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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

ROBERT A. FORTE,

Plaintiff, Case No. 08-15206

Paul D. Borman

v. United States District Judge

Virginia M. Morgan

MARK C. McQUIGGAN, United States Magistrate Judge

Defendant/

Third Party Plaintiff,

v.

STANLEY J. TARGOSZ, JR.,

Third Party Defendant.

___________________________________/

ORDER GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT AND

DISMISSING THE CASE WITH PREJUDICE

This matter is before the Court on Defendant Mark C. McQuiggan’s Motion for Summary

Judgment. (Dkt. No. 27.) Plaintiff filed a Response (Dkt. No. 31) and Defendant filed a Reply (Dkt.

No. 33.) The Court held a hearing on August 25, 2010. For the reasons that follow, the Court

GRANTS Defendant’s motion for summary judgment.

INTRODUCTION

This case involves Plaintiff Forte’s claim that he was duped by Defendant McQuiggan into

giving $100,000 to a third party Raymond Michael (who is not named in this suit) in return for an

improperly executed promissory note, to which Defendant was not a party. Both Plaintiff and

Defendant are medical doctors who claim to have loaned money in support of, or invested in, a
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fraudulent scheme perpetrated in large part by individuals who are not parties to this case. In

essence, Plaintiff claims that Defendant was an agent/seller of securities for the party who

perpetrated the “securities fraud” and that Plaintiff accepted the promissory note, and loaned

$100,000 to the PRSI, in reliance on representations allegedly made by Defendant regarding the

trustworthiness of Michael, the main perpetrator of the scheme. 

Defendant moves for summary judgment on Plaintiff’s claims, arguing that Plaintiff’s claims

are barred by the statute of limitations. Defendant further argues that, even if the claims were timely

filed, Plaintiff’s claims fail because (1) the “note” is not an enforceable obligation, (2) Plaintiff was

not a “seller” of securities and (3) Plaintiff did not rely on Defendant’s advice in ultimately deciding

to issue the disputed loan in the amount of $100,000.

I. BACKGROUND

A. The Marlynx Litigation

Plaintiff begins his response to Defendant’s motion for summary judgment with the

statement that “[t]he facts of this case have an existing litigation history in that a companion case

involving the same issues is pending before Judge Friedman.” Plaintiff refers to the case of Marlynx

Investments, LLC v. Plastics Recovery Systems Int’l, Inc., et al, No. 07-cv-12296 (E.D. Mich.), a

case set for trial on September 14, 2010 before United States District Judge Bernard A. Friedman.

On December 12, 2008, Judge Friedman denied a motion to intervene, filed in that matter by

Plaintiff in the case sub judice. This Court concludes that while the two cases involve some

common background, they involve very different claims and substantively different facts. Thus,

while Plaintiff often “borrows” from opinions issued by Judge Friedman in the Marlynx case and

frequently utilizes deposition testimony given in that case, the case currently before this Court must
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stand or fall on its own facts, which differ in significant respects from those before the court in

Marlynx. 

Plaintiff in Marlynx is an LLC whose two members are Mark C. McQuiggan (the Defendant

in the instant matter) and his wife. Marlynx filed suit in May, 2007, against Plastic Recover Systems

International (“PRSI”), along with successor corporations to PRSI, as well as several individual

defendants, including Raymond Michael, a known venture capitalist who became the President of

PRSI. Mr. Michael is alleged to have been the “mastermind” of a securities fraud “Ponzi” scheme,

involving in part solicitations to invest in PRSI. Marlynx also sued Stanley J. Targosz, the Third

Party Defendant in the instant matter, and the inventor of the “plastic removal system” that was to

begin nascent testing through the financial support of PRSI. Mr. Targosz, an inventor and not a

business man, sought Mr. Michael’s assistance in raising capital to develop his plastic recovery

system. “Targosz believe[d] that he ha[d] invented a system to claim paint off of plastic parts,

thereby rendering reusable parts otherwise destined for scrap.” (Marlynx, supra No. 07-cv-12296,

Dkt. No. 85, Order Granting in Part and Denying in Part Plaintiff’s Renewed Motion for Partial

Summary Judgment, p. 1-2.) 

According to the facts in Marlynx, PRSI created a 29-page power point presentation which

touted the plastic recovery system and on which Marlynx relied in deciding to invest $200,000 in

the PRSI venture. Marlynx loaned a total of $200,000 to PRSI, and in return received two $100,000

Promissory Notes bearing an interest rate of 24% and promising annual payments of $24,000.

(Def.’s Mot. Ex. 1.) Both of the notes that are the subject of the Marlynx litigation differ

significantly, both in content and in the form of execution, from the promissory note relied upon by

Plaintiff in the instant matter. Both notes in the Marlynx litigation are identical; three pages long,
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and are signed by Raymond Michael, the president of PRSI, and witnessed by Terry Wallace, an

associate of Mr. Raymond. Marlynx also had invested in another Raymond entity, Management

Consultants Inc. (“MCI”), which was the subject of a cease and desist order entered by the State of

Michigan Office of Financial and Insurance Services on matters unrelated to the Marlynx litigation.

