FI L ED U.S. COURT OF APPEAL S EL EVENTHCI RCUI T J ULY 30, 2010 J OHN L EY CL ERK [PUBLISH]
IN THE UN ITED STATES COURT OF APPEALS FOR THE ELE VENTH CIRCUIT

__ __ __ __ __ __ __ __ __ __ __ __ No. 0 9- 12 99 9

__ __ __ __ __ __ __ __ __ __ __ __ D. C. Dock etNo. 0 6- 00 63 7- CV-ORL-3 5- KRS GENE BADGE R, JOHN LOVE, MARVIN EVANS, SID BANACK, JOHN WILL IS, al l o n b eh al f of th em se lv es an d a ll ot he rs si m il arl y si tu at ed , Pl ai nt iff s- App el le es , ve rs us SOUTHERN FARM BUREAU LIFE INSURANCE COM PANY, a Mi ss is si pp i Co rp or at io n, Defen da nt -Ap pe ll an t.

__ __ __ __ __ __ __ __ __ __ __ __ App eal fro m

th e Uni te d S ta te s Di st ric t Co urt fo r th e Mi dd le Dis tri ctof F lo rid a

__ __ __ __ __ __ __ __ __ __ __ __ _ (Jul y 30 , 20 10 )Befo re EDMONDSON, CARNES an d ANDERSON, Ci rcu itJu dg es .

ANDERSON, Circ ui t J ud ge : Pl ai nt iff s- App el le es Bad ge r et

al ., so m e o f th e sh areh ol de rs of P la in ti ffs ’ Sh areh ol de rs Co rp or at io n (“ PSC” ), br ou gh t thi s s ha reh ol de rs ’ de riv at iv e su iton be ha lf o f PSC a ga in stDefen da nt -Ap pe ll an t So ut he rnFarm Bu reauLife I ns ur an ce Co m pa ny (“ So ut he rnFarm ”). The ch arg es in vo lv e fed eral sec ur it ie s fr au d, i n vi ol at io n o f § 1 0( b) of t he Secu rit ie s Ex ch an ge Act o f 19 34 , 15 U.S.C. § 7 8j, an d Secu rit ie s Ex ch an ge Co m m is si on (“ SEC”) Rul e 1 0b -5 , 17 C.F.R. § 24 0.1 0b -5 , and Fl or id a co m

m on -la w frau d. Th e ch arg es st em fro m So ut he rnFarm ’s pu rch as e o f a de be ntur e h el d b y

PSC, wh ic h was PSC’s p rimary ass et . In the co ur se of
ne go ti at io ns , Sou th ernFarm gave to PSC an actua ria l v al ua ti on itha d
co m m is si on edof the de be ntur e an d s ta te d t ha t the va lu at io n re pr es en te d a“ fai r pr ic e.” Aft er PSC an d S ou th ernFarm set tl edon a pr ic e h ig he r th anSo uthe rn Farm ’s val ua ti on , PSC i ss ue d am eet in g n ot ic e an d p ro xy sta te m en t t o i ts sh areh ol de rs , who subs eque nt ly vot edforth e sa le
. Pl ai nt iff s wer e PSC sh areh ol de rs who were o pp os edto th e sa le . They br ou gh t a s ha reh ol de rs ’ de riv at iv e su itag ai ns t So ut he rnFarm forfed eral sec ur it ie s frau d andFlo rid a co m

m on -law frau d, al le gi ng th atSo ut he rnFarm ’s val ua ti on was
m is le ad in g b ecau se itdi d n ottak e in to acco un t ce rta in lev erag e th atPSC h adin
2th e d eal , andth atSo ut he rnFarm was l iabl e fo r fai li ng to di sc lo se th e fac ts gi vi ng ris e to PSC’s l ev erag e to PSC’s s ha reh ol de rs . The jury fou ndSo ut he rnFarm li ab le inth e am ou ntof $ 31 .7 m il li on . Sou th ernFarm no w app eal s, cl ai m in g, in te r al ia , th atJu ry

Ins tru ct io n 1 1 c on ta in edin co rrec t s ta te m en ts of l aw an d t ha t the pr oo f un de rlyin g o ne ba si s o f li ab il it y was l eg al ly ins uf

fic ie nt . For t he reas on s s et
ou t b el ow, the jud gm en t o f th e d is tri ctco urt m us t b e rev ers edwith re ga rdto bo th th e fed eral sec ur it ie s l aw cl ai m an d t he Flo rid a co m

m on -la w frau d c la im , andth e
ve rd ic t o f th e jury cann otst an d.

