he Dy na Vis io n In te res t.” Th is lo anwou ldbe m ad e aft er the Acti ve Mem be rs acqui red Dyna Vis io n’s i nt eres t. Next , Peep le s wo ul d p ur ch as e al l o f Si gn atur e’s as se ts 2 6 fro m th e Act iv e Me m

be rs , for gi ve th e $ 3.5 mil li on lo an , andpa y th e Act iv e Mem be rs $3 m il li on . The Act iv e Me m be rs wou ldrem ai n a s m an ag ers of 2 7 Si gn atur e u nd er fi ve -y ear e m pl oym en t co nt ract s, wi than nu al sal ari es st art in g a t
The loan w ould be sec ured by “a f irst priority

security interest in . . . all of the issued 2 6 and outstandinginterests in Signature [and] a security interest in and to all asse ts of Signatur e.” The Ac tive Members a

rrived at the $3 milli on price for their interest and the $3.5 2 7 milli on price for Dy

naVision’s intere st based on their una ppraised e valuation of Sig nature ’s worth. 16$1 60 ,00 0 a ndin crea si ng each y ear a ndpo ss ib le bo nu se s b as edon Sig na tu re’s

pe rfo rm an ce. 2 8 The let te r co nt ai ne d s ect io ns en ti tl ed“ Co nf id en ti al it y ” an d “No Di sc us si on s wit h Ot he rs .” The “ Co nf id en ti al it y ” se ct io n p ro vi de d, i n p ert in en t p art : [N]one of t he pa rti es he ret o wi ll
. . . (1 ) di sc lo se or p ub li ci ze i n a ny m an ne r (ex cep t as m ay

be requi redby app li cab le law) th at di sc us si on s re la ti ng to m at te rs co ve red[in th is let te r] or th e Loan o r th e Acqui si ti on are t ak in g p la ce b etween or a m on g the Acti ve Mem be rs , th e Pee pl es Group, Si gn atur e an d/ orBu y er, o r (2 ) rev eal th e te rm s o r pr op os edterm s o f ei th er thi s Let te r or th e Loa n . . . to any

pe rs on or en ti ty oth er tha n [r ep res en ta ti ve s o f Pee pl es who wou ldbe co nduc ti ng a du e d il ig en ce i nv es ti ga ti on in to Sig na tu re af te r th e Acti ve Mem

be rs pu rch as edDy

na Vis io n’s i nt eres t]. The “ No Di sc us si on ” se ct io n s ta te d, ag ai n i n p ert in en t p art : [N]one of t he Acti ve Mem be rs . . . wil l, d ire ct ly or in di rect ly (i) ne go ti at e o r di sc us s wi th an y ot he r pe rs on or e nt it y

an y tra ns act io n in vo lv in g a ny bu si ne ss co m bi na ti onin vo lv in g S ig na tu re, o r (i i) so li ci t . . . neg ot ia te . . . oracce ptan y off er, b idor p ro po sa l fr om

an y ot he r pe rs on or e nt it y

res pe ct in g a ny tran sa ct io ns in vo lv in g asal e o f as se ts of S ig na tu re (e xc ep t fo r sa le s o f pr op ert y in th e o rd in ary co ur se of bu si ne ss ) oran y

ot he r bu si ne ss co m

bi na ti onin vo lv in g S ig na tu re, or(ii i) d is cl os e o r rev eal
. . . [in fo rm at io n re la te d t o S ig na tu re’s The bonus, to be sha

red e qually

among st the Active Membe rs, would “e qual . . . twenty 2 8 perc ent (20%) of the amount by which the ne t pre-tax profits of [Si gnature ] ex cee ded One Milli on Five Hundred Thousa nd Dollars ($1,500,000) on an annua l basis.” In 2001, Signatur e paid the Ac tive Members a round $130,000 per

year . Under

the Oper atingAgree ment, they wer e elig ible for c ollective bonuses of 20% of a ll of Signature ’s yearly profits, if betwe en $500,000- $1,000,000, and 25%, if be tween $1,000,000- $2,000,000.
17fin an ci al co nd it io n o r m etho ds an d p lans of o pe rat io ns ], othe r th anin

th e o rd in ary co ur se of b us in es s, t o any pers on or e nt it y no t a p art y

to th is Lett er i n c on ne ct io n wi th th e type o f tr an sa ct io ns de sc rib edin cl au se s (i ) an d (i i) abo ve . . . Inad di ti on , th e Act iv e Me m be rs wil l imm ed ia te ly cease an d c au se to be term in at edan y pre vi ou sl y un de rta ke n o r on go in g . . . ne go ti at io ns with a ny oth er p ers onor en ti ty w it h re sp ectto an y tra ns act io n o f th e type d es cri be d i n t he pr eced in g c laus es (i) an d (i i) abo ve . The let te r st at edad di ti on al ly tha t, “ to th e ex te ntof a ny con fli ctin th e pr ov is io ns of t hi s Let te r an d t he pro vi si on s o f th e Si gn atur e Ope rat in g Ag reem en t, th e p ro vi si on s o f th e Si gn atur e Ope rat in g Ag reem en t s ha ll pre va il an d t he
co nf li ct in g p ro vi si on (s ) of

th is Lett er s ha ll be vo idan d o f no effe ctwhat so ev er.” Afte r th e Act iv e Me m

be rs rece iv edth e le tt er, the y co nt in ue d t he ir
ne go ti at io ns with P eep le s, wh ic h, t owa rdth e en d o f Janu ary orearl y Feb ru ary, led to a ve rb al un de rs ta nd in g. As in di cat edin th e Ja nu ary 21 let te r, Peep le s wo ul d lo anth e Act iv e Me m

be rs $3 .5 m il li on to pu rch as e Dyna Vis io n’s i nt eres ts . If th e pu rch as e m at eri al iz ed , th e Act iv e Me m be rs wou ldcau se Sig na tu re t o s el l i ts ass et s to Peep le s. On Fe brua ry

8, Sm ith s umm on edLedf or d a ndO’ Dell to di sc us s t en si on s be twee n Led fo rdan d O’Dell an d t he Acti ve Mem be rs . Towardth e en d o f th is
m eet in g, Sm it h p res en te d Led fo rdan d O’Dell with t he Man da to ry Pu t an d C al l pu rs ua ntto Sect io n 9 .5 o f th e Ope rat in g Ag reem en t. The Pu t an d C al l i nf orm ed

18Dyna Vis io n t ha t the Acti ve Mem be rs wou ldpu rch as e it s i nt eres t i n S ig na tu re fo r $3 .5 m il li on un le ss Dy

na Vis io n o pt edto pu rch as e th e Act iv e Me m be rs ’ in te res ts fo r $3 .5 m il li on withi n t hi rty days. The Pu t an d C al l al so st at edth atif DynaVis io n el ect edto pu rch as e th e Act iv e Me m be rs ’ in te res ts , itwou ldrel eas e th e Act iv e Mem be rs fro m th ei r ob li ga ti on s u nd er the Oper at in g Ag reem en t’s n on -s ol ic it at io n cl au se . Ledfo rdask edSm it h wh ethe r Pee pl es or a nyon e el se wou ldbe pro vi di ng th e p ur ch as e p ric e. Sm it h’s re pl y , acco rd in g t o Led fo rd , was t ha t we “ are d oi ng th is on ou r own .” 2 9

L edfor d rec alled his and O’ Dell’s re action to Smith’s presentation of the Put and Call 2 9 in testifying on deposition i n the state c ourt ca se: HORST [ Counsel for the Ac tive Members]: So they [the Ac tive Members] talked to you about these Cre scent Extrusions i nvoices, a nd then af ter that discussion, they hand you the Februar

y 8th put-and-c all letter? L EDF ORD: Well, i t was – L arr y [O’Dell] and Iwer e sitting at the table, and Br enda [Smit h] said som ethingto the eff ect, “ we may

as we ll do this now,” or something. I

don’t know. She wa s standing a t that corne r of he r desk a nd she handed the put-and-c all to us. Idon’t know if we had stopped discussingthe Cresce nt invoices. I

don’t know if we had re solved any – Idon’t know. I

just know that we disc ussed that and then w e g ot the put-and-c all. HORST: W hat was your re action whe n you g ot the put-and-c all? L EDF ORD: Iwas shocke d. HORST: W hy ? L EDF ORD: Ithought we had a g ood partne rship. HORST: W hat did you say to her whe n you g ot it? L EDF ORD: Well, after we rea d it, Iasked if the re w as any body else involved or a third party

fundingit, and she said “N o, this is us . We’re doingthis on our own.” Isaid, “I s there a

ny chanc e that this could be undone ? ” And I think L arr

y [O’Dell] m ade the comment that “This par tnership is over with.” . . . . HORST: W hat else did Mr. O ’De ll say at that meetingother than “ This partne rship is over with? ” L EDF ORD: Idon’t rec all. 19On Fe brua ry 22 , Dy na Vis io n's lawyer, H. Greel y Jo in er, J r., wrot e a l et te r

3 0 to th e Act iv e Me m

be rs st at in g t ha t b ecau se Sect io n 9 .5 o f th e Ope rat in g Agr eem en t p recl ud edth e im po si ti on of c on di ti on s o n aPu t an d C al l, Dyna Vis io n
wou ldno t h on orth e Pu t an d C al l wi th th e n on -s ol ic it at io n c laus e co nd it io n. Th e Acti ve Mem

be rs tac it ly agree d. OnFeb ru ary 25 , th ey pre se nt edDy

na Vis io n wi th
a n ew Pu t an d C al l atth e sa m e p ric e, $3 .5 m il li on , bu t wi th ou t t he requi rem en t th atDy na Vis io n v oi d the no n- so li ci ta ti on claus e. Pau l Walk er an d DynaVis io n tre at edth is Pu t an d C al l as va li d. Dyna Vis io n’s p rin ci pa ls were n otpl eas ed . They wan te d S ig na tu re t o
co nt in ue on , un de r th e Act iv e Me m be rs ’ m an ag em en t, b ecau se th ey be li ev edth at in ti m e th e co m

pa ny woul d b eco m e in crea si ng ly pro fit ab le . Non ethe le ss , th ey
reco gn iz edth atth ey

ha d t wo o pt io ns —b uy or s el l— an d t hi rty days to de ci de
. The y di d n otwantto sel l b ecau se , as t he pri ces ($1 2 m il li onan d $ 10 m il li on ) Pau l W al ke r qu ot edto Peep le s i n J anua ry in di cat ed , th ey

be li ev edth ei r ha lf- in te res t i n Si gn atur e was wort h s ub st an ti al ly m or e th an$3 .5 m il li on . Butth ey di d n otwant to bu y eit he r be cau se th ey

lac ke d t he co nt act s i n t he ho sp it al it y in du st ry ne ces sa ry HORST: Didn’t he say

something to the e ffe ct that, “Oh, he ll, J im [ L edford], y ou know who’s f

unding this and he ’s g oing to sc rewus”? L EDF ORD: He c ould’ve said somethingabout that. I ’m sure w e had a rea l good idea who w as fundingit. . . . J oiner is a sole pr actitioner a nd owner of H. Gr eely

J oiner, LL C. 3 0 20to en ab le th em to m ark etSig na tu re’s p ro du ct s wi th an y m eas ur e o f su cces s. W it ho utth e Act iv e Me m be rs —p art ic ul arl y

Sm it h, wi th he r ex te ns iv e co nt act s i n th e h os pi ta li ty indus try—Dyna Vis io n’s p rin ci pa ls kn ew th ey co ul d n otop erat e Si gn atur e ata pr of

it
. 3 1
L edfor d, O’De ll, and Paul Walker all made state ments to this effec t on deposition in 3 1 the state c ourt ca se and, later, in the district cour t in this case . In his deposition in t he state c ourt case , L edfor d testified: HORST: At any

time did y ou say , “He y , I ' ll kick in $1 mil lion or $100,000 or some other amount if we ca n g et some other pe ople to kick in some money to buy out Bob [Thomas], Brenda [S mith] and B ryan [Owenby]”? L EDF ORD: We discussed -- we discussed that, but the first thingwas mar keting
. I f we had mar

keting , we would have done - - if we could have secur ed people to do the marke ting, wewould have be en intere sted. HORST: So y ou neede d people who c ould run the business like B ob, Br enda a nd Br yan had? L EDF ORD: We neede d people that c ould run the business, yes, sir. HORST: Bec ause you within Dy navision didn't have the c ompetency or the skill set to run Signature Hospitality ? L EDF ORD: Ididn’t have the experience with the customer ba se, no sir. In his deposition in t he district cour t case , L edfor d testified: SI NKF I EL D [Couns el for Peeples]: . . . i t was marke ting he lp that was the ke y fac tor in your dec ision to sell rather than buy . I s that a fa ir statement? L EDF ORD: Had we been a ble to reta in Bre nda, we would have purchase d the company . SI NKF I EL D: I s it fair to say that marke ting he lp was the ke y fac tor in your decision to sell rathe r than buy ? L EDF ORD: The lac k of a ma rketinggroup for ced us to sell the c ompany . In his deposition in t he state c ourt ca se, O’D ell testified: HORST: Now, Dy

naVision had the mone y

to pay three and a ha lf milli on dollars to the active me mbers, didn' t it? O' DEL L : I

could have g ot the money HORST: W hy

didn't you . . . . O' DEL L : Wi thout an operating group, a ma nag ing group, that would be most 21foolish on my part, in my

decision or my

opinion. . . . . HORST: So y ou didn’t think that if Dy navision boug ht out Bob, B renda , and Br yan, you guy s would have theability to compete with them? O’DELL : Not without qualified people in that field, no. HORST: The Dy

navision people we re not qua lified people in that fie ld? O’DELL : No, they

wer en' t. In his deposition in t he district cour t case , O’De ll testified: SI NKF I EL D: You ar e runningout of time, corr ect? O' DEL L : Uh-huh. SI NKF I EL D: Now, if you bought out the Active Membe rs for 3.5 to g ive yourself time to complete [a deal with a pote ntial third-party buyer f or $8 million] , that' s what, about a

milli on dollars diffe rential . . . . that you could make just on turning it over . . . did you ever

consider doingthat? O' DEL L : Well, that would have been a heck of a g amble to take. I

mean, you could have , obviously , looked at it that way and thought well, I ' ll max imiz e this in another 30 day s or 60 day s but that would have be en a g amble you wer e taking . I could have been le ft with a compa ny without any

manag ers, without anyone that knew a ny thing a bout marketing . No, that was – that – Idon' t think that was an option we could take
. . . . SI NKF I EL D: You thoug ht about, but you did not want to take the risk of buying the Active Me mbers' 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 g oing under. I s that a fa ir statement? O' DEL L : Correc t. In his deposition in t he state c ourt ca se, Walker testified: HORST: W ell, if you thought the c ompany was wor th more than the put-a

nd-ca ll offe r, we re y

ou interested in try

ing to f ind somebody

to lend you the money

or for Dy naVision to raise the money to buy out the company ? WAL KER: We would have had to have found a marke ting group to repla ce the exis ting mar

ketinggroup. So its more than just the money , its a matter of a lso findinga group that ca

n continue to grow the c ompany . HORST: You neede d to find a marke ting group bec ause D y navision did not have any body that was a ssociated with it that had the skill set that Bob, B renda , and Br yan did; corr ect WAL KER: That is corre ct . . . . HORST: So i f you thought the of fer that the ac tive members made on Fe bruar y 8th of three and a ha lf milli on dollars was too low, why didn't Dy navision buy

the active me mbers out of Sig nature Hospitality ? 22Face d wi th th is di le m m a, Dy na Vis io n’s p rin ci pa ls lo ok edfor animm ed ia te bu y er wh o wo ul d b e wil li ng to pa y $1 0 m il li on forth e co m

pa ny. If the y

co ul d fin d abu y er wi ll in g t o p ay as m uc h a s $ 8.5 m il li on , th ey

wou ldop t t o b uy ou t t he Acti ve Mem

be rs for$3 .5 m il li on . The $ 5 m il li onth ey wou ldne t was whatth ey th ou gh t t he ir h al f of

Sig na tu re was wort h. Led fo rdan d O’Dell co nt act edth ree f irms, Moh awkCarp et s, Cl ay Mi ll er Carp et s, an d M at el Carp et s, i n t he ir s earc h fo r a b uyer. They in it ia ll y pro po se d a $1 0 m il li on pri ce fo r Si gn atur e, ev en tu al ly lower in g t he pri ce t o $ 8.5 m il li on as th e th irt y -d ay

Pu t an d C al l p eri oddre w to a cl os e. As p artof h is pi tc h t o s el l Si gn atur e, Led fo rdto ldJerry Tho m as , Mat el ’s own er, tha t Th om as ou gh t t o b uy Si gn atur e to pro te cthi s co m pa ny from

Sig na tu re’s co m

pe ti ti onsh ou ldSig na tu re
WAL KER: Idon' t think that a marketinggroup could be found in the short period that they had to look for one
. In his deposition in t he district cour t case , Walker testified: SI NKF I EL D: So to y our knowledg e, one, you did not seek to borrowmoney , g et a core investor, or a

nyone to assist you in buying out the A ctive Membe rs Group; is that corr ect? You didn' t personally do that? WAL KER: No. SI NKF I EL D: Why

not? WAL KER: There is no need to buy out the Active Me mbers without a mar keting group. The a

bility to obtain a marke ting group first wa s nece ssary , since none of the Active - - none of

the Dy na-V ision Group wer e a pa rt of the e veryday manag ement or ma

rketingof Signa

ture Hospitality
. SI NKF I EL D: I s there a

ny other re ason they

you did not personally

seek a financ ial source to assist y ou in buying out the A ctive Membe rs' interest? WAL KER: That would have been the only rea son. 23fal l i nt o P eep le s’s h an ds
. Ledfo rdstres se d “ th e dyna m ic s o f wha t m ig hthapp en 3 2 sh ou lda . . . com

pa ny lik e [Si gn atur e] fall in to th e h an ds of . . . th e Pee pl es fam il y .” ButTho m as was n otpe rs ua de d, n orwas a nyon e el se . W ith t im e

3 3 3 4
ru nn in g o ut , Ledfo rdask edSm it h i f sh e wou ldbe wil li ng to st ay onan d ru n t he
co m pa ny if he an d t he ot he rs bo ug htth e Act iv e Me m be rs ’ in te res ts . Sm it h was
no t i nt eres te d. Pau l Walk er an d DynaVis io n’s p rin ci pa ls di sc us se d am on g t he m se lv es th e po ss ib il it y

th atPeep le s h adfin an cedth e Act iv e Me m be rs ’ Feb ru ary 25 Pu t an d Cal l. Mo ti va te d b y

th es e su sp ic io ns , W al ke r co nf ro nt edPeep le s d ire ct ly. Peep le s de ni edan y

in vo lv em en t. At o ne po in t, Walk er warn edPeep le s t ha t i f he was

3 5 in vo lv ed , he wo ul d n otbe ge tt in g t he Green Ro adPro pe rty, becaus e Leas in g
own edit , no t Si gn atur e.

L edfor d and O’ Dell identified the pe rsons they contac ted and spoke to at these thre e 3 2 firms. The r ecor d does not disclose what was said duringthe conve rsations with Mohawk and Clay Miller; all that the rec ord re veals is what wa s said in conver sation with J err y Thomas at Matel. We infer

that in making the ir sales pitche s to Mohawk and Clay Miller, L edfor d and O’De ll urg ed them to consider purcha sing Signaturein order to a void competition from Peeples. The quotation is taken f

rom L edford’s testimony

on deposition in the state court c ase. 3 3 Thomas consider ed the possibility of buying Signatureif the Ac tive Members 3 4 rema ined with the company , so he met with them to expl ore that possibil ity . They wer e not interested, so he abandone d the idea. Paul Walker also had pr eviously suspected tha

t Peeples wa s behind the Ac tive 3 5 Members’ Fe bruar

y 8 Put and Call and confr onted him. Peeples had de nied any involvement. 24C.

On M arch 27 , th e th irt y -d ay ele ct io n p eri odpro vi de d b y th e Pu t an d C al l
ex pi red . Dy

na Vis io n h adno t ex erci se d i ts op ti on to pu rch as e th e Act iv e Mem be rs ’ in te res ts withi n t he ele ct io n p eri od ; co ns eque nt ly, itha d t o s el l i ts in te res t fo r th e $ 3.5 m il li on Pu t an d C al l p ric e. On M arch 28 , Dy na Vis io n a ndth e Acti ve Mem

be rs be ga n t o n eg ot ia te th e fi ne r te rm s o f th e sa le
. A few da y s l at er, J oi ne r, pr es um ab ly repre se nt in g Led fo rd , O’ Dell , and Bryan Walke r as on e-h al f own ers of Lea si ng , ask edSm it h i f he co ul d d raw up a le as e fo r th e Green Ro adPro pe rty bet ween Leas in g, as les so r, an d S ig na tu re, as le ss ee. Sm it h re sp on de d t ha t Si gn atur e, no t Lea si ng , own edth e p ro pe rty. Joi ne r ch eck edth e ti tl e an d d is co ve redth e warra nt y de edfro m

Leas in g t o S ig na tu re tha t ha d b een reco rd edon Feb ru ary 7. Paul W al ke r an d Led fo rdth ende m an de d t ha t th e Act iv e Me m

be rs co ns en t t o aco nv ey an ce o f th e p ro pe rty backto Leas in g. Th e Acti ve Mem

be rs refu se d, ex pl ai ni ng th atitha d b een ev eryone ’s in te ntto tra ns fer th e p ro pe rty to S ig na tu re s o t ha t Si gn atur e co ul d g o fo rwardwith t he FNBC l oa n tra ns act io n; Sig na tu re h adto ha ve ti tl e to th e p ro pe rty in o rd er t o g iv e th e b an k a
va li d d eedto sec ur e d eb t. Mea nwh il e, ata m eet in g o f Dyna Vis io n’s m em be rs , th e m em

be rs
un an im ou sl y

ad op te d re so lu ti on s au th or iz in g O’Dell an d Led fo rdto “ ne go ti at e, 25ex ecu te an d c on ve y th e in te res ts of Dyna-Vi si onin Sig na tu re . . . to Sm it h, Tho m as , andOwenb y

. . . .” The re so lu ti on s wen t o n t o a ll ow O’Dell an d Led fo rd to setcert ai n c on di ti on s o n t he co nv ey an ce i nc lu di ng : th e rep aym en t o f al l l oa ns du e an y [Dyna Vis io n] m em

be r or an y affi li at e o f an y

m em be r; t he rel eas e o f al l [DynaVi si on ] m em be rs fro m an y gu aran te es is su edon be ha lf o f Si gn atur e to any fin an ci al in st itut io n o r ve nd or ; t he rep aym en t o f an y an d a ll fun ds du e Dyna Vis io n b y Sig na tu re wi th res pe ctto an y di st rib ut io ns whi ch ha d n ot be enau th or iz edby the Bo ardof Di rect or s o f Si gn atur e; an d alo ng te rm Leas e Agr eem en t b etween Sig na tu re an d Lea si ng , with a m in im um term of f iv e (5 ) y ears at aren ta l ra te of $ 11 ,00 0 p er m on th pl us tax es , in su ran ce, m ai nt en an ce an d re pa ir. The min ut es of t hi s m eet in g i nd ic at e th atDy na Vis io n’s m em

be rs kn ew th atth e tra ns act io n wo ul d c lo se on Apri l 3 0. Th ey pro vi de d t ha t b ecau se O’ Dell , Dyna Vis io n’s ch ai rm an , wou ldbe ou t o f to wn t ha t d ay , Ledfo rdwou ldactfor Dyna Vis io n i n h is pl ace. 3 6 Afte r th is m eet in g a djo urne d, Led fo rdan d O’Dell m etwith J oi ne r an d sp el le d o utsev eral co nd it io ns th e Act iv e Me m be rs wou ldhave to m eetbe fo re cl os in g. J oi ne r in fo rm edth e Act iv e Me m be rs of t he se co nd it io ns in anApri l 1 1

The minutes also re flec t that L edfor d, O’De ll, and Br yan Walker simultaneously held a 3 6 meetingof L easing ’s member s to discuss the status of the Gre en Road Proper ty . Smit h, Thomas, and Owe nby , L easing ’s other me mbers, who, c ollectively , owned 50% of L easing , wer e not prese nt. Although L easing ’s Oper atingAgree ment is not part of the re cord, w e assume that the terms of the a g ree ment did not authorize L edfor d, O’De ll, and Walker to ca ll a meetingof L easing ’s member s without noti fying Smith, Thomas, and Owe nby
. 26le tt er t o the ir a tt orne y , Dou gl as Krev ol in . One ca ll edforth e Act iv e Me m be rs an d Dyna Vis io n t o e xe cu te anag reem en t J oi ne r ha d d raft edan d e nc lo se d i n h is let te r. The ag reem en t co nt ai ne d the fol lo win g c ov en an t, p res um ab ly des ig ne d t o s m ok e
ou t t he Acti ve Mem

be rs ’ in vo lv em en t wi th Peep le s: [e]ach Ass ig ne e [i .e., Acti ve Mem be r] doe s h ereb y

rep res en t an d warra ntto th e Ass ig no r [i .e., Dy na Vis io n] th atsu ch Ass ig ne e h as acqui redth e In te res t fr om th e Ass ig no r fo r in ve st m en ts so le ly for s ai d Ass ig ne e’s own acco un t . . . witho utan y in te nt io n o f co nv ey in g . . . an y po rti on of s uc h As si gn ee’s In te res t, an d wi th ou t t he fin an ci al pa rti ci pa ti on of any oth er Pe rs on in acqui rin g t he Ass ig ne e’s In te res t. Ano th er co nd it io n re qu ire d t he co nv ey an ce o f th e Green Ro adPro pe rty from Si gn atur e to Leas in g. Krev ol in res po nd edto Jo in er’s Ap ril 11 let te r wit h alet te r da te d Ap ril 16
. He in fo rm edJo in er tha t t he Acti ve Mem be rs wou ldno t co ns en t t o e it he r of th e two co nd it io ns . Res po nd in g t o t he th reatim pl ic itinJo in er’s l et te r—t ha t Dyna Vis io n wo ul d n otclo se if t he Acti ve Mem be rs refu se d t o re pr es en t t ha t t he y
were ac qu iri ng Dy

na Vis io n’s i nt eres t wi th ou t t he fin an ci al pa rti ci pa ti on of ath ird pa rty—Krev ol insai d t hi s: “ If y ou r cl ie ntis no t wi ll in g t o p ro ceedwith t he clo si ng in acco rd an ce wi th th e te rm s o f th e Ope rat in g Ag reem en t, the Acti ve Mem be rs
m ay ha ve no alt ern at iv e b utto see k aco urt o rd er co m pe ll in g i t t o c lo se .”