(Id. at 2.) 

In fact, or so it is alleged in Marlynx, Marlynx was never paid a penny on its loans to PRSI,

and Mr. Michael never intended PRSI to be profitable or to pay on the promissory notes. Mr.

Michael allegedly used the monies obtained as loans to PRSI for purposes unrelated to the business

of PRSI and ultimately left the country with the balance of the funds loaned by Marlynx and other

investors. It is alleged that Stanley Targosz was unable to confirm that Mr. Michael had “taken the

money” until February 2006 and did not inform investors in PRSI of Mr. Michael’s bad faith actions

until the spring of 2006. (Order Gr. in Part Pl.’s Mot. Summ. Judg., Marlynx, supra, 07-cv-12296,

Dkt. No. 85, p. 3.) 

The complaint in Marlynx alleges that the promissory notes were securities and were sold

in violation of the Securities Acts of 1933 and 1934. In ruling on Marlynx’s motion for partial

summary judgment, Judge Friedman agreed that the notes in that case, which the court concluded

were issued to investors who sought to purchase an investment in the business enterprise of PRSI

with the expectation of a profitable return on their investment, were securities subject to the

requirements of the Securities Act of 1933. (Id. at 4-8.) The court in Marlynx concluded that

questions of fact existed as to whether the notes were sold in violation of the registration

requirements of the 1933 Act and whether the memorandum provided to potential investors

contained material misstatements in violation of § 10b of the Securities Act of 1934. (Id.) 
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B. The Instant Case - Plaintiff’s Claims Against Dr. McQuiggan

1. The allegations of the Complaint.

Plaintiff claims that Defendant Mark McQuiggan, “acting as an agent for and on behalf of

PRSI, sold Plaintiff an investment note for $100,000 wherein Plaintiff was a lender and PRSI the

borrower which note was to pay 48% interest.” (Compl. ¶ 3.) Plaintiff claims that his action is to

“recover the $100,000 paid by Plaintiff based upon his reliance of [sic] representations by Defendant

that a Raymond V. Michael, President and 50% owner of PRSI . . . was a legitimate and trustworthy

entrepreneur and could be relied upon.” (Compl. ¶ 6.) Plaintiff claims that “[t]hese and other

representations made by Defendant were false and Defendant either knew or should have known that

they were false.” (Id.) Plaintiff claims that his note, like the notes in the Marlynx case, is a security

that was given solely as an investment for profit and that therefore Defendant violated the securities

laws in offering the note to Plaintiff for sale without proper registration and for making certain

alleged misstatements in connection with that offering. (Compl. ¶¶ 20-26.)

Plaintiff claims that he only gained knowledge of his claims against Defendant in 2008,

through discovery in the Marlynx litigation, which allegedly disclosed that Defendant was a willing

and knowing participant, along with Raymond Michael, in the “Ponzi” scheme described in the

Marlynx litigation. Plaintiff claims that he only learned in 2008 that Defendant was promised a

commission of three percent to help sell the investments of PRSI. (Compl. ¶¶ 9-10.) Specifically,

Plaintiff claims that Defendant falsely represented to Plaintiff “that Ray Michael could be depended

upon to keep his promises” and failed to inform Plaintiff that the notes were securities required to

be registered under applicable securities laws and that the notes were dependent upon PRSI

receiving enough money from Ray Michael and MCI to complete construction and operation of a
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full plastics recovery line.” (Compl. ¶ 18.) Plaintiff claims that he “relied on the untrue statements

and assurances of Defendant in making his investment/loan to PRSI.” (Compl. ¶ 19.) 

2. Defendant introduces Plaintiff to the PRSI investment and Plaintiff conducts his

own “due diligence.”

Plaintiff and Defendant are both medical doctors; Plaintiff is a plastic surgeon and Defendant

a urologist. (Def.’s Mot. Ex. 4, Deposition of Robert A. Forte, taken in Marlynx Investments, LLC

v. Plastic Recovery Systems Int’l Inc., No. 07-cv-12296 (E.D. Mich.), June 5, 2008 (“Forte I”), p.

6.) Plaintiff and Defendant first met in 1984 when Plaintiff was a general surgery resident and

Defendant was his supervising doctor on his urology rotation. (Id. at 6-7.) Although acquaintances,

Plaintiff and Defendant were not particularly close and were not social friends. (Id. at 53-54.) Both

Plaintiff and Defendant also are acquainted with Third Party Defendant, Stanley Targosz, whom

Plaintiff has known since they attended Catholic Central High School together approximately 20

years ago. (Id. at 7.) Plaintiff and Targosz continue to serve together on several Catholic Central

committees, “have become very good friends,” see each other socially and are “very close because

of what [they] do at Catholic Central.” (Id. at 7, 57.)

