2010 D e c i sion s O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit 4-14-2010 

# S t afford In v v . Rob e r t A. V

it o P r e c e de nt i al or N on-P r e c e de nt i al : N on-P r e c e de nt i al D ocke t N o . 09-2734

F o llow thi s and a dd it ion al work s at : http://d i git alc ommon s .l a w . vi ll anova . e du/thir dc ir c uit_2010

Thi s de c i sion i s br ou ght t o you for f r e e and ope n a c c e s s b y the O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit at V i ll anova U nive r sity S choo l of L a

w Di git al Reposit ory

. It h as be e n a c c ept e d for inclusion in 2010 D e c i sion s b y an author i z e d a dmini s tr at or of V i ll anova U nive r sity S choo l of L a

w Di git al Reposit ory

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w . vi ll anova . e du . Re c omme nde d C it at ion " S t affor d In

v v . Ro be r t A. V

it o " (2010). 2010 D e cisio n s . P ape r 1509. http://d i git alc ommon s .l a

w . vi ll anova . e du/thir dc ir c uit_2010/1509

### - 1- NOT P RE CE DE NT I AL UN I TED STATES CO UR T OF A PP EALS F O R T H E T H IR D C IR C U IT

_____________ N o. 09- 2734

_____________ STAFF OR D I NV ESTM ENTS, LLC A ppel l ant

v. RO BERT A . VI TO

___________ O n A p p e a l f

ro m th e U n ited S tate s D istric t C o u rt f o r th e E a ste rn D istric t o f P e n n sy lv a n ia ( N o. 04- cv- 3182) D i s t r i ctJ udge: H onor abl e J uan R . Sanchez

_____________ Subm i t t ed U nderT hi r d C i r cui tL . A . R . 34. 1( a)

M ar ch 25, 2010 B e f o re : R E N D E L L , F U E N T E S , a n d C H A G A R E S , C ir c u it J u d g e s .

( O pi ni on Fi l ed: A pr i l 14, 2010)

OPI NI ON O F THE COURTT he D i s t r i ctC our thad j ur i s di ct i on overthi s cas e pur s uantt o 28 U . S. C . §§ 1332 1 a n d 1 3 3 1 . W e e x e rc is e a p p e lla te ju ri s d ic tio n o v e r t h is a p p e a l p u rs u a n t to 2 8 U .S .C . § 1 2 9 1 .



### - 2- FU E N T E S, C i r cui tJ udge: A p p ell an t Staf

fo rd In v estm en ts, L L C (“S IL L C ”) a p p ea ls from the D istri ct C o u rt ’s rul i ng deny i ng i t s m ot i on forJ udgm entas a M att erof Law , m ot i on t o al t eroramend t he j udgm ent , m ot i on forcos t s , m ot i on fora new tr i al and mot i on fordefa ul tj udgm entbas ed on purpor t ed s poi l at i on of evi dence . Forthe fol l ow i ng r eas ons , w e af fi r m the D i s t r i ct C o u rt’s ju d g m e n t. 1 

### I. B eca us e w e w r i t e pr i m ar i l yforthe part i es , w e di s cus s the fa ct s onl yt o t he ext ent n e c e ss a ryf

o r re so lu tio n o f

th e iss u e s o n a p p e a l. SI L L C i s an I l l i noi s companyand partof the St aff or d G r oup, w hi ch i s ow ned by J ohn St aff

or d, J r . , J ohn St aff

or d, I I I , and J i m St aff

or d. Fr om 1999 t hr ough 2002, V i t o w as t he cha i r m an and CE O of Law m an A r m orC orpor at i on ( “Law m an”) , w hi ch manufactur ed l ock s y s t ems forcar s and boat s . I n 1999, L aw m an i s s ued a Pr i vat e Pl ace m ent M emora ndum ( “PPM ”) s ol i ci t i ng i nves t m ent s . I n r es pons e t o t he PPM , SI L L C pur chas ed 3 0 0 ,0 0 0 s h a re s o f

L a w m a n s to c k d ir e c tly f ro m V ito f

o r $ 1 .0 5 m illio n . Pr i ort o foundi ng L aw m an, V i t o w as an off i cerand di r ect orof El com T echnol ogi es C o rp o ra tio n , a c lo se ly -h e ld c o m p a n y . In 1 9 9 7 , V ito re sig n e d f ro m th e c o m p a n ya n d so ld 775, 000 of hi s s har es back t o E l com. I n 1998, E l com fi l ed forC hapt er11 bankrupt cyand