I. FACTS AND PROCEDURAL HISTORY So ut he rnFarm

is a pr iv at el y -h el d l ife in su ran ce co m pa ny owne d b y

ten in ve st m en t co rp or at io ns lo cat edinten st at es , in cl ud in g F lo rid a. The c omm on st oc k o f eac h i nv es tm en t co rp or at io n i s h el d b y th e Farm BureauFed erat io n i n each of t ho se res pe ct iv e st at es . The co rp or at e rel at io ns be twee n the se va rio us
en ti ti es are g ov ern edby a Charte r Treat y th at : (1 ) res tri ct s t he di vi de nd s t ha t ea ch in ve st m en t co rp or at io n c anret ai n i n e xc es s o f $5 ,70 0; (2) li m it s t he tra ns fer o f So ut he rnFarm

an d i nv es tm en t co rp or at io n s to ck ; an d (3 ) requi res un an im ou s ap pr ov al of a ny am en dm en t, i nc lu di ng an y ex te ns io n o f th e Treaty

be y on d i ts
ex pe ct edex pi rat io n d at e. PSC a cqui redth e d eb en tu re atth e cen te r of th is cas e as a res ul t o f pr io r 3li ti ga ti on , th e fu ll de ta il s o f whi ch are n otrel ev an t h ere. Th e d eb en tu re was is su ed

by Flo rid a Farm

Bu reauHol di ng Co rp or at io n (“ Fl or id a Hol di ng ”). Pu rs ua ntto th e te rm s o f th e d eb en tu re, i ts own er, PSC , was en ti tl edto 27 .7% o f an y di vi de nd s th atFlo rid a Hol di ng rece iv edfro m So ut he rnFarm , andup on term in at io n o f th e Ch art er Trea ty PSC wou ldbe en ti tl edto rece iv e 2 7.7 % of F lo rid a Hol di ng ’s st oc k. In20 00 , Sou th ernFarm

be ga n t o e xp lo re ex te nd in g the Ch art er Trea ty, an act io n tha t wo ul d re qu ire un an im ou s ap pr ov al of t he ten st at e Farm Bureau Fed erat io ns . In 2 00 4, So ut he rnFarm so ug htFlo rid a Hol di ng ’s con se ntto ex te nd th e Treat y . PSC’s at to rn ey , Bru ce Br as he ar, fo rm al ly objec te d t o t he ex te ns io n o f th e Ch art er Trea ty w itho utth e ap pr ov al of P SC s ha reh ol de rs . PSC s ha reh ol de rs ’ rig htto ap pr ov e th e Ch art er Trea ty ext en si on aro se inco nn ect io n wi th it s
own ers hi p o f th e d eb en tu re. Fl or id a Hol di ng ’s bo ardres ol ve d t ha t i t wo ul d
co ns en t t o t he Ch art er Trea ty ext en si on on ly if So ut he rnFarm fir stpu rch as edth e de be ntur e fro m

PSC. Intu rn , Sou th ernFarm ’s m an ag em en t d eci de d t o
reco m m en d p ur ch as in g P SC’s d eb en tu re. Bras he ar re pr es en te d P SC i n n eg ot ia ti on s wi th So ut he rnFarm ’s gen eral
co un se l re ga rd in g t he sal e o f th e d eb en tu re. Inth e co ur se of n eg ot ia ti on s, So ut he rnFarm

off ered$3 .3 m il li on forth e d eb en tu re b as edon a va lu at io n pe rfo rm edby the actuaria l fi rm Towers Perri n Ti ll in gh as t (“ th e Val ua ti on ”). The