Plaintiff first considered the idea of taking a financial stake in PRSI sometime in the early

Fall of 2005 when Defendant and he were talking in the hallway outside the operating room at

Providence Hospital. (Id. at 8, 9.) Defendant asked Plaintiff if he knew Stanley Targosz and

Plaintiff responded that he knew him well, explaining their common tie to Catholic Central.

Defendant explained that Targosz was “spearheading” the plastics recovery system and asked

Plaintiff if he would be interested in learning more, to which Plaintiff responded yes, he “would be

interested in listening to an idea like that.” (Id. at 8.) Plaintiff testified that he was “very intrigued

by the idea” because he was “a chemistry major, and [understood] the difficulty of reclaiming plastic
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that’s identical.” (Id. at 9.) According to Plaintiff, after Plaintiff expressed his interest in listening

to the PRSI idea, Defendant said to him: “Oh, good, I’ll get my commission.” (Id. at 8) (emphasis

added.) Plaintiff testified that at the time he didn’t really give this comment much thought. (Id. at

9.) At the hearing on the instant motion, counsel for Plaintiff acknowledged this testimony given

by his client and admitted that his client was aware in the Fall of 2005, when Plaintiff first

introduced the idea of PRSI to him, that Defendant stood to receive a commission if Plaintiff decided

to invest in PRSI.

Following this initial introduction, Plaintiff testified that he attended perhaps two more

meetings to discuss PRSI at which Defendant was present, but that he never met again just with

Defendant. The meetings thereafter were always attended also by Raymond Michael and sometimes

Stanley Targosz. (Id. at 9-10.) According to Plaintiff, Defendant placed a follow-up call to Plaintiff

sometime later in the Fall to ask if Plaintiff was ready to make a financial commitment. Plaintiff

explained to Defendant that he was still doing his own due diligence and would not be rushed in to

making a decision. Defendant called Plaintiff later that day to tell him to take all the time he needed

to make his decision. (Id. at 10-11.) Plaintiff testified that “[o]ther than the two times we would

have meetings where Ray Michael was present, I probably never saw Dr. McQuiggan or spoke to

him, other than that one conversation on the phone, other than to say, I’ll meet you at such and such

a place, at the Bingham Farms office, at 7:00.” (Id. at 41.) 

Plaintiff states that Defendant indicated that he was very confident in the advice he had been

given by Raymond Michael in the past, that he had invested with him before (which he had in MCI)

and that Michael had seemed to be “right on.” (Id. at 14, 41.) Plaintiff stated that he believed that

Defendant was in fact receiving some return on his other investments with Raymond Michael and
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had no reason then or now to question the truth of Defendant’s representations regarding the success

of his previous investments with Raymond Michael. ( Def.’s Mot. Ex. 5, Deposition of Robert A.

Forte, October 12, 2009, (“Forte II”) pp. 20-21.) 

Plaintiff had no further contact with Defendant regarding his decision to make a financial

commitment to PRSI but did proceed with his own due diligence and research into the viability of

the PRSI concept. Plaintiff’s “due diligence” involved consulting as many people as necessary

“until [his] comfort level is raised to the point where [he] can say yes or no.” (Def.’s Mot. Ex. 4,

Forte I, 59-60.) At no point did Plaintiff consult Defendant during his due diligence and Plaintiff

did not consider Defendant his advisor on the decision to invest. (Id. at 71.) “My due diligence

consisted strictly of dealing with people outside of the group that I was going to invest with.” (Id.

at 82.) Plaintiff viewed Defendant as merely “another investor” in the deal and specifically testified

that he “didn’t rely upon Dr. McQuiggan at all for any investment advice with regard to PRSI.” (Id.

at 80-81.) 

Plaintiff did consult an individual who was an accountant and a lawyer and asked him his

advice on making a financial commitment to PRSI. The advisor told Plaintiff that he knew and did

not like Raymond Michael and told Plaintiff not to invest in PRSI. Plaintiff expressly stated that he

consciously disregarded this advice in deciding ultimately to invest in PRSI. (Id.) In fact, Plaintiff

disregarded the advice of two independent individuals who categorically told Plaintiff “don’t do it”

and “made the decision on [his] own in spite of having received the advice not to do it, to go ahead

and do it[.]” (Def.’s Mot. Ex. 5, Forte II, 16-19.) 

Plaintiff decided to invest in PRSI because of his interest in the “revolutionary” concept of

reclaiming plastic regardless of the advice that he was being given by independent professionals,
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at least one of whom specifically informed Plaintiff not to trust Raymond Michael, and not to invest

PRSI. (Id. at 19.) Plaintiff based his decision to invest, and to ignore counsel to the contrary, on

his close relationship with Stanley Targosz: “What I can tell you is this: I never trusted Mr.