### - 3-

t he trus t ee s ued form erand curr entE l com offi cer s , i ncl udi ng V i t o, forvar i ous br eac hes of fi du ci arydu t i es. T his l i t i gati on exp osed V i t o to l i abil i t yand threat ened his asset s, inclu d ing h is pa tent an d h is sha res o f L aw m an . L aw m an ’s B o ard o f D ir ec tors w as a w are of thi s l i t i gat i on. N evert hel es s , t he PPM us ed t o s ol i ci ti nves t or s i n L aw m an i ncl uded the p h ra se : “th e re is n o p e n d in g o r th re a ten e d lit ig a tio n in v o lv in g L a w m a n o r a n yo f its off i cers , dir ect ors orshareholder s. ” (A pp . 2) SIL L C ’s con t ractfor the st ock pu rchase in c o rp o ra te d th e P P M . T h e E lc o m litig a tio n w a s s e ttle d in 2 0 0 1 . SI L L C fi l ed a f

i ve countcompl ai ntagai ns tV i t o, fourcount s of w hi ch w entt o a j ur yt r i al , al l egi ng m at er i al m i s r epr es ent at i ons and omi s s i ons i n t he PPM i n vi ol at i on of fede r al and s t at e s ecur i t i es l aw s , br eac h of contr act , and comm on l aw fr aud bas ed on V i t o’ s fai l ur e t o di s cl os e the El com l i t i gat i on w hi ch w as ongoi ng w hen SI L L C pur chas ed t he 300, 000 s har es i n 2000. A tt r i al , J ohn St aff or d I I I t es t i fi ed thathe w oul d nothave inv ested in L aw m an if h e k n ew ab o u t th e E lcom all eg ati o n s. H e a lso e x p resse d co n ce rn th a t V ito w a s a c c u s e d o f m is a p p ro p ri a tin g E lc o m ’s a s s e ts . S IL L C a rg u e d th a t th e P P M w a s d e sig n e d to f ra u d u len tlyin d u c e it i n to in v e stin g in L aw m an. T he tr i al t es t i m onyfocus ed on tw o ques t i ons : ( 1) w hen di d SI L L C l earn about t he El com l i t i gat i on and ( 2) w ho added the r epr es ent at i on t o t he PPM thatther e w as no pendi ng ort hr eat ened l i t i gat i on. C onfl i ct i ng t es t i m onyw as pr es ent ed overw hen the St aff or ds fi r s tl earned aboutt he El com l i t i gat i on, al t hough i tw oul d have be en r evea l ed i f a SI L L C i nves t i gat i ng par t nerhad conduc t ed appr opr i at e due di l i gence . Si m i l ar l y , the

### - 4-

e vi de nc e r e ga r di ng w ho a c tua l l ydr a ft e d the pu rpo r t e dl yfr a ud ul e ntpo r t i on of the PPM w a s in c o n c lu s iv e . T he j ur yfound i n V i t o’ s favoron al l thr ee f r aud count s , butfound i n SI L L C ’ s favor on i t s br eac h of contr actcl ai m , and aw ar ded ze r o damages . ( A pp. 13) T he j uryal s o found that S IL L C w as e n ti tl ed to resc issi o n , b u t aga in aw ard ed ze ro d am ag es. (A p p . 1 3 -14 ) B o th p arti es f

il ed p o st- tr ial m o ti o n s, inclu d ing S IL L C ’s F ed era l R u le of C ivil P roc ed u re 5 9 (e) m o ti o n to am en d o r alt er the jud g m en t. T h e tw o m ain issu es in this m o ti o n w ere w hethert he j ur y ’ s aw ar d of ze r o dol l ar s on t he r es ci s s i on cl ai m w as i ncons i s t entw i t h t he ver di ct , t her ebym er i t i ng r econc i l i at i on bythe D i s t r i ctC our t , and w hetherSI L L C w as e n title d to re s c is s io n a ry re lie f. T he D i s t r i ctC our tdeci ded i n the nega t i ve. Fi r s t , the D i s t r i ctC our tr eas oned that the v erd ictw as n o t fatall yinco n sist en t. T h e D istri ct C o u rtthen w en t on to tr ea t th e jury ’s v e rd ict o n re sc iss io n a s a d v iso rysin c e re sc iss io n is a n e q u itab le r e m e d y , an d re f u se d to gr antr es ci s s i on s i nce SI L L C di d notactpr om pt l y . T he D i s t r i ctC our tal s o not ed that beca us e the j ur yr ej ect ed the r emai ni ng count s – fr aud and mi s r epr es ent at i ons – ther e w as no al t ernat i ve gr ound upon w hi ch the C our tcoul d or derr es ci s s i on. Fi nal l y , beca us e the j ur ys i ded w i t h V i t o on t hr ee c ount s and w i t h SI L L C on i t s br eac h of contr actcl ai m , t he D is tr ic t C o u rt ru le d th a t b o th p a rt ie s s h o u ld b e a r i ts o w n c o s ts .“W e r evi ew a deni al of j udgm entas a mat t erof l aw de novo, vi ew i ng the 2 evi dence i n t he l i ghtm os tfavor abl e t o t he pr evai l i ng par t y . ” A cumed L L C v. A dvance d S urgi cal S ervs. , Inc. , 56 1 F . 3d 19 9, 21 0 (3d C i r. 20 09 ). “[W ]hen a d i stri ctcou rtrej ect s a m ot i on t o al t eroramend a j udgm entfi l ed pur s uantt o R ul e 59( e) , w e r evi ew forabus e of di s cr et i on, exce ptoverm at t er s of l aw , w hi ch ar e s ubj ectt o pl enaryr evi ew . ” C ur eton v. N a ti o n a l C o lleg iate A thleti c A ss’n , 2 5 2 F . 3 d 2 6 7 , 2 7 2 (20 0 1 ). E v iden ti aryd ec isi o n s are re v ie w e d f