4Valu at io n was cal cu la te d b y ap pl y in g adi sc ou ntrat e o f 14 % to th e li ke ly val ue of th e 2 7.7 % pay ou t o f th e d eb en tu re i n 2 03 3, wh enth e Ch art er Trea ty w as setto
ex pi re. So ut he rnFarm ’s cou ns el to ldBras he ar tha t the Valu at io n re fle ct eda “ fai r pr ic e.” PSC m ad e a co un te ro fferof $ 4.4 m il li on , andth e co m pa ni es ag reedto th e
sa le at t ha t p ric e. Bec au se Flo rid a la w requi res a co rp or at io n t o o bt ai n s ha reh ol de r ap pr ov al in ord er t o s el l a p rin ci pa l as se t, Fl a St at . § 6 07 .12 02 , Bras he ar p rep aredan d
m ai le d t o P SC s hareh ol de rs a m eet in g n ot ic e an d p ro xy sta te m en t d et ai li ng th e pr op os edde be ntur e sa le . The p ro xy sta te m en t d idno t i nc lu de th e fac ts th at So ut he rnFarm

want edto ex te ndth e Ch art er Trea ty or th atFlo rid a Hol di ng ha d
co nd it io ne d i ts co ns en t t o t he ex te ns io n o n S ou th ernFarm ’s pu rch as e o f th e de be ntur e. PSC s ha reh ol de rs m eton Octo be r 15 , 20 04 , andap pr ov edth e sa le by a 10 -to -1 m arg in . Plai nt iff Bad ge r an d s ev eral ot he r PSC s hareh ol de rs vo ic edth ei r op po si ti on bo th be fo re an d a t the m eet in g. Fo ll owi ng th e sa le , Bad ge r an d o th er d is se nt ers su edSo ut he rnFarm inth is sh areh ol de rs ’ de riv at iv e act io n, cl ai m in g t ha t So ut he rnFarm fai le d t o d is cl os e cert ai n m at eri al fact s ab ou t the de be ntur e sa le to th e sh areh ol de rs an d t ha t, as a
res ul t, PSC rece iv edto o l it tl e co ns id erat io n i n e xc ha ng e fo r th e d eb en ture. Sp eci fic al ly, th e Pl ai nt iff s al le ge d:
5The Defen da ntrep res en te d t o t he Pla in ti ffs th atth e Til li ng ha st

Valu at io n o f th e Co nv ert ib le Debe ntur e rep res en te d afai r pr ic e fo r th e p ur ch as e o f th e Deb en tu re, b utth e Defen dantom it te d t he fo ll owi ng in fo rm at io n: (a) th at[So uthe rnFarm ] was att em pt in g t o e xt en d the Ch art er Trea ty and th atitco ul d n otdo so witho utth e co ns en t o f th e d eb en tu re h ol de r; (b ) th atFlo rid a Hol di ng an d t he Flo rid a Fed erat io n wo ul d o nl y co ns en t to th e ex te ns io n o f th e Ch art er Trea ty if [So ut he rnFarm ] fir st pu rch as edth e d eb en tu re; (c) th atth e Til li ng ha stValu at io n d idno t co ns id er (i ) th e Defen da nt ’s at te m pt s t o e xt en d the Ch art er Trea ty, (ii ) Pl ai nt iff s’ con tro l o f an y su ch ex te ns io n, an d (i ii ) [So ut he rnFarm ]’ s n eedto purch as e th e de be ntur e b ecau se Flo rid a Hol di ng an d F lo rid a Fed erat io n wo ul d on ly con se ntto th e ex te ns io n o f th e Ch art er Trea ty if [So ut he rnFarm ] fir stpurch as edth e d eb en tu re; (d ) th atco nt em

po ran eo us with [S ou th ernFarm ]’ s p ur ch as e o f th e de be ntur e, itpu rch as eda fu tu re i nc om e in te res t h el d b y th e Alaba m a Farm Bu reauFed erat io n u si ng a di sc ou ntrat e o f 4.9 %; an d (e) th atinord er t o o bt ai n t he co ns en t o f th e Tex as Farm Bu reauto ex te nd th e Ch art er Trea ty, [So uthe rnFarm ] ag reedto in crea se pa y ou ts to all te n (1 0) farm

bu reaufed erat io ns by $82 m il li on . Ju ry Ins tru ct io ns , Dkt . 20 8 a t 1 1- 12 , 19 -2 0. Usi ng th es e al le ge d o m is si on s as th e b as is forth ei r cl ai m s, Pl ai nt iff s s ue d So ut he rnFarm

forvi ol at io ns of Rul e 1 0b -5 an d F lo rid a co m m on law. J ury In st ru ct io ns 9 an d 1 0 d et ai le d the ele m en ts of t he se cla im s re sp ect iv el y . Jury In st ru ct io n 9 st at edth at , inord er t o p rev ai l o n t he Ru le 10 b- 5 c la im , th e Pl ai nt iff s