Michaels. The only reason I invested in the first place and have continued to invest is because of Mr.

Targosz. That’s who I trusted.” (Def.’s Mot. Ex. 4, Forte I, p. 76.) Plaintiff stated that while

Defendant introduced him to the PRSI idea, Defendant had no further influence on Plaintiff’s

decision to ultimately invest: “[I]f Mr. Targosz had not been involved in this deal, I would not have

invested because I did not trust Mr. Michaels from the very beginning.” (Def.’s Mot. Ex. 5, Forte

II, p. 16-19.) Plaintiff never shared his thoughts about Raymond Michael with anyone, including

Defendant, except his wife to whom he expressed the fact from the “very beginning” that he did not

trust Raymond Michael. (Id.)

3. Plaintiff loans PRSI $100,000 in exchange for an unsigned promissory note

guaranteeing a per annum interest rate of 24%.

Plaintiff concedes that the Promissory Note (“the Note”) on which he relies in this case, in

the amount of $100,000, bearing interest per annum of 24% and designating Plaintiff as payee and

PRSI as the debtor, was not signed by Defendant and was never drafted for Defendant’s signature.

(Def.’s Mot. Ex. 1.) Sometime around January 18, 2006, Plaintiff received the Note, by his

recollection from Raymond Michael. (Id. at 22-23.) Stanley Targosz testified that he actually

signed and delivered the Note to Plaintiff “as a receipt for the PRSI check which [he] delivered to

Ray Michael.” (Def.’s Mot. Ex. 3, Pl.’s Resp. to Def.’s First Discovery Requests; Pl.’s Resp. Ex.

D, Deposition of Stanley Targosz, October 17, 2007, 34-35.) The Note bears a signature line

indicating it was to be executed by Raymond Michael, the President of PRSI, who never signed the

document. Instead, Stanley Targosz signed his name on the document below the line indicated for
1 Indeed, Plaintiff’s steadfast refusal to admit that this was the only Note that he possessed

evidencing his “investment” in PRSI, and his refusal to admit that he did not possess a properly

executed promissory note which in any way indicated Defendant’s involvement in the transaction,

were the subject of at least two motions to compel before Magistrate Judge Morgan who ultimately

imposed sanctions: “With respect to Plaintiff’s conduct, Plaintiff has repeatedly failed to produce

documents essential to his claim and finally concedes that with respect to the promissory note, no

properly signed note was every in existence.” (Dkt. No. 30, Order Granting Mot. for Discovery

Sanctions, pp. 2-3.) This Court affirmed the Magistrate Judge’s imposition of sanctions (Dkt. No.

37) and ultimately awarded sanctions in the form of attorneys’ fees in the amount of $9,940, payable

to Defendant (Dkt. No. 39.)

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Raymond Michael’s signature. Although Targosz was a Vice-President of PRSI, that was not noted

anywhere on the Note.

The details of how the Note came to be executed and delivered remain unknown. Plaintiff

recalled that the Raymond Michael delivered the Note, which is directly contradicted by Stanley

Targosz’s statement, quoted above, that he delivered the Note to Plaintiff. (Def.’s Mot. Ex. 5, Forte

II, p. 22.) Plaintiff seemed not to have noticed the “detail” of the absence of the signature of

Raymond Michael: “Q: Can you explain why you took a promissory note for $100,000 that was not

signed? A: I just told you it was signed. Q: But not on the signature line and you can’t tell by whom.

A: Correct.” (Def.’s Mot. Ex. 5, Forte II, p. 25.) In fact, Plaintiff testified that he did not receive

the Note the day he handed over the check and can’t remember exactly when he did receive the

Note, except that it was not simultaneous with delivery of the check. (Id. at 26-27.) Plaintiff no

longer asserts that Defendant McQuiggan had anything to do with delivery or execution of this

improperly executed Note, which bears fax notations that indicate it was sent to Plaintiff from

Stanley Targosz place of business.1

 (Id. at 27-28.) Plaintiff never contacted Defendant to inquire

why the Note was not signed by Mr. Michael and never contacted Mr. Michael or PRSI to obtain

a properly executed note. (Id. at 29.)
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Plaintiff testified that it was his understanding that the $100,000 loan was never intended to

be an investment in the long-term venture of PRSI, but that the $100,000 was to be used to set up

a “test line” for what would ultimately become a much more productive venture, a separate

company, in which he might ultimately enjoy franchise rights: 

Q: So what is it that you were going to do – what activities were you going to

perform besides turning over a hundred thousand dollars and making sure the check

was cashed by your bank? 

A: I was going to be a further investor in the company. . . . [T]he test line would set

the stage for the real business, which was setting up more lines. And the word

franchise was used, and I wanted a franchise. 

(Def.’s Mot. Ex. 4, Forte I, 69-70.) Plaintiff explained that PRSI was never intended to pay any

money as a profit-making investment: 

Q: The first company was what? 