27Jo in er i nf orm edLedf

or d o f wha t Kre vo li n h adwrit te n a ndth e p os it io n t ha t th e Act iv e Me m

be rs wou ldtak e if

Dy na Vis io n re fu se d t o c lo se , andLedf or d in st ru ct edJo in er t o p ro ceedwith t he clo si ng on Apri l 3 0. D. Inlat e Apr il , pri orto th e cl os in g, t he Acti ve Mem be rs si gn edtwo pr om is so ry

no te s an d aco ll at eral ag reem en t. In th e co ll at eral ag reem en t, en ti tl ed

“ Co ll at eral Ass ig nm en t o f Mem be rs hi p In te res t,” t he y

pl ed ge d, “ as reco rdan d be ne fic ia l” own er o f Si gn atur e, al l o f th ei r own ers hi p i nt eres t i n S ig na tu re as
co ll at eral fora lo anof $ 3.5 m il li on fro m PFLC, LLC an d alo anof $ 85 5,0 00 fro m In te rn al Man ag em en t, In c., bo thco m pa ni es own edby Peepl es . The p ro ceed s o f th es e lo an s wer e to be us ed , res pe ct iv el y , to pa y forDy na Vis io n’s i nt eres t i n Si gn atur e an d t o p ay

th e b al an ce due , $8 55 ,00 0, o n t he lo anFNBC h adm ad e to Si gn atur e th e p rev io us Octo be r. At s om e p oi ntbe twee n t he Apri l 3 0 c lo si ng an d M ay 7, the Acti ve Mem

be rs
an d P eep le s s ig ne d a n As se t Pu rch as e Agr eem en t p ur su an t t o wh ic h t he Acti ve Mem be rs , as o wne rs of a ll of S ig na tu re, cau se d t he tra ns fer o f Si gn atur e’s as se ts to Peep le s fo r $5 .75 mil li on . Of th atam ou nt , $2 .25 m il li on wentdi rect ly to t he 3 7

None of the exhibit s in the rec ord evide nce the dispositi on the Active Me mbers made , 3 7 if any , of their inter ests in Signature afte r they acquir ed Dy

naVision’s intere st. The testimony taken a s a whole, how ever , cre ates the infe renc e that at some point followingthe ac quisiti on, 28Acti ve Mem be rs , and$3 .5 m il li on serve d t o c an cel th e lo anPeep le s h adm ad e to
en ab le th em

to bu y ou t Dyna Vis io n. Th e ag reem en t al so co nt ai ne d P eep le s’s pr om is e to in de m

ni fy th e Act iv e Me m

be rs foran y

expe ns es , in cl ud in g tho se ari si ng fro m

li ti ga ti on , th ey

m ig htin cu r as a res ul t o f th e tr an sf er o f th e Green Ro adPro pe rty from

Leas in g t o S ig na tu re. Co nt em po ran eo us with t he ex ecu ti on of t he Ass etPu rch as e Agr eem en t, PFLC, LLC en te redin to si x- y ear e m pl oym en t co nt ract s wi th th e Act iv e Me m be rs , th ei r co m pe ns at io n t o c on si stof $ 11 8,0 00 si gn in g b on us es , in it ia l s al ari es of $1 60 ,00 0 p er y ear, an nu al sal ary in crea se s o f $1 0,0 00 , andbo nu se s i f Si gn atur e
m ad e o ve r $1 .5 m il li on in pre -ta x p ro fit s i n acal en dar y ear. II. A. On No ve m

be r 15 , 20 02 , Dy

na Vis io n, Led fo rd , O’ Dell , Bry anW al ke r, an d Leas in g fi le d s ui t fo r equi tabl e an d l eg al rel ie f ag ai ns t t he Acti ve Mem be rs an d Si gn atur e in th e Supe rio r Co urt o f Mu rray Cou nt y , Geor gi a. The p la in ti ffs all ret ai ne d J oi ne r as co un se l, al on g wi th H. Lam ar Mi xo n andDavi d G. H. Brac ke tt , two partn ers inBo ndur an t, Mi xo n a ndElm or e, LLP. Thei r co m pl ai nt was

3 8 they transfe rre d Signatur e’s a ssets to PFL C, L L C. Dy naVision amende d its complaint on Dece mber 27, 2002. Our ref ere nces to the 3 8 complaint are to the amende d complaint. 29fram edin fou r co un ts an d a ss ert edsi x c la im s, al l o n b eh al f of th e p la in ti ffs bo th in di vi du al ly andco ll ect iv el y . Fou r cl ai m s wer e b as edon Leas in g’s co nv ey an ce 3 9 of th e Green Ro adPro pe rty to S ig na tu re; two in vo lv edth e tr an sf er o f Dyna Vis io n’s i nt eres t i n S ig na tu re t o t he Acti ve Mem be rs . W e b eg inwith t he cl ai m s re ga rd in g t he Green Ro adPro pe rty. The fir stcla im was t ha t Lea si ng , andLedf or d, O’Dell , Sm it h, Th om as , and 4 0 Owenb y as o wne rs of i nt eres ts in Leas in g, m is ta ke nl y ex ecu te d t he warran ty deed
co nv ey in g t he Green Ro adPro pe rty to S ig na tu re an d t hu s wer e en ti tl edto a
res ci ss io n o f th attra ns act io n. Th e se co ndcla im was tha t Sm ith i nduc edLedf or d 4 1
an d O’Dell to ex ecu te th e warra nt y de edby fals el y

rep res en ti ng th atFNBC n eed ed
a co rrec ti ve do cu m en t wi th ou t warni ng th atth e d oc um en t was in facta warra nt y de ed . The thi rdcla im was t ha t Sm it h a ndth e Act iv e Me m be rs bre ach edth ei r 4 2 fiduc ia ry du ti es to Leas in g, caus in g Lea si ng to lo se th e v al ue of t he Green Ro ad Although the complaint is not clear on this point, we a ssume that eac h plaintiff 3 9 asser ted ea ch of the claims we de scribe, suc h that the complaint containe d 30 cause s of ac tion in all. We place pla intiffs’ claims in an orde r diffe rent fr om the order in which they

appea r in 4 0 sever al of the c ounts of the complaint. The f irst claim appea

rs in Count One. This claim appea

red in Count Two. The c omplaint impl ied, if not alleg ed, that 4 1 Thomas and Ow enby

wer e vica

riously responsible Smith’s conduct, as de scribed in c laims two and five . For

relief on this and the rema ining c laims describe d infra, pla intiffs sought compensatory

and punitive damag es. This claim appea

red in Count Four
. 4 2 30Pro pe rty, on t wo o ccas io ns —wh enSm it h i nduc edLedf or d a ndO’ Dell to si gn th e
warra nt y de edun de r fal se pre te ns es an d wh enth e Act iv e Me m be rs refu se d t o
cau se Sig na tu re t o re tu rnth e p ro pe rty to Lea si ng . The fo urth cla im was t ha t 4 3 Si gn atur e, Sm it h, Th om as , andOwenb y were u nju st ly enri ch edby the acqui si ti on of th e Green Ro adPro pe rty. The fif th an d s ix th cla im s i nv ol ve d t he tra ns fer o f Dyna Vis io n’s i nt eres t i n Si gn atur e. The fi fth cla im , a frau d c la im , all eg edth atup on pre se nt in g t he

4 4 4 5
co nd it io na l Pu t an d C al l o n F eb ru ary 8, 2 00 2, Sm it h fa ls el y st at edth atth e Act iv e Mem be rs were “ do in g t hi s o n o urown ,” in te nt io na ll y in du ci ng Dy

na Vis io n t o s el l it s i nt eres t. The si xth c la im all eg edth atby fail in g t o d is cl os e th ei r di sc us si on s 4 6
an d fi na l arran ge m en ts with P eep le s, the Acti ve Mem be rs bre ach edfiduc ia ry

This claim appea

red in Count Three
. 4 3 We describe these c laims in the tex t as the Murra y County Superior Court and the 4 4 Geor g ia Court of Appe als, in L edfor d v. Smit h, 618 S.E.2d 627 (Ga. Ct. App. 2005), f rame d the claims in their final dispositions. This claim appea

red in Count Two. 4 5 This claim appea

red in Count Four
. 4 6 31du ti es im

po se d b y th e Ope rat in g Ag reem en t, th e Geo rg iaLim it edLiab il it y 4 7
Plaintiffs’ theory

that the Active Me mbers had a fiduciar y duty under the Oper ating 4 7 Agree ment to disclose their final a rra ng ement with Peeples, a

nd that they

brea ched that duty , is based on Sec tion 9.2 of Article Nine of the Ope ratingAgree ment, entitled “Rig ht of First Refusal,” and two of its par ts, Sections 9.2.1 and 9.2.3. These two se ctions state: 9.2.1 Notice of

Intended Disposition. No Member in the Company may sell less than all their Intere st, and in the eve nt a Member rec eives a bona fide offe r fr om any person in an a

rms length transac tion to purchase a ll of the Intere st which they own in the Company and if the pe rson re ceivingthe offe r of purchasedesires to sell all the Intere st that is the subject of the off er, notice of the desire to se ll the Intere st shall be g iven in writingto the other Members a

nd the terms of theoffe r, which noticeshall include the price offe red, the name of the offe ror, a

nd the pay

ment terms (the “Notice of Intended Disposition”). 9.2.3 Option to Purchase – Sale by Active Me mber other

than Dy na-V ision. Dy na-V ision shall have the right to purchase all of the . . . Intere st[ s] t o be sold at the same price and under the same te rms and conditions as desc ribed in the [Active Membe rs’] Notice of Intended Disposition. The ele ction to purcha se by Dy na-V ision shall be exercise d by

g iving written notice to [the Ac tive] Members within . . . thirty

(30) c alenda

r day s after

rec eipt of [the Notice of Intended Disposition]
. The Ac tive Members did not consider their discussions with Peeples and his off er to loan them the funds to ac quire Dy naVision’s intere st as a “bona fide off er” to purcha se their inter ests in Signature so as to require them to notify Dy naVision pursuant to Section 9.2.1; henc e, they did not notify Dy naVision of the discussions. Acc ording ly , to preva il on their six th claim based on Sections 9.2.1 and 9.2.3, plaintiffs would have to prove that, prior to March 27 (when Dy naVision bec ame oblig ated to sell its interest), Peeples made the Active Me mbers a bona fide offe r to purcha se their inter ests at a se t price a nd on set terms, that they “desire [d] to sell” their interests to Peeples, that Sec tion 9.2.1 therefor e oblig ated them to notify Dy naVision of the of

fer , that their fa ilure to notify Dy naVision brea ched that obligation, and that but for the bre ach, Dy naVision would have exercised its right of first re fusal and bought the Active Me mbers’ interests at the price a

nd on the terms indicate d in Peeples’s off er. Under this sce nario, the Active Me mbers’ F ebrua ry 25 Put and Call would become a nullity , repla ced by

the trig g eringof Section 9.2.3 of the Ope ratingAgree ment. That is, Dy naVision would have purcha sed the Active Me mbers’ inter ests pursuant to Section 9.2.3 instead of se lling its interest pursua nt to the Section 9.5 Put and Call provision. 32Co m

pa ny Act, an d Geo rg iaco m m on law. 4 8 On Au gu st13 , 20 03 , aft er the pa rti es ha d jo in edth e is su es , pl ai nt iff s 4 9
m ov edth e st at e co urt fo r le av e to am en d t he ir c om pl ai ntto ad d P eep le s an d h is two co m pa ni es , PFLC, LLC an d In te rn al Man ag em en t, In c., as co -d efen da nt s. 5 0 Pl ai nt iff s re pr es en te d t ha t t he y

ha d n otlea rn edof P eep le s’s i nv ol ve m en t u nt il th e da y be fo re, Au gu st12 , when th ey to okOwenb y ’s dep os it io n a ndOwenb y tes ti fie d th atPeep le s h adpro vi de d t he fun ds to en ab le th e Act iv e Me m be rs to tri gg er the Pu t an d C al l. 5 1

The Ac t imposes a g ener al duty of loyalty

on the member s and mana g ers of a limited 4 8 liability company but does not expl icitly

cre ate a duty to disclose particula

r fa cts. O.C.G.A. § 14-11-305 de scribes this duty as follows: In manag ing thebusiness or af fairs of a limited liabilit y

company : (1) A me mber or ma

nag er sha ll act in a manne r he or she believe s in good f

aith to be in the best intere sts of the limit ed liability company and with the ca

re a n ordinarily prudent pe rson in a like position would ex erc ise under similar circ umstances. A me mber or ma nag er is not liable to the limited liabilit y company , its members, or its manag ers f or any action take n in manag ing the business or af

fairs of the limited liabili ty

company if he or she perf

orms the duties of his or her

office in compliance w ith this Code section. Def endants’ a

nswers a re not in the re cord. We infe r fr om what is in the rec ord, and in 4 9 the Georg ia Court of Appe als opinion in L edfor d v. Smit h, that the Active Me mbers denie d the alleg ations underpinningplaintiffs’ seve ral c auses of action. Neither plaintiffs’ motion for leave to amend nor the proposed a

mended c omplaint are 5 0 in the rec ord. The r ecor d does include, though, the superior court’s O ctober

29, 2003 order denying pla intiffs’ motion, and that order addre sses the argument plaintiffs made in support of the motion. Def endants deposed L edfor d on the same da y , August 12. 5 1 33The st at e co urt h eardora l ar gu m en t o n t he m ot io n o n S ep te m be r 25 , 20 03 , aft er d is co ve ry

ha d c lo se d. It d en ie d the m ot io n o n Oct ob er 2 9, 2 00 3,

5 2
co nc lu di ng th atDy

na Vis io n “ kn ew orsh ou ldhave kn own ” atth e ti m e itfil edit s
co m pl ai ntth atPeep le s was “ in vo lv ed .” Init s o rd er, the co urt n ot edth atpl ai nt iff s, in th ei r co m

pl ai nt , hadall eg edth ata th irdpa rty hadbe enin vo lv edin ne go ti at io ns wit h t he Acti ve Mem

be rs an d DynaVis io n i n e arl y Jan ua ry 20 02 ov er a p os si bl e pu rch as e o f Si gn atur e, bu t tha t the se ne go ti at io ns were uns uc ces sf ul . Furt he r, th ey ha d a ll eg ed , “up onin fo rm at io n andbe li ef,” t ha t a t hi rdpa rty hadfin an cedth e Acti ve Mem

be rs ’ acqui si ti on of DynaVi si on ’s in te res t i n S ig na tu re an d, af te r th e Acti ve Mem

be rs ha d DynaVis on ’s in te res t i n h an d, h adpu rch as edSig na tu re’s
as se ts . In ad di ti on , Ledfo rdha d d ep os edth athe kn ew th atPeep le s was in vo lv ed in th e Ja nu ary ne go ti at io ns . It s ho ul d h av e b eenob vi ou s t o DynaVis io n tha t s in ce Peep le s was in vo lv edin th e Ja nu ary ne go ti at io ns , he was th e p art y th atli ke ly fin an cedth e Act iv e Me m be rs an d p ur ch as edSig na tu re. Inad di ti on , th e co urt
reas on ed , add in g P eep le s as a pa rty at th atlat e st ag e o f th e li ti ga ti on , aft er di sc ov ery ha d c lo se d, wo ul d c au se Peep le s u ndue pre jud ic e.

Discover

y closed on Septembe r 7, 2003. The disc overy included the takingof the 5 2 depositions of Peeples, the Ac tive Members, D y naVision’s principa ls, and Paul Walker. 34Pl ai nt iff s m ov edth e co urt t o re co ns id er i ts rul in g. Th e co urt d en ie d t he ir
m ot io n o n M arch 8, 2 00 4. In it s o rd er, the co urt was hi gh ly crit ic al of p la in ti ffs ’ de la y in att em pt in g t o jo in Peep le s as a pa rty defe nd an t: [As ares ul t o f Led fo rd ’s dep os it io n t es ti m on y ] th e Co urt [i n i ts Octo be r 29 ord er] con cl ud edth atth e Pl ai nt iff s kne w of the in vo lv em en t o f th e Pee pl es Group, atth e ti m e th e o rig in al Co m pl ai nt was fil ed
. . . . The Pl ai nt iff s t he n wai te d n in e m on th s, u nt il Aug us t 13 , 20 03 , bef

or e fi li ng forlea ve to am en d. Th e Pl ai nt iff s h ad care fu ll y wait edun ti l af

te r th e d ep os it io n o f Sh el by Peep le s [o n J un e 27 , 20 03 ] an d u nt il aft er the clo se of d is co ve ry to ha ve th ei r m ot io n he ard[on Sep te m

be r 25 , 20 03 ]. In m ak in g t he Octo be r 20 03 rul in g, th is Co urt d et erm in edth atth e Pl ai nt iff s en ga ge d i n ade li be rat e sc he m e to de la y

joi nd er wi th ou t ex cu se or ju st ifi cat io n. Th eref or e, th e Co urt fi nd s t ha t t he [Pl ai nt iff’s] fai lu re t o o fferev id en ce o f ex cu se orjus ti fic at io n i s an in de pe nd en t re as on th atth e Pl ai nt iff s’ Mo ti on [fo r Rec on si de rat io n] sh ou ldbe de ni ed
. B. 1. On J anua ry

7, 2 00 4, wh il e th ei r m ot io n fo r rec on si de rat io n was pe nd in g i n st at e co urt, p la in ti ffs , st il l re pr es en te d b y Jo in er, Mi xo n, an d B rack et t, b ro ug htth e in st an t l aws ui t ag ai ns t Pe ep le s, PF LC, LLC, andInt ern al Man ag em en t, In c. in th e Uni te d S ta te s Di st ric t Co urt fo r th e North ern Dis tri ctof Ge or gi a. The co m pl ai nt 5 3
We are unable to disce rn fr om the alleg ations of plaintiffs’ c omplaint the nature of the 5 3 claims asser

ted, if any , ag ainst PFL C, L L C and Interna l Manag ement, Inc. We assume that they wer e made parties de fenda nt solely for pur poses of de clar atory

or equitable relief

involving the title to the Gree n Road Property or the status of Dy

naVision’s for

mer intere st in S igna

ture. Be cause such re lief has not bee n forthcoming , and bec ause pla intiffs do not contend on appe al that the district court e rre d in denying r elief a g ainst those two defe ndants, we omit furthe r 35was fram edin 11 6 p arag rap hs an d s ev enco un ts . Each c ou ntin co rp or at edby

refe ren ce ea ch pre ced in g c ou nt , su ch th atCo un t Se ve n am al ga m at edan d a ss ert ed al l o f th e cl ai m s o f th e p rece di ng co un ts . Pl ai nt iff s’ com pl ai ntis a “ sh ot gu n” pl ead in g i n t ha t i t l um ps m ul ti pl e cl ai m s to ge th er i n o ne co un t an d, m or eo ve r, ap pe ars to supp ort a s pe ci fic , di sc ret e cl ai m wit h a ll eg at io ns th atare i m m at eri al to th atcla im . See, e.g ., By rn e v . Nezh at , 26 1 F.3 d 1 07 5, 1 12 8- 32 (11 thCir . 20 01 ). W he n fa cedwith aco m

pl ai ntli ke th e o ne he re, i n wh ic h t he co un ts in co rp or at e b y refe ren ce al l p rev io us all eg at io ns an d
co un ts , th e d is tri ctco urt m us t cu ll th ro ug h t he all eg at io ns , id en ti fy th e cl ai m s, an d,
as to each cla im

id en ti fie d, s el ectth e al le ga ti on s t ha t ap pe ar t o b e g erm an e to th e cl ai m . This tas k c anbe av oi de d i f th e d efen da ntm ov es th e co urt fo r a m or e de fin it e st at em en t o r if

th e co urt, ac ti ng on it s o wn i ni ti at iv e, or de rs a rep le ad er. Inth is cas e, Peep le s d idno t m ov e th e co urt fo r a m or e d efi ni te st at em en t,
no r di d t he co urt re qu ire on e o n i ts own in it ia ti ve . Con se qu en tl y , itis lef t t o t hi s pa ne l t o i de nt ify in t he fir stin st an ce wh atpl ai nt iff s wer e cl ai m in g. We do so by pr oc eed in g a ll eg at io n b y

all eg at io n a ndco un t b y

co un t, weed in g o utan d di sr eg ard in g a s ex tra ne ou s t he all eg at io ns th atha ve no be ari ng ona cl ai m .

ref ere nce to them. 36W e b eg in th is pro ces s wi th Co un t On e, whi ch all eg edth ree v io la ti on s o f th e

fed eral sec ur it ie s l aws . Firs t, af te r th e Pu t an d C al l o ffer s o f bo th Feb ru ary 8 5 4
an d F eb ru ary 25 , Peep le s d en ie d a ny inv ol ve m en t i n t he Acti ve Mem be rs ’ pl anto acqui re Dyna Vis io n’s i nt eres t, the reb y vi ol at in g s ect io n 1 0( b) of t he Secu rit ie s Exc hang e Actof 1 93 4 (t he “ 19 34 Act” ) an d R ul e 1 0b -5 (b ) pr om

ul ga te d

Count One incorpor ated by ref ere nce the first eighty -one pa ragraphs of

the complaint. 5 4 Those par agraphs a lleg ed, in substance and not in the orde r we indicate, that ( 1) on F ebrua ry 8, 2002, Smit h falsely

told L edfor d and O’ Dell that the Ac tive Members, in issuingthe Put and Call, were “doingthis on our own” and that no third party was involved; (2) on sever al occ asions betwee n Fe bruar

y 8 and Mar ch 27, 2002, Peeple s falsely told Paul W alker

and/or L edfor d that he was not involved in the Ac tive Members’ issuance of the Put and Call; (3) the statements made in (1) and ( 2) above wer e made with the intent to induce detrimenta l relianc e; (4) pla intiffs did in fac t rely on these stateme nts to their economic de triment; (5) Peeple s and the Ac tive Members conspired to de fra

ud Dy naVision of its interest in Signa ture by makingthese stateme nts and by failingto disclose the terms of the J anuar y 21 letter a

nd the Asset Purcha se Agree ment; (6) Peeples is liable for

the Active Me mbers fr audulent conduc t beca use he c ontrolled such conduc t within the meaningof 15 U.S.C. § 78t under the ter ms of the J anuar

y 21, 2002 letter a

nd the Asset Purcha se Agree ment; (7) Peeple s is liable for the Ac tive Members’ fra udulent conduct under the doctrine of

responde at superior ; (8) the Ac tive Members br eac hed their oblig ations to Dy naVision under Sec tions 9.1 and 9.2.1 of the Ope ratingAgree ment by not informing pla intiffs that Peeples wa s fundingthe Februar y 8 Put and Call and that he had of fer ed to purc hase Signatur e’s a ssets from the Ac tive Members; (9) Peeples is liable for this breac h as the Ac tive Members’ co-c onspirator a nd/or aider

and abe ttor; (10) the Ac tive Members br eac hed their fiduciar y duty to plaintiffs by

not reve alingthat Peeples wa s providing the funds for the ir acquisition of Dy

naVision’s intere st in S igna ture a nd had agree d to purcha se Signature’s a ssets followingtheir ac quisiti on; (11) Peeple s is liable for this brea ch under the doctrine of re spondeat superior, a s a co- conspirator , and as a n aider and abe ttor; (12) the Ac tive Members, a ctingunder Peeples’s c ontrol and direc tion or in conspirac y with him, fraudulently

induced L edford and O’De ll to ex ecute the war ranty deed by which L easingconveyed the Gr een Roa d Property to Signatur e; (13) theActive Me mbers, ac ting unde r Peeple s’s control and dir ection or in conspirac y

with him, breac hed their f iduciary duty to plaintiffs by

not informing L edfor d and O’De ll that the instrument they signe d at FN BC wa s a wa rra nty deed a nd of the leg al conseque nces that would adher e to their signing it. 37th ereu nd er. Seco nd , Peep le s “ di rect ly or in di rect ly con tro l[l ed ] th e act iv it ie s o f 5 5 th e Act iv e Me m

be rs ” u si ng th e “ Co nf

id en ti al it y ” an d “No Di sc us si on s wi th Oth ers ” p ro vi si on s o f th e Ja nu ary 21 let te r, th e “ se cretdi sc us si on s” of J anua ry an d Feb ru ary 20 02 , andth e Ass etPu rch as e Agr eem en t. As s uc h, Pe ep le s was
res po ns ib le forth e Act iv e Me m be rs ’ co nduc t i n v io la ti onof s ect io n 1 0( b) an d

Section 10(b) of

the 1934 Act, 15 U.S.C. § 78j(b), make s it unlawful: 5 5 To use or e mploy , in connec tion with the purchase or sale of any security reg istered on a

national sec urities exchang e or a ny security not so reg istered, or any securities-based swa

p agree ment (as de fined in sec tion 206B of the Gramm-L eac h-B liley

Act [15 U.S.C.S . § 78c note]), any manipulative or deceptive device or contriva nce in c ontrave ntion of such rules a nd regulations as the Commiss ion may

presc ribe a s nece ssary

or appropriate in the public inter est or for the pr otection of investors. Rule 10b-5, 17 C.F.R. § 240.10b-5, wa s promulga ted under section 10(b) and provide s: It shall be unlawful f

or any person, dire ctly

or indirec tly , by

the use of a

ny means or instrumentality

of interstate commerc e, or of the mails or of a

ny fac ility of any national sec urities exchang e, (a) To employ

any device , scheme , or ar

tifice to def

raud, (b) To make any

untrue stateme nt of a mate rial fa ct or to omit to state a material fac t nece ssary

in order to make the statements made , in the light of the circ umstances unde r which the y wer e made , not misl eading , or (c) To eng ag e in any

act, pr actice , or cour se of business whic h operates or would operate as a

fra ud or dec eit upon any

person, in conne ction with the purcha se or sale of a ny security
. “Rule 10b-5 e ncompasses only conduct a lrea dy

prohibited by

section 10(b) . Though the textof the Sec urities Ex chang e Ac t does not provide for a private ca

use of a ction for se ction 10(b) violations, the [Supreme] C ourt has found a right of ac tion impl ied in the words of the statute and [Rule 10b-5].” St oneridg e Inv. Partners, LL C v. Scientific-Atlanta, I nc., ___ U.S. ___, 128 S. Ct . 761, 768, 169 L . Ed. 2d 627 (2008) ( citations omitt ed). I n this opini on, we r efe r to the section 10(b) and Rules 10b-5(a) and (b) cla ims in this case a s claims under Rules 10b-5( a) and/or (b)
. 38Ru le 10 b- 5( b) as a“ co nt ro ll in g p ers on ” u nd er s ect io n 2 0( a) o f th e 1 93 4 Act
. 5 6

Sp eci fic al ly, Peep le s was res po ns ib le for Sm it h’s s ta te m en t t ha t we ar e “ do in g t hi s
on ou r own ” an d the Acti ve Mem be rs ’ br each of t he ir f

iduc ia ry du ty to Dyna Vis io n. Th ird , Peep le s an d t he Acti ve Mem be rs en ga ge d i n a“ sc he m e, de vi ce, an d a rti fic e to de frau d” Dy na Vis io n, i n v io la ti on of s ect io n 1 0( b) an d R ul e 10 b- 5( a). Insupp ort o f th ei r 10 b- 5( a) cl ai m , pl ai nt iff s, i n t he ir o pp os it io n t o P eep le s’s
m ot io n fo r su m

m ary jud gm en t, i de nt ifi edth ree c om po ne nt s o f th e “ sc he m e”: (1) Peep le s an d t he Acti ve Mem be rs ag reedno t t o d is cl os e th ei r ne go ti at io ns , as
ev id en cedby the Jan ua ry 21 let te r; ( 2) Peep le s an d t he Acti ve Mem be rs us edth e Pu t an d C al l p ro vi si on “ to im pr op erl y ex cl ud e Dyna Vis io n fr om pa rti ci pa ti ng in th e sa le of [ Si gn atur e] to Pe ep le s; ” an d (3 ) Pee pl es an d t he Acti ve Mem be rs
co ll ab or at edto “ de cei ve th e in di vi du al Pla in ti ffs in to si gn in g [the ] W arra nt y Deed .” 5 7 Section 20(a) of the 1934 Ac t, 15 U.S.C. § 78t (a) , provides: 5 6 Every person who, dir ectly

or indirec tly , controls any person liable unde r any provision of this chapter

or of a ny rule or r egulation thereunde r shall also be liable jointly and seve rally

with and to the same e x tent as such c ontrolled person to a ny person to whom such c ontrolled person is liable, unless the c ontrolling pe rson acte d in good f

aith and did not direc tly

or indirec tly

induce the a ct or a cts constituting the violation or ca use of a ction. The c omplaint, in contrast to what plaintiffs stated in their opposition to Peeples’s 5 7 motion for summary

judgme nt, simpl y

aver red that “[t] hrough the ac tiviti es desc ribed a bove, the 39Fi na ll y , th e p la in ti ffs all eg edth atth e m is rep res en ta ti on s, o m is si on s, an d

sc he m e d es cri be d i n C ou ntOne c au se d DynaVis io n t o s el l i ts in te res ts an d s uf fer in jury. Parag rap h 6 4 o f th e d is tri ctco urt co m pl ai ntst at ed : 5 8 Bas edup onth e fal se an d m is le ad in g i nf orm at io n c on cern in g [Si gn atur e] andth e so ur ce o f fu nd in g fo r th e b uy/se ll off ers , whi ch ha d b een pro vi de d b y

th e Act iv e Me m

be rs an d Def

en da nt s, an d i n rel ia nc e o n t he ir m is rep res en ta ti on s tha t t he re was no off er t o pu rch as e [Si gn atur e] ou ts ta nd in g, Dyna Vis io n c ho se to sel l i ts in te res t i n [S ig na tu re], rath er tha n p ur ch as e th e in te res t o f th e [Act iv e Mem be rs ]. As a res ul t, i n l at e Ma rch 20 02 , Dy na Vis io n b ecame co nt ractua ll y

requi redto sel l i ts in te res t i n [S ig na tu re] to th e Act iv e Mem be rs pu rs ua ntto th e te rm s o f th e [Si gn atur e] Operat in g Agr eem en t. 5 9 Co un ts Two th ro ug h F iv e al le ge d c au se s o f act io n u nd er Geo rg iaco m m on la w andst atut ory

pro vi si on s. Cou ntTwo, “ Vio la ti on of t he Geor gi a Sec ur it ie s

6 0 Act,” all eg edth atth e sa m e co nduc t t ha t g av e ri se to th e Co un t On e cl ai m s fo r Def endants e mploy ed a sc heme, de vice, a nd artificeto defra

ud that, in fac t, opera

ted as a fra ud upon Dy naVision.” The plaintiffs de scribed the Active Me mbers’ misre prese ntations, made by Smit h, the 5 8 scheme to defra

ud, and the manne r in which these wrong s cause d injury in almost the same way they had done so in state c ourt. Simi larly , para graph 90 of the district court c omplaint stated: “Dy naVision relied on the 5 9 Active Me mbers’ misre prese ntations. Dy naVision made its dec ision to sell under the put and call base d on the fa lse repr esentations that there we re no outstandingoffe rs to purcha se [S ignature] and, in particula r, no off ers f rom a strateg ic purc haser such as the D efe ndants.” Although pa

ragraphs 64 a

nd 90 ref er to stateme nts made by

the Active Me mbers, the only conce ivably

actionable statement in the evide nce is Smith’s Febr uary 8 statement to L edfor d and O’De ll that the Active Membe rs wer e “doingthis on our own.” These c ounts, like Counts Six and Seven, inc orporated by ref ere nce a ll antece dent 6 0 alleg ations of the complaint. 40rel ie f ren de redPeep le s l iabl e to pl ai nt iff s u nd er the Geor gi a se cu rit ie s l aws . 6 1 Co un t Th ree, “ Co ns pi racy to Def rau d,” all eg edth atPeep le s co ns pi redwith t he Acti ve Mem

be rs to (1) frau du le nt ly induc e Dyna Vis io n t o s el l i ts in te res t i n Si gn atur e an d (2 ) frau du le nt ly induc e Leas in g t o c on ve y th e Green Ro adPro pe rty to Sig na tu re. Co un t Fo ur , “ Aid in g a ndAbet ti ng Brea ch of F iduc ia ry Dut ie s,” al le ge d t ha t t he Acti ve Mem be rs , aid edan d abe tt edby Peepl es , bre ach edth e fo ll owi ng du ti es : (1 ) th e fi du ci ary du ty to Dyna Vis io n t o i nf orm itth atPeep le s
was supp orti ng th e Feb ru ary 25 Pu t an d C al l, an d (2 ) th e fi du ci ary du ty to Leas in g, an d Led fo rdan d O’Dell as Lea si ng ’s part o wne rs , to in fo rm th em th atth e do cu m en t t he y

si gn edat F NBC was a warra nty de ed , and(3) th e fi du ci ary du ty to Leas in g t o c au se Sig na tu re t o c on ve y th e p ro pe rty backto Leas in g. Co un t Fi ve ,

“ Tort io us Int erfe ren ce wi th Bu si ne ss Rel at io ns ,” al le ge d t ha t Pe ep le s t orti ou sl y in te rfer edwith t he Acti ve Mem be rs ’ bu si ne ss rel at io ns with DynaVis io n. Co un t Si x, “ Att orne y s’ Fees ,” so ug htpl ai nt iff s’ exp en se s, i nc lu di ng att orne y ’s fees , in cu rredin pro se cu ti ng Co un ts One t hr ou gh Fiv e. Co un t Se ve n, “ Pu ni ti ve Dam ag es ,” so ug htpu ni ti ve da m ag es as t o e ach of p la in ti ffs ’ cl ai m s o n t he gro un d

Plaintiffs alleg ed a violation of the Geor g ia Securities Act, O.C.G.A. § 10-5- 12(a) (2). 6 1 Section 10-5-12 is “G eorg ia' s equivalent of Rule 10b- 5. A plaintiff must prove e ssentially the same e lements under the state provision as he must prove under the fede ral provision.” Pelletier v. Z weife l, 921 F.2d 1465, 1511 (11th Cir. 1991). 41th atth e “ [d ]efend an ts ha ve act edin ba d fa it h a ndha ve be enstub bo rn ly lit ig io us

an d c au se d P la in ti ffs un ne ces sa ry tro ub le or e xp en se .” On M arch 9, 2 00 4, t he da y aft er the st at e co urt re fu se d t o re co ns id er i ts Octo be r 29 , 20 03 ord er d en y in g p la in ti ffs ’ m ot io n fo r le av e to joi n P eep le s as a pa rty defe nd an t, Pe ep le s m ov edth e d is tri ctco urt t o d is m is s p la in ti ffs ’ co m pl ai nt . Alt ern at iv el y , he r eque st edth atth e d is tri ctco urt s ta y furth er p ro ceed in gs pe nd in g th e st at e co urt’s re so lu ti on of Led fo rdv. Sm it h. He re qu es te d ast ay be cau se th e Acti ve Mem

be rs ha d m ov edth e st at e co urt fo r su m m ary jud gm en t, wh ic h, i f gr an te d, co ul d s et tl e th ro ug h i ss ue pre cl us io n s om e o f th e fac tu al is su es in vo lv ed in pl ai nt iff

s’ di st ric t co urt cl ai m s. Th e st at e co urt h eardarg um en t o n t he su m m ary jud gm en t m ot io ns on Apri l 1 , 20 04 . On May 17 , 20 04 , th e d is tri ctco urt d en ie d Peep le s’s m ot io n t o d is m is s an d, al te rn at iv el y , fora st ay . On Ju ne 6, 2 00 4, Peep le s an swe redpl ai nt iff s’ com pl ai nt . 6 2

Peeples’s a

nswer r esponded to e ach of the complaint’s 116 par agraphs, a dmitti ngor 6 2 denying the alleg ations of the par agraph or stating that the defe ndant was w ithout knowledge sufficie nt to form a belief as to the truth of the a lleg ations. The answ er a lso contained twe nty nine “de fense s,” in three cate g ories: (1) f our we re a ffirmative defe nses either asser ting or implying that the complaint failed to state a claim for r elief; (2) six wer e conf ession and avoidanc e def

enses; and ( 3) ninetee n constituted g ener al denials. The answe r wa s a shotgun pleadingin the sense that many of the de fense s in the first two cate g ories fa iled to identify the claim or c laims for re lief to which they wer e re sponding. This, c oupled with the shotgun manner in which plaintiffs chose to frame their complaint, may explain why

the district court wa ited until the ca se wa s submitt ed on motion for summary judgme nt to attempt to sort out t he par ties’ claims and de fense s. 422.