o r a n a b u s e o f

d is c re tio n , In re Merri t tL og an , Inc. v. F l em i ngC os. , 901 F. 2d 3 4 9 , 3 5 9 (3 d C ir .1 9 9 0 ), a s is th e d e n ia l o f S IL L C ’s a p p lic a tio n f

o r a tto rn e y s f

e e s , Schake v . CIOC , 9 6 0 F .2 d 1 1 8 7 , 1 1 9 0 (3 d C ir . 1 9 9 2 ).



### - 5- II. 2 SI L L C ’ s pr i nci pal compl ai nti s thatthe D i s t r i ctC our terr ed w hen i ttr eat ed the j ur y ’ s ver di cton r es ci s s i on as advi s oryand ther efor e dec l i ned t o or derr es ci s s i onaryr el i ef. See A p p e llan t’s B r. at 1 7 , 2 1 . S IL L C c o n ten d s th a t itis e n tit led to th e re tu rn o f its i nves t m enti n L aw m an, and ther efor e the D i s t r i ctC our ts houl d have gr ant ed i t s R ul e 59( e) m o tio n to a lte r o r a m e n d th e v e rd ic t. W e agr ee w i t h t he D i s t r i ctC our tthatr es ci s s i on i s an equi t abl e r emedythati s not w ith in th e p ro v in c e o f

th e ju ry to a w a rd , s ee, e. g. , N as cone v . Spudnut

z, I nc. , 735 F. 2d 7 6 3 , 7 7 0 (3 d C ir. 1 9 8 4 ); Lackner v. G l os s er , 892 A . 2d 21, 31 n. 7 ( Pa. Super . 2006) , and th e re f o re it a p p ro p ri a te ly tre a te d th e ju ry’s ru lin g o n re s c is s io n a s a d v is o ry, s ee F e d . R. C iv . P . 3 9 (c ). W e a lso a g re e th a t th e D istric t C o u rt d id n o t ab u se its d isc re tio n w h e n it deni ed SI L L C ’ s R ul e 59( e) m ot i on. T he D i s t r i ctC our tcorr ect l ynot ed thata part ys eeki ng re s c is s io n m u s t a c t w ith in a re a s o n a b le p e ri o d o f tim e . See e . g. , F i cher a v. G or di ng , 227 A . 2d 642, 643- 44 ( Pa. 1967) . “W hen a pa rt ydi s cover s fac t s w hi ch w arr antr es ci s s i on of