A: PRSI. 

Q: And that was going to set up the test line? 

A: Yes. 

Q: Did it, yes or no? 

A: Yes. 

Q: So it succeeded? 

A: Yes. 

Q: But it didn’t pay any money, did it? 

A: No. 

Q: Why didn’t it pay any money? 

A: It was never intended to. The only money that you were going to recover from

that was the 24 percent.

 

(Def.’s Mot. Ex. 5, Forte II, p. 34.) This was confirmed by Stanley Targosz in his response to

Defendant’s requests to admit: “PRSI never intended to pay beyond the amount due on the note

because that was the extent of our obligation.” (Def.’s Mot. Ex. 3, p. 2.)

4. Plaintiff allegedly discovers that Defendant was a “salesperson” for PRSI and

claims to have been duped by Defendant into “investing” in PRSI.

Plaintiff does not dispute the drafting and execution errors relating to the Note and attempts
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to justify the circumstances under which the Note came to be signed by Mr. Targosz: 

Stanley Targosz was asked by Raymond Michael, the President of PRSI, to “pick up”

Plaintiff’s check, which he did in the amount of $100,000. Made payable to PRSI.

(Pages 34, 35 Targosz Dep. Trnscpt. Ex. D) In exchange for the check Plaintiff

received a note that had been prepared for Mr. Michael’s signature as president of

PRSI and was attached to Plaintiff’s complaint. (Exhibit E.) Stanley Targosz, a vice

president of PRSI, signed it under the place on the note reserved for Michael’s

signature, Mr. Michael never signed it. He did however deposit Plaintiff’s $100,000

in the PRSI account and only Mr. Michael and his wife had authority to sign the

check on that account. (See transcript testimony of Ms. Clora, Comerica Bank pp

8,9, Ex. F.)

Pl.’s Resp. to Mot. Sum. Judg. 4-5. Plaintiff claims that despite the fact that Defendant admittedly

had nothing to do with delivery, execution or drafting of the note, he should nonetheless be held

liable on the note because he was an agent of Raymond Michael: “Now Defendant wants to avoid

the legal implications of being a paid salesman of an unregistered security because his principal

neglected or refused to sign the note but kept the money.” (Id.) 

Plaintiff testified in his deposition that the very first day that Defendant mentioned the PRSI

investment to Plaintiff, sometime in the Fall of 2005, Defendant told Plaintiff that if Plaintiff

invested, Defendant would receive a commission. (Def.’s Mot. Ex. 4, Forte I, 8.) Plaintiff’s counsel

acknowledged at the hearing on this matter that his client knew at that time that Defendant stood to

receive a commission based upon Plaintiff’s investment. In spite of this acknowledgment, Plaintiff

alleges now that he only recently learned that Defendant actually may have received that

commission. Plaintiff now alleges that Defendant was an “agent” of PRSI and/or Raymond Michael

based upon the following facts which he claims to have learned through discovery in the Marlynx

litigation: (1) Defendant attended five sales meetings to learn how to “sell” the PRSI product (no

source cited); (2) Defendant shared an office with Terry Wallace, an employee of Raymond

Michael’s, who testified that Defendant came to the PRSI/MCI office approximately once a week
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and made phone calls to prospective clients about investing in PRSI (Pl.’s Resp. Ex. J, Deposition

of Terry Wallace in the matter of Marlynx Investments, LLC v. Plastic Recovery Systems Int’l Inc.,

No. 07-cv-12296 (E.D. Mich.), Sept. 25, 2008, pp. 13-16; Def.’s Mot. Ex. 9, Wallace Dep. 16.); (3)

Defendant was promised a three percent commission if he brought an investor into Raymond

Michael. (Pl.’s Resp. Ex. K, Deposition of Mark C. McQuiggan, April 15, 2008, pp. 93-96.)

Defendant testified that he never actually received a commission and Mr. Wallace confirmed that

Defendant never received a commission. (Pl.’s Resp. Ex. K, McQuiggan Dep. 94-96; Def.’s Mot.

Ex. 9, Wallace Dep. 16.) Plaintiff states that a $3,000 payment received by Defendant’s LLC,

Marlynx, from MCI, approximately two weeks after Plaintiff issued his $100,000 loan to PRSI, is

evidence that Defendant in fact received his 3% commission for the sale of an interest to Plaintiff.

(Pl.’s Mot. Ex. N.) Defendant states that this was the last payment that Marlynx received in

connection with its investment in MCI and was not a commission on a sale of PRSI. (Pl.’s Resp.

Ex. M, Deposition of Mark C. McQuiggan, October 12, 2009, pp. 14-15.)

II. STANDARD OF REVIEW

Pursuant to Federal Rule of Civil Procedure 56, a party against whom a claim, counterclaim,

or cross-claim is asserted may “at any time, move with or without supporting affidavits, for a

summary judgment in the party’s favor as to all or any part thereof.” Fed. R. Civ. P. 56(b).