On M ay 18 , 20 04 , th e st at e co urt ru le d o n t he pe nd in g m ot io ns forsu m m ary jud gm en t. Itgrant edde fen da nt s s umm ary jud gm en t o n t he fou rth an d fi fth cla im s
an d o n t he si xt h c la im

in pa rt. Itde ni edsu m

m ary jud gm en t o n t he fir st , sec on d
an d t hi rdcla im s an d o n t he si xt h c la im in pa rt o n t he gro un d t ha t m at eri al is su es of factrem ai ne d t o b e li ti ga te d. Re ga rd in g t he si xt h c la im , th e co urt fo un d t ha t t he Acti ve Mem

be rs ha d afiduc iary

du ty to i nf

orm Dy na Vis io n o f Pee pl es ’s in vo lv em en t u nd er the Lim it edLiab il it y Co m pa ny Act an d Geo rg iaco m m onlaw, bu t n otun de r th e Ope rat in g Ag reem en t. Pl ai nt iff s ap pe al edth e co urt’s d is m is sa l o f th e fi fth cla im , th atth e Act iv e Mem be rs frau du le nt ly induc edDy na Vis io n t o p artwith i ts in te res t i n S ig na tu re. The Acti ve Mem

be rs cro ss -ap pe al edth e co urt’s d is po si ti on of t he fir stcla im , th at Leas in g c on ve y edth e GreenRo adPro pe rty du e to m utua l m is ta ke ; the sec on d cl ai m , th atSm it h fr au du le nt ly induc edth e tr an sf er o f th e Green Ro adPro pe rty to Si gn atur e b y

m is rep res en ti ng th e warra nty de ed ; an d p artof t he si xt h c la im , th at th e Act iv e Me m

be rs bre ach eda fi du ci ary du ty to i nf orm Dy na Vis io n o f Pee pl es ’s pa rti ci pa ti on . Plai nt iff

s d idno t ap pe al th e co urt’s d is po si ti on of t he ir f ou rth cla im , un jus t en ric hm en t t hr ou gh th e tr an sf er o f th e Green Ro adPro pe rty, andth e Act iv e Mem be rs di d n otap pe al th e co urt’s d en ia l o f su m m ary jud gm en t o n p la in ti ff’s
43th irdcla im , th atth e Act iv e Me m be rs ha d b reac he d afiduc ia ry du ty to Lea si ng , O’ Dell , andLedf

or d wi th res pe ctto th e tr an sf er o f th e Green Ro adPro pe rty. Whi le th es e ap pe al s wer e p en di ng inth e Geo rg iaCo urt o f App eal s, the di stric t
co urt s etFeb ru ary 26 , 20 05 as t he di sc ov ery de ad li ne . 3. On J ul y 12 , 20 05 , th e Geo rg iaCo urt o f App eal s h an de d d own it s d eci si on . Led fo rdv. Sm ith, 6 18 S.E.2d62 7 (Ga . Ct. Ap p. 2 00 5) . The co urt af firm edth e
su m m ary jud gm en t fo r th e Act iv e Me m be rs on pl ai nt iff

s’ fift h c la im , rev ers edth e de ni al of s umm ary jud gm en t o n p la in ti ff's sec on d c la im (effe ct iv el y

gra nt in g t he Acti ve Mem

be rs jud gm en t o n t ha t cl ai m), an d re ve rs edpart o f th e si xt h c la im
. Afte r th e d eci si on , on ly the pl ai nt iff s’ firs t cl ai m , whi ch all eg edth atLeas in g
co nv ey edth e Green Ro adPro pe rty becaus e o f m utua l m is ta ke , su rv iv ed
. 6 3 The co urt o f ap pe al s ex pl ai ne d wh y ithe ldforth e Act iv e Me m be rs onall bu t p la in ti ffs ’ fir stcla im . It b eg anwith p la in ti ffs ’ si xt h c la im , th atth e Act iv e Mem be rs ha d afiduc ia ry

du ty und er the Lim it edLiab il ity Co m pa ny Act an d
co m m on law t o d is cl os e th ei r ne go ti at io ns with P eep le s. Aft er o bs erv in g tha t

As to that aspec t of the first cla im, the court conc luded that unre solved materia l issues 6 3 of fa ct pre cluded summary judgme nt. 44de fau ltfiduc ia ry du ti es are tru m

pe d b y anop erat in g a gr eem en t, Ledf or d, 6 18 6 4 S.E.2dat 6 36 , th e co urt ex pl ai ne d t ha t Si gn atur e’s Ope rat in g Ag reem en t al lo wed

6 5 th e Act iv e Me m

be rs to ob ta in Peep le s’s as si st an ce i n fu nd in g t he Pu t an d C al l. Ci ti ng Sect io n 7 .3 o f th e Ope rat in g Ag reem en t, wh ic h aut ho riz edth e Act iv e
O.C.G.A. § 14-11- 305(1), whic h imposes a g ener al duty of loyalty

on the manag ers of 6 4 a limited liabilit y

company , see supr a note 48, is subject to modification as follows: (4) To the extent that, pursuant to paragraph ( 1) of this Code sec tion or otherwise at law or in equity , a member

or mana g er ha s duties (includingfiduciar y duties) and liabilities relatingthere to to a limit ed liability company or to another

member or mana g er: (A) T he member ’s or mana g er’ s duties and liabilities may be expanded, restric ted, or e liminated by provisions in . . . a written oper atingagree ment; provided, howe ver, that no such provision shall eliminate or limit the liability of a member or

manag er: (i) F or intentional misconduct or a knowingviolation of law; or (ii) For

any transac tion for which the pe rson re ceive d a per sonal bene fit in violation or brea ch or a

ny provision of a written operating a gree ment; and (B ) The me mber or ma

nag er sha ll have no liability to the limit ed liability company or to any other membe r or mana g er f or his or her

g ood faith re liance on the provisions of a written operating a gree ment, including, w ithout li mitation, provisions thereof

that relate to the scope of duties (includingfiduciar y duties) of members a

nd manag ers. O.C.G.A. § 14-11- 305(4) ( emphasis adde d). The L edfor d court e xplained the ba sis for this policy : 6 5 [t ]he contrac tual flexibi lity provided in [O.C.G.A. § 14-11-305] is consistent with O.C.G.A. § 14-11- 1107(b) of the [L imited L iability

Company] Act which provides that: “It is the policy of this state with respe ct to limit ed liability companies to g ive maxim um effe ct to the principle of fre edom of c ontrac t and to the enf orce ability

of oper atingagree ments.” L edfor d, 618 S.E.2d at 636 (quotation omitted).

45Mem

be rs to “ en ga ge in all
. . . ot he r bu si ne ss ve ntur es . . . bu t n o Act iv e Me m be r sh al l en ga ge in bu si ne ss es si m il ar t o t he bu si ne ss of t he [Si gn atur e] by co m pe ti ng wit h t he bu si ne ss of t he Co m pa ny,” th e co urt re as on edth at : Thi s p ro vi si on ga ve th e Act iv e Me m be rs wid e la ti tu de to en ga ge in al l o th er b us in es s ac ti vi ti es ex cep t t ho se “ si m il ar t o t he bu si ne ss of” [Si gn atur e], tha t i s, a “ co m pe ti ng ” car

pe t co m pa ny. T he pro vi si on was bro aden ou gh to all ow t he Acti ve Mem be rs to ne go ti at e with Peep le s fo r th e p ur

po se of o bt ai ni ng fin an ci ng to fun d t he ir b uy-ou t of Dy na -Vis io n's in te res t i n [S ig na tu re]. This act iv ity di d n ot “ co m pe te ” with [S ig na tu re]; th us , itdi d n otfal l wi th in th e ex cep ti on . Any fidu ci ary du ty of di sc lo su re tha t t he Acti ve Mem be rs ’ m ay ha ve owe d Dyna-Vi si on with re sp ectto su ch a bu si ne ss arrang em en t was el im in at edby the term s o f anop erat in g a gr eem en t t ha t al lo wedth e bu si ne ss act iv it y

whi ch oc cu rred . See St ok er v . Bel le m ead e, 27 2 Ga.App . at 8 24 , 61 5 S .E.2d1 (m em be rs of a n LLC d idno t b reac h fiduc ia ry du ti es by part ic ip at in g i n o th er al le ge dl y co m pe ti ng real es ta te de ve lo pm en ts be cau se op erat in g a gr eem en t al lo wedth em to do so ). Led fo rd , 61 8 S .E.2dat 6 36
. The co urt al so reject edpl ai nt iff s’ arg um en t tha t t he Oper at in g Ag reem en t’s Ri gh t o f Fi rs t Re fu sa l p ro vi si on , inSect io n 9 .2.1 , creat eda fi du ci ary du ty tha t requi redth e Act iv e Me m be rs to di sc lo se th ei r in te nt io n t o s el l Si gn atur e's ass et s t o Peep le s. Th e co urt ex pl ai ne d: As t he supe rio r co urt co rrec tl y co nc lu de d, t hi s p ro vi si on was p la in ly
“ in te nd edto pre ve ntou ts id ers fro m bu y in g i nt o [S ig na tu re]. In thi s way , th e Me m

be rs m ai nt ai ne d c on tro l o ve r who th ei r bu si ne ss ‘partne rs ’ were t o b e.” Be cau se th e Act iv e Me m be rs ' pr op os ed bu y -o utof Dyna-Vi si on 's i nt eres t wo ul d n otall ow a t hi rdpa rty to b uy 46in to [Si gn atur e] andbe co m e Dy na -Vis io n's bu si ne ss pa rtn er, the pu rp os e o f th e ri gh t o f fi rs t re fu sa l was no t i m pl ic at ed . There fo re, [Sec ti on ] 9.2 .1 d idno t re qu ire th e Act iv e Me m be rs to di sc lo se to Dyna -Vis io n h ow i t i nt en de d t o fi na nc e it s b uy-ou t o ffer
. Id . at 6 34
. Turn in g t o p la in ti ffs ’ fif

thcla im , th atth e Act iv e Me m be rs frau du le nt ly in du cedDy

na Vis io n t o s el l i ts in te res t, the co urt h el d t ha t s umm ary jud gm en t was ap pr op ria te be cau se th e Act iv e Me m be rs ’ fai lu re t o i nf

orm Dy na Vis io n o f th ei r de al with P eep le s d idno t caus e Dyna Vis io n’s d eci si on to sel l. On ce the Acti ve Mem be rs in vo ke d t he Oper at in g Ag reem en t’s Pu t an d C al l p ro vi si on , Dyna Vis io n, b y

it s p rin ci pa ls ’ own de po si ti on tes ti m on y , hadno feas ib le op ti on bu t t o s el l i ts in te res ts . As th e co urt o bs erv ed : Mo reo ve r, bo th Ledf

or d a ndO’ Dell de po se d t ha t, ev enif t he y co ul d ha ve rai se d t he m on ey

to bu y ou t t he Acti ve Mem

be rs , own in g [Si gn atur e] with ou t the Acti ve Mem be rs wou ldha ve be en“ fo ol is h” an d “ m ad e n o s en se ” b ecau se th e Act iv e Me m be rs were the he artof [Si gn atur e’s] val ue . As O’ Dell adm it te d “ we di dn 't re al ly hav e a ch oi ce . . . . W e d id n’t h av e a m an ag em en t g ro up . . . . The d ay th e p ut an d c al l ca m e in , I wou ld n’t g iv e two cen ts forfin di ng a gr oup t o rep la ce the m .” Becaus e Pee pl es ’s in vo lv em en t d idno t af fectth e va lu e o f th e Act iv e Me m be rs ’ in te res t, i t was im

m at eri al . Or, sta te d di ffer en tl y , [pl ai nt iff

s] can no t s ho w th atth ey

su ffer edan y

da m ag e as a res ul t o f th ei r al le ge d re li an ce o n t he Acti ve Mem be rs ’ affi rm at iv e m is rep res en ta ti on th atPeep le s was no t i nv ol ve d i n t he bu y -o ut . . . . Co ns eque nt ly, th ey

co ul d n otpro ve cau sa ti on or d am ag es , whi ch were es se nt ia l t o t he ir f

rau d c la im s. Id . at 6 34 -3 5.
47The co urt t he n a dd res se d the pl ai nt iff s’ sec on d c la im , th atSm it h, an d t hu s th e Act iv e Me m

be rs , frau du le nt ly induc edLeas in g t o s ig n t he warran ty deedat FNBC b y ask in g Led fo rdan d O’Dell to si gn th e d eedwitho utdi sc lo si ng th e
na tu re o f th e d oc um en t. Bec au se itfou ndno ev id en ce o f m is rep res en ta ti on , th e
co urt co nc lu de d t ha t o n t hi s cl ai m , th e Act iv e Me m be rs were en ti tl edto su m m ary jud gm en t. Ithe ld : Inth is cas e, th e ev id en ce s ho ws t ha t FNB C, on it s o wn i ni ti at iv e, dr aft edth e warra nt y

de edan d a sk edall th e p art ie s t o t he lo anclo si ng to si gn th is “ co rrec ti ve pape r.” Altho ug h Led fo rdan d O'Del l co nt en d th ey si gn edth e d oc um en t b ecau se Sm it h a sk edth em to do so , th e ev id en ce o nl y

sh ows th atSm ith was rel ay in g t he bank 's re qu es t. The re i s n o e vi de nc e in th e rec or d tha t Sm it h c au se d the de edto be dr aft ed , act edin co nc ertwith t he ba nk , or m is rep res en te d o r co nc eal edth e d oc um en t's na tu re. Infact , itap pe ars fro m th e rec or d th atSm it h was as i gn or an t o f th e d oc um en t’s s ig ni fic an ce as Ledf or d an d O’Dell . Und er the se cir cu m st an ces , we see no ev id en ce o f a frau du le ntst at em en t o r th e co nc eal m en t o f a m at eri al factth atSm it h was un de r a dut y

to di sc lo se . Id . at 6 36 -3 7. 4. On J ul y 15 , 20 05 , sh ortl y

aft er the Geor gi a Co urt o f App eal s’s o pi ni on is su ed , Peep le s’s co un se l s en t a l et te r to pl ai nt iff s’ cou ns el , reque st in g t ha t pl ai nt iff s d is m is s al l cl ai m s ag ai ns t Pe ep le s. OnJu ly 25, p la in ti ffs ’ co un se l
res po nd ed , st at in g t ha t n ot hi ng in th e co urt’s o pi ni on warran te d d is m is sa l an d t ha t
48th ey

ha d m ov edth e co urt o f ap pe al s fo r rec on si de rat io n. OnJu ly 28, 2 00 5, t he
m ot io n fo r rec on si de rat io n was de ni ed . On Aug us t 1 , Peep le s’s co un se l ag ai n
wro te pl ai nt iff

s’ cou ns el , ask in g t ha t p la in ti ffs ag ree t o ast ay of p ro ceed in gs in th e di st ric t co urt. Pl ai nt iff

s’ cou ns el reject edth atreque stth e n ex t d ay ; t he y pl an ne d to pe ti ti on th e Supr em e Co urt o f Geo rg iafora writof c ert io rari
. On Se pt em

be r 22 , Peep le s m ov edth e d is tri ctco urt fo r su m m ary jud gm en t
on all of p la in ti ffs ’ cl ai m s. In th e b rie f acc om pa nyin g the m ot io n, Pe ep le s ci te d th e co urt o f ap pe al s’s Led fo rdde ci si on an d s ta te d: Sh ou ldth e Geo rg iaSupr em e Co urt d en y Pla in ti ffs ’ pe ti ti on for cert io rari or a ffi rm

th e Geo rg iaCo urt o f App eal s' o rd er, the n Pl ai nt iff s’ der iv at iv e li ab il it y

cla im s i n t he fed eral act io n a re co ll at eral ly esto pp ed . In the ab se nc e o f affi rm an ce o r de ni al , th e reas on in g o f th e Geo rg iaCo urt o f App eal s, the ap pl ic ab le Geor gi a la w as c it ed , andth e co nc lu si on s re ach edon th e u nd is pu te d fa ct s as pr es en t i n t hi s ca se are i ns tru ct iv e an d m ay be co ns id eredby thi s Co urt. On Oct ob er 3 1, p la in ti ffs ’ co un se l re sp on de d t o t hi s s ta te m en t i n t he ir b rie f in op po si ti onto Peep le s’ m ot io n fo r su m m ary jud gm en t: As an in it ia l m at te r, th ro ug ho utth ei r br ie f, th e Defen dant s re fer t o a n Opi ni on of t he Geor gi a Co urt o f App eal s i n ast at e co urt p ro ceed in g be twee n t he Pla in ti ffs an d t he Acti ve Mem be rs . . . . The s ta te co urt cas e h as no effe cton th e cen tra l s ecu rit ie s fr au d c la im s i n t hi s ac ti on ; th e o pi ni on is no t b in di ng on th is Co urt. Fu rth erm or e, a p et it io n fo r cert io rari ha s b een fil edwith the Geor gi a Supr em e Co urt s eek in g t o

49co rrec t t he m ul ti tu de of l eg al an d fa ctua l erro rs co nt ai ne d i n tha t op in io n. 6 6 On No ve m

be r 18 , th e Geo rg iaSupr em e Co urt d en ie d p la in ti ffs ’ pe ti ti on for cert io rari rev ie w inth e st at e co urt ca se . Ten d ay s l at er, p la in ti ffs m ov edth e Co urt to reco ns id er i ts de ci si on . The co urt d en ie d p la in ti ffs ’ m ot io n o n Dec em be r 16
. 6 7 The de ni al op erat edto m ak e th e co urt o f ap pe al s’s Led fo rdde ci si on bi nd in g
au th or it y on m at te rs of Ge or gi a law. See Lex in gt onDeve lo pe rs , Inc . v. O’Neal Co ns t. Co ., Inc ., 23 8 S .E.2d77 0, 7 70 –7 71 (Ga. Ct . App . 19 77 ). On Dec em

be r 22 , th e d is tri ctco urt, i n aco m pr eh en si ve si xty -ei gh t p ag e
or de r, gr an te d P eep le s’s m ot io n fo r su m m ary jud gm en t o n a ll of p la in ti ffs ’ cl ai m s. Usi ng th e d oc tri ne of c ol la te ral est op pe l, the co urt d is po se d o f Co un t

6 8 Thre e, th atPeep le s co ns pi redwith t he Acti ve Mem be rs to de frau d DynaVis io n in to sel li ng it s i nt eres t i n S ig na tu re, an d C ou ntFiv e, th atPeep le s t orti ou sl y 6 9

Peeples’s c ounsel responde d to this posi tion on November 30, a dheringto what they 6 6 had stated in People’ s September 22 brief a nd informingthe district court that the G eorg ia Supreme Court had de nied ce rtiorar i review
. On Dec ember

2, the district court orde red c ounsel to inform it instanter of the supre me 6 7 court’s disposition of the motion. The c ourt enter ed a f

inal judgme nt for Peeple s the same da y . 6 8 The c ourt grante d Peeples summary judgme nt on the Count Three c laims that he had 6 9 conspired w ith the Active Membe rs fra udulently to induce L easingto convey the Gre en Road Property to Signature on the ground that plaintiffs aba ndoned that cla im by

failingto support it in their brief in oppositi on to Peeples’s motion for summary judgme nt. 50in te rfer edwith t he Acti ve Mem be rs ’ bu si ne ss rel at io ns hi p wi thDy na Vis io n. Th e
co urt re jecte d p la in ti ffs ’ Co un t Fo urcla im s, tha t Pe ep le s ai de d a ndab et te d t he Acti ve Mem

be rs ’ br each of f

iduc ia ry du ti es , on th e g ro un d tha t Geo rg ialaw d id
no t re co gn iz e su ch cla im s. Th e co urt d is po se d o f Co un ts One andTwo, ch arg in g Peep le s wi th sec ur it ie s fr au d, o n t he gro un ds th atpl ai nt iff s fa il edto de m on st rat e a ge nu in e is su e o f m at eri al factas t o t he sev eral ele m en ts of t ho se cla im s. 7 0 5. On J anua ry

9, 2 00 6, Pe ep le s m ov edth e d is tri ctco urt p ur su an t t o R ul e 5 9( e) of th e Fed eral Ru le s o f Ci vi l Pr oc edur e to alt er an d a m en d i ts jud gm en t. He arg ue d t ha t, wi th res pe ctto pl ai nt iff s’ fed eral sec ur it ie s l aw cl ai m s i n C ou ntOne, th e co urt h adfai le d t o i ss ue th e fi nd in gs requi redun de r th e PSLRA. The PSLRA requi res a di st ric t co urt, upo n fi na l ad jud ic at io n o f a fed eral sec ur it ie s l aw cl ai m , to “ in cl ud e in th e rec or d s pe ci fic fin di ng s re ga rd in g c om pl ianc e b y

each pa rty and each att orne y

rep res en ti ng an y

pa rty with each requi rem en t o f Ru le 11 (b ) of th e Fed eral Ru le s o f Ci vi l Pr oc edur e as to an y co m pl ai nt , res po ns iv e p le ad in g, o r di sp os it iv e m ot io n.” 15 U.S.C. § 7 8u -4 (c)( 1) . Peep le s u rg edth e co urt t o s an ct io n

Although the district court’s De cembe r 22 orde r made no expli cit ref ere nce to Counts 7 0 Six and Seven, the court’s disposition of Counts One, Two, and F our and its invocation of the doctrine of

collater al estoppel to dispose of Counts Three and F ive implicitly disposed of those two counts, which sought, respec tively , attorney ’s fe es and punitive damag es. 51pl ai nt iff

s an d t he ir c ou ns el for

fai li ng to co m

pl y with R ul e 1 1. He al so reque st ed
sa nc ti on s fo r th e Co un t On e cl ai m s p ur su an t t o 2 8 U.S.C. § 19 27 an d t he di st ric t
co urt’s i nh eren t p owe r. 7 1 Pl ai nt iff s an d t he ir a tt orne y s fi le d s ep arat e res po ns es to Peep le s’s re qu es t fo r at to rn ey ’s fees an d e xp en se s u nd er the PSLRA. Pla in ti ffs , rep res en te d i n t he
m at te r of san ct io ns by new at to rn ey s, cl ai m edth atth ey di d n otm is rep res en t t he hi st or ic al fact s t o c ou ns el , di d n otadvi se co un se l re ga rd in g the law, an d wer e n ot
res po ns ib le forth e m an ne r in whi ch co un se l l it ig at edth e cas e. Rel y in g o n o ur de ci si on in Byrn e v . Nezh at , 26 1 F .3d10 75 (11 th Cir . 20 01 ), pl ai nt iff s av erre d th atsan ct io ns ag ai ns t t he m wou ldno t b e ap pr op ria te . In t he ir s ep arat e res po ns e, pl ai nt iff s’ att orne y s as se rte d, i n e ss en ce, tha t a r eas on ab ly com pe te ntatt orne y
wou ldha ve reco gn iz edth atth e cl ai m s s etou t i n C ou ntOne o f th e co m pl ai ntwere
co gn iz ab le un de r th e fed eral sec ur it ie s l aws . On Ma rch21 , 20 06 , th e d is tri ctco urt g ran te d P eep le s’s m ot io n t o t he
ex te ntth atitso ug htPSLRA fi nd in gs , bu t re fu se d t o s an ct io n p la in ti ffs or t he ir
co un se l, fi nd in g t ha t t he y ha d a ct edin co m

pl ia nc e wit h R

ul e 1 1 i n p le ad in g a nd pr os ecu ti ng th ei r cas e. Peeples did not move the c ourt to imposes sanctions under Rule 11(b) , § 1927, or the 7 1 court’s inhe rent powe r with respe ct to plaintiffs’ prose cution of Counts Two through Seven of the complaint. 526.