6ha d t o p ro ve each of t he fol lo win g fa ct s b y a pr ep on de ran ce o f th e ev id en ce: Fi rs t: Tha t the Defen da nt ’s con du ctinco nn ect io n wi thth e

tra ns act io n v io la te d R

ul e 1 0b -5 (b ) by m ak in g afal se rep res en ta ti on of am at eri al fact , or o m it ti ng a m at eri al fact ; Seco nd : Tha t the Defen da ntact ed“ kn owi ng ly,” as d efi ne d

he rei n; Thi rd : Tha t the Pla in ti ffs “ jus ti fiabl y

rel ie d” up on th e Defen da nt ’s con du ct ; an d Fo urth : Tha t the Pla in ti ffs su ffer eddam ag es as ares ul t o f th e

Defen da nt ’s wron gf

ul co nduc t. Ju ry Ins tru ct io ns , Dkt . 20 8 a t 1 0- 11 . Ju ry Ins tru ct io n 1 0 s ta te d t ha t, i n o rd er to pre va il on th e co m

m on -la w frau d c la im , th e Pl ai nt iff s h adto pro ve each of th e fo ll owi ng fact s b y

a pr ep on de ran ce o f th e ev id en ce: Fi rs t: Tha t the Defen da ntm ad e o ne or m or e o f th os e al le ge d

m is rep res en ta ti on s o r omiss io ns ; Seco nd : Tha t the m is rep res en ta ti on or o m is si on rel at ed

to a m at eri al ex is ti ng fact ; Thi rd : Tha t the Defen da ntkn ew atth e ti m e itm ad e th e

m is rep res en ta ti on th atitwas fa ls e o r act edwith re ck le ss di sr eg ardforit s t ru thor f al si ty or th atth e o m is si on m ad e ot he r st at em en ts m at eri al ly mis le ad in g; Fo urth : Tha t the Defen da ntin te nd edto in du ce the Pla in ti ffs to

rel y an d a ctup on th e m is rep res en ta ti onor o m is si on ; an d Fi fth : Tha t the Pla in ti ffs “ reas on ab ly” and“ jus ti fiabl y ” rel ie d
7up on th e m is rep res en ta ti onor o m is si on an d the Pla in ti ffs su ffer edin

jury or da m ag e as a res ul t. Ju ry Ins tru ct io ns , Dkt . 20 8 a t 2 0- 21
. The jury fo un d S ou th ernFarm li ab le forbo th a Ru le 10 b- 5 v io la ti on an d
co m m on -law frau d, an d a ss es se d c om pe ns at ory da m ag es of $ 31 .7 m il li on . The di st ric t co urt d en ie d S ou th ernFarm ’s ren ewedMo ti on for Ju dg m en t as a Mat te r of Law an d M ot io n fo r New Tria l. The di st ric t co urt the n a m en de d t he jud gm en t t o ad d i nt eres t. Thi s ap pe al fol lo wed
. II. STANDARD OF REVIEW

“ Ourrol e in rev ie win g atri al co urt’s jury in st ru ct io ns is to ass ur e th atth e in st ru ct io ns sh ow n o t en de nc y to co nf us e o r to mis le adth e jury withres pe ctto th e ap pl ic ab le pri nc ip le s o f la w.” S.E.C. v. Y un , 32 7 F .3d12 63 , 12 81 (11 th Cir . 20 03 ) (in te rn al qu ot at io n m ark s o m it te d) . W e rev ie w jury in st ru ct io ns de no vo to de te rm in e whe th er the y

m is st at e th e la w or m is le adth e jury to t he pre jud ic e o f th e pa rty who o bjec ts to th em . Mor ga n v . Famil

y Dol la r Sto res, In c. , 55 1 F .3d12 33 , 12 83 (11 th Cir . 20 08 ). “ W e wil l n otdi sturb ajury’ s v erd ic t unl es s t he ch arg e, ta ke n a s a wh ol e, is erro ne ou s an d p reju di ci al .” Y un , 32 7 F .3dat 1 28 1. “ As l on g
as th e in st ru ct io ns accu rat el y refl ectth e la w,” we affo rdth e d is tri ctco urt “ wid e di sc ret io n a s t o t he st y le an d wo rd in g e m pl oyed i n t he in st ru ct io ns .” Mor ga n , 55 1