Summary judgment is appropriate where the moving party demonstrates that there is no genuine

issue of material fact as to the existence of an essential element of the nonmoving party’s case on

which the nonmoving party would bear the burden of proof at trial. Celotex Corp. v. Catrett, 477

U.S. 317, 322 (1986). “Of course, [the moving party] always bears the initial responsibility of

informing the district court of the basis for its motion, and identifying those portions of ‘the
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pleadings, depositions, answers to interrogatories, and admissions on file, together with the

affidavits, if any,’ which it believes demonstrate the absence of a genuine issue of material fact.”

Id. at 323; See also Gutierrez v. Lynch, 826 F.2d 1534, 1536 (6th Cir. 1987).

A fact is “material” for purposes of a motion for summary judgment where proof of that fact

“would have [the] effect of establishing or refuting one of the essential elements of a cause of action

or defense asserted by the parties. Kendall v. Hoover Co., 751 F.2d 171, 174 (6th Cir. 1984)

(quoting Black’s Law Dictionary 881 (6th ed. 1979)) (citations omitted). A dispute over a material

fact is genuine “if the evidence is such that a reasonable jury could return a verdict for the

nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). Conversely,

where a reasonable jury could not find for the nonmoving party, there is no genuine issue of material

fact for trial. Feliciano v. City of Cleveland, 988 F.2d 649, 654 (6th Cir. 1993). In making this

evaluation, the court must examine the evidence and draw all reasonable inferences in favor of the

non-moving party. Bender v. Southland Corp., 749 F.2d 1205, 1210-11 (6th Cir. 1984). 

If this burden is met by the moving party, the non-moving party’s failure to make a showing

that is “sufficient to establish the existence of an element essential to that party’s case, and on which

that party will bear the burden of proof at trial,” will mandate the entry of summary judgment.

Celotex, 477 U.S. at 322-23. The non-moving party may not rest upon the mere allegations or

denials of his pleadings, but the response, by affidavits or as otherwise provided in Rule 56, must

set forth specific facts which demonstrate that there is a genuine issue for trial. Fed. R. Civ. P. 56(e).

The rule requires the non-moving party to introduce “evidence of evidentiary quality”

demonstrating the existence of a material fact. Bailey v. Floyd County Bd. of Educ., 106 F.3d 135,

145 (6th Cir. 1997); see Anderson, 477 U.S. at 252 (holding that the non-moving party must produce
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more than a scintilla of evidence to survive summary judgment).

III. ANALYSIS

A. Plaintiff’s Claims are Barred by the Applicable Statutes of Limitations

Both parties appear to agree that the applicable statute of limitations for Plaintiff’s Count I

claim is set forth in 15 U.S.C. § 77m, which provides:

No action shall be maintained to enforce any liability created under section 77k or

77l(a)(2) of this title unless brought within one year after discovery of the untrue

statement or omission, or after such discovery should have been made by the

exercise of reasonable diligence, or, if the action is one to enforce a liability created

under section 77l(a)(1) of this title, unless brought within one year after the violation

upon which it is based. In no event shall any such action be brought to enforce a

liability created under section 77k or 77l(a)(1) of this title more than three years after

the security was bona fide offered to the public, or under section 77l(a)(2) of this title

more than three years after the sale.

In Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350 (1991), the Supreme Court

adopted this same statute of limitation (one year period of limitation/three year period of repose) for

claims based upon section 10b of the Securities Exchange Act of 1934, 17 C.F.R. §240.10b-5 (Count

II of Plaintiff’s Complaint). Lampf was superceded by the passage of section 804 of the SarbanesOxley Act, which increased the time limitation periods for securities fraud claims to a two year/five

year scheme. 28 U.S.C. § 1658(b). See In re Exxon Mobil Corp. Securities Litigation, 500 F.3d 189

(3rd Cir. 2007) (explaining the effect of Sarbanes-Oxley on the Supreme Court’s decision in Lampf).

Some have argued that section 804 of Sarbanes-Oxley has a much broader reach and applies to other

securities laws, even those which expressly contain their own statutes of limitation. See Gann, E.,

Judicial Action in Retrograde: The Case for Applying Section 804 of the Sarbanes-Oxley Act to All

Fraud Actions Under the Securities Laws, 72 U. Cin. L. Rev. 1043 (2004). However, several courts

have refused to extend Sarbanes-Oxley to claims under the 1933 Act. See In re Fleming Companies
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Inc. Securities & Derivative Litigation, MDL 1530, 2004 WL 5278716 at * 46 (E.D. Tex. Jul. 16,

2004) (“The Sarbanes-Oxley Act does not extend the limitations period for the 1933 Act claims to

two years.”); In re Merrill Lynch & Co. Research Reports Sec. Litig., 272 F. Supp. 2d 243, 265

(S.D.N.Y. 2003) (rejecting the argument that the Sarbanes-Oxley limitations period applies to 1933

Act claims.); Friedman v. Rayovac Corp., 295 F. Supp. 2d 957, 974-75 (W.D. Wis. 2003) (holding

the same.) 