All fiv e p la in ti ffs no w app eal th e d is tri ctco urt’s d is po si ti on of e ach of t he ir cl ai m s. Th ei r br ie f, ho wev er, p res en ts no arg um en t as to Co un ts Thre e an d F iv e th ro ug h S ev en . W e th eref or e tr eatas aband on edth ei r ap pe al of t he di st ric t co urt’s di sp os it io n o f th os e co un ts . W e al so tre atas aba nd on edth e ap pe al of t he co urt’s di sp os it io n o f pl ai nt iff

s’ cla im s u nd er two o f th e fed eral sec ur it ie s l aws . As no te d, Co un t On e co nt ai ne d c la im s u nd er s ect io n 2 0( a) o f th e 1 93 4 Actan d R ul es 10 b5( a) an d (b ). Pla in ti ffs ’ br ie f pr es en ts no arg um en t i n s up po rt o f th ei r se ct io n 20 (a) a ndRu le 10 b- 5( a) cl ai m s, an d, as in th e cas e o f Co un ts Thre e an d F iv e 7 2 th ro ug h S ev en , we dee m

th e ap pe al of the co urt’s d is po si ti on of t ho se cla im s t o ha ve be enab an do ne d. Acco rd in gl y , whatrem ai ns are p la in ti ffs ’ Co un t On e 7 3 cl ai m s u nd er Ru le 10 b- 5( b) ; t he ir C ou ntTwo cl ai m s u nd er the co m pa rab le Geo rg iasec ur it ie s l aw pr ov is io n; an d p artof t he ir C ou ntFo urcla im , th atPeep le s ai de d a ndab et te d t he Acti ve Mem be rs ’ br each of t he ir f

iduc ia ry du ty regar di ng

The district cour

t did not address explicitl y Dy naVision’s Rule 10b-5(a) cla im. 7 2 Plaintiffs’ initial brief in this appeal c ontains no argument in support of the Rule 10b-5(a) cla im qua cla im. Instead, the brief re fer s to a “sche me,” whic h forms the ba sis of a Rule 10b-5(a) claim, in arguing that there w as a g enuine issue of materia l fac t as to the “re liance”element of Count One’s Rule 10b-5(b) claim. We there fore treat plaintiffs’ Rule 10b-5(a) cla im its elf a s havingbeen a

bandoned. We likewise dee m abandone d plaintiffs’ Ge org ia sec urities law cla ims that mi rror the 7 3 section 20(a ) and Rule 10b- 5(a) claims. See O.C.G.A. § 10- 5-12(a )(2) (A)- (C). 53th e h an dl in g o f th e Green Ro adPro pe rty. Peep le s cr os s- ap pe al s the di st ric t 7 4
co urt’s re fu sa l t o s an ct io n p la in ti ffs an d t he ir c ou ns el as r equi redby the PSLRA fo r pr os ecu ti ng Co un t On e o f th e co m pl ai nt . Ourrev ie w pro ceed s as fol lo ws. We firs t co ns id er o urjuri sd ic ti on ov er pl ai nt iff s’ Cou ntOne 1 0b -5 (b ) cl ai m s. Next , we m ov e to pl ai nt iff s’ Cou ntFo ur 7 5 ai di ng an d abe tt in g c la im s. Aft er tha t, we t ak e up t he PSLRA s an ct io ns is su es . III. Befo re we as se ss th e m eri ts of p la in ti ffs ’ Ru le 10 b- 5( b) cla im s, we ad dr es s a th res ho ldqu es ti on : wh ethe r we h av e subjec t m atte r juri sd ic ti on , un de r 28 U.S.C. § 13 31 an d 1 5 U.S.C. § 78 aa, to en te rta in th e cl ai m s. Hern an de z v . Att ’y Gen., 7 6 7 7

Plaintiffs did not brief, and ther efor e aba ndoned, the issue of

whether the district court 7 4 err ed in dismissi ngthe claim that Peeple s aided a nd abetted the Active Me mbers’ br eac h of a fiduciar y duty to inform Dy

naVision’s principa ls that Peeples was pr oviding the $3.5 million the Active Me mbers nee ded to close the purcha se of Dy naVision’s intere st. What we say

about the merits of the Count One claims applies to plaintiffs’ Count Two 7 5 Geor g ia sec urities law cla ims. S ee G CA Strateg ic Inv. Fund, Ltd. v. J oseph Charle s & A ssocs., Inc., 537 S.E.2d 677, 682 (Ga . Ct. App. 2000) (“To e valuate a claim of sec urities fra

ud under OCGA § 10-5- 12(a) , we look to the similar eleme nts a plaintiff must alleg e under section 10(b) of the Sec urities Act of 1934. . . .” ). Section 1331 states: “The district courts shall have orig inal jurisdiction of all civil 7 6 actions arising unde r the Constituti on, laws, or tre aties of the United States.” Section 78aa states, in pertinent par t: “The district cour

ts . . . shall have exclusive 7 7 jurisdiction of violations of this chapter or the rules and r egulations thereunde r, and of all suits in equity and ac tions at law brought to enforc e any liability or duty cre ated by

this chapter or

the rules and r egulations thereunde r.” 5451 3 F .3d13 36 , 13 39 (11 th Cir . 20 08 ) (“ [W] e m us t i nqui re i nt o s ub

ject m at te r juri sd ic ti on su a sp on te when ev er i t m ay be lac ki ng .”). W e fi ndth e an swe r to th atqu es ti on in two Supr em e Co urt d eci si on s, Bl ue Ch ip Sta m

ps v. Ma no r Dru g S to res , 42 1 U.S. 7 23 , 95 S. Ct. 1 91 7, 4 4 L. Ed. 2 d 53 9 (1 97 5) , andBel l v . Hoo d, 3 27 U.S. 67 8, 6 6 S . Ct. 7 73 , 90 L. Ed. 93 9 (1 94 6)
. Und er Bl ue Ch ip Sta m

ps , a pl ai nt iff

m us t b e a p ur ch as er o r se ll er o f a s ecu rit y to ha ve a pr iv at e cau se of a ct io n u nd er Ru le 10 b- 5. Here , on e se ll er, Dyna Vis io n,
so ld , at m os t, o ne sec ur it y , a fif ty-perc en t i nt eres t i n S ig na tu re. Acco rd in gl y , Dyna Vis io n, as th e se ll er o f a s ecu rit y , hadst an di ng to su e Pee pl es un de r Ru le 10 b- 5. Led fo rd , O’ Dell , W al ke r, an d Lea si ng (“ co -p la in ti ffs ”) d idno t. 7 8 The di stric t co urt s ho ul d h av e rec og ni zedth is at t he ti m e itco ns id eredan d
ru le d o n P eep le s’s m ot io n t o d is m is s t he co m pl ai nt . Afterco nc lu di ng th atco 7 9

L edfor d, O’De ll, and Walker alleg ed, albe it by implication, that the loss Dy naVision 7 8 sustained as a

result of Pee ples’s sec urities fra ud violations was passed on to them through their owner ship interests in Dy naVision, in that the loss dimi nished the value of their inter ests. In other wor ds, they

are like the share holders of a corpor ation that sold securities it owned in relianc e on a third pa

rty misrepre sentation made in violation Rule 10b-5(b) and who, a s a re sult, incurre d a loss. Under

Blue Chip S tamps, howeve r, such de rivative injury to shareholde rs is not direc tly compensa

ble under Rule 10b-5. See F ed. R. Civ. P. 12(b)(6). Peeple s’s motion was addre ssed to plaintiffs’ entire 7 9 complaint. As for the Count One claims, the memora ndum of law a ccompa

ny ing the motion argued that Dy

naVision’s sale of

its int ere st to the Active Member s was not a “ securities transac tion” and, ther efor e, Peeple s’s alleg ed misrepr esenta tions were not made“in conne ction with” the purc hase or

sale of a security as re quired by

Rule 10b-5. The me morandum did not argue that co- plaintiffs wer e bar red f rom suing unde r Rule 10b-5 be cause they wer e not sellers of a sec urity
. 55pl ai nt iff

s fa il edto st at e a cl ai m

un de r Ru le 10 b- 5, t he co urt s ho ul d h av e m ov edto th e que st io n o f whe th er t o d is m is s t he ir c la im s fo r wan t o f subjec t m at te r juri sd ic ti on un de r Ru le 12 (b )(1 ) of th e Fed eral Ru le s o f Ci vi l Pr oc edur e. Bel l v
. 8 0 Hoo d h ol ds th at“ a su itm ay so m et im es be di sm is se d fo r wan t o f juri sd ic ti on whe re the all eg edcla im

un de r th e Co ns ti tu ti on or f ed eral st atut es cle arl y

ap pe ars to be imm at eri al an d m ad e so le ly for the pu rp os e o f ob ta in in g ju ris di ct io n o r whe re s uc h acla im

is who ll y in subs tant ia l an d fr iv ol ou s.” 3 72 U.S. at 6 82 -8 3, 6 6 S. Ct . at 7 76 . (em

ph as is ad de d.). Th e wor d “ m ay ” im pl ie s t ha t t he di sm is sa l o f a cl ai m forwantof ju ris di ct io n i s co m m it te d t o t he so un d d is cret io n o f th e d is tri ct
co urt. Bu t, jus t as in an y in st an ce wh ere adi st ric t co urt h as di sc ret io n, t ha t di sc ret io n c anbe ab us ed . Here, co -p la in ti ffs ’ fed eral sec ur it ie s fr au d c la im s wer e pl ai nl y an d i nd is pu tabl y

fri vo lo us . They were, i n t he Supr em e Co urt’s wo rd s, “ so pa te nt ly w it ho utm eri t as to jus ti fy
. . . th e co urt’s d is m is sa l fo r wan t o f juri sd ic ti on .” Id . Mor eo ve r, no am en dm en t o f th e co m pl ai ntco ul d p os si bl y

ha ve
cu redit s p at en t, an d fa ta l, d efi ci en cy , th atco -p la in ti ffs lac ke d s ta nd in g t o s ue . In

Prior to consideringthe question of whe ther to dismiss the claims for wa nt of 8 0 jurisdiction, the court had to “ assume jurisdiction to decide whether the alleg ations state a c ause of ac tion on which the cour t could g rant re lief.” B ell v. Hood, 327 U.S. at 682, 66 S. Ct. at 682. The district cour

t did so here. Its determination that co- plaintiffs had stated a case for Rule 10b-5 relief eliminated the nec essity

of considering whether

jurisdiction under 28 U.S.C. § 1331 and 15 U.S.C. § 78aa wa s lacking
. 56su ch anex tre m e cas e, th e d is tri ctco urt ab us edit s d is cret io n i n fa il in g t o d is m is s

co -p la in ti ffs ’ Co un t On e cl ai m s fo r wan t o f juri sd ic ti on . Co -p la in ti ffs ’ in ab il it y

to in vo ke th e d is tri ctco urt’s jur is di ct io n u nd er 2 8 U.S.C. § 1 33 1 and15 U.S.C. § 7 8a a fo r Co un t On e d idno t fo recl os e th ei r ri gh t t o li ti ga te th e cl ai m s as se rte d i n C ou nt s Two th ro ug h S ev en . Desp it e th e fac t t ha t Co un ts Two th ro ug h S ev endo no t i m pl ic at e a fed eral qu es ti on , th ey are jo in edin th e cas e b y

a se rie s o f juri sd ic ti on al st ep s. Fi rs t, b ecau se Dy na Vis io n s ol d a
se cu rit y , th e d is tri ctco urt h adjuri sd ic ti on un de r 28 U.S.C. § 1 33 1 a nd15 U.S.C. § 78 aa t o a dju di cat e Dyna Vis io n’s Co un t On e se cu rit ie s fr au d c la im s. Sec on d, t he
co urt t he refo re h adsupp le m en ta l ju ris di ct io n u nd er 2 8 U.S.C. § 13 67 to 8 1 ad jud ic at e an y

ot he r cl ai m s DynaVis io n h adag ai ns t Pe ep le s t ha t wer e “ so rel at ed to ” th e Co un t On e cl ai m s t ha t the y form edpa rt o f “ th e sa m e cas e o r
co nt ro ve rs y .” Dy

na Vis io n’s cl ai m s i n C ou nt s Two th ro ug h S ev en , gi ve n t he 8 2
The c omplaint alleg ed that the district cour t had jurisdiction over a ll non-fede ral 8 1 claims plaintiffs wer e asse rtingunder “ the principles of pendent a

nd ancillar

y jurisdiction” and contained no r efe renc e to 28 U.S.C. § 1367, the provisions of which had supe rce ded pende nt and ancillar y jurisdiction. Section 1367 states, in pertinent pa rt: 8 2 (a) . . . in any

civil action of whic h the district courts have orig inal jurisdiction, the district courts shall have supplemental jurisdiction over a ll other claims that ar e so related to claims in the ac tion within s uch orig inal jurisdiction that they form par t of the same case or controve rsy under Article I I Iof the United States Constitution. Counts Two through Seve n incorpora ted by ref ere nce thefede ral sec urities fra ud claims 57m an ne r in whi chth e co m pl ai ntpre se nt edth em , ap pe ar t o h av e b een so rel at edto 8 3 Dyna Vis io n’s Co un t On e’s al le ga ti on s, tha t the y form edpa rt o f th e sa m e cas e o r
co nt ro ve rs y

de sc rib edinCo un t On e. Fin al ly, Ru le 20 of t he Fed eral Ru le s o f 8 4 Ci vi l Pr oc edur e au th or iz edco -p la in ti ffs to joi n DynaVis io n a s p la in ti ffs in Co un ts Two thr ou gh Sev ensi nc e th ei r cl ai m s ar os e o utof “ th e sa m e tr an sa ct io n,
oc cu rren ce, o r se rie s o f tr an sa ct io ns or o ccu rren ces ” fo rm in g t he pre di cat e fo r

asser ted in Count One, and Counts Three through Seven incor porate d the claims of a ll antec edent c ounts. See supra pa rt I I .B.1. The Count One claims wer e not culled out of Counts Two through Seven by

the cour t on its own ini tiative or via a motion by

Peeples for

a more definite stateme nt. Our discussion in the textproce eds under the assumption that the district court struc k the Count One cla ims from Counts Two through Seve n, and, more over, struc k from Counts Three through Seven all cla ims incorporate d by ref ere nce. See supra

part I I .B.1. 8 3 As indicated supr a par t I I .B.1, Count Thre e conta ined two “Conspirac y to Defr aud” 8 4 claims, one brought by

Dy naVision and the othe r by L easing . The L easingclaim appe ars to fa ll without the court’s sec tion 1367 supplemental jurisdiction. CountFour also containe d two “Aidingand Abe tting” c laims, one brought by Dy naVision and the othe r by L easing , L edfor d, and O’ Dell. The L easing , L edfor d, and O’ Dell claim, like L easing ’s Count Threeclaim, appe ars to fall without the court’s se ction 1367 jurisdiction. Peeples did not object to the court’ s enter tainment of these non- supplemental jurisdiction claims. Due to this and the shotgun nature of the c omplaint’s alleg ations, we de cline to explore the matter f urther. 58Dyna Vis io n’s cl ai m s. Exce ptas t o C ou ntOne, t he refo re, we h av e juri sd ic ti on to 8 5
co ns id er co -p la in ti ffs ’ cl ai m s. 8 6 IV. W it h ju ris di ct io n e st ab li sh ed , we no w tu rnto pl ai nt iff s’ rem ai ni ng sec ur it ie s frau d andaid in g a ndab et ti ng cla im s. We addres s t he se cla im s i n turn, af firm in g th e d is tri ctco urt’s g ran t o f su m m ary jud gm en t fo r Pee pl es . A. Ina typic al sec ti on 10 (b ) ci vi l ac ti on for a vi ol at io n o f Ru le 10 b- 5( b) , a pl ai nt iff m us t p ro ve (1) a m at eri al mis rep res en ta ti on or o m is si on by the de fen da nt , (2 ) sc ie nt er, (3 ) a co nn ect io n b etween th e m is rep res en ta ti on or o m is si on an d t he pu rch as e o r sa le of asec ur it y , (4) rel ia nc e upo n the m is rep res en ta ti on or o m is si on ,

Rule 20, as it exi sted at the time plaintiffs filed the ir complaint, stated, in per tinent 8 5 part: (a) Permissive J oinder. All per sons may join in one action as plaintiffs if the y asser t any right to relief jointly , sever ally , or in the alter native in re spect of or arisingout of the same tr ansac tion, occurr ence , or series of tra nsactions or occur renc es and if a

ny question of law or

fac t common to all these persons will arise in the a ction. The Ge org ia sec urities law ca ses have adopted B lue Chip St amps’s holdingthat only a 8 6 buyer or seller of a sec urity

has standingto sue under G eorg ia’s ver sion of Rule 10b-5. B ell v. Sasser, 520 S.E.2d 287, 292 (Ga . Ct. App. 1999). Co-plaintiffs’ Count Two claims fa il under Fe d. R. Civ. P . 12(b)( 6) bec ause c o-plaintiffs we re not involved in the sale of a se curity
. 59(5 ) eco no m ic lo ss , and(6) lo ss cau sa ti on . Sto ne rid ge Inv . Part ne rs , LLC v.

Sci en ti fic -Atl an ta , __U.S. __ , 12 8 S . Ct. 7 61 , 76 8, 1 69 L. Ed. 2d62 7 (2 00 8)
. 8 7 To es tabl is h age nu in e is su e o f m at eri al factas t o t he rel ia nc e el em en t, 8 8 pl ai nt iff s ha d t o p res en t ev id en ce tha t, i n c on ve rs at io ns with P au l Walk er, 8 9 Peep le s s ta te d t ha t h e was no t i nv ol ve d i n the Acti ve Mem be rs ’ at te m

ptto acqui re Dyna Vis io n’s i nt eres t i n S ig na tu re, tha t h is st at em en ts were fa ls e, th at

The litera l definition of a sec urity under the 1934 Securities and E x chang e Ac t, as 8 7 codified in 15 U.S.C. §78c(a)(10) , does not include a n interest in a limited liability company . See Ne lson v. St ahl, 173 F. Supp. 2d 153, 164 (S.D.N.Y . 2001) (" The Exchang e Ac t's de finition of sec urity

does not ref

er to membe rship interests in limit ed liability companies." ). None theless, plaintiffs asser

ted in their complaint and in brie fingto the district court that Dy naVision' s interest in Signature was a

security . Peeples did not question this assertion, nor did the district court analy ze this i ssue sua sponte. Our indepe ndent re sear ch of this issue indicates that whether Dy naVision' s interest could be conside red a

security is problematic. We ar e satisfied, how ever , that plaintiffs’ alleg ation that Dy naVision’s intere st was a se curity passes the thre shold test set forth in Be ll v. Hood. See Wil liamson v. Tucker , 645 F.2d 404, 416 ( 5th Cir. May 1981) (holdingthat the plaintiff’s alleg ation that joint venture intere sts weresecurities was not so obviously frivolous as to fa il the low jurisdictional bar in B ell v. Hood). In the abse nce of any briefingon this iss ue by

the par ties and in light of

our re solution of plaintiffs' Rule 10b- 5(b) c laims in favor of Peeples, we se e no need to de cide whe ther Dy naVision’s intere st was a se curity
. The district cour

t used the term “ transac tion causation” in re fer ringto the relianc e 8 8 element. That terminology is irreleva

nt, as “[t] ransa ction causation” is no more than “a nother way of desc ribingrelianc e.” Robbins v. Kog er Prope rties, Inc., 116 F .3d 1441, 1447 (11th Cir. 1997); see a lso Dura Phar mace uticals, Inc. v. B roudo , 544 U.S. 336, 341-342, 125 S. Ct. 1627, 1631 (2005) ( explaining that re liance is one of the e lements of a Rule 10b- 5 claim and is “of ten ref err ed to in case s involving public sec urities marke ts (fra ud-on-the- marke t case s) as ‘transa ction causation’”). We refe r to all five plaintiffs. O ur B ell v. Hood jurisdictional rulingthat struck co- 8 9 plaintiffs’ cla ims from Count One has no ef fec t on their Count Two claims under the Geor g ia Securities Ac t. 60Dyna Vis io n’s p rin ci pa ls reas on ab ly reli edon th e st at em en ts , an d t ha t b ecau se of 9 0 th atrel ia nc e, th e p rin ci pa ls cau se d DynaVis io n “ to en ga ge in th e tr an sa ct io n i n qu es ti on .” Ro bb in s v . Kog er Pro pe rti es , Inc ., 11 6 F .3d14 41 , 14 47 (11 th Cir
. 19 97 ) (quo ta ti onom it te d) . Putan ot he r way , pl ai nt iff s h adto de m on st rat e th atbu t fo r Pee pl es ’s st at em en ts , Dy na Vis io n wo ul d n otha ve so ldit s i nt eres t b ut , in st ead , wou ldha ve bo ug htth e Act iv e Me m be rs ’ in te res ts . Hud dl es to n v . Herm an& Mac Lean , 64 0 F .2d53 4, 5 49 (5t h C ir. M ar. 1 98 1) , rev ’d on ot he r gr ou nd s, 4 59 U.S. 37 5 (1 98 3) (“ Rel ia nc e is a cau sasi ne qu a n on , a type o f ‘butfor ’ requi rem en t: ha d the in ve st orkn own th e truth h e wou ldno t h av e act ed .”). Afte r car efu ll y

co ns id eri ng th e ev id en ce b efo re i t, the di st ric t co urt
co nc lu de d t ha t n o g enui ne is su e o f m at eri al factex is te d a s t o t hi s el em en t: Peep le s’s d en ia l o f an y

in vo lv em en t i n t he Acti ve Mem be rs ’ pl andi d n otcau se Dyna Vis io n t o s el l i ts in te res t. The co urt ex pl ai ne d: The ev id en ce i n t he reco rd , vi ewedin th e li gh t m os t fa vo rab le to Pl ai nt iff s, s ho ws t ha t Pl ai nt iff

s t he m se lv es di d n otha ve th e n eces sa ry ex pe rie nc e, m ark et in g s ki ll s, an d e xp ert is e to run [Si gn atur e] in the ab se nc e o f th e Act iv e Me m be rs , andth atPla in ti ffs ’ at te m pt s t o o bt ai n a m an ag em en t g ro up an d n eces sa ry pe rs on ne l t o wo rkwith
In an ac tion for damag es under Rule 10b-5(b) ba sed on the de fenda nt’s 9 0 misrepre sentation, the plaintiff must show that he “ rea sonably relied on a

nd was injured by

the misstatement.” Pelletier v. Z weife l, 921 F. 2d 1465, 1510 (11th Cir. 1991). In the Rule 10b-5 context, we have use d the words “ justifiably

relied” as the e quivalent of “ rea sonably relied.” E.g ., Br uschi v. Br own, 876 F.2d 1526, 1528 ( 11th Cir. 1989). Thus, “re asonably” and “justifiably ,” for

Rule 10b-5 purposes, e x press the same eleme nt. 61[Si gn atur e] were un su cces sf ul . Plai nt iff

s t he m se lv es tes ti fie d t ha t i t wou ldbe foo li sh or r is ky to p ur ch as e th e Act iv e Me m be rs ’ in te res ts in [Si gn atur e] with ou t h av in g am an ag em en t g ro up or m ark et in g gr oup i n p la ce t o re pl ace t he Acti ve Mem be rs . Altho ug h P la in ti ffs su m m ari ly con te ndth atth ey

wou ldha ve act eddi ffer en tl y if t he y ha d kn own of De fen da ntPeep le s’ in vo lv em en t, tha t s umm ary an d co nc lu so ry

co nt en ti on is no t s uf

fic ie ntto all ow Pl ai nt iff

s t o a vo id su m m ary jud gm en t. In de ed , kn owl ed ge of De fen da ntPeep le s’s in vo lv em en t wo ul d n othave ch an ge d the factth atPla in ti ffs di d n ot ha ve th e n eces sa ry

ex pe rie nc e, m ark et in g s ki ll s, an d e xp ert is e to run [Si gn atur e], andth atPla in ti ffs ’ at te m pt s t o o bt ai n am an ag em en t gr oup a ndne ces sa ry

pe rs on ne l t o wo rkwith [S ig na tu re] were un su cces sf

ul . The fai lu re t o d is cl os e Defen da ntPeep le s’ in vo lv em en t th us di d n otcau se Pla in ti ffs ’ de ci si on to sel l Pl ai nt iff Dy na Vis io n’s in te res t u nd er the Feb ru ary 25 , 20 02 , Putan d C al l . . . . 9 1 B. To o bt ai n arev ers al of t he di st ric t co urt’s re so lu ti onof t he rel ia nc e is su e, pl ai nt iff s m us t s at is fy

us th atth e ev id en ce i n t he reco rdcrea te s a ju ry is su e as to whe th er Dyna Vis io n wo ul d h av e p ur ch as edth e Act iv e Me m be rs ’ in te res ts , rathe r
This is essentially

verbatim what the Geor g ia Court of Appe als said in L edfor d, that 9 1 Dy naVision would have sold its i ntere st notwithst andingPeeples’s involveme nt. L edford, 618 S.E.2d at 634-35; see a lso supra par t I I .B.2. The court of a

ppeals, a fter c onsideringthe evidenc e in the light most favor able to plaintiffs, infe rre d this ult imate fa ct bec ause the evidenc e pointed to the fa ct as a

matter of la

w. The que stion for the district court wa s whether it should i nvoke the doctrine of

collater al estoppel a

nd conclusively

rely on the cour

t of appe als’stateme nt of ultimate fac t in determiningwhether , in resolvingplaintiffs’ Rule 10b-5(b) cla im (and the c ompara ble Geor g ia sec urities law cla im), Dy naVision’s principa ls would have sold Dy naVision’s intere st notwithstanding Pee ples’s denia l of involvement. The district cour t invoked the doctrine in decidingplaintiffs’ cla ims in C ounts Three and F ive, but not in decidingany of the fa ctual issues involved in plaintiffs’ fe dera l and state sec urities laws cla ims. W e dec line to consider the doctrine’ s application to those claims as a matter of e fficie ncy

since the pa

rties have not briefe d the issue.
62th ansel l i ts in te res t, h adPeep le s t ol d P au l Walk er an d Led fo rdth athe was

pr ov id in g t he Acti ve Mem be rs th e $ 3.5 m il li onth ey ne ed edto clo se th e tra ns act io n. Th ere i s n o d ire ctev id en ce tha t Dyna Vis io n wo ul d h av e el ect edto bu y th e Act iv e Me m

be rs ’ in te res ts ha d P eep le s ad m it te d t ha t h e was pro vi di ng th e
m on ey . Becau se th ere i s n o d ire ctev id en ce tha t Dyna Vis io n wo ul d h av e el ect ed to bu y , we askwhethe r su ch ele ct io n c anbe in ferr edfro m th e rec or d. Sp eci fic al ly,
we as k wh ethe r itcan be in ferr edas a n u lt im at e fac t fr om th e subs id ia ry , ci rcu m st an ti al fact s s ho wn b y th e ev id en ce, v ie wedin th e li gh t m os t fa vo rab le to pl ai nt iff s. Pl ai nt iff s ar gu e th atcir cu m st an ti al fact s s uf fic ie ntto crea te th e in fere nc e are pr es en t. Pee pl es arg ue s t ha t t he y are n ot , th atth e ci rcu m st an ti al fact s cr eat e th e
co nt rary inf

eren ce: Dy

na Vis io n s ol d b ecau se do in g s o was in th e eco no m ic sel fin te res t o f it s p rin ci pa ls , anditwou ldno t h av e el ect edto bu y ev enif i t h adkn own of Peep le s’s i nv ol ve m en t. Inass es si ng th es e o pp os in g p os it io ns , our fi rs t t as k i s t o i de nt ify the ci rcu m st an ti al fact s t ha t t he ev id en ce es tabl is he s as a m at te r of law. On ce tha t i s do ne , we det erm in e whe th er i t wo ul d h av e b een pe rm is si bl e fo r a jury to d raw the in fere nc e th atDy

na Vis io n wo ul d h av e el ect edto pu rch as e th e Act iv e Me m be rs ’s

63in te res ts ha d i t kno wn t ha t Pe ep le s was pro vi di ng th e $ 3.5 m il li on th aten ab le d t he

Acti ve Mem

be rs to clo se . The ev id en ce d is cl os es th ree s et s o f ci rcu m st an ti al fact s, wi th in fere nc es flo win g fr om

each set . W e su m

m ari ze ea ch setin th e h ead in gs of t he fol lo win g
subp art s an d c on cl ud e th at , as am at te r of law, Dyna Vis io n’s p rin ci pa ls wou ld ha ve so ldev enif t he y

ha d kno wn ab ou t Pe ep le s’s i nv ol ve m en t.

1. Dyna Vis io n l ack edth e ex pe rti se ne ces sa ry to op erat e Si gn atur e’s fact ory an d m ark etSig na tu re’s p ro du ct . Con se qu en tl y , if t he Acti ve Mem be rs lef t, the re wou ldbe no on e to runth e co m pa ny, andSig na tu re’s v al ue wou ldrap id ly decl in e. The re i s n o d is pu te reg ard in g t he rol es th atDy na Vis io n’s p rin ci pa ls an d t he Acti ve Mem

be rs pe rfo rm edforSig na tu re. The pri nc ip al s fu nc ti on edas Si gn atur e’s fi na nc ie rs . By est ab li sh in g t he $2 00 ,00 0 l in e o f cre di t, the y were ab le to pro vi de Sig na tu re wi thth e fu nd s re qu ire d t o s tart t he bu si ne ss an d p ay th e b il ls
un ti l ca rp etsal es ge ne rat eden ou gh in co m e to co ve r th e co m pa ny’ s o pe rat in g
ex pe ns es . The Act iv e Me m be rs were the m an ag ers of t he en te rp ris e. Owenb y an d Tho m as ha nd le d t he m anuf actur in g a ndsal es . Sm it h, t he co m pa ny’ s p res id en t,
was inch arg e o f m ark et in g, s in ce s he was wel l an d fa vo rab ly kno wn i n the ho sp it al it y

in du st ry an d thu s capabl e o f at tra ct in g aco ns id erab le vo lu m e o f bu si ne ss . 64By

th ei r own adm is si on in de po si ti on s t ak eninth e st at e co urt ca se an d i n th is cas e, Dy

na Vis io n’s p rin ci pa ls co ul d n ot , th em se lv es , rep la ce the Acti ve 9 2 Mem be rs , m os t n ot ab ly Sm ith, fo r th e p rin ci pa ls ha d n o e xp eri en ce i n
m anuf actur in g c arp etan d wer e v irtua ll y in cap ab le of m ark et in g S ig na tu re’s pr oduc ts . Ledfo rdtes ti fie d t ha t t he pri nc ip al s h adno “ ex pe rie nc e wit h [t he ]
cu st om er b as e” an d t he refo re co ul d n otrun th e co m pany. He em

ph as iz edSm it h’s ke y rol e in m ark et in g S ig na tu re’s p ro du ct s, s ta ti ng th at“ ha d we b een ab le to ret ai n Bren da , we wou ldha ve pu rch as edth e co m pa ny.” Pau l Walk er s ai d tha t “ no ne of

9 3 th e Dyna Vis io n Gro up were a p artof t he ev eryday m an ag em en t o r m ark et in g o f Si gn atur e” an d t ha t t hi s “ was [th e] on ly reaso n” why Dyna Vis io n d idno t el ectto pu rch as e th e Act iv e Me m be rs ’ in te res t af

te r th e Pu t an d C al l i ss ue d. O’Dell adm it te d t ha t Dyna Vis io n’s p rin ci pa ls were n otqu al ifi edto run th e co m pa ny. Inad di ti on to th is tes ti m on y , Dy na Vis io n’s p rin ci pa ls ’ co nduc t t oward s t he Acti ve Mem

be rs sp ok e v ol um es ab ou t h ow i m po rta ntth e p rin ci pa ls fel t i t was to
This testimony

appea rs in the question and a

nswer f ormat appe aring

supra note 31. 9 2 The e x pert opinion testimony Dy naVision proff

ere d to the district court conc erning 9 3 Signatur e’s va lue buttressed the fac t that Signature ’s value w as tied to the Ac tive Members’ manag ement, mar

ketingskills, and good will. Dy naVision’s expert, in estimating tha t Signature was wor th $14 mill ion, assumed not only that the Active Me mbers would re main with the company but also that Smi th would increa se her owner ship interest in Signature to the point that the firm would qualify

as minority

owned, a nd there fore rec eive a dditional revenue – presumably from sale s set aside for

minority -owne d entities. The expert provided no e stimation as to Signatur e’s va lue without the Active Me mbers’ pr esenc e. 65ke ep th e Act iv e Me m be rs in th e co m

pany, at le as t u nt il th e p rin ci pa ls th em se lv es de ci de d t o s el l. The p rin ci pa ls in cl ud edin th e Ope rat in g Ag reem en t a p ro vi si on 9 4 th atm ad e ithi gh ly unl ik el y th atth e Act iv e Me m

be rs wou ldlea ve Sig na tu re b efo re th e p rin ci pa ls were re ady to sel l. If an Acti ve Mem be r so ldhi s o r he r in te res t i n th e co m pany, Secti on 10 .4 o f th e Agr eem en t wo ul d p recl ud e th atMem be r fro m
co m pe ti ng with S ig na tu re fo r a p eri odof o ne y ear. Becaus e th ey were n ot 9 5 fin an ci al ly ind ep en de nt , th e Act iv e Me m be rs wou ldpre su m ab ly needto fin d o th er
em pl oym en t i n t he carp etbu si ne ss up onlea vi ng th e co m pany. Ly in g i dl e fo r a y ear wo ul d b e b ur de ns om e, an d a n Act iv e Me m be r wou ldth eref

or e th in k t wice be fo re l eav in g S ig na tu re. The pri nc ip al s al so in cl ud eda pr ov is io n t o m ak e itha rdforth e Act iv e Mem be rs to bu y

ou t Dyna Vis io n b efo re Dyna Vis io n was read y to sel l. Sec ti on 9.1 of th e Ope rat in g Ag reem en t ad dr es se d t he po ss ib il it y th atth e Act iv e Me m

be rs
m ig htatt em

ptto bu y Dy na Vis io n’s i nt eres t p ur su an t t o t he Sect io n 9 .5 Pu t an d
Under the “Right of First Ref

usal” provision of the O pera ting Agree ment, if 9 4 Dy naVision’s principa ls obtained a bona fide off er to sell Dy

naVision’s intere st in S igna ture, a nd they desired to se ll the interest, they would have to notify

the Active Me mbers who, in turn, would have the right to purchase Dy naVision’s intere st at the price set in the bona fide offe r. See supra note 47. O ddly

enough, this right of f

irst refusa l would not be trig g ere d if Dy naVision’s principals re ceive d a bona f ide offe r to sell their intere sts in Dy naVision and de cided to ac cept it. In other wor ds, Dy

naVision’s principa ls could sell their interests in Signature in two wa y s: (1) causingDy

naVision to sell its i ntere st in S igna ture, whic h would trig g er the Active Me mbers Right of F irst Refusal; or (2) selling the ir interests in Dy naVision, which would not. See supra

note 11. 9 5 66Cal l p ro vi si on . Dy na Vis io n’s p rin ci pa ls kn ew th e Act iv e Me m be rs lac ke d t he pe rs on al res ou rces su ffi ci en t t o m ak e an off er tha t Dyna Vis io n’ pri nc ip al s wo ul d be tem pt edto acce pt ; co ns eque nt ly, th e Act iv e Me m be rs wou ldha ve to bo rro w 9 6 th e m on ey

to fun d a ny bu y -o ut . Obt ai ni ng a co nv en ti on al lo anfro m a ba nkor 9 7
In L edfor d’s state c ourt deposition, he testified as f ollows: 9 6 HORST: Did it m ake a

ny differ ence to you whether therewas a

third party involved in fundingBob, B renda , and B ryan’s of fer to purcha se Dy

navision . . . . L EDF ORD: Yes, it would make a differ ence to me. HORST: W hy ? L EDF ORD: Be cause if Bob, B renda , and B ryan didn’t have financ ial backing from them, I

don’t think they

could have bought our interest a nd Idon’t think this whole thingwould have c ome up. In L edfor d’s district court de position, he testified as follows: 9 7 SI NKF I EL D: Do you know whethe r collec tively and without help from a

third person in some for

m or the other the y

had the r esourc es to pay

three -and- a-ha lf milli on dollars for theDy na-V ision int ere st? L EDF ORD: No, sir, Idon’t know. SI NKF I EL D: You don’t know one way or the other