### - 6-

hi s contr act , i ti s hi s dut yt o actpr om pt l y , and, i n cas e he e l ect s t o r es ci nd, t o not i fythe o th e r p a rty. . . w ith in a re a so n a b le tim e . . . . F a ilu re to re sc in d w ith in a re a so n a b le tim e is evi dence , and maybe conc l us i ve evi dence , of an e l ect i on t o aff i r m the contr act . ” Id . ( i n t e r n a l q u o t a t i o n ma r k s a n d c i t a t i o n o mi t t e d ) . Re a s o n a b l e n e s s i s a n a l y z e d f r o m a re a s o n a b le , p ru d e n t p e rs o n ’s v ie w p o in t. See Sis ki n v. C ohen , 70 A . 2d 293, 294- 95 ( Pa. 1 9 5 0 ). A pp l y i ng t hese pri ncipl es, t he D i stri ctC ou rtno t ed thatthe “ev i den ce i n thi s case s t r ongl ys ugges t s t he St aff or ds knew aboutthe El com l i t i gat i on i n 1999 bef ore they boughtV i t o’ s 300, 000 s har es i n 2000, butdi d notdemand r es ci s s i on. ” ( A pp. 18) ( emphasi s i n or i gi nal ) . I ndeed, as not ed bythe D i s t r i ctC our t , SI L L C had thr ee oppor tuni t i es t o l earn aboutt he El com l i t i gat i on pr i ort o pur chas i ng the s har es : ( 1) by conduct i ng appr opr i at e due di l i gence pr i ort o compl et i on of the s al e; ( 2) byr eadi ng a 1999 l et t ers entbyV i t o t o SI L L C w her ei n t he El com bankrupt cyw as m ent i oned; and ( 3) dur i ng a 1999 s peci al m eet i ng of the Law m an B oar d. ( A pp. 4- 5) N evert hel es s , SI L L C ent er ed in to th e c o n tra c t an d p u rc h a se d sh a re s o f L a w m a n . M o re o v e r, S IL L C d id n o t m o v e to resc ind the c o n tr ac t un ti l 20 0 4 , w h en itfil ed the in stan t suit . T h u s, the D istri ct C o u rt fo u n d that S IL L C fa il ed to ac t pro m p tl yan d w as th ere fo re n o t entit led to resc issi o n ary r el i ef. ( A pp. 18) I n l i ghton t he cons i der abl e del aybetw een the t i m e the St aff or ds l earned of the El com l i t i gat i on and w hen theyfi l ed thei rs ui tchal l engi ng the contr act , the D i s tr i ct C o u rt d id n o t ab u se its d isc re tio n w h e n it ref u se d to a lter th e ju d g m e n t.

### - 7-

N ordi d t he D i s t r i ctC our terras a mat t erof l aw w hen i tdeni ed SI L L C ’ s R ul e 50 m ot i on forJ udgm entas a M at t erof Law ( “J M O L ”) bas ed on a purpor t ed i ncons i s t ency w i t h t he j ur y ’ s ver di ctof fi ndi ng a br eac h of contr actand a r i ghtt o r es ci s s i on, butor der i ng ze ro d o ll ars in d am ag es. A R u le 50 m o ti o n m ayb e g ran ted if “ a p artyh as b ee n fu ll yh ea rd on an i s s ue and ther e i s no l egal l ys uffi ci entevi dent i arybas i s fora r eas onabl e j uryt o fi nd fort hatpar ton t hati s s ue. ” Mos l ey v . W i l s on , 102 F. 3d 85, 89 ( 3d C i r . 1996) ( quot at i on m arks and ci t at i on om i t t ed) . W hen fa ced w i t h an i ncons i s t entver di ct , a di s t r i ctcour tm ay “al l ow an appa r ent l yi ncons i s t entver di ctt o s t and” or“r ead the ver di cti n a mannerthat w i l l r es ol ve the i ncons i s t enci es . ” A cum ed LLCv. A dvance d Sur gi cal Ser vs . , I nc. , 561 F. 3d 1 9 9 , 2 1 7 (3 d C ir . 2 0 0 9 ). H er e, t he D i s t r i ctC our tdet erm i ned thatthe ver di ctw as noti ncons i s t ent . T he D i s t r i ctC our topi ned thatt he “j ur ycoul d have c oncl uded r eas onabl ythat , bas ed on evi dence t he El com l i t i gat i on w as notm ent i oned i n t he pr i vat e pl ace m entm emora ndum w hi ch had be en i ncorpor at ed byr efe r ence i n t he s al es contr act , V i t o m at er i al l ybr eac hed t he contr act . T he j ur ycoul d r eas onabl yhave f ound t he omi s s i on of thi s m at er i al fac tfr om t he contr actcaus ed the St aff or ds no damages beca us e theyl earned of the El com l i t i gat i on befor e theypur chas ed the s har es i n 2000. ” ( A pp. 16) T he D i s t r i ctC our tal s o not ed that t he j ur yfound aga i ns tSI L L C i n t hei ral l egat i ons of fr aud. I nt erpr et ed i n t hi s m anner , t he D is tr ic t C o u rt c o rr e c tly d e te rm in e d th a t th e ju ry’s v e rd ic t w a s n o t in c o n s is te n t. 

### S IL L C ’s rem ain in g claim s are w ith o ut m erit an dare th eref o re d en ied .

### - 8- III. F o r th e f o reg o in g reaso n s, w e af

f irm th e j u d g m ent o f

th e D istrict C o urt.