Whether analyzed under a one year/three year or a two year/five year scheme, Plaintiff’s

claims in the instant matter are barred by the statute of limitations. Even assuming that Plaintiff

could make out a prima facie case of a violation of either 15 U.S.C. § 77l or Section 10-b, there is

no question that Plaintiff either knew or should have discovered in the exercise of reasonable

diligence, in the spring of 2006, all of the facts necessary to have pled his claims. He did not file

this action until well over two years later, on December 12, 2008.

While not entirely clear from the face of Plaintiff’s Complaint, Plaintiff’s responsive brief

clarifies that Plaintiff asserts claims under 15 U.S.C. §§ 77l(a)(1) and 77l(a)(2) of the Securities Act

of 1933. (Pl.’s Resp. 10.) Section 77l provides in pertinent part as follows:

(a) In general

Any person who--

(1) offers or sells a security in violation of section 77e of this title, or 

(2) offers or sells a security (whether or not exempted by the provisions of section

77c of this title, other than paragraphs (2) and (14) of subsection (a) of said section),

by the use of any means or instruments of transportation or communication in

interstate commerce or of the mails, by means of a prospectus or oral

communication, which includes an untrue statement of a material fact or omits to

state a material fact necessary in order to make the statements, in the light of the

circumstances under which they were made, not misleading (the purchaser not

knowing of such untruth or omission), and who shall not sustain the burden of proof

that he did not know, and in the exercise of reasonable care could not have known,

of such untruth or omission, 

shall be liable, subject to subsection (b) of this section, to the person purchasing such
2 Although the statute of limitations argument is clearly dispositive of Plaintiff’s claims against

Defendant, the Court notes that Plaintiff would face additional serious challenges in establishing a

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security from him, who may sue either at law or in equity in any court of competent

jurisdiction, to recover the consideration paid for such security with interest thereon,

less the amount of any income received thereon, upon the tender of such security, or

for damages if he no longer owns the security.

15 U.S.C. § 77l. Section 77e, referred to in 77l(a)(1), sets forth the registration and prospectus

requirements for certain securities. A non-owner of a security may be considered a “seller” under

the Act, and may be liable under the act, if he engages in actual solicitation and urges a prospective

purchaser to buy for purposes of gaining a personal financial benefit or serving the financial interests

of the securities owner. See Pinter v. Dahl, 486 U.S. 622, 654 (1988) (typically, a person who

solicits a purchase will have sought or received a personal financial benefit such as a commission

or served the financial interests of the owner); Smith v. American Nat’l Bank and Trust Co., 982 F.2d

936, 941 (6th Cir. 1992) (the fact that a non-owner stands to benefit from the sale not sufficient

without proof that he urged the prospective purchaser to buy).

The elements of federal securities fraud action under Section 10-b, Rule 10b-5, are: (1) a

material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the

misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the

misrepresentation; (5) economic loss; and (6) loss causation. Brown v. Earthboard Sports USA, Inc.,

481 F.3d 901, 917 (6th Cir. 2007).

Even assuming: (1) that the Note was a security; (2) that it was required to be registered

under section 77e; (3) that Defendant was a “seller” of securities; (4) that Defendant made an untrue

statement of material fact or omitted to state a material fact which mislead Plaintiff; (5) that Plaintiff

relied on the statement or omission; and (6) Plaintiff suffered a loss,2

 there is no question that
prima facie case under either the 1933 Act or Section 10-b against Defendant. First, Plaintiff’s

claims fail because Plaintiff has not produced an enforceable promissory note. See Kagan v. Edison

Bros. Stores, Inc., 907 F.2d 690, 691 (7th Cir. 1991) ( “a ‘contract’ for purposes of the securities

laws means an enforceable contract.”). Plaintiff has failed to produce an enforceable agreement

evidencing his payment to PRSI of $100,000 and PRSI’s agreement to repay that amount or to pay

Plaintiff interest on such a note. Second, Plaintiff has produced no evidence that he in fact relied

in any way on any statements made by Defendant in connection with Plaintiff’s ultimate decision

to invest in PRSI. Plaintiff’s own testimony directly contradicts any assertion that he relied on

Defendant’s advice in any respect. Plaintiff was clear in his testimony that he relied on his own due

diligence, which did not involve consultation with Defendant, and on his relationship with Stanley

Targosz. Moreover, Plaintiff admitted that he himself did not trust Raymond Michael from the start

and conceded that he ignored the advice of an accountant and a lawyer who advised against

investing with Raymond Michael. Thus, even assuming that Defendant did represent to Plaintiff that

Raymond Michael could be trusted, this statement could not possibly have been material to

Plaintiff’s decision to invest when Plaintiff himself, at the time, knew this statement to be false. Thus

there is no evidence that the statements alleged to be false were either material to or relied upon by

Plaintiff in making his decision to invest in PRSI. 