. . . . Did you have a

ny opinion on the subject at the time? L EDF ORD: At the time we re ceive d the Put and Call . . . Ihad an opinion, yes, sir. SI NKF I EL D: And what wa s that opinion? L EDF ORD: That they

probably could not. SI NKF I EL D: And base d on that opinion, how did you think they would pay

for the Dy na-V ision int ere st if y ’all dec ided not to buy them out? L EDF ORD: Ididn’t know. SI NKF I EL D: Did you have a n opinion as to what they would have to do? L EDF ORD: Well, Iassumed if they bought us out . . . they

would . . . have to borrow the money . I f they couldn’t do that, they

would have to g et the money from someone else. In Walker’s district cour

t deposition, he testified as follows: SI NKF I EL D: So you knew [the Active Me mbers] had to have f unding f rom [an outside] s ource , is that corre ct? 67ot he r le nd in g i ns ti tu ti on wou ldrequi re co ll at eral , andth e o nl y co ll at eral th ey

ha d of si gn ifi can t v al ue was t he ir i nd iv idua l i nt eres ts in Sig na tu re. Sec ti on 9.1 , ho wev er, b arre d t he Acti ve Mem be rs fro m pl ed gi ng th ei r in te res ts to a le nd in g in st itut io n. As a p ract ic al m at te r, th en , th e o nl y way th e Act iv e Me m

be rs co ul d 9 8 at te m pta bu y ou t Dyna Vis io n’s i nt eres t wo ul d b e to fin d s om eo ne li ke Peep le s— so m eo ne wil li ng to adva nc e th e p ur ch as e p ric e o n t he co nd it io n t ha t,
WAL KER: I f they

closed the de al, yes. SI NKF I EL D: And you knew, to the be st of your knowledg e, that they did not have sufficie nt resourc es amongthemselves to do it without outs ide funding ; is that corr ect? WAL KER: Iwould say

with suspicion, they

didn’t have. B ut to my

initial knowledg e, no. SI NKF I EL D: But to the be st information you had told you they couldn’t fund it without outsi de help. I s that corr ect? WAL KER: To the best information I had, yes. Section 9.1 of Article 9 of the Ope ratingAgree ment, “Restrictions on Tra nsfer s and 9 8 Encumbra

nces,” states, in pertinent pa rt: The Membe rs have . . . agree d that, without the express written consent of the Company and all other

Members in the Company , they will not transfer, a ssign, sell, pledg e, enc umber, hy potheca te . . . any of their Intere sts . . . ex cept strictly in acc ordanc e with the ter

ms and requir ements of the this Agree ment, the same be ing exhaustive of all methods and mea ns by which such [Intere sts] may be transfe rre d. Any

purported tr ansfe r in violation of any provision here in shall be void and of no e ffe ct, and sha ll not operate to tra nsfer any title or interest to the purported tr ansfe ree . L ike the Rig ht of First Ref usal Provision, supra note 47, this restriction had a n uneven e ffe ct. Although the Active Me mbers would have to obtain Dy naVision’s conse nt in order to pledg e their intere sts in S ignature a s collatera l for a loa n, Dy naVision’s principa ls, namely L edfor d, O’De ll, and Walker, would not have to obtain the Active Me mbers’ c onsent in order to pledg e their intere sts in Dy

naVision—and, indirec tly , their intere sts in S igna ture—a s collatera l for a loan. The A ctive Membe rs’ c onsent would be ne cessa ry only if Dy naVision, itself, wante d to pledg e its interest in Signature a s collatera l for a loa n it was obtaining
. 68aft er ac qu iri ng Dy na Vis io n’s i nt eres t, the Acti ve Mem be rs wou ldsel l h im

all or pa rt o f th e b us in es s an d a gr ee t o s ta y on an d ru n the co m

pa ny. Jo in er re ve al edho w in di sp en sabl e th e Act iv e Me m be rs were t o S ig na tu re’s
va lu e in th e le tt er h e wro te to Krev ol in on Apri l 1 1, 2 00 2, n in et een da y s b efo re the cl os in g was to tak e p la ce. Inth e le tt er, J oi ne r in fo rm edKrev ol in th atDy na Vis io n
wou ldrefu se to clo se un le ss th e Act iv e Me m be rs si gn eda ne w agr eem en t wi th Dyna Vis io n a nd , as re qu ire d b y th atne w agr eem en t, re pr es en te d i n wri ti ng th at th ey were ac qu iri ng Dy

na Vis io n’s i nt eres t “ so le ly for [t he ir] own acco un t . . . wit ho utth e fi na nc ia l p art ic ip at io n o f [a thi rdpa rty] .” 9 9 Alt ho ug h J oi ne r po in te d t o n ot hi ng inth e Ope rat in g Ag reem en t tha t wo ul d requi re the Acti ve Mem

be rs to m ak e th es e rep res en ta ti on s, h e, orhi s cl ie nt s, ap pa ren tl y

th ou gh t Kre vo li n wo ul d a gr ee tha t t he Agre em en t, re adas awho le , requi redth atth e rep res en ta ti on s b e m ad e. If Krev ol in ha d a gr eed , he wo ul d 1 0 0 ha ve adv is edhi s cl ie nt s t ha t t he y co ul d n otho ne st ly m ak e su ch
J oiner wa s probably

followingL edfor d’s instructions. Dy naVision’s principa ls had 9 9 authorized L edfor d to “neg otiate, execute, a nd convey

the intere sts of” Dy

naVision to the Active Members “ on such terms a nd conditions and [he] deem[ed] equitable and just.” Seesupra pa rt I .C. The re prese ntation called f or by the new a gree ment was one of the “ terms and c onditions” L edfor d insisted on; if not, J oiner thought it up on his own. Neither of plaintiffs’ briefs on appe al mentions the new a gree ment J oiner sent 1 0 0 Kre volin in his April 11 letter. Conseque ntly , we do not know whe ther plaintiffs’ counsel discovere d something in the O perating Agree ment that would have justified Joiner’s demand that the Active Me mbers makethe re prese ntations that the new a gree ment, if executed, would have called f or. 69m is rep res en ta ti on s wi th ou t i nv it in g DynaVis io n t o c la im frau d. Se e Mc Farl an d v
. Kim , 27 5 S .E.2d36 4, 3 66 (Ga. Ct . App . 19 80 ) (h ol di ng th atm is rep res en ta ti on s ab ou t p res en t s ta te of m in d a re ac ti on ab le as f rau d) . The m is rep res en ta ti on s
wou ldals o h av e g iv enDy na Vis io n a n a ffi rm at iv e d efen se in th e ev en t t he Acti ve Mem be rs su edforsp eci fic pe rfo rm an ce. Defen di ng anact io n fo r frau d o r
co un te rin g a n a ffi rm at iv e d efen se in a su itforsp eci fic pe rfo rm an ce wo ul d b e
ex pe ns iv e an d c ou ldbe ve ry unpl eas an t; Jo in er ap pa ren tl y th ou gh t Kre vo li n
wou ldth eref

or e ad vi se hi s cl ie nt s t o aba nd on th ei r pl an s an d c on ti nu e to m an ag e Si gn atur e in pa rtn ers hi p wi th Dy na Vis io n. Krev ol in ’s res po ns e, in a le tt er t o J oi ne r da te d Ap ril 16 , was b rie f: Th e Acti ve Mem

be rs wou ldno t m ak e th e rep res en ta ti on s J oi ne r’s le tt er was see ki ng , an d m or eo ve r, if DynaVis io n re fu se d t o c lo se , th e Act iv e Me m be rs wou ldtak e it to co urt. As f

ar as th e Act iv e Me m

be rs were co nc ern ed , th ei r bu si ne ss rel at io ns hi p wi th Dy

na Vis io n’s p rin ci pa ls was a t an en d. Th e p rin ci pa ls ’ th reatof li ti ga ti on if t he Acti ve Mem be rs di d n otab an do n the Pu t an d C al l h adgo ne for
naug ht . Jo in er i nf

orm edLedf

or d o f Krev ol in ’s res po ns e, an d, af te r co ns id eri ng

70Dyna Vis io n’s o pt io ns , Ledf or d i ns tru ct edJo in er t o g o fo rwardwith t he clo si ng 1 0 1
on Apri l 3 0, as pre vi ou sl y ag reed
. 1 0 2 2. Dyna Vis io n’s p rin ci pa ls co ul d n otha ve pe rs ua de d the Acti ve Mem be rs to rem ai n wit h t he co m

pa ny, obt ai ne d am an ag em en t t eam to rep la ce the m , or l oc at eda bu y er fo r Si gn atur e, ev enif Pe ep le s ad m it te d h is in vo lv em en t. Dyna Vis io n’s p rin ci pa ls ha ve co nc ed edth atth ey were u nabl e to pe rs ua de th e Act iv e Me m

be rs or S m it h i nd iv idua ll y to rem ai n wi th Sig na tu re an d t ha t t he y
were u ns uc ces sf

ul in fin di ng a su it ab le m an ag em en t t eam to rep la ce the m . They li ke wis e h av e co nc ed edth atth ey ha d n o s uc ces s i n l oc at in g acarp etco m pa ny or
anin ve st orwil li ng to pu rch as e th e co m pany. Two o f th e th ree c arp et
m anuf actur ers Ledf

or d a ndO’ Dell co nt act ed , Mo hawk Ca rp et s an d C lay Mi ll er Carp et s, ex pr es se d n o i nt eres t i n b uyin g S ig na tu re, ev enif d oi ng so m ean t k eep in g

Dy naVision’s principa ls had two options. One was to c lose the dea l and take the $3.5 1 0 1 milli on on the table. I f they wanted to suethe Active Me mbers, they could do that later

—and they eventua lly

did. The other option wa s to refuse to close and de fend the Active Me mbers’ expected suit for spec ific per formanc e. We infer that they esche wed this option beca use it was less attrac tive economica lly
. The re cord doe s not revea l what J oiner a nd L edfor d said to one anothe r af ter Joiner 1 0 2 rec eived Kr evolin’s letter. We infe r that they decide d that Dy

naVision had no ba sis for re fusing to transfe r its interest to the Active Me mbers; the Section 9.5 Put and Call provision of the Oper atingAgree ment require d them to capitulate. On A pril 25, J oiner wr ote Kre volin and acknow ledg ed that the tra nsaction would close on A pril 30. His letter made no ref ere nce of Kre volin’s rejec tion of his demands reg ardingthe re prese ntations and the Gre en Road Proper ty . 71th e fi rm

ou t o f Pee pl es ’s han ds
. Jerry Tho m as of M at el Carp et s ex pr es se d 1 0 3 in te res t b uton ly if Sm it h andth e o th er Act iv e Me m be rs wou ldbe wil li ng to st ay wit h S ig na tu re, wh ic h t he y were n ot . Inth ei r br ie f to us , ho wev er, p la in ti ffs arg ue th atLedf or d a ndO’ Dell wou ld ha ve be enab le to fin d abu y er fo r $8 .5 m il li on if Pe ep le s h adsi m pl y adm it te d h is in vo lv em en t i n t he Pu t an d C al l. With a bu y er’s co m m it m en t i n h an d, Dyna Vis io n
wou ldha ve th enpu rch as edth e Act iv e Me m be rs ’ in te res t fo r $3 .5 m il li on an d reap eda $5 m il li on pro fit
. Pl ai nt iff s ex pl ai n t ha t o nc e Pee pl es adm it te d h is in vo lv em en t, Dy na Vis io n’s pr in ci pa ls wou ldha ve di sc ov eredth athe ag reedto pa y $1 0 m il li on forSig na tu re (in cl ud in g $ 3.5 m il li on to Dy na Vis io n) . Ledfo rdan d O’Dell wou ldha ve th enha d two ex cel le ntsel li ng po in ts when off eri ng Sig na tu re t o M oh awk , Clay Mi ll er, an d Mat el . Firs t, b ecau se Peep le s was go in g t o p ay $1 0 m il li onforSig na tu re, the ir
as ki ng pri ce o f $8 .5 m il li onwas n oton ly reaso nabl e, itwas a n e xc ep ti on al ba rg ai n. Se co nd , Peep le s s aw Si gn atur e as aneffe ct iv e way to reac h t he ho sp it al it y

in du st ry . By

bu y in g S ig na tu re, Pee pl es ’s com pe ti to rs co ul d g ai n e nt ry to th e h os pi ta li ty m ark etan d, atth e sa m e ti m e, ke ep Peep le s o ut . Plai nt iff s ar gu e:

See supra

part I .B. 1 0 3 72Had[Dyna Vis io n] kn own th e trut h, Dyna Vis io n’s ch an ces of f in di ng a b uyer wil li ng to pa y

m or e th an$7 m il li on for[Si gn atur e] woul d ha ve in crea se d d ram at ic al ly.

. . . . Po te nt ia l b uyers an d i nv es to rs wou ldcert ai nl y vi ew th e [Act iv e Mem be rs ’] ag reem en t t o s el l [S ig na tu re] for $ 10 m il li on to th e Peep le s Gro up as m at eri al . Thu s, tho se co nt act edby D yna Vis io n du rin g t he [th irt y -d ay ] el ect io n p eri odm ay ha ve act eddi ffer en tl y , th em se lv es , hadth ey

kn ownof t he ag reem en t b etweenth e Pee pl es Gro up an d t he Acti ve Mem be rs . Suc h kno wled ge m ay ha ve in crea se d th ei r as se ss m en t o f th e v al ue of t he co m pa ny or v al id at edth e v al ue m en ti on edby D y

na Vis io n. Mo reo ve r, kn owl ed ge of ast rat eg ic acqui si ti on by Shel by Peep le s m ig htha ve in sp ire d t ho se with m ark et in g e xp eri en ce t o a ss is t Dyna Vis io n i n o rd er t o m ai nt ai n the ir co m pe ti ti ve adva nt ag e. Kno wled ge of t he tru th co ul d h av e en ab le d Dyna Vis io n t o fi nda pu rch as er an d/ orm ark et in g g ro up for [Si gn atur e]. App el la nt s’ Br. at39 –4 0. Sev eral flaws i n p la in ti ffs ’ arg um en t ar e imm ed ia te ly obv io us . Firs t, the re is no supp ort i n the reco rdforth e st at em en t t ha t Pe ep le s ag reedto pa y th e Act iv e Mem be rs $1 0 m il li on for

Sig na tu re atan y

ti m e, le t al on e dur in g t he th irt y -d ay el ect io n p eri od . The m os t Pe ep le s ev er o ffer edforSig na tu re was rou gh ly $6.5
m il li on . In the Jan ua ry

21 let te r of

in te nt , Peep le s d is cu ss edlo an in g the Acti ve Mem be rs $3 .5 m il li on to en ab le th em to pu rch as e Dy

na Vis io n’s i nt eres t an d t he n fo rg iv in g t he lo anan d p ay in g the m $3 m il li on forSig na tu re’s as se ts on ce the y acqui redth e co m

pany. In a ctua li ty, Peep le s p ai d a ro un d $ 6 m il li on to acqui re 1 0 4 See supra

part I .B. 1 0 4 73Si gn atur e. Fo ll owi ng th e cl os in g, h e fo rg av e th e $ 3.5 m il li onlo anhe ha d g iv en

th e Act iv e Me m

be rs an d p ai d $ 2.2 5 m il li on forSig na tu re’s as se ts . He lo weredth e pr ic e upo n d is co ve rin g a n e rro r in th e co m pa ny’ s b oo ks
. To arr iv e atth e $ 10 m il li on fig ur e, pl ai nt iff s ad d t he bo nu se s Pe ep le s ag reedto pa y

th e Act iv e Me m

be rs un de r th e Ass etPu rch as e Agr eem en t an d
em pl oym en t co nt ract s to th e am ou nthe actua ll y pa idforSig na tu re’s as se ts . 1 0 5 1 0 6 The am ou ntof t he se bo nu se s, h owe ve r, was c on ti ng en t o n S ig na tu re’s fu tu re pe rfo rm an ce; th e Act iv e Me m be rs wou ldon ly be el ig ib le if Si gn atur e m ad e a pr of itab ov e a ce rta in am ou nton a y earl y ba si s. Con se qu en tl y , th e b on us es are

1 0 7

These a g ree ments are set out in the tex t supra par t I .D. 1 0 5 The Plaintiffs’ brie f states: 1 0 6 The de fenda

nts purchase d the assets of [Signature] for conside ration that wa s valued at over $10 million at the time of their agree ment. . . The bonuses in the Asset Purcha se Agree ment, which ar e ca pped at $5 million, combined with the direc t pay ments to the Active Membe rs and the f org iveness of the loan used to buy out Dy naVision, exceeds $10 million. There is no refe renc e in the Asset Purc hase A gree ment to any bonuses “c apped at $5 mill ion,” so we a ssume plaintiffs ref

er to the bonus pr ovisions refer red to supra

note 28. The Asse t Purchase A g ree ment states: 1 0 7 In addition to the base sala ry , eac h of the Ac tive Members sha ll be entitled to an annual bonus, e qual to twenty perc ent (20%) of the amount by which the ne t pretax profits of [ Peeples] exceed One Milli on Five Hundred Thousa nd Dollars on an annual ba sis: provided, howeve r (a ) shortfa lls in annual net pre- tax profits shall be car ried for war d to succe edingyear s . . . . The e mploy

ment contra cts add the c aveat that “the maximumamount payable by Employ er to 74no t p artof P eep le s’s p aym en t fo r Si gn atur e; th ey are s im pl y pa rt o f th e Act iv e Mem be rs ’ co m pe ns at io n a rran ge m en ts forth ei r co nt inue d s erv ic e wit h t he
co m pa ny. Seco nd , pl ai nt iff

s h av e n otex pl ai ne d h ow t he y wou ldha ve lea rn edof t he pr ic e Pee pl es in te nd edto pa y forSig na tu re. Acco rd in g t o t he Geor gi a Co urt o f 1 0 8 App eal s, the Acti ve Mem be rs ha d n o o bl ig at io n u nd er the Oper at in g Ag reem en t t o
rev eal th e d et ai ls of t he ir p lan. Led fo rd , 61 8 S .E.2dat 6 33 -3 6. If P au l Walk er h ad
as ke d abo utth es e d et ai ls , Peep le s’s re sp on se wou ldth eref or e u nd oubt ed ly hav e be enth atitwas n on e o f hi s b us in es s. Th is is ess en ti al ly wha t Kre vo li n t ol d J oi ne r whe n J oi ne r de m an de d t ha t t he Acti ve Mem be rs rep res en t p rio r to clo si ng th at th ey were p ur ch as in g DynaVis io n’s i nt eres t “ so le ly for [the ir] own acco un t” an d

“ wit ho utth e fi na nc ia l p art ic ip at io n o f an y ot he r Pers on ,” m ean in g wi th ou t Peep le s’s p art ic ip at io n. Pl ai nt iff s wo ul d t he refo re n otha ve be enab le to lu re p ot en ti al bu y ers by te ll in g t he m

th atPeep le s o ffer ed$1 0 m il li on forth e co m pany. In st ead , pl ai nt iff

s’
Employ ee [in bonuses] shall be one [$1.6 mi llion] .” In the state c ourt ca se ag ainst the Active Me mbers and Signature , plaintiffs claimed 1 0 8 that it was not until August 12, 2003, when the y took Owenby ’s deposition, that they lear ned of the price Peeples pa id for Signature a nd the terms of his employ ment arr ang ement with the Active Me mbers. The next day , they moved the cour

t for leave to amend the ir complaint to add Peeples a s a par

ty defe ndant. See supra

part I I .A. 75be stsel li ng pi tc h was th e o ne th ey actua ll y us ed : Pe ep le s was go in g t o a cqui re Si gn atur e, an d P eep le s’s co m pe ti to rs wou ldbe ne fiteco no m ic al ly if th ey st ep pe d in , bo ug htth e co m

pa ny, andke ptitfro m

fal li ng in to Peep le s’s h an ds
. 3. The pri nc ip al s h adto ch oo se be twee n p ur ch as in g t he Acti ve Mem be rs ’ in te res t an d ri sk in g t he lo ss of t he ir i nv es tm en t o r se ll in g t he ir i nt eres t fo r a $ 3.5 m il li on pr of it
. Dyna Vis io n’s p rin ci pa ls ha d t hi rty days to de ci de whet he r to bu y or s el l. The y op te d t o s el l an d re cei ve d a$3 .5 m il li on pro fit , an e xt rao rd in ary return o n th ei r in it ia l i nv es tm en t. Ledfo rdan d O’Dell als o re cei ve d t he rel eas e o f th ei r 1 0 9 ob li ga ti on to FNBC t o g ua ran te e p aym en t o f th e $ 91 1,0 00 lo anth e b an k h adgi ve n Si gn atur e. Had t he y

op te d t o b uy ins te ad , th ey wou ldha ve ass um edth e ri skth at 1 1 0

The re cord indicates that only a small initial investment was made. Dy naVision’s 1 0 9 principals (1) obtained the $200,000 line of cre dit FNB C ga

ve Signature whe n it commenced operations, (2) guara

nteed, in par

t, the $630,000 loan the Da lton W hitfield Ba nk g ave L easingto purcha se the Gr een Roa d Property in October

1999, and (3) guara

nteed, in par

t, the $911,000 loan FN BC g ave Signature on October 24, 2001. See supra

part I .A. L edfor d and O’ Dell wer e not entitled to such re lease . The Sec tion 9.5 Mandatory Put 1 1 0 and Call provision specifie d that the “sa le [of Dy naVision’s intere st] shall be for cash at closing, but all loans from and guara nties executed by

the sellingMembers must be pa id in full and rele ased prior to closing.” The Ope ratingAgree ment define s “Member s” as Dy naVision, Smith, Thomas, and Ownby . See supra part I .A. L edfor d and O’ Dell wer e member s of Dy naVision, but wer e not Member s within the meaningof the a bove languag e. The ir persona l gua rante es should have r emained in f

orce . Were Dy

naVision to have bought the Active Me mbers’ inter ests instead of sellingout, in addition to paying the Active Me mbers $3.5 million in cash, it would have bee n require d to obtain their rele ase a s guara ntors of F NB C’s $911,000 loan to Signature and, fur ther, to satisfy any obligations they

may have inc urre d on Signatur e’s be half in the proc ess of c arr ying on the company ’s business. 76th e co m

pany woul d h av e to clo se do wn u nl es s t he y fou nda m an ag em en t t eam to
ru n i t. Mo reo ve r, wit ho uta m an ag em en t t eam , th ey wou ldhave ha d g reat di ffi cu lt y sel li ng th e co m

pa ny. Po te nt ia l b uyers, kno win g tha t Si gn atur e’s va lu e
was di m in is hi ng , perhaps ex po ne nt ia ll y , wou ldhave be enab le to si m pl y st an d b y
an d wai t fo r th e d ay

when th e p rin ci pa ls ha d n o a lt ern at iv e b utto tak e wha te ve r pr ic e th ey co ul d g et . Face d wi th th es e al te rn at iv es , Dy na Vis io n’s p rin ci pa ls ha d t o c ho os e th e
on e th atsat is fie d the ir e co no m ic sel f-i nt eres t: They hadto sel l. As t he Geor gi a Co urt o f App eal s, drawi ng onwhatLedf or d a ndO’ Dell ha d t o s ay on de po si ti on , ob se rv ed :

1 1 1 Eithe r th e Act iv e Me m

be rs ' in te res t i n [S ig na tu re] was wo rth $3 .5 m il li on to Dy

na -Vis io n o r itwas n ot . The fa ctth atPeep le s fi na nc ed th e o fferco ul d n otha ve m at eri al ly affect edDy na -Vis io n's de ci si on -m ak in g wi th res pe ctto [Si gn atur e’s] val ue , bec au se if Dyna -Vis io n c ho se to bu y th e Act iv e Me m

be r's in te res t, i t co ul d n ot fo rce P eep le s (o r an y

ot he r pr os pe ct iv e b uyer) to bu y [Si gn atur e] for a fix edpri ce. An d t he re i s n o e vi de nc e inth e rec or d t ha t Dyna -Vis io n ha d a n i nt eres te d b uyer or t ha t [S ig na tu re] hadany va lu e to an y

ot he r pr os pe ct iv e b uyer. Mor eo ve r, bo th Ledf or d a ndO'Dell de po se d tha t, ev enif t he y

co ul d h av e rai se d t he m on ey to bu y ou t t he Acti ve Mem be rs , own in g [S ig na tu re] with ou t t he Acti ve Mem be rs wou ld ha ve be en“ fo ol is h” an d “ m ad e n o s en se ” b ecau se th e Act iv e Mem be rs were the he artof [ Si gn atur e’s] val ue . As O'Del l ad m it te d
“ we di dn ’t real ly hav e a ch oi ce. . . . W e d id n’t h av e a m an ag em en t gr oup. . . . The d ay

th e p utan d c al l ca m e in , I wou ld n'tgi ve two cen ts
The de position t estimony they g ave in state court is par

t of the re cord he re. 1 1 1 77fo r fi nd in g agro up to rep la ce the m .” Becaus e Pee pl es ’ in vo lv em en t

di d n otaffe ctth e v al ue of t he Acti ve Mem be rs ’ in te res t, i t was imm at eri al
. Led fo rd , 61 8 S .E.2dat 6 34 -3 5. W e b eg anth is di sc us si on by stat in g t ha t t o o bt ai n arev ers al of the di st ric t
co urt’s d et erm in at io n t ha t t he y fai le d t o c reat e a jury

is su e as to th e rel ianc e el em en t o f th ei r Ru le 10 b- 5( b) cla im s, p la in ti ffs ha d t o c on vi nc e th e co urt t ha t t he
ev id en ce, co ns id eredin th e li gh t m os t fa vo rab le to th em , y ie ld edcir cu m st an ti al fact s fr om

whi ch a jury reaso nabl y

co ul d i nf er tha t i f Pee pl es ha d n otde ni edhi s in vo lv em en t i n t he Pu t an d C al l, Dyna Vis io n’s p rin ci pa ls wou ldhave pu rch as ed th e Act iv e Me m

be rs ’ in te res t. Pee pl es co nt en ds th atth e ev id en ce es tabl is he s ci rcu m st an ti al fact s t ha t yieldbu t o ne in fere nc e: Dy na Vis io n’s p rin ci pa ls ha d n o op ti on bu t t o s el l. We agre e. Peep le s’s m is rep res en ta ti on s p lay edno cau sa ti ve
ro le in th e Dyna Vis io n p rin ci pa ls ’ de ci si on to sel l t o the Acti ve Mem be rs . C. Perh ap s re al iz in g t he fut il it y of t he arg um en ts th ey

ha ve adva nc ed , pl ai nt iff s pr es en t an arg um en t t ha t t he y fai le d t o p res en t t o t he di stric t co urt wh il e itwas
co ns id eri ng th e m eri ts of the ir c la im s. Th e arg um en t i s fo un de d o n S ect io n 9 .1 o f th e Ope rat in g Ag reem en t, wh ic h p recl ud es a Mem be r fro m pl ed gi ng anin te res t i n

78Si gn atur e as co ll at eral fora lo an . Pla in ti ffs co nt en d tha t t he Acti ve Mem be rs 1 1 2 br each edth is pro vi si on by ple dg in g t he ir i nt eres ts in Sig na tu re as co ll at eral forth e $3 .5 m il li on lo anth ey

ob ta in edfro m

Peep le s. They di d n otkn ow ab ou t t he

1 1 3 pl ed ge pri orto th e Apr il 30 clo si ng , th ey rep res en t, b utwou ldha ve su sp ect edit ha d P eep le s ad m it te d t ha t h e was be hi ndth e Pu t an d C al l. Dy na Vis io n n ow arg ue s t ha t h aditsu sp ect edth atth e Act iv e Me m be rs ha d p le dg edth ei r in te res ts in vi ol at io n o f Sec ti on 9.1 , itwou ldha ve reject edth e Pu t an d C al l. The n, i f th e Acti ve Mem

be rs su edforsp eci fic pe rfo rm an ce, i t wo ul d h av e as se rte d t he bre ach of Sect io n 9 .1 as anaffi rm at iv e d efen se , cit in g t he Geor gi a p rin ci pl e o f equi ty—th at“ a p art y

see ki ng sp eci fic pe rfo rm an ce o f a co ntractm us t s ho w
subs ta nt ia l co m

pl ianc e wit h h is pa rt o f th e ag reem en t, an d t he bre ach of am at eri al
co nd it io n wi ll ba r a d ecre e o f sp eci fic pe rfo rm an ce.” Sa in e v . Cla rk , 21 9 S .E.2d 40 7, 4 08 –0 9 (Ga . 19 75 ).