8F.3 d a t 1 28 3 (i nt ern al qu ot at io n m ark s o m it te d)
. III. DISC USSION A. Ju ry Ins tru ct io n 1 1 Ju ry Ins tru ct io n 1 1, the accu racy of wh ic h i s t he cen tra l i ss ue inth is ap pe al , pr ov id es as f

ol lo ws: Ord in ari ly in an arm s l en gt h t ran sa ct io n, a t hi rdpa rty bu y er o r se ll er is free to rel y

on th e b oa rdof aco rp or at io n t o d is cl os e in fo rm at io n t o th e co rp or at io n, i nc lu di ng to th e co rp or at io n’s s ha reh ol de rs . In thi s reg ard , any dis cl os ur es by the th irdpa rty to adi rect oror a n a ge ntof th e co rp or at io n o r ot he r kn owl ed ge ob ta in edby the di rect oror a ge nt , whe re tha t d ire ct oror a ge ntis act in g i n h is or h er capa ci ty as a b oa rd m em be r orag en t, i s i m

pu te d t o t he bo ardan d, thu s, d is ch arg es th e th irdpa rty’ s duty

of d is cl os ur e if

th e d is cl os ur e is of a ll m at eri al in fo rm at io n a ndis no t m at eri al ly mis le ad in g. Inth is cas e, sh areh ol de r ap pr ov al was re qu ire d t o app ro ve th is tra ns act io n. Th eref

or e, if th e Pl ai nt iff

s p ro ve th atth e Defen da nt kn ew orwas s ev erel y

reck le ss as t o wh ethe r m at eri al in fo rm at io n h ad no t b een ful ly dis cl os edto th e sh areh ol de rs or t ha t the di sc lo su res m ad e b y th e Defen da ntto th e co rp or at io n wer e m at eri al ly mis le ad in g, th enth e Defen da ntha d adu ty to d is cl os e th e m at eri al in fo rm at io n di rect ly to the sh areh ol de rs , to in su re tha t the sh areh ol de rs go t p ro pe r di sc lo su re o r to de cl in e to en te r th e tr an sa ct io n. Ju ry Ins tru ct io ns , Dkt . 20 8 a t 2 5– 26
. So ut he rnFarm

arg ue s t ha t J ury

Ins tru ct io n 1 1 i s erro ne ou s i n t wo re sp ect s. Fi rs t, So ut he rnFarm

m ai nt ai ns th atIns tru ct io n 1 1 i nc orrect ly ass ig ne d l iabi li ty if So ut he rnFarm

m erel y “ kn ew orwas s ev erel y

reck le ss as t o wh ethe r m at eri al

9in fo rm at io n h adno t b een ful ly dis cl os edto [PSC] sh areh ol de rs ,” wit ho utals o

requi rin g the jury fin d t ha t So ut he rnFarm ha d aleg al du ty to d is cl os e th at in fo rm at io n. Se co nd , Sou th ernFarm arg ue s t ha t, ev enif So ut he rnFarm ha d a du ty to d is cl os e certa in m at eri al in fo rm at io n i n t he co ur se of i ts tra ns act io n wi th PSC, In st ru ct io n 1 1 e rredinin st ru ct in g t he jury th atth e duty randi rect ly to PS C sh areh ol de rs , rathe r th anto PSC’s o ffi cers or b oardof d ire ct or s. We will ad dr es s each ob jecti on intu rn . 1. So ut he rnFarm ’s Duty to Dis cl os e So ut he rnFarm

arg ue s t ha t In st ru ct io n 1 1 e rro ne ou sl y om it te d arequi rem en t th atth e jury fin d t ha t So ut he rnFarm ha d aleg al du ty to d is cl os e m at eri al fact s t o PSC. SEC R

ul e 1 0b -5 , pro m

ul ga te d u nd er the Secu rit ie s Ex ch an ge Act o f 19 34 , 15 U.S.C. § 7 8j, st at es : It s ha ll be un la wfu l fo r an y pe rs on , di rect ly or in di rect ly, by the us e of an y m ean s o r in st ru m en ta li ty of in te rs ta te co m m erce , or o f th e m ai ls or o f an y

faci li ty of an y

na ti on al sec ur it ie s ex ch an ge , a. To em

pl oy any de vi ce, s ch em e, orart ifi ce t o d efraud , b. To m ak e an y

un tru e st at em en t o f a m at eri al factor t o om itto st at e a m at eri al factne ces sa ry