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Plaintiff knew, or in the exercise of reasonable diligence should have known, at least by the spring

of 2006, all of the facts necessary to plead his claim for securities fraud. Yet Plaintiff waited well

over two years to file his suit and filed it not against the alleged issuer of the security (PRSI) or

against the man who absconded with his money (Raymond Michael) or against his good friend to

whom he actually gave the $100,000 (Stanley Targosz), but against a fellow investor, who shared

his enthusiasm for PRSI with Plaintiff and who happened to be suing Plaintiff’s good friend Stanley

Targosz, and others, for his own lost investment in PRSI.

The uncontested facts are that: (1) Plaintiff knew “from the start,” presumably meaning from

the time that Defendant introduced the idea of investing in PRSI, that Raymond Michael was not to

be trusted (Def.’s Mot. Ex. 4, Forte I, p. 76); (2) Plaintiff was informed by his good friend Stanley

Targosz in the Spring of 2006 that Raymond Michael had taken all of the money that Plaintiff had

invested in PRSI, that the entire investment was lost, and that Raymond Michael was a thief and had

stolen his money (Def.’s Mot. Ex. 2, Targosz Dep. 46-48); (3) Plaintiff knew from the moment that
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Defendant introduced the PRSI investment that Defendant stood to make a commission if Plaintiff

invested in PRSI (Def.’s Mot. Ex. 4, Forte I, 8); (4) Plaintiff did not rely on Defendant in deciding

to loan money to PRSI but conducted his own due diligence and ultimately relied on his relationship

with Stanley Targosz (Def.’s Mot. Ex. 4, Forte I, 71, 80-82).

While Plaintiff claims that he only learned sometime in 2008 that Defendant may have

earned a commission on Plaintiff’s investment in PRSI, Plaintiff testified that Defendant informed

him the very first time they spoke about PRSI that Defendant was going to earn a commission if

Plaintiff decided to invest in PRSI. There is no question that it was fully disclosed to Plaintiff that

Defendant was potentially a salesperson for PRSI. Plaintiff clearly knew, then, in the Fall of 2005,

when Plaintiff first spoke to him about PRSI, that Defendant would potentially earn a commission

as a salesperson for PRSI. Certainly by the spring of 2006 (and probably earlier based on Plaintiff’s

testimony as to his own intuitions) when Plaintiff was informed by his good friend Stanley Targosz

that Raymond Michael had absconded with the PRSI money, Plaintiff knew that Raymond Michael

was not someone to trust and should have realized then that he had a claim against the Defendant,

if in fact he had relied on Defendant’s alleged representations about Michael’s trustworthiness in

deciding to loan $100,000 to PRSI. Despite this knowledge, Plaintiff did not seek to vindicate his

rights until well over two years later, filing this case on December 18, 2008. Both Counts of

Plaintiff’s Complaint are therefore barred by the applicable statute of limitations.

B. Defendant’s Request for Sanctions

Defendant seeks an award of costs, expenses and fees pursuant to 28 U.S.C. § 1927, based

upon Plaintiff’s unreasonable and vexatious pursuit of his claims against Defendant. As Magistrate
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Judge Morgan observed in her opinion awarding sanctions against Plaintiff for his discovery

violations, it appears possible that this suit was initiated in retaliation for the claims asserted by

Defendant’s LLC, Marlynx, against Plaintiff’s good friend Stanley Targosz and others, in the

Marlynx litigation. Were this established beyond question, Defendant would be entitled to

sanctions. “In order to award attorneys fees under the bad faith exception, a district court must find

the ‘the claims advanced were meritless, that counsel knew or should have known this, and that the

motive for filing the suit was for a improper purpose such as harassment.” First Bank of Marietta

v. Hartford Underwriters Inc. Co., 307 F.3d 501, 512 (6th Cir. 2002). 

While Plaintiff has admitted that there never was an enforceable promissory note in this case

and admits that he did not rely on Defendant’s advice or counsel in deciding to loan $100,000 to

PRSI, the Court has already awarded discovery sanctions against Plaintiff in a significant sum,

which Defendant’s counsel indicated at the hearing in this matter has been paid. Further sanctions,

under these circumstances, are not warranted.

IV. CONCLUSION

The Court GRANTS Defendant’s Motion for Summary Judgment (Dkt. No. 27) and

DISMISSES this action WITH PREJUDICE.

IT IS SO ORDERED.

Dated: August 30, 2010 S/Paul D. Borman 

PAUL D. BORMAN

UNITED STATES DISTRICT JUDGE
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CERTIFICATE OF SERVICE

Copies of this Order were served on the attorneys of record by electronic means or U.S. Mail on

August 30, 2010.

S/Denise Goodine 

Case Manager