See supra

note 98. 1 1 2 Peeples wa s awa

re of Section 9.1' s prohibition aga inst the Active Member s pledg ing 1 1 3 their intere sts as collatera l for a loa n. In his J anuar

y 21, 2002 letter to the Ac tive Members, se e supra pa rt I .A, he state d that, “to the extent of any conflict in the provisions of this L etter a nd the provisions of the Signature Ope ratingAgree ment, the provisions of the Signature Ope rating Agree ment shall preva il and the conf licting pr ovision(s) of this L etter sha ll be void and of no eff ect whatsoever.” In other wor ds, if Dy naVision should have c laimed that the Ac tive Members had pledg ed their inter ests in Signature as collate ral for the $3.5 million l oan, Peeple s would have tr eate d the loan as unse cure d. 79The all eg at io n t ha t Dyna Vis io n’s p rin ci pa ls wou ldhave reject edth e Pu t an d

Cal l h adth ey

su sp ect eda vi ol at io n o f Sec ti on 9.1 do es no t ap pe ar i n p la in ti ffs ’
co m pl ai ntas p artof t he Co un t On e fed eral sec ur it ie s l aw cl ai m s. Nor was i t m ad e in pl ai nt iff

s’ res po ns e to Peep le s’s m ot io n fo r su m m ary jud gm en t. Pla in ti ffs ’ 1 1 4
res po ns e o n s umm ary jud gm en t d oe s co nt ai n afactua l s ta te m en t t ha t t he Acti ve Mem be rs pl ed ge d t he ir i nt eres ts in di sr eg ardof S ect io n 9 .1. Thi s s ta te m en t, ho wev er, was no t m ad e as pa rt o f pl ai nt iff s’ arg um en t o n t he rel ia nc e el em en t—

pl ai nt iff s d idno t as se rt t ha t b utfor Peep le s’s m is rep res en ta ti on s, Dyna Vis io n wo ul d h av e el ect edto pu rch as e th e Act iv e Me m be rs ’ in te res t. 1 1 5 Mo reo ve r, in it s o rd er g ran ti ng Peep le s s umm ary jud gm en t, the di st ric t co urt m ad e
no refe ren ce t o t he arg um en t p la in ti ffs no w pre se nt , andth e p la in ti ffs di d n ot
m ov e th e co urt p ur su an t t o R ul e 5 9( e) t o re co ns id er i ts de ci si on on th e g ro un d t ha t itha d o ve rlo ok edth e arg um en t.

The plaintiffs a lso failed to ra ise this argument at any time duringthe state c ourt 1 1 4 litigation. Duringoral a

rgument befor e this panel, Pee ples’s attorne y told the court that 1 1 5 plaintiffs’ counse l was pre sentinga re liance a rgument he had not pr esente d to the district court. Plaintiffs’ counsel disagree d, and cited a pag e in plaintiffs’ r esponse to Peeple s’s motion for summary judgme nt where counsel said the a rgument appea

red. The pag e conta ins the fac tual statement that the Ac tive Members br eac hed Section 9.1 without any ref ere nce to a

relianc e argument. 80The arg um en t ap pe aredforth e fi rs t t im e in pl ai nt iff s’ res po ns e to Peep le s’s po st -jud gm en t m ot io n fo r PSLRA s an ct io ns . Peep le s, i n h is m ot io n, ar gu edth at pl ai nt iff s l ack eda factua l b as is to ass ertth atDy na Vis io n’s p rin ci pa ls rel ie d t o th ei r de tri m en t o n P eep le s’s m is rep res en ta ti on s. Th en , pl ai nt iff s fi na ll y arg ue d th atha d t he y

kn ownab ou t t he mis rep res en ta ti on s, the y wou ldha ve reject edth e Pu t an d C al l an d re fu se d t o c lo se . If th e Act iv e Me m be rs su ed , th ey

wou ldha ve pl edth e br each of S ect io n 9 .1 as anaffi rm at iv e d efen se . The co urt’s o rd er de nyin g P eep le s’s m ot io n fo r sa nc ti on s, h owe ve r, m ad e n o re fere nc e to th is arg um en t. It r equi res no cit at io n o f au th or it y to say tha t, ex cep t wh enwe in vo ke th e

“pl ai n e rro r do ctrin e,” wh ic h ra rel y ap pl ie s i n c iv il cas es , we do no t co ns id er arg um en ts rai se d fo r th e fi rs t t im e o n app eal . A m ere r eci ta ti on of t he un de rlyin g fact s, fu rth erm or e, is in su ffi ci en t t o p res erv e an arg um en t; th e arg um en t i ts el f m us t ha ve be enm ad e b el ow. See Cit y of Ne ph i v . Fed . Energ y

Reg ul at ory

Co m m ’n, 14 7 F .3d92 9, 9 33 n.9 (D.C. Cir . 19 98 ) (h ol di ng th ata pa rty do es no t p res erv e an arg um en t fo r ap pe ll at e rev ie w by “ m erel y in fo rm in g t he [di st ric t] cou rt i n t he st at em en t o f fac ts in it s o pe ni ng bri ef [o f th e fac tu al ba si s fo r th e cl ai m ]”); Wasco Pro du ct s, In c. v. So ut hwa ll Tech ., Inc ., 16 6 F ed . App ’x 91 0, 9 11 (9th C ir. 2 00 6) (u np ub li sh ed ) (“ Alt ho ug h [t he arg um en t was ] st at edin a st at em en t o f fac ts , itwas 81ne ve r arg ue d a ndne ve r ru le d upo n. With ou t an y pro ffer edex pl an at io n fo r th is de fau lt , th e arg um en t i s wai ve d.” ). Here, p la in ti ffs di d n otus e th e fac tu al st at em en t i n a rg ui ng th e rel ia nc e is su e. Bec au se we are re ve rs in g t he di st ric t co urt’s ru li ng s o n t he san ct io ns is su es , an d g iv enwhatwe ha ve sai d t hu s fa r in th is op in io n, we t hi nkitap pr op ria te to say
a wor d abo utth e rea ch of S ect io n 9 .1. Eve n i f anActi ve Mem be r ha d a tt em

pt edto pl ed ge of h is or h er i nt eres t i n S ig na tu re as co ll at eral fora lo anwitho utth e
co ns en t o f Dyna Vis io n a ndth e o th er Act iv e Me m be rs , Sect io n 9 .1 wo ul d h av e
ren de redth e p le dg e “ vo idan d o f no effec t.” If th e le nd er at te m

pt edto sei ze the in te res t i n S ig na tu re t o s at is fy th e d eb t, Dyna Vis io n a ndth e o th er Act iv e Me m be rs
co ul d c la im

th atth e p le dg e was vo id
. If th e Act iv e Me m be r pa idth e lo an , 1 1 6 ho wev er, an d n o s ei zu re o ccu rred , Dy na Vis io n a ndth e o th er Act iv e Me m be rs
co ul d n otha ve su ffer edin jury on a cco un t o f an y

Sect io n 9 .1 b reac h. No r co ul d Dyna Vis io n h av e u se d t he pl ed ge as t he ba si s fo r a l aws ui t ag ai ns t t he bre ach in g Acti ve Mem

be r. 1 1 7

I f, prior to a ccepting the c ollatera l, the lender knew that Sec tion 9.1 treated the pledg e 1 1 6 as void, whethe r the lende r would pre vail in a contest with Dy naVision would be que stionable. To be sure , the Oper atingAgree ment was struc tured so as to pre vent either side, 1 1 7 Dy naVision or the Ac tive Members, f rom selling its intere st in S igna ture to a third pa

rty if the other side objec ted. The G eorg ia Court of Appe als made this observation in L edfor d, in commentingon the purpose be hind Section 9.2 of Article 9, the “Rig ht of First Ref usal” provision. Section 9.2 was “pla inly intended to pre vent outsiders fr om buying into [Si gnature ].

82V.

W e n ow ad dr es s wh atrem ai ns of p la in ti ffs ’ Co un t Fo urcla im s t ha t Pe ep le s ai de d a ndab et te d S m it h, Th om as , andOwenb y in bre ach in g t he ir f

iduc ia ry du ti es to Leas in g a nd , sep arat el y , to Ledf or d a ndO’ Dell as M em

be rs of Lea si ng . 1 1 8 Pl ai nt iff s ar gu e th atPeep le s ai de d a ndab et te d t wo s ep arat e b reac he s o f th e ob li ga ti on Sm it h, Th om as , andOwenb y ass um edun de r th e Lim it edLiab il it y Co m pa ny Act, O.C.G.A. § 14 -1 1- 30 5( 1) , as m em be rs an d m an ag ers of Lea si ng , to

“ actin a m an ne r” tha t t he y “be li ev e[ed ] in go odfai thto be in th e b es t i nt eres ts ” o f th e co m pany and“ wit h t he care anord in ari ly pru de ntpe rs onin a li ke po si ti on

In this way , the Member s maintained control ove r who their busine ss partner s were to be.” 618 S.E.2d at 633. Howeve r, once the Active Me mbers invoked the Put and Call provision of Section 9.5 and Dy

naVision did not elect within 30 day s to purchase their intere sts, “the right of first ref usal provisions of the Ope ratingAgree ment [became] moot since Dy naVision [was] no longe r . . . an owner in [Signature ] poss essinga right of first re fusal.” L edfor d, 618 S.E.2d at 633. The c ourt of appe als’s ana ly sis of the Oper atingAgree ment’s structure is straig htforwa rd and compor

ts with logic a

nd common sense. It should not have come a s a surpriseto plaintiffs’ counsel. As indicated supr a par t I I .B.1, Count Four

alleg ed that Peeple s aided a nd abetted 1 1 8 Smit h, Thomas, and Ow enby in brea chingtwo of their f iduciary duties: to inform the plaintiffs that Peeples wa s supporting the ir Put and Call and to transfe r the Gr een Roa d Property back to L easing . Her e, plaintiffs do not cha lleng e the district cour t’s relianc e on the c ourt of appe als’ holding in L edfor d v. Smit h that the Active Me mbers had no f iduciary duty to inform Dy naVision of Peeple s’s involvement. Also, Dy naVision obviously

cannot state a Count Four claim about the Gr een Roa d Property beca use Dy naVision did not hold an interest in L easingor the Gre en Road Proper

ty and, ther efor e, could have suff ere d no injury

by the alleg ed bre ach of any fiduciar y duty in connec tion with the transfer of that prope rty . Acc ording ly , the district court properly dismiss ed Dy

naVision’s Count Four c laim relatingto the Gre en Road Proper ty . 83wou ldex erci se un de r si m il ar ci rcu m st an ces .” W e aff irm th e d is tri ctco urt’s 1 1 9 di sm is sa l o f th e cl ai m s an d h ol d t ha t Pe ep le s co ul d n otha ve aid edan d abe tt eda br each of f

iduc ia ry du ty becau se , as am at te r of law, n o s uc h b reac h o ccu rred
. A. Insupp ort o f th ei r ai di ng an d abe tt in g c la im , pl ai nt iff s al le ge two sep arat e br each es of f

iduc iary ob li ga ti on . Firs t, the y

co nt en d t ha t Sm it h b reac he d h er fiduc ia ry du ty by fai li ng to in fo rm

Ledf or d a ndO’ Dell th atth e d oc um en t t he y si gn edbe fo re Cynth iaTram m el at F NBC was a warra nt y de ed . Had Sm ith di sc lo se d t he na tu re o f th e d oc um en t t o Led fo rdan d O’Dell , pl ai nt iff s s ub m it , th ey
wou ldno t h av e si gn edit . Seco nd , pl ai nt iff s co nt en d t ha t Sm it h, Th om as , and Owenb y bre ach edth ei r fi du ci ary du ti es to Leas in g, Led fo rd , andO’ Dell by refu si ng to co nv ey

th e Green Ro adPro pe rty backto Leas in g, p ur su an t t o P au l W al ke r’s de m an ds , aft er the warran ty deedwas s ig ne d b utbe fo re the sal e o f Dyna Vis io n’s i nt eres t cl os ed . Plai nt iff s’ arg ue th atPeep le s ai de d a ndab et te d

See supra

note 48, for the full tex t of O.C.G.A. § 14-11- 305(1). L easing ’s oper ating 1 1 9 agree ment is not part of the re cord in this case . We assume ar guendo that an ope rating agree ment exis ted and that Smith, as L easing ’s pre sident, assumed the duties the statute imposed. We also assume that Thomas a nd Owenby

wer e re sponsible for Smith’s conduct since the complaint alleg ed that they wer e co- conspirator s.

84th es e b reac he s s o t ha t t he Acti ve Mem be rs wou ldbe in a po si ti onto gi ve hi m ti tl e to th e Green Ro adPro pe rty afteracqui rin g DynaVis io n’s i nt eres t. 1 2 0 The di stric t co urt, co nc lu di ng th atGeor gi a d idno t re co gn iz e a caus e o f act io n fo r ai di ng an d abe tt in g the bre ach of afiduc ia ry du ty, di sm is se d p la in ti ffs ’ cl ai m s. Th e Geo rg iaCo urt o f App eal s s ub se qu en tl y he ld , ho wev er, i n In si gh t Tech no lo gy, Inc. v . Frei gh tC he ck , LLC, 63 3 S .E.2d37 3 (Ga . Ct. Ap p. 2 00 6) , th at
su ch anaid in g a ndab et ti ng cla im is co gn iz ab le
. 1 2 1 Inli gh t o f th e co urt o f ap pe al s d eci si on in th atcas e, we as su m e fo r pu rp os es of th is cas e th atth e o bl ig at io n s ect io n 1 4- 11 -3 05 im po se s o n l im it edli ab il it y
co m pa ny m em

be rs an d m an ag ers is , as p la in ti ffs ’ co nt en d, a “ fiduc ia ry du ty,” and As proof that Peeples induce d Smit h and the Ac tive Members to c ommit t hese 1 2 0 statutory brea ches, pla intiffs point to P eeple s’s J anuar y 21 letter of intent to the Ac tive Members, which plaintiffs de scribe in their initial brief on appe al as a “contr act[] t o purcha se the Gr een Road Property

as par t of the asse ts of [S igna

ture]” and the pr omise Peeples madein the Asset Purchase Agree ment to indemnify the Active Me mbers for

any expenses they

might incur

if held liable for r efusingto acc ede to Paul Walker a nd L edfor d’s demand that Signature transfe r the proper ty back to L easing
. The e lements of the c laim are : 1 2 1 (1) through improper a ction or wrong ful conduc t and without privileg e, the defe ndant ac ted to procur e a br eac h of the primar y wrong doer' s fiduciar

y duty to the plaintiff; (2) with knowledg e that the pr imary wrong doer ow ed the plaintiff a fiduciar y duty , the def

endant a cted pur

posely and with malice a

nd the intent to injure; (3) the de fenda

nt's wrong ful conduc t procure d a bre ach of the primary wrong doer’ s fiduciar

y duty ; and (4) the de fenda

nt's tortious conduc t prox imately cause d damag e to the plaintiff. Insight Te chnolog ies, Inc. v. F reightCheck, L L C, 633 S.E.2d 373, 379 (Ga. Ct. App. 2006). 85we th eref

or e p ro ceedto th e m eri ts of p la in ti ffs ’ ai di ng an d abe tt in g c la im s. As in di cat edab ov e, pl ai nt iff s’ cla im s ar e fo un de d o n t wo d is ti nc t b reac he s o f th ei r st atut ory ob li ga ti on . The b reac he s h av e to ha ve oc cu rred ; o th erwi se , Peep le s
can no t b e h el d l iabl e fo r ai di ng an d abe tt in g. We th eref or e d et erm in e whe th er, as a th res ho ldm at te r, a jury reaso nabl y co ul d fi nd , as p la in ti ffs all eg e, th atSm it h
an d, s ub se qu en tl y , Sm it h, Th om as , andOwenb y bre ach edth e o bl ig at io ns th ey
as su m edun de r se ct io n 1 4- 11 -3 05 as m em be rs an d m an ag ers of Lea si ng .

B. W e b eg in with p la in ti ffs ’ arg um en t t ha t Sm it h s ho ul d h av e ex pl ai ne d t he si gn ifi can ce o f th e warra nt y de edth atLedf

or d a ndO’ Dell si gn edbe fo re Cynth ia Tramm el at F NBC. To an al yze thi s ar gu m en t, we p ro ceedth ro ug h t he ex pl an at io n th at , acco rd in g t o t he pl ai nt iff s, Sm it h s ho ul d h av e g iv enin ord er t o fu lfi ll he r fiduc ia ry ob li ga ti on s. We th enco nc lu de th at , as am at te r of law, s uc h a n
ex pl an at io n wo ul d n othave cau se d t he pl ai nt iff s t o a ctdi ffer en tl y

th anth ey actua ll y di d. Sm it h’s ex pl an at io n, t o b e co m pl et e an d l eav e n o s to ne un tu rn ed , wou ld ha ve tak enLedf

or d a ndO’ Dell ba ckto Octo be r 20 01 , when Ledf or d, O’Dell , and th e Act iv e Me m

be rs ap pl ie d t o F NBC fo r a l oa n o n b eh al f of Sig na tu re. Tha t l oa n 86was in te nd edto pa y off Sig na tu re’s cu rren t l oa ns at F NBC, p ay off th e b al an ce du e o n t he no te Leas in g g av e th e Dal to n Whi tfi el d B an k, an d p ro vi de Sig na tu re 1 2 2 wit h a dd it io na l wo rk in g c ap it al . Sig na tu re n eed edin ex ces s o f $9 00 ,00 0 t o
acco m pl is h a ll of t hi s. Sm it h wo ul d h av e rem in de d Led fo rdan d O’Dell th atCynt hi a Tramm el —t he FNBC o ffi cer wh o p ro ces se d the ir l oa n app li cat io n a nd , bef or e th at , han dl edth e lo anth ey ha d o bt ai ne d fr om

th e Dal to n Whi tfi el d B an k fo r Leas in g—ha d t o s ub m itth ei r ap pl ic at io n t o F NBC’s b oa rdof d ire ct or s fo r ap pr ov al . She wou ldals o h av e ex pl ai ne d t ha t t he bo ardap pr ov edth e lo ansubjec t to cert ai n c on di ti on s, am on g t he m (1) th atLedf

or d, O’Dell , Sm it h, Th om as , and Owenb y si gnSig na tu re’s n ot e, an d t hu s g ua ran te e it s p aym en t an d (2 ) th at Si gn atur e, joi ne d b y

Ledf or d, O’Dell , Sm it h, Th om as , andOwenb y , gi ve th e b an k a d eedto sec ur e d eb t o n t he Green Ro adPro pe rty. Thi s m ean t t ha t i f Leas in g 1 2 3 he ldti tl e to th e p ro pe rty, it wo ul d h av e to co nv ey th e p ro pe rty to S ig na tu re s o t ha t

The note w as in the principa l amount of $630,000, the sum of money L easingneede d, 1 2 2 and used, to purc hase the Gre en Road Proper ty . Smit h, Thomas, Owe nby , L edfor d, and O’ Dell had signed the note a

nd guara nteed its pay

ment. See supra

note 14. In handlingthe $630,000 L easingloan at the Da lton W hitfield Ba nk, Trammel 1 2 3 require d the same f

ive individuals sign the note a nd guara ntee its pay

ment. The infe renc e is that they wer e re sponsible for Signature’s business a ffa irs to the same e x tent they wer e re sponsible for L easing ’s af

fairs. 87Si gn atur e, in turn , cou ldde edth e p ro pe rty un en cu m be redto FNBC t o s ecu re the lo an . Ledfo rdan d O’Dell an d t he Acti ve Mem be rs ha d a gr eedto th es e co nd it io ns . Nex t, Sm it h wo ul d h av e ex pl ai ne d tha t Tramm el , hav in g o bt ai ne d t he ir
co ns en t t o t he se co nd it io ns , to okth e st ep s n eces sa ry to clo se th e tr an sa ct io n. On e
was to ha ve th e b an k’s l awy er, Tod d M cCa in , con du cta ti tl e se arch of t he Green Ro adPro pe rty. McCai n c on du ct eda se arch , is su edanop in io n, an d d el iv ereditto Tramm el . The o pi ni on st at edth atti tl e to th e p ro pe rty was h el d b y Leas in g a nd th atSig na tu re co ul d n otgi ve th e b an k ade edto sec ur e d eb t u nl es s Lea si ng de ed ed th e p ro pe rty to S ig na tu re b efo re the lo anclo se d. Sm it h wo ul d h av e g on e o n t o s ay th atth e cl os in g wen t as pl an ne d e xc ep t th atSig na tu re g av e th e b an k ade edto sec ur e d eb t o n p ro pe rty it d idno t o wn; Leas in g h adne gl ect edto co nv ey th e Green Ro adPro pe rty to S ig na tu re. Tramm el ha d o ve rlo ok edMcC ai n’s ca ve atth atth e co nv ey an ce o ccu r pr io r to clo si ng . Her fai lu re t o o bt ai n t he ne ces sary warran ty deedfro m

Leas in g t o S ig na tu re d idno t
co m e to li gh t u nt il lat er, wh ensh e rea d M cCa in ’s op in io n l et te r. Upo n re ad in g M cCa in ’s let te r, Tramm el real iz edth atsh e h adto ob ta in a de edfro m

Leas in g t o S ig na tu re s o t ha t t he de edto sec ur e d eb t Si gn atur e h adgi ve n

88th e b an k wo ul d n otbe wort hl es s. To s ol ve th e p ro bl em , Tram m el cal le d 1 2 4 McC ai n’s o ffi ce, an d i t p rep aredth e warra nt y de edat i ss ue . Tram

m el th encal le d Sm ith. Sh e to ldSm it h t ha t a “ do cu m en t” ne ed edto co m pl et e th e lo anclo si ng ha d to be si gn edan d a sk edhe r to co m e to th e b an k wi th Ledf or d, O’Dell , Tho m as , and Owenb y for th atpu rp os e. Sm it h i m

m ed ia te ly info rm edth e o th ers of Tra m m el ’s reque st . A day

or s o l at er, s he arri ve d a t t he ba nkwith Th om as an d Owen by and si gn edth e d oc um en t, the warran ty deed , bef or e a n ot ary an d awitne ss . Whe n Led fo rdan d O’Dell fai le d t o app ear, Tramm el cal le d S m it h a ga in . Sm ith, i n turn, cal le d Led fo rd , who co nt act edO’ Dell , andth ey , to o, s ig ne d t he de ed , bef or e th e
sa m e n ot ary an d wi tn es s. At tha t t im e, pl ai nt iff s ar gu e, Sm ith s ho ul d h av e in fo rm edth em

th atth e d oc um en t was a warra nt y de ed
. The po si ti on pl ai nt iff

s h av e ta ke n t hr ou gh ou t t hi s l it ig at io n i s t ha t
no twi th st an di ng a fu ll expl an at io n b y Sm it h—th atLeas in g h adto co nv ey th e Green Ro adPro pe rty to S ig na tu re s o t ha t t he $9 11 ,00 0 l oa n c ou ldgo th ro ug h— Led fo rdan d S m it h wo ul d n otha ve si gn edth e “ do cu m en t.” We qu es ti on whet he r Led fo rdan d O’Dell wou ldha ve refu se d t o s ig n a fte r Sm ith in fo rm edTram

m el of t he ir n on co m

pl ia nc e, Tramm el refe rredth e m at te r to th e
The re cord doe s not contain a c opy of the de ed to sec ure de bt L edfor d, O’De ll and the 1 2 4 others g ave the bank; thus, we do not know whe ther, in signing it, they expressly war rante d that Signatur e wa s g iving the ba nk title to property

it owned. 89ba nk ’s lawyer, McCai n, an d M cCa in co nt act edLedf or d a ndO’ Dell ’s lawyer. Led fo rdan d O’Dell ’s lawyer wou ldha ve in fo rm edth em of the leg al co ns eque nc es th atm ig htflo w if t he y

st il l re fu se d t o a cced e to th e co nv ey an ce o f th e Green Ro ad Pro pe rty to S ig na tu re. Inany ev en t, wh atco un se l wo ul d h av e h adto say has a be ari ng on whet he r, in th e fi na l an al y si s, Sm it h’s fa il ur e to tel l Led fo rdan d O’Dell th atth e “ do cu m en t” th ey were t o s ig n was a warra nt y de edco ns ti tu te d abre ach of Sm ith’s s ect io n 1 4- 11 -3 05 ob li ga ti on to “ actin a m an ne r . . . she be li ev es in go od fai th to be in th e b es t i nt eres ts of” Leas in g a ndit s m em be rs , “ wit h t he care an
or di na ril y pru de ntpe rs on in a li ke po si ti on wou ldex erci se .” McC ai n wo ul d h av e to ldLedf or d a ndO’ Dell ’s lawyer th atLedf or d, O’Dell , Sm ith, Th om as , andOwenb y in du cedth e b an k t o l oa n S ig na tu re $ 91 1,0 00 on th e
co nd it io n t ha t Si gn atur e g iv e th e b an k ade edto sec ur e d eb t o n t he Green Ro ad Pro pe rty. T o d o t ha t, Si gn atur e wou ldhave to po ss es s cl ear t it le to th e p ro pe rty. Alt ho ug h t he ba nkin si st edth atth es e fi ve in di vi du al s g ua ran te e th e p aym en t o f th e lo anby co-s ig ni ng Sig na tu re’s n ot e, th ei r gu aran te e was no t en ou gh ; t he bank
ne ed edco ll at eral in th e fo rm of ade edto sec ur e d eb t fr om Sig na tu re. Ano th er
reas onwhy th e b an k n eed edth is ad di ti on al sec ur it y is th atpart o f th e $ 91 1,0 00 lo anwou ldbe us edto pay off Leas in g’s d eb t t o t he Dalt on Whi tfi el d B an k, th ereb y rel ie vi ng Leas in g’s g ua ran to rs , in cl ud in g Led fo rdan d O’Dell , of p ot en ti al
90li ab il it y

for Leas in g’s n on -p aym en t o f th e d eb t, an d, atth e sa m e ti m e, de pr iv in g Si gn atur e o f th e fu ll va lu e o f th e lo an . 1 2 5 McC ai n wo ul d h av e th enob se rv edth at , inex ecu ti ng Sig na tu re’s d eedto
se cu re d eb t, Led fo rdan d O’Dell rep res en te d t ha t Si gn atur e o wne d t he pro pe rty, on th e su rfac e a fal se rep res en ta ti on . If m ak in g s uc h re pr es en ta ti on was i nt en ti on al , as th ei r curren t p os it io n s eem s t o i m pl y , th ey ob ta in edth e b an k’s fu nd s u nd er fa ls e pr et en se s. An d, m or eo ve r, Leas in g l in edit s p oc ke ts , andth e g ua ran to rs of Leas in g’s d eb t t o t he Dalt on Whi tfi el d B an k wer e rel ie ve d o f po te nt ia l l iabi li ty, at Si gn atur e an d F NBC’s ex pe ns e. McC ai n wo ul d i nf orm Ledf or d a ndO’ Dell ’s
co un se l o f th e el em en ts of t he fed eral ba nkfrau d s ta tu te , 18 U.S.C. § 1 34 4, t ha t
acco rd in g t o t he Elev en th Cir cu itCo urt o f App eal s, i n Un it edSta te s v . De La Mat a, 26 6 F .3d12 75 , 12 98 (11 th Cir . 20 01 ), m ak es ita cri m e to kn owi ng ly m ak e
m at eri al ly fals e rep res en ta ti on s t o afed eral ly ins ur edba nkforth e p ur po se of

The re cord doe s not indicate the ba lance due on L easing ’s $630,000 note to the Da lton 1 2 5 Whit field B ank. An inesc apableinfere nce is that the pa yoff c onsumed a g oodly

portion of the amount due on that note a nd that Signatur e would be deprived of the benef it of the payoff unless it owned the Gr een Roa d Property . Also inescapa ble is the infer ence that in inducing the FNB C to make the loan on the conditions its board of direc tors dictated, L edfor d, O’De ll, Sm ith, Thomas, and Ow enby

wer e ac ting a s members of L easingas we ll as on behalf of Signatur e. 91ob ta in in g m on ey . Ledfo rdan d O’Dell m ig htbe subjec t t o p ro se cu ti on ev enif 1 2 6 th ey in te nd edto rep ay

Sig na tu re’s $ 91 1,0 00 lo an . 1 2 7 Giv enth e rep res en ta ti on s Sm it h a ndth e o th ers m ad e to in du ce the FNBC t o
m ak e th e Si gn atur e lo anan d t he be ne fitth atin ur edto Leas in g a ndit s g ua ran to rs whe n i ts no te to th e Dal to n Whi tfi el d B an k was pa idoff , we fai l t o d is cern ho w Sm ith c ou ldbe sai d t o h av e b reac he d h er s ect io n 1 4- 11 -3 05 ob li ga ti on to Leas in g, Led fo rd , andO’ Dell . She di d p reci se ly wha t s he an d t he ot he rs ha d p ro m is edth e ba nkth ey wou lddo . In s um , pl ai nt iff s fa il edto est ab li sh a br each onSm it h’s p art
an d, as a res ul t, fa il edto m ak e o uta cas e o f ai di ng an d abe tt in g a ga in stPeep le s. C. Thi s b rin gs us to th e se co ndall eg edbre ach , th e ref us al of S m ith, Th om as , an d Owen by to a cced e to Pau l Walk er an d Led fo rd ’s dem an d t ha t t he y cau se Si gn atur e to co nv ey

th e Green Ro adPro pe rty to Lea si ng . Acco rd in g t o 1 2 8 Although the rec ord does not re veal that F NB C was insured by the Fe dera l Deposit 1 2 6 Insuranc e Corporation, the probability is that it was. And if not, L edfor d and O’ Dell would be amena ble to prosec ution under Ge org ia law f or 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 1 2 7 “per son violates the bank f raud statute when he know ingly executes a sc heme to obtain money from a f inancial institution by

means of f

alse or f raudule nt repre sentations . . . . [I ]f a defe ndant knowing ly

provided mate rially

false inf ormation in order

to induce the loan, thecrime is complete, a

nd it is i rre levant whe ther or not he intended to re pay or wa s capa

ble of repaying it.”)
. Walker and L edfor d made this demand on be half of L edfor d, O’De ll, and Br yan 1 2 8 Walker, qua L easingmembers, a fter the Put and Call’s 30-day elec tion period ende d and 92pl ai nt iff

s, O.C.G.A. § 1 4- 11 -3 05 ob li ga te d t he Acti ve Mem be rs , as m em

be rs or
m an ag ers of Lea si ng , to m ak e th e co nv ey an ce. Pl ai nt iff s i gn or e th e fac t t ha t
se ct io n 1 4- 11 -3 05 actua ll y ob li ga te d t he Acti ve Mem be rs , as m an ag ers of Si gn atur e, no t t o d o t ha t: if t he y ha d m ad e th e co nv ey an ce, the Acti ve Mem be rs
wou ld , ineffe ct , hav e g iv enLeas in g t he pa rt o f th e $ 91 1,0 00 FNBC l oan p ro ceed s Si gn atur e u se d t o p ay

off Leas in g’s n ot e to th e Dal to n Whi tfi el d B an k wh il e ga in in g S ig na tu re n ot hi ng in return. Gi ve n o urdi sp os it io n o f th e fi rs t b reac h, i t
wou ldbe in co ns is te ntto ho ldth atsec ti on 14 -1 1- 30 5 o bl ig at edth e Act iv e Mem be rs to cau se Sig na tu re t o t ran sf er the pro pe rty backto Leas in g. Th e se co nd br each th eref

or e fai ls as afou nd at io n fo r pl ai nt iff s’ sec on d a id in g a ndab et ti ng cl ai m ag ai ns t Pe ep le s. The di stric t co urt, h aditen te rta in edCo un t Fo uron th e m eri ts , wou ldha ve be enrequi redto gra ntPeep le s s umm ary jud gm en t. We acco rd in gl y affi rm it s jud gm en t d is m is si ng th e co un t fo r fai lu re t o s ta te a cl ai m forrel ie f. VI.
Dy naVision bec ame oblig ated by opera tion of Section 9.5 of the Ope ratingAgree ment to transfe r its int ere st in S ignature to the Ac tive Members. I f this were not the case , and Dy naVision maintained its interest in Signature until the April 30, 2002 closing , the Active Me mbers could not have c omplied with W alker and L edfor d’s demand; Signature could not have c onveyed the Gre en Road Proper

ty to L easing

unless Dy

naVision’s re prese ntative on Signature’s boa rd of direc tors, Edwar d Staten, consente d to the conveyance . His consent might be problematic since not all of Dy

naVision’s member s weremembers of L easing as we ll. 93Peep le s ar gu es th atth e d is tri ctco urt ab us edit s d is cret io n i n re fu si ng to

sa nc ti on pl ai nt iff

s an d t he ir a tt orne y s u nd er the PSLRA fo r pr os ecu ti ng th e fed eral
se cu rit ie s l aws cla im s i n t hi s ca se . The PS LRA requi redth e d is tri ctco urt, af te r 1 2 9 di sp os in g o f th os e cl ai m s, t o m ak e “ sp eci fic fin di ng s re ga rd in g c om pl ia nc e b y each pa rty andeach att orne y . . . with e ach requi rem en t o f Ru le 11 (b ) of th e Fed eral Ru le s o f Ci vi l Pr oc edur e as to an y co m pl ai nt , res po ns iv e p le ad in g, o r di sp os it iv e m ot io n.” 15 U.S.C. § 7 8u -4 (c)( 1) . Rul e 1 1( b) , at t he ti m e th e 1 3 0 di st ric t co urt ru le d o n s an ct io ns , st at ed , inpe rti ne ntpart: (b ) Repre se nta tio ns to Co urt. By pre se nt in g t o t he co urt (wh ethe r by sig ni ng , fil in g, s ub m it ti ng , or l at er ad vo cat in g) a pl ead in g, wri tt en m ot io n, o r ot he r pape r, anatt orne y . . . is cert ifyin g tha t t o t he be stof of th e p ers on ’s kn owl ed ge , in fo rm at io n, an d b el ie f, fo rm edaft er an in qu iry reas on ab le un de r th e ci rcu m st an ces ,–

Peeples c ontends that the district court’ s Dec ember 22, 2005 order

denying pla intiffs’s 1 2 9 claims makes it clea

r that plaintiffs’ f

eder al sec urities law cla ims were ba seless at the time they wer e brought. 15 U.S.C. § 78u-4 states in pertinent par t: 1 3 0 (c) Sanctions for a

busive litigation (1) Ma ndatory revie w by

court In any private a ction arisingunder this cha pter, upon fina l adjudication of the action, the c ourt shall include in the re cord spe cific f indings re g ardingcompliance by eac h party

and ea ch attorne y

repr esentingany

party with eac h require ment of Rule 11(b) of the Fe dera l Rules of Civil Procedur e as to a ny complaint . . . . (2) Ma ndatory sanctions I f the c ourt makes a

findingunder pa

ragraph ( 1) that a pa

rty or attorne y

violated any require ment of Rule 11(b) . . . a s to any complaint . . . , the cour

t shall impose sanctions on such pa

rty or attorne y

in acc ordanc e with Rule 11 . . . . 94(1) i t i s n otbe in g p res en te d fo r an y im pr op er p ur

po se , su ch as t o ha ras s o r to cau se un ne ces sa ry de la y or n eed le ss in crea se in th e co st of li ti ga ti on ; (2) t he cla im s . . . andothe r le ga l co nt en ti on s t he rei n a re warr an te d by exi st in g l aw orby a no n- fri vo lo us arg um en t fo r th e ex te ns io n, m od ifi cat io n, o r rev ers al of e xi st in g l aw orth e es tabl is hm en t o f ne w la w; (3) t he all eg at io ns an d o th er fac tu al co nt en ti on s h av e ev id en ti ary supp ort o r, if s pe ci fic al ly so i de nt ifi ed , are l ik el y to ha ve ev id en ti ary supp ort af

te r a rea so nabl e o pp ortu ni ty for fu rth er i nv es ti ga ti on or di sc ov ery. . . .

“ If aft er n ot ic e an d areas on ab le op po rtu ni ty to re sp on d, t he co urt de te rm in es th atsubd iv is io n (b ) ha s b een vi ol at ed , th e co urt m ay . . . im po se an ap pr op ria te san ct io n upo n t he att orne y s, l aw fi rm s, o r pa rti es th atha ve vi ol at ed
subd iv is io n (b ) orare re sp on si bl e fo r th e v io la ti on .” Fed . R. Civ . P. 11 (c) 1 3 1 This languag e is from the ve rsion of Rule 11 in eff ect whe n the district court made its 1 3 1 sanctions ruling s on Marc h 21, 2006. The pre sent version of Rule 11, e ffe ctive De cembe r 1, 2007, contains this statement afte r the wor d “violation”: “Abse nt exceptional circumstanc es, a law firm must be he ld jointl y responsible for

a violation committed by its partner, a ssociate, or employee.”Fe d. R. Civ. P . 11(c) (1). The c urre nt version of Rule 11, with the exception of the a bove-quote d languag e and some stylisti c cha

ng es, wa s adopted in 1993. The A dvisory Commi ttee’s notes state : The sanc tion should be imposed on the persons—whe ther attorney s, law firms, or par

ties—who have violated the rule or who may be dete rmined to be responsible for

the violation. The per son signing , filing, submitting, or advocating a

document has a

nondeleg able r esponsibility to the court, a

nd in most situations is the per son to be sanctioned f or a violation. Absent e x ceptional circ umstances, a

law firm is to be he ld also responsible whe n, as a r esult of a motion under subdivision (c)(1) (A), one of its partner s, associate s, or employees is determined to have violated the rule . Since such a motion may

be filed only

if the offe nding pa

per is not withdrawn or cor rec ted within 21 day s after service of the motion, it i s appropr iate that the law firm ordinarily

be viewe d as jointly responsible unde r established principles of ag ency . This provision is designed to remove the re strictions of the forme r rule. Cf. Pave lic & L eF lore v. Mar vel 95(2 00 6) . The co urt m ay no t, h owe ve r, awardm on et ary sa nc ti on s ag ai ns t a rep res en te d p art y

fora subd iv is io n (b )(2 ) vi ol at io n. Fe d. R. C iv . P. 11 (c)( 2) (A) (2 00 6)
. W it h t hi s b ack gr ou ndin min d, o urdi sc us si onof t he PSLRA s an ct io ns is su es pro ceed s as fol lo ws. Fi rs t, we re cal l b rie fly the fed eral sec ur it ie s l aw cl ai m s th e co m pl ai ntpre se nt edan d wh y th e co urt d en ie d t he m . Next , we vi si t t he fin di ng s o f fac t t he di st ric t co urt m ad e in supp ort o f it s h ol di ng th atpl ai nt iff s’
co un se l s at is fie d t he requi rem en ts of Rul e 1 1( b) . W e d et erm in e th atth e co urt’s fin di ng s o f fac t ar e in ad equa te bu t t ha t a r em an d fo r fu rth er fi nd in gs is
un ne ces sary

be cau se th e rec or d i s s uf fic ie ntto en ab le us to ass es s co un se l’s pe rfo rm an ce. We m ak e th atass es sm en t und er the ob jecti ve st an da rdth atgo ve rn s

Entertainment Gr oup, 493 U.S. 120 (1989) (1983 ve rsion of Rule 11 does not permit sanctions ag ainst law firm of attorney signing groundless complaint). The re vision permits the court to consider whether other attorney s in the firm, co- counsel, other

law firms, or the party

itself should be held ac countable f or their par t in causinga violation. When appropriate, the cour t can make an additional inquiry

in order to de termine whe ther the sa nction should be imposed on such per sons, firms, or par ties either in addition to or, in unusual circ umstances, instea d of the pe rson ac tually makingthe pre sentation to the court. For example, such an inquiry may be appr opriate in c ases involvingg overnme ntal ag encie s or other institutional parties that fre quently impose substantial restric tions on the discretion of individual attorney s employed by it.
96th e rev ie w of R ul e 1 1( b) co m

pl ia nc e, an d we c on cl ud e th atth e d is tri ctco urt was

1 3 2
co m pe ll edto fin d t ha t co un se l fa il edto co m pl y with t he requi rem en ts of t he rul e. A. The fed eral sec ur it ie s l aw cl ai m s wer e p res en te d i ni ti al ly in Co un t On e an d th erea fte r in Co un ts Two th ro ug h S ev en , each of wh ic h i nc or po rat edby referen ce al l o f th e co m

pl ai nt ’s pre ced in g a ll eg at io ns , in cl ud in g, o f co ur se , Cou ntOne. Fo r
eas e o f di sc us si on , we referto th is sev en -co un t as se rti on of p la in ti ffs ’ fed eral
se cu rit ie s l aw cl ai m s as th e Co un t On e cl ai m s. Co un t On e al le ge d t he fol lo win g: Fi rs t, Pe ep le s’s fa ls el y

st at edth athe was n otin vo lv edin th e Pu t an d C al l th atth e Act iv e Me m

be rs is su edon Feb ru ary 25 , 20 02 . Dy na Vis io n’s p rin ci pa ls
reas on ab ly reli edon th es e fal se st at em en ts an d, as a res ul t, caus edDy na Vis io n 1 3 3 to sel l i ts in te res t i n S ig na tu re. Thi s re nd eredPeep le s l iabl e to pl ai nt iff s u nd er Ru le 10 b- 5( b)
.

Rule 11 incorporates an objec tive standard. K aplan v. Da imlerChry sler, A.G., 331 1 3 2 F.3d 1251, 1255 ( 11th Cir. 2003); Donaldson v. Clark, 819 F.2d 1551, 1556 ( 11th Cir. 1987) (en banc) (“Rule 11 a s amende d incorporates an objec tive standard” ); Hashe mi v. Campaigne r Publications, Inc., 784 F .2d 1581, 1583 (11th Cir. 1986) (holdingthat Rule 11 incorporates an objective standa

rd that is more string ent than the origina l good- faith for mula that the district courts applied prior to the 1983 amendme nt); Pag anucc i v. City of Ne w York, 993 F .2d 310, 3112 (2d Cir. 1993) (“ [T] he applica ble test is whether

a re asonably

competent lawyer w ould have a cted similarly .”). Dy naVision’s principa ls say that they also relied on Peeples’s similar statement to 1 3 3 Paul Walker afte r the F ebrua ry 8, 2002 Put and Call iss ued.

97Seco nd , Peep le s “ di rect ly or in di rect ly con tro ll edth e act iv it ie s o f th e Act iv e

Mem be rs ” in th ei r m an ag em en t o f Si gn atur e’s affa irs . This was e vi de nc edby his Ja nu ary 21 , 20 02 let te r of in te nt , th e “ se cretdi sc us si on s” he ha d wi th th e Act iv e Mem be rs pri or to th e is su an ce o f th e Feb ru ary 25 Pu t an d C al l, an d t he Ass et Pu rch as e Agr eem en t h e en te redin to with t he m aft er the y

acqui redDy

na Vis io n’s in te res t. He the reb y

be cam e li ab le , as a“ co nt ro ll in g p ers on ” u nd er s ect io n 2 0( a) of th e 1 93 4 Act , for

th e fal se st at em en t Br en daSm it h m ad e to Ledf or d a ndO’ Dell
on Feb ru ary 8 t ha t t he Acti ve Mem be rs are “ do in g t hi s o n o urown ” an d fo r th e Acti ve Mem

be rs ’ fai lu re t o d is cl os e th e Ja nu ary 21 , 20 02 let te r of in te ntan d Peep le s o fferto pu rch as e Si gn atur e. Thi rd , th e Act iv e Me m

be rs , invi ol at io n o f Ru le 10 b- 5( a), en ga ge d i n a

“ sc he m e, de vi ce, an d a rti fic e to de frau d” Dy na Vis io n. Sm it h m ad e th e we are

“ do in g t hi s o n o urown ” st at em en t p ur su an t t o t he sch em e, an d P eep le s, as a pa rti ci pa ntin th e sc he m e, be cam e v ic ari ou sl y li ab le forhe r st at em en t an d fo r th e Acti ve Mem

be rs ’ fai lu re t o d is cl os e th e Ja nu ary 21 let te r of in te ntan d P eep le s’s of fer. The di stric t co urt d en ie d t he Ru le 10 b- 5( b) cla im ba se d o n P eep le s’s fa ls e st at em en ts be cau se th e st at em en ts pl ay edno rol e in Dy na Vis io n’s d eci si on to

98se ll
. It d en ie d t he sec ti on20 (a) c la im be cau se Dy

na Vis io n’s p rin ci pa ls di d n ot 1 3 4 rel y on Sm it h’s Fe bruary

8 we ar e “ do in g t hi s o n o urown ” st at em en t i n e le ct in g t o
se ll Dy na Vis io n’s i nt eres t an d b ecau se , as t he Geor gi a Co urt o f App eal s h el d i n Led fo rdv. Sm ith, the Acti ve Mem be rs ha d n o dut y

to di sc lo se th ei r arra ng em en t wit h P eep le s. Fi na ll y , th e co urt d en ie d t he Ru le 10 b- 5( a) cl ai m witho ut
ex pl ic at io n. B. Alt ho ug h i t re

jecte d t he Co un t On e cl ai m s, the di st ric t co urt d ecl in edto im po se san ct io ns be cau se [th e] evi de nc e in th e rec or d . . . pe rm it te d P la in ti ffs an d t he ir c ou ns el to pre se ntreas on ab le , go odfai th arg um en ts th atPla in ti ffs act edas th ey di d b as edonDefen dant ’s con du ct , andth atPla in ti ffs co ns eque nt ly hadsat is fie d t he cau sa ti on an d re li an ce el em en ts of th ei r se cu rit ie s l aw cl ai m s. Th e Co urt the refo re ca nn otde te rm in e th at Pl ai nt iff s an d t he ir c ou ns el lac ke d areas on ab le ba si s i n fa ctfor fil in g th is act io n, o r th atPla in ti ffs an d t he ir c ou ns el kn ew orsh ou ldha ve kn own th atth ey

lac ke d areas on ab le ba si s i n fa ct . 1 3 5 As indicated supr a par

t I I .B.6, pla intiffs abandone d their appe al of the district c ourt’s 1 3 4 dispositi on of the Count One c laims for re lief under section 20(a ) and Rule 10b- 5(a)
. Nonethele ss, since we arerevie wingthe district court’s r efusa l to impos e sanc tions for plaintiffs’ prosec ution of those claims, we must deter mine whether

plaintiffs’ counse l satisfied Rule 11(b)’ s require ments in filing them. The district cour

t buttressed its decision by amendingits order grantingPeeples 1 3 5 summary judgme nt to add the followingfinding s of fa ct, which r elate to the f our subdivisions of Rule 11(b): (1) Plaintiffs and the ir counsel did not pre sent this action for a ny improper purpose, suc h as to hara ss or to cause unnece ssary delay or nee dless incre ase in 99Inass es si ng co un se l’s co m pl ia nc e wit h R

ul e 1 1( b) , th e d is tri ctco urt fa il ed
ex pl ic it ly to re co gn iz e th ateach of t he fiv e p la in ti ffs ha d s ou gh t re li ef u nd er
se ct io n 2 0( a) an d R

ul es 10 b- 5( a) an d (b ) an d t ha t Co un t On e th eref or e p res en te d a to ta l o f fi fte encla im s i n a ll . Ins te ad , th e co urt b un ch edth e fi fte encla im s t og ethe r
an d c on si de redth em

as awho le
. Thi s i s p reci se ly how p la in ti ffs ’ co un se l

1 3 6 ha nd le d t he cla im s i n d raft in g the co m pl ai nt : Th ey

bu nc he d t he fed eral sec ur it ie s frau d c la im s t og ethe r alo ng with a ll eg at io ns th atth e Act iv e Me m be rs , infai li ng 1 3 7 to di sc lo se th ei r arra ng em en ts with P eep le s, b reac he d t he fiduc ia ry du ti es im po se d
on th em by the Oper at in g Ag reem en t, O.C.G.A. § 1 4- 11 -3 05 , andGeor gi a
co m m on law, an d c on sp ire d wi th Peep le s t o d efraudpl ai nt iff s.

the cost of litigation; (2) The claims and leg al contentions pre sented by Plaintiffs and their counse l in this action were war

rante d by exis ting law

or by a nonfrivolous argument for the extension, m odification, or r ever sal of existi nglaw or the establishment of new law; (3) The alleg ations and other f actua l contentions prese nted by Plaintiffs and their counsel ha d evidentiar

y support or we re likely

to have e videntiary

support afte r a rea sonable opportunity

for f urther inve stigation or discovery ; and (4) Any denials of f

actua l contentions made by Plaintiffs and their counse l were war rante d on the evidenc e or w ere rea sonably based on a

lack of information or belief. In the B rief of

Cross-Appellee s and Reply Brief of A

ppellants (“Answer B rief” ), in 1 3 6 arguing that we should uphold the district court’s de nial of sanc tions, plainti ffs’ c ounsel likewise bunched pla intiffs’ claims tog ether , treating them a s a whole. See supra

note 54 and a ccompa

nying te x t. 1 3 7 100Whe n fa cedwith i nc om pl et e fi nd in gs of f

act , we ord in ari ly vacat e th e di st ric t co urt’s d eci si on an d re m an d t he cas e fo r furth er fi nd in gs , un le ss th e rec or d ha s b eende ve lo pe d i n s uc h away th atth e m at eri al fact s ar e cl ear. Here , th e
m at eri al fact s ar e cl ear, an d fu rth er fi nd in gs are t hu s u nn eces sa ry . W e th eref or e pr oc eedto ass es s co un se l’s co m pl ianc e wit h R

ul e 1 1( b) with re sp ectto each pl ai nt iff’s cla im s. In do in g s o, we ar e m in df ul th ata PSLRA s an ct io ns pr oc eed in g, l ik e a h eari ng he ldpu rs ua ntto Ru le 11 (c), i s, i n e ss en ce, a b en ch tri al , ex cep t t ha t, u nd er the PSLRA, th e d is tri ctco urt h as th e b ur de n o f as se ss in g
co un se l’s p erfo rm an ce o n i ts own in it ia ti ve . 15 U.S.C. § 7 8u -4 (c)( 1) . Thata pa rty ha s o r ha s n otm ov edth e co urt t o i m po se san ct io ns pu rs ua ntto Ru le 11 is of n o
m om en t. C. By th e ti m e p la in ti ffs ’ co un se l fi le d t he co m pl ai ntin th is cas e, th ey

were pr iv y to all of t he fact s n eed edto de te rm in e whe th er the y co ul d e st ab li sh an y

of th e cl ai m s C ou ntOne a ll eg ed . Cou ns el ha d a cqui redth os e fac ts in it ia ll y fro m th ei r cl ie nt s. Th erea fte r, du rin g d is co ve ry inth e st at e co urt ca se , th ey lea rn edof th e d et ai ls of P eep le s’s d eal in gs with the Acti ve Mem be rs , in cl ud in g t he
ne go ti at io ns th atledto th e $ 3.5 m il li on lo an . They al so learn edof the Ass et

101Pu rch as e Agr eem en t an d t he em pl oym en t co nt ract s t ha t t he Acti ve Mem be rs
en te redin to with P eep le s an d P FLC, LLC, res pe ct iv el y . Inass es si ng co un se l’s co m pl ia nc e wit h R

ul e 1 1( b) ’s requi rem en ts , th e di st ric t co urt al so ha d b eco m e p riv y to th e fac ts un de rp in ni ng th e Co un t On e cl ai m s. In ad di ti on to th e d ep os it io n t es ti m on y tak enun de r th e fed eral di sc ov ery
ru le s, the co urt h adall of t he tes ti m on y an d e xh ib it s t ha t h adbe enpre se nt edto th e st at e co urt an d h ada be ari ng on th e Co un t On e cl ai m s. Fi na ll y , th e co urt h adth e be ne fitof wh atpl ai nt iff

s’ cou ns el pre se nt edin arg ui ng th atPeep le s s ho ul d b e h el d
an swe rab le in da m ag es un de r se ct io n 2 0( a) an d R ul es 10 b- 5( a) an d (b ). Acco rd in gl y , when itto okPeep le s’s m ot io n fo r su m m ary jud gm en t u nd er advi se m en t an d, l at er, wh enitco nduc te d i ts Ru le 11 (b ) as se ss m en t o f pl ai nt iff s’
co un se l’s p erfo rm an ce, the di st ric t co urt was as we ll acqua in te d wi th th is hi st or ic al ba ck gr ou ndas p la in ti ffs ’ co un se l wer e whe n t he y fil edth e co m

pl ai ntin th is cas e. The c ou rt wa s wel l equi pp edto de te rm in e whe th er co un se l’s fa ctua l al le ga ti on s h adth e ev id en ti ary supp ort re qu ire d b y Ru le 11 (b )(3 ). The co urt was equa ll y equi pp edto de te rm in e whe th er, i n t he lan gu ag e o f Ru le 11 (b )(2 ), th e Co un t On e cl ai m s wer e “ warra nt edby exi st in g l aw.” 1 3 8

Plaintiffs’counsel have neve r conte nded that they brought any

of the Count One 1 3 8 claims in an attempt to obtain an “ extension, m odification, or r ever sal of existi nglaw or the establishment of newlaw.” See Fe d. R. Civ. P . 11(b)( 2) (2006) . Rather, they have a sserted 1021.

As n ot edab ov e, th e co urt, i n a ss es si ng co un se l’s Ru le 11 (b ) co m pl ia nc e, di d n otis ol at e th e cl ai m s o f eac h p la in ti ff; in st ead , ittre at edth e cl ai m s as if t he y ha d b een bro ug htby one pl ai nt iff . This was e rro r. The co urt s ho ul d h av e
ex am in edeach cla im

of e ach pl ai nt iff

; h aditdo ne so , itwou ldha ve co nc lu de d th atth e se cu rit ie s fr au d c la im s o f Dyna Vis io n’s co -p la in ti ffs ’ were p at en tl y fri vo lo us , as we h ol d s up ra p artIII. A reas on ab ly com pe te ntatt orne y

wou ldha ve
reac he d t he same con cl us io n. When co un se l fi le d t he co m pl ai ntin th is cas e, th ey cert ifi edth atco -p la in ti ffs ’ cl ai m s h adleg al an d e vi de nt ia ry supp ort, as requi redby Ru le 11 (b )(2 ) an d (3 ). They didso in m an ife stdi sr eg ardof the Ru le an d, fo r th at , th e co urt s ho ul d h av e im

po se d s an ct io ns .

2. Thi s b rin gs us to Dy

na Vis io n’s cl ai m s b ro ug htun de r se ct io n 2 0( a) an d Ru le s 1 0b -5 (a) a nd(b) . In p artIV, we ana lyzed t he ev id en ce b eari ng on th e rel ia nc e el em en t o f th e Ru le 10 b- 5( b) cla im . Plai nt iff s cl ai m edth e rel ia nc e el em en t was sat is fie d b ecau se bu t fo r Pee pl es ’s den ia l o f in vo lv em en t i n t he Pu t
an d C al l, Dyna Vis io n wo ul d h av e p ur ch as edth e Act iv e Me m be rs ’ in te res ts . W e,
throughout that, under e x isting law, pla intiffs’ Count One cla ims were c ognizable under sec tion 20(a) and Rules 10b-5(a) and (b). 103ho wev er, ag reedwith t he di st ric t co urt t ha t, as a m at te r of law, Pe ep le s’s d en ia l pl ay edno rol e in Dy

na Vis io n’s d eci si on to for eg o t he pu rch as e. A reas on ab ly
co m pe te ntatt orne y

ful ly aware of

th e in fo rm at io n p la in ti ffs ha d p ro vi de d t he ir at to rn ey s an d t he ev id en ce ad du cedin st at e co urt, i nc lu di ng th e d am ag in g adm is si on s Paul W al ke r, Ledf or d, an d O’Dell ha d m ad e o n d ep os it io n, wo ul d n ot ha ve fil edth is Ru le 10 b- 5( b) cla im . Plai nt iff s’ cou ns el ne ve rth el es s ce rti fie d t ha t th e fac tu al all eg at io n t ha t Dyna Vis io n o pt edno t t o p ur ch as e th e Act iv e Me m be rs ’ in te res ts be cau se itrel ie d o n P eep le s’s m is rep res en ta ti on s h adev id en ti ary supp ort. Co un se l m ad e th e certi fic at io n kno win g t ha t t he all eg at io n l ack edev id en ti ary
supp ort an d t ha t t he cla im wou ldfai l. Fo r th at , san ct io ns sh ou ldha ve be en im po se d. Pl ai nt iff s’ att orne y s ar gu e th atSect io n 9 .1 o f th e Ope rat in g Ag reem en t pr ov id edanad equa te factua l an d l eg al ba si s fo r th e Ru le 10 b- 5( b) cla im . They
co nt en d t ha t i f Pee pl es ha d a dm it te d t ha t h e was lo an in g t he Acti ve Mem be rs th e $3 .5 m il li on th ey

ne ed edto clo se , Dy

na Vis io n’s p rin ci pa ls wou ldha ve (1)
co nc lu de d t ha t the Acti ve Mem be rs ha d p le dg edth ei r in te res ts as c ol la te ral forth e lo anan d t he reb y

bre ach edSect io n 9 .1 o f th e Ope rat in g Ag reem en t, (2 ) reject ed th e Pu t an d C al l, an d (3 ) ob ta in edde cl arat ory or i nju nc ti ve rel ie f ba rri ng th e

104Acti ve Mem be rs fro m en fo rci ng th e Pu t an d C al l. Thi s wo ul d h av e en ab le d 1 3 9 Dyna Vis io n t o m ai nt ai n i ts fif ty perce ntin te res t i n wh atpl ai nt iff s cl ai m edto be a $1 0 m il li on co m

pa ny. 1 4 0 Co un t On e, ho wev er, d idno t al le ge th atPeep le s’s m is rep res en ta ti on s k ep t Dyna Vis io n fr om

go in g t o c ou rt a ndob ta in in g d ecl arat ory or i njunc ti ve rel ie f so th atitco ul d m ai nt ai n t he st atus qu o a nt e. Wha t p la in ti ffs ’ co un se l s eem s t o b e 1 4 1

In the Answe r B rief, pla intiffs’ counse l repe at what they told the district court during 1 3 9 the post-judg ment PSL RA proce eding : Peeples’s “ misrepre sentations . . . preve nted the plaintiffs from discove ringfac ts that would have a llowed them to fore stall the forc ed saleof their inter ests in [ Signatur e].” Answer

Brief at 8. Had they

known that Peeples w as loaningthe Active Members the $3.5 milli on they neede d to purcha se Dy

naVision’s intere st, “the plaintiffs . . . could have used state c ourt reme dies to block the put and c all. . . . . The re cord indicates that the plaintiffs would have done just that.” I d. at 19. “The plaintiffs likely would have obta ined injunctive relief

based on the Active Me mbers’ ple dg e of the ir interests in violation of the [S ignature] Operating Agree ment.” I d. at 20. As counsel state in the Answer Brief, plaintiffs would have “c halleng ed” the Put and 1 4 0 Call “to maintain Dy

naVision’s owne rship in a company that they valued a s at least $10 million at the time. B eca

use they did not want to take $3.5 million for an asse t they believe to wor

th more, the pla intiffs would have” g one to cour t. And, havingobtained a r uling nullifying thePut and Call, they

would have “pursued . . . se vera l other ave nues of r elief a g ainst the Active Members, principally

the right of first re fusal.” B rief at 20. As indicated supr a par

ts I .C and IV.B .1, J oiner’s A pril 11 letter to Kre volin revea led 1 4 1 that J oiner a

nd Dy naVision’s principa ls had g iven consider able thought to resisting the Put and Call and, if nec essar

y , obtaining a

court orde r dec laringit “null and void” on the ground that the Active Me mbers had br eac hed Section 9.1 of the Oper atingAgree ment. Dy naVision’s principa ls knew that the A ctive Membe rs lacke d the re source s to fund the $3.5 million purchase price a nd there fore had to borrow

the money

– if not from Peeple s, then from some other person or a lendinginstitution. Peeples’s denia l that he was pr oviding the f unds was ther efor e immateria l; whether he, anothe r per son, or a lendinginstitution was providingthe money , Dy naVision’s principals knew

that the Active Me mbers would be obta ining a loan and more than likely pledg ing the ir interests in Signature a s collatera l. When, in his April 16 letter r eplying to J oiner’s le tter of April 11, Krevolin ca lled J oiner’s bluff and stated that the Active Me mbers would take Joiner’s clients to court if D y naVision ref

used to close, Dy

naVision’s principa ls 105sa y in g, t he n, i s t ha t the y co ul d h av e p res en te d acla im th ey di d n otbri ng an d t ha t, be cau se th e cl ai m

th ey di d n otbri ng ha d m eri t, the y sat is fie d R

ul e 1 1( b) ’s
co nc ern s. Suc h a n a rg um en t co ul d n otserve as ajus ti fic at io n fo r su in g P eep le s

1 4 2
un de r th e fed eral sec ur it ie s l aws . 3. Pl ai nt iff s’ bri ef o n app eal do es no t ch al le ng e th e d is tri ctco urt’s ad ve rs e di sp os it io ns of the cla im s DynaVis io n b ro ug htun de r se ct io n 2 0( a) an d R ul e 1 0b
5( a). There fo re, as forth os e d is po si ti on s, the ap pe al is de em edab an do ne d a nd 1 4 3 th e d is tri ctco urt i s af

firm ed . This do es no t re li ev e u s, h owe ve r, of th e ta skof de te rm in in g wh ethe r, in fil in g a ndpro se cu ti ng th e se ct io n 2 0( a) an d R ul e 1 0b -5 (a) cl ai m s, co un se l d is reg ard edRu le 11 (b )’s requi rem en ts . W e fi rs t ex am in e Dy

na Vis io n’s s ect io n 2 0( a) cl ai m —t ha t t he Acti ve Mem be rs , whi le un de r Pee pl es ’s con tro l, b reac he d afiduc ia ry du ty to t he pl ai nt iff s. Th is cla im

ha d t wo p art s. Th e fi rs t p artass ert edth atth e Act iv e Mem be rs bre ach eda fi du ci ary du ty by fai li ng to di sc lo se th e co nt en ts of t he

chose to take the $3.5 million t hat was ly ing on the table and sue later. In the Answe r B rief, c ounsel ref er to Rule 10b-5(b) twice , but do so in the contextof 1 4 2 the claim they

did not bring – that Peeples’s misrepr esentations kept plaintiffs from takingthe Active Me mbers to cour

t. Brie f at 13, 18. The Answer Brief c ontains no ref

ere nce to se ction 20(a) and Rule 10b-5( a). See supra

note 72 and a ccompa

nying te x t. 1 4 3 106Ja nu ary 21 let te r an d P eep le s’s o ffer . Becau se Peep le s co ntro ll edth e Act iv e

Mem be rs at t he ti m e o f th e b reac h, h e b ecame seco nd ari ly or de riv at iv el y li ab le to Dyna Vis io n. Th e se co ndpa rt a ss ert edth atPeep le s was li ab le , as aco nt ro ll in g pe rs on , forSm it h’s we ar e “ do in g t hi s o n o urown ” st at em en t, a m is rep res en ta ti on act io nabl e u nd er Ru le 10 b- 5( b) be cau se itcau se d DynaVis io n t o fo reg o pu rch as in g t he Acti ve Mem be rs ’s in te res ts . 1 4 4 W e d et erm in e whe th er a re as on ab ly com pe te ntatt orne y

wou ldha ve bro ug ht th is two -p artsec ti on 20 (a) c la im ag ai ns t Pe ep le s b y

co ns id eri ng fir stwhet he r Peep le s was a co nt ro ll in g p ers on as d efi ne d b y sec ti on 20 (a). Inth is cir cu it , a de fen da ntis li ab le as aco nt ro ll in g p ers on un de r se ct io n 2 0( a) i f he or s he “ ha d the po wer t o c on tro l t he ge ne ral affa irs of th e en ti ty primaril y

li ab le at t he ti m e th e en ti ty vio la te d t he se cu rit ie s l aws . . . [an d] ha d t he requi si te po wer t o d ire ct ly or in di rect ly con tro l o r in flu en ce the sp eci fic co rp or at e p ol ic y whi ch res ul te d i n t he pri m ari ly liab il it y .” Bro wn v . Ens ta r Gro up , 84 F.3d39 3, 3 96 (11 th Cir . 19 96 ). In t he si tu at io n a t 1 4 5 ha nd , “ atth e ti m e th e en ti ty vio la te d t he sec ur it ie s l aws ” ref ers to Feb ru ary 8,

See supra

part I I .B.1. 1 4 4 To state a se ction 20(a) claim, the plaintiff must establish that the def endant “ had the 1 4 5 power to control the g ener al business aff airs” of the controlled pe rson, and “ had the r equisite power to directly

or indirec tly

control or influe nce the specific corpor ate policy which re sulted in the primary

liability ” of the controlled pe rson. Theoha rous v. Fong , 256 F.3d 1219, 1227 ( 11th Cir. 2001); see a lso Musick, Peeler & Gar rett v. Employers Ins. of Wausau, 508 U.S. 286, 296, 113 S. Ct . 2085, 2091, 124 L . Ed. 2d 194 (1993). 10720 02 , when Sm it h u tt eredth e we are “ do in g i t o n o urown ” st at em en t. “ [T]he

en ti ty primaril y

li ab le ” ref

ers to Sm it h a nd , bec au se sh e al le ge dl y sp ok e fo r Tho m as an d Owen by, the Acti ve Mem be rs . Dyna Vis io n p os it edth atth e fo ll owi ng pi eces of e vi de nc e es tabl is he d tha t Peep le s co nt ro ll edth e Act iv e Me m be rs ’ be ha vi orinm an ag in g S ig na tu re an d i n de al in g wi th Dy

na Vis io n: (1) th e Ja nu ary 21 let te r of in te nt ; (2 ) th e “ se cret di sc us si on s” with t he Acti ve Mem be rs in Jan ua ry

an d F eb ru ary of

th aty ear; an d (3 ) th e Ass etPu rch as e Agr eem en t m ad e aft er the Acti ve Mem be rs acqui red Dyna Vis io n’s i nt eres t. The Ass etPu rch as e Agr eem en t was cir cu m st an ti al pro of of th e n on -b in di ng di sc us si on s Pe ep le s h adwith t he Acti ve Mem be rs be fo re the y is su edth e Pu t an d C al l, b utitdi d n otm ak e h im a co nt ro ll in g p ers on at t he ti m e th e Acti ve Mem

be rs co m m it te d the act s t ha t al le ge dl y ren de redth em

pri m ari ly liab le
un de r Ru le 10 b- 5. Nei th er d idth e se cretdi sc us si on s. Th e p ro bl em with re lying
on th e Ja nu ary 21 let te r of in te ntis th e cav eatap pe ari ng at the en d o f th e le tt er:

“ to th e ex te ntof a ny con fli ctin th e p ro vi si on s o f th is Lett er an d t he pro vi si on s o f th e Si gn atur e Ope rat in g Ag reem en t, the pro vi si on s o f th e Si gn atur e Ope rat in g Agr eem en t s ha ll pre va il an d t he co nf li ct in g p ro vi si on (s ) of

th is Lett er s ha ll be
vo idan d o f no effe ctwhat so ev er.” Pe ep le s’s l awy ers dra fte d t hi s l an gu ag e. They ha d re adth e Ope rat in g Ag reem en t an d wer e es pe ci al ly sen si ti ve to it s p ro vi si on s. 108The y

were p art ic ul arl y

attun edto th e affi rm at iv e o bl ig at io ns th atth e Agr eem en t im po se d o n t he Acti ve Mem be rs an d t he ex te ntto whi ch itres tri ct edth ei r act iv ity — fo r ex am

pl e, to th e p ro hi bi ti on on th e Act iv e Me m be rs pl ed gi ng th ei r in te res ts in Sig na tu re as co ll at eral fora lo an . The ca ve atserve d t o e ns ur e th at
no th in g P eep le s h adwrit te n, o r th atth e p art ie s h addi sc us se d, co ul d b e co ns id ered
as in te rfer in g wi th th e Act iv e Me m be rs ’ ob li ga ti on s t o S ig na tu re an d i ts Mem be rs . Peep le s’s l awy ers want edto av oi d e xp os in g t he ir c li en t, an d t he Acti ve Mem be rs
as well , to li ti ga ti on . A reas on ab ly com

pe te ntatt orne y

wou ldha ve reject edth e id ea tha t Pe ep le s
was a co nt ro ll in g p ers on an d, fo r th atreas on alo ne , wou ldno t h av e fi le d t he Co un t One sec ti on 20 (a) c la im

ag ai ns t Pe ep le s. Ev enif Pe ep le s h adbe ena co nt ro ll in g pe rs on , ho wev er, the Acti ve Mem be rs ne ve r br each edan y

fiduc ia ry du ty, an d Peep le s t he refo re co ul d n otbe sec on da ril y li ab le
. The arg um en t t ha t the Acti ve Mem be rs bre ach eda fi du ci ary du ty, li ke th e arg um en t t ha t Pe ep le s was a co nt ro ll in g p ers on , lac ke d a ny leg al or e vi de nt ia ry
supp ort. Sm it h’s “ do in g i t o n o urown ” st at em en t was no t ac ti on ab le un de r Ru le 10 b- 5( b) be cau se itha d n ot hi ng to do with DynaVis io n’s d eci si onto sel l i ts

1 4 6

Smit h’s statement c ould not be actionable under Rules 10b-5( a) a nd (c) , and 1 4 6 plaintiffs’ counse l has not contende d that it was. 109in te res t i n S ig na tu re ra th er tha n p ur ch as e th e Act iv e Me m be rs ’ in te res ts . Abs en t 1 4 7 Sm ith’s p rimary

li ab il ity un de r Ru le 10 b- 5( b) , Peep le s co ul d n otbe he ld
se co nd ari ly liab le un de r se ct io n 2 0( a). Si m il arl y , reas on ab ly com pe te ntco un se l wo ul d h av e co nc lu de d t ha t the re
was no supp ort fo r th e al le ga ti on th atth e Act iv e Me m be rs ha d fi du ci ary a dut y to di sc lo se th e Ja nu ary 21 let te r an d P eep le s’s “ of fer.” Suc h adi sc lo su re i s n ot requi redby G eo rg iaco m m on law, the Lim it edLiab il it y Act, the Oper at in g Agr eem en t, o r Ru le 10 b- 5. In Ledf or d v . Sm it h, t he Geor gi a Co urt o f App eal s reject edth e arg um en t t ha t t he Lim it edLiab il it y Act an d/ orth e Ope rat in g Agr eem en t re qu ire d t he Acti ve Mem be rs , as fi du ci ari es , to di sc lo se th ei r pr e-Pu t
an d C al l n eg ot ia ti on s o r un de rs ta nd in gs with P eep le s. 6 18 S.E. 2dat 6 35 -3 6. 1 4 8 Rea so nabl y

co m pe te ntco un se l wo ul d t he refo re h av e co nc lu de d t ha t Ru le 10 b- 5 juri sp ru de nc e p ro vi de d n o s up po rt f orth e fi du ci ary du ty D yna Vis io n a ss ert s.

The district cour

t held as a matter of law

that Smit h’s statement ha d no causative 1 4 7 relationship t o Dy

naVision’s dec ision to sell i ts interest. The c ourt obviously felt that her statement had f

ar le ss probative va lue with respe ct to the “r eliance ” ele ment of a Rule 10b- 5(b) claim than Peeple s’s misrepre sentations, which fa iled the re liance te st as a matter of law. See supra

part I I .B.3. A lthough the c ourt of appe als did not address the que stion of 1 4 8 whether the common law imposed the f iduciary duty plaintiffs asser

ted, it is obvious t hat the L imited L iability

Act, which e x plicitly

addre sses the duties manag ers of a limited liabilit y companies ow e the c ompany and its members, super cede d whateve r the c ommon law may have presc ribed. In any

event, plaintiffs’ counsel c ited nothing to the c ontrary to the district court or to this court on appea l. 110Dyna Vis io n arg ue s t ha t, u nd er the Supr em e Co urt’s d eci si on s i n Aff il ia te d Ute C it iz en s v . Uni te d S ta te s, 4 06 U.S. 12 8, 9 2 S . Ct. 1 45 6, 3 1 L. Ed. 2 d 7 41 (1 97 2) , andit s p ro ge ny, e.g., Chi arel lav. Un it edSta te s, 4 45 U.S. 22 2, 1 00 S. Ct. 11 08 , 63 L. Ed. 2d34 8 (1 98 0) , th e Act iv e Me m be rs were fi du ci ari es an d t ha t t he ir si le nc e—t he ir f

ai lu re t o d is cl os e th e g is t o f th ei r di sc us si on s an d arran ge m en ts wit h P eep le s—ren de redth em li ab le un de r Ru le 10 b- 5. Th es e cas es are i napp os it e. It i s t ru e, as th e Ch ia rel laCo urt s ta te d, t ha t [A]dm in is tra ti ve an d ju di ci al in te rp ret at io ns ha ve est ab li sh edth at si le nc e in co nn ect io n wi thth e p ur ch as e o r sa le of s ecu rit ie s m ay op erat e as a frau d a ct io nabl e und er § 10 (b ) [o f th e 1 93 4 Act ] de sp it e th e ab se nc e o f st atut ory

lan gu ag e o r le gi sl at iv e h is to ry sp eci fic al ly ad dr es si ng th e le ga li ty of no nd is cl os ur e. Bu t s uc h l iabi li ty is pr em is edon a du ty to d is cl os e ari si ng fro m a rel at io ns hi p o f trus t an d co nf id en ce b etween pa rti es to a tr an sa ct io n. Ap pl ic at io n o f a dut y to di sc lo se pri or

to tra di ng gu aran te es th atco rp or at e in si de rs , who ha ve anob li ga ti on to pl ace t he sh areh ol de r’s welf are b efo re the ir o wn, wi ll no t b en efi t p ers on al ly thro ug h fr au du le ntus e o f m at eri al , no np ub li c in fo rm at io n. 44 5 U.S. at23 0, 1 00 S. Ct. at11 15 -1 6. A read in g o f th e Ope rat in g Ag reem en t m ak es itcle ar, h owe ve r, th atth e Acti ve Mem

be rs , vi s- a-v is Dy

na Vis io n, wer e n otak in to co rp or at e in si de rs ; no r 1 4 9

The Ac tive Members w ere not the functional e quivalent of c orporate insiders who 1 4 9 “‘take adva

ntag e of [inside] i nformation by tradingwithout disclosure.’” Sec urities and Ex chang e Commissi on v. Adler, 137 F .3d 1325, 1333 (11th Cir. 1998) (quotingChiarella, 445 U.S. at 228, 100 S. Ct . at 1114).
111was Dy

na Vis io n l ik e a co rp or at io n s ha reh ol de r. Sig na tu re’s s ix -p ers on Bo ardof Dire ct or s was di vi de d e qu al ly between th e Act iv e Me m be rs an d DynaVis io n. Th e Acti ve Mem

be rs ap po in te d t he m se lv es ; Dyna Vis io n fi ll edon ly one of i ts sp ot s, ap po in ti ng it s ac co un ta nt , Sta te n, an d l eftth e o th er two v acan t. Thi s d idno t g iv e th e Act iv e Me m

be rs th e upp er h an d b ecau se th e Agr eem en t s pe ci fie d t ha t t he Bo ardha d t o app ro ve “ al l” of S ig na tu re’s “ act io ns ,” whi chm ean t t ha t, i f th e Acti ve Mem

be rs ag reedto anact io n, St at enha d t o a gr ee t oo , or tha t ac ti on co ul d
no t b e ta ke n. In sh ort, Dyna Vis io n h adanequa l v oi ce i n t he co nduc t o f Si gn atur e’s affa irs an d u nl im it edacce ss to Sig na tu re’s b us in es s re co rd s an d fin an ci al in fo rm at io n. Dyna Vis io n s ug ge st s t ha t b y en ga gi ng in sec retne go ti at io ns with P eep le s
an d i nv ol vi ng hi m

in th e Pu t an d C al l, the Acti ve Mem be rs be cam e th e equi va le nt of co m pa ny ins id ers an d the refo re as su m eda du ty of di sc lo su re. The Geo rg ia 1 5 0 Co urt o f App eal s re

jecte d t hi s i de a wit h t he ob se rv at io n t ha t Se ct io n 7 .3 o f th e Ope rat in g Ag reem en t “ al lo w[ed ] th e Act iv e Me m be rs to ne go ti at e wit h P eep le s
Plaintiffs attribute signific ance to the fac t that on J anuar y 9, 2002, afte r Peeple s 1 5 0 reje cted Paul Walker’ s consec utive offe rs to sell Signature—first for $12 million, then for $10 milli on—and then a sked Walker f or per mission t o meet sepa

rate ly with the Active Me mbers, Walker, speaking f

or Dy naVision’s principa ls, told hi m that he could mee t with them only once. Dy naVision’s principa ls “trusted” Pee ples to abide by Walker’s instruction, and a ssuming that Peeples c ommunicated the instruction to the Ac tive Members, the y , too, were trusted. This, howeve r, could not have turned the A ctive Membe rs into fiduciarie s. 112fo r th e p ur

po se of o bt ai ni ng fin an ci ng to fun d t he ir b uy-ou t o f Dyna Vis io n’s in te res t.” Led fo rd , 61 8 S .E.2dat 6 36
. 1 5 1 If Sec ti on 7.3 di d n otm ak e itcle ar tha t the Acti ve Mem be rs co ul d n eg ot ia te wit h P eep le s i n s ecre t, h owe ve r, Sect io n 9 .2, en ti tl ed“ Ri gh t o f Fi rs t Re fu sa l,” di d. Sect io n 9 .2 g av e a Me m be r th e ri gh t t o re cei ve a “bo nafid e o ffer ” fro m a 1 5 2 th irdparty to p ur ch as e th e Me m be r’s in te res t wi th ou t i nf

orm in g t he ot he r Mem be rs of t he off

er. If a M em

be r ha d t he rig htto rece iv e anoff er, i t al so ha d t he rig htto so li ci t an off

er an d, i n d oi ng so , to ne go ti at e wit h the th irdparty in s ecre t. The Mem be r’s du ty to i nf

orm th e o th er Me m

be rs of a n o ffer

wou ldno t ar is e
un le ss an d u nt il th e Me m be r “ de si re[d ]” to a ccep t t he off er, atwhi ch po in t t he Mem be r wou ldha ve to no ti fy

th e o th er Me m

be rs of the off

er. The no ti ce wo ul d, in tu rn , tri gg er the ot he r Mem be rs ’ rig htof f

irs t re fu sa l. Inth e sc en ari o b efo re u s, the Acti ve Mem be rs ex erci se d t he ir r ig htto
ne go ti at e wit h P eep le s i n s ecre t. Pee pl es m ad e an off er, b utitwas n otanoff

er t o pu rch as e th e Act iv e Me m be rs ’ in te res ts an d thu s d idno t t rig ge r anob li ga ti on to
no ti fy Dy na Vis io n. Ev enif we wer e to ass um e th atPeep le s m ad e an off er (ev id en cedby the Jan ua ry 21 let te r of

in te ntan d t he ot he r pi eces of e vi de nc e See also supra

part I I .B.3. 1 5 1 The re levant provisions of Section 9.2, Sections 9.2.1 and 9.2.3, a re se t out supra note 1 5 2 47. 113pl ai nt iff

s ci te ), th e Act iv e Me m

be rs ’ fai lu re t o d is cl os e itto Dy na Vis io n wo ul d n ot
ren de r th e Act iv e Me m

be rs am en ab le to su itun de r Ru le 10 b- 5, fo r th ey wou ldno t ha ve bre ach eda fi du ci ary du ty. Perh ap s DynaVis io n c ou ldsu e th em forbre ach of
co nt ract , bu t i t ev id en tl y

de cl in edto bri ng th atcau se of a ct io n i n Led fo rdv. Sm ith. 1 5 3 Insu m , Dy

na Vis io n’s s ect io n 2 0( a) cl ai m was b as el es s o n t wo g ro un ds : (1 ) Peep le s was no t a c on tro ll in g p ers on , and(2) ne ithe r Sm ith n orth e Act iv e Mem be rs co ul d h av e b een he ldpri m ari ly liab le un de r Ru le 10 b- 5. A rea so nabl y
co m pe te ntatt orne y , aware o f th e ev id en ce atpl ai nt iff s’ cou ns el ’s di sp os al pri orto fil in g s ui t, wo ul d h av e rec og ni zedth is an d d ecl in edto pro se cu te th e cl ai m .

4. Hav in g c on cl ud edou r an al y si s o f th e se ct io n 2 0( a) cl ai m , we tu rnto th e cl ai m Dy na Vis io n b ro ug htun de r Ru le 10 b- 5( a). Ru le 10 b- 5( a) p ro sc rib es a

“ de vi ce, s ch em e, orart ifi ce t o d efraud .” To rec ov er u nd er thi s ru le , th e p la in ti ff
m us t s ho w no t o nl y

th atth e d efen da ntco nc oc te d apl anto de frau d, b utth atth e pl anwas s uc ces sf

ul —t ha t i s, tha t t he de fen dant , act in g wi th sci en te r,
As noted supra

part I I .A, in the six th claim of their c omplaint in L edfor d v. Smit h, 1 5 3 the Active Me mbers’ f

ailure to disclose pr ovided the basis for alleg ing a

brea ch of f

iduciary duty
. 114m is rep res en te d am at eri al facton whi ch th e p la in ti ff rel ie d t o h is de tri m en t. See 1 5 4 Ziem bav. Ca sc ad e In t’l, In c., 25 6 F .3d11 94 , 12 02 (11 th Cir . 20 01 ). The
m is rep res en ta ti on s DynaVis io n re li edon to est ab li shth is cla im were tho se Peep le s
an d S m it h m ad e. They were no t ac ti on ab le be cau se Dy na Vis io n d idno t re ly on th em in ele ct in g n otto pu rch as e th e Act iv e Me m be rs ’s in te res t. Dyna Vis io n’s Ru le 10 b- 5( a) cl ai m

ha d n o fo un da ti on in th e ev id en ce. The di st ric t co urt re jecte d th e cl ai m witho utdi sc us si on , bec au se no ne was re qu ire d. Th e co urt s ho ul d h av e go ne on e st ep furth er an d fo un d tha t co un se l i gn or edRu le 11 (b )(3 )’s adm on it io n in bri ng in g i t. Fo r th e fo reg oi ng reas on s, we co nc lu de th ata reas on ab ly com pe te nt at to rn ey wou ldno t h av e fi le d a ndpro se cu te d DynaVis io n’s Co un t On e cl ai m s be cau se th e at to rn ey

co ul d n otcert ify tha t t he cla im s h adth e ev id en ti ary supp ort requi redby Rul e1 1( b) (3 ), orth e Co un t On e cl ai m s o f co -p la in ti ffs be cau se th e at to rn ey co ul d n otcert ify tha t t ho se cla im s h adth e ev id en ti ary supp ort re qu ire d b y Ru le 11 (b )(3 ) an d wer e warrant edby exi st in g l aw. The d is tri ctco urt was 1 5 5

See supra

part IV.A. 1 5 4 Fur thermore , althoug h the pre cedingdiscussion focuses on the se curities fr aud cla ims 1 5 5 brought ag ainst Peeples, the r ecord contains nothingto support plaintiffs’ sec urities fra ud claims brought ag ainst the other two de fenda nts, PFL C, L L C and Interna l Manag ement, Inc. See supr a note 53. The c omplete abse nce of evidentiar

y support for these claims provides a n additional basis for sa

nctions. 115th eref

or e requi redby the PSLRA to san ct io n p la in ti ffs ’ co un se l, H. Greel y Jo in er, LLC., andH. Lam ar Mi xo n, Dav idG.H. Brack et t, an d t he ir l aw fi rm , Bon du ran t, Mi xo n & Elm or e, LLP. 5. W e n ow co ns id er wh ethe r th e d is tri ctco urt s ho ul d h av e sa nc ti on ed pl ai nt iff s as well as t he ir a tt orne y s. A pl ai nt iff is subjec t t o m on et ary sa nc ti on s i f th e p la in ti ff m is rep res en te d t he fact s al le ge d i n t he co m pl ai nt . See Byrne v
. Nezh at , 26 1 F .3dat 1 11 7– 18
. In t hi s ca se , we ass um e th atwhatth e in di vi du al 1 5 6 pl ai nt iff s an d P au l Walk er t ol d p la in ti ffs ’ co un se l p rio r to fil in g s ui t was
es se nt ia ll y

whatth ey

st at edon de po si ti on inst at e co urt an d re pe at edon de po si ti on in th e d is tri ctco urt, t o- wit : Dyna Vis io n c ho se to sel l i ts in te res t b ecau se itwou ld ha ve “ m ad e n o s en se ,” itwou ldha ve be en“ fo ol is h,” to ele ctth e Pu t an d C al l op ti on to pu rch as e th e Act iv e Me m be rs ’ in te res ts . Thes e were s tra ig ht fo rward , 1 5 7 da m ag in g a dm is si on s. Th e d eci si on of t he se laym ento fil e su itan d t o c on ti nu e o n to th e en d h ere was m ad e o n t he advi ce o f co un se l. Tha t s ai d, we fi ndno ba si s fo r im po si ng m on et ary sa nc ti on s o n p la in ti ffs
.

As indicated in the te x t supra, under the ver sion of Rule 11 in effe ct at the time the 1 5 6 district court made its sanctions rulings, moneta ry sanctions could not be a

war ded ag ainst a repr esente d party

for a violation of Rule 11(b)(2)
. See supra

notes 29, 95, 96 and a ccompa nying te x t. 1 5 7 116The PSLRA p res um es th at“ fo r subs ta nt ia l fa il ur e o f an y co m pl ai ntto
co m pl y with a ny requ ire m en t o f Ru le 11 (b ) . . . [th e ap pr op ria te san ct io n] is an awardto th e o pp os in g p art y of t he reas on ab le att orne y s’ fees an d o th er ex pe ns es in cu rredin th e act io n.” 15 U.S.C. § 7 8u -4 (c)( 3) (A)(i i). On rec ei ptof o ur 1 5 8
m an da te , th e d is tri ctco urt s ha ll de te rm in e th e at to rn ey ’s fees an d e xp en se s t o Peep le s i nc urredin de fen di ng th e Co un t On e cl ai m s. VII. The jud gm en t o f th e d is tri ctco urt d is po si ng of p la in ti ffs ’ cl ai m s i n fa vo r of Peep le s i s AFF IRM ED. T he di st ric t co urt’s o rd er o n s an ct io ns is REVERSED,
an d t he cas e is REMANDED for t he im po si ti on of s an ct io ns on pl ai nt iff s’ Cou nt One cla im s. SO ORDERED.

This presumption may

be re butted upon proof by the attorne y

ag ainst whom sanctions 1 5 8 are imposed that “the a

war d of attorne y s’ fe es and othe r expenses will impose an unre asonable burden on that party

or attorne y

and would be unjust, and the failure to make such a n awa rd would not impose a greater burde n on the par ty in whose favor sanc tions are to be imposed.” 15 U.S.C. § 78u-4(c)( 3)(B )(i). 117EDMONDSON, Chi ef J ud ge co nc urrin g i n t he res ul t i n p artan d d is se nt in g i n p art :

I co nc urin th e res ul t af

firm in g s umm ary jud gm en t i n fa vo r of Defen da nt s. Bu t I
can no t ag ree tha t Pl ai nt iff s’ lawyers m

us t b e sa nc ti on ed . I do no t thi nkth atall Pla in ti ffs
so ug htrel ie f fo r se cu rit ie s fr au d i n t he co m pl ai nt ; I i ns te adreadth e co m pl ai ntto ass ert th os e cl ai m s o nl y

on be ha lf o f Pl ai nt iff

Dy na Vis io n Gro up , LLC: th e u nd is pu te d s el le r of th e se cu rit y

at i ss ue he re. Nordo I acce ptth atno “ reas on ab ly com pe te ntlawyer” st an di ng in th e sh oe s o f Pl ai nt iff

s’ lawyers wo ul d h av e b ro ug htth e cl ai m s fo r se cu rit ie s fr au d. Th e cl ai m s co ul d h av e se em edarg uabl e atth e ti m e Pl ai nt iff s s ue d Def

en da nt s i n fe de ral co urt: fo r ex am pl e, no co urt h adth enrul edon th e d am ag in g e ffec t o f Pl ai nt iff s’ tes ti m on y

inth e rel at edst at e cas e. Furth erm or e, itis im po rta ntth atth e d is tri ctco urt d en ie d s an ct io ns . As
a m atte r of

do ctrin e, we m

us t af fo rdth e d is tri ctco urt s om e d efer en ce ab ou t s an ct io ns . See I ndus . Ris k In su rers v. M.A.N. Gut eh of fnun gs hu tt e Gm

bH, 1 41 F.3d14 34 , 14 48 (1 1t h C ir. 1 99 8) (“ The de ci si onwhet he r to im po se Ru le 11 san ct io ns is lef t t o t he di st ric t
co urt’s s ou nddi sc ret io n.” ). Becaus e I s ee n o abu se of d is cret io n i n t he de ci si on of t he di st ric t co urt d ecl in in g t o s an ct io n P la in ti ffs ’ la wy ers , I di ss en t fr om th e p artof t od ay ’s de ci si on th atco nc lu de s o th erwi se . I wou ldaffi rm

th e who le jud gm en t –in cl ud in g t he de ni al of s an ct io ns – o f th e di st ric t co urt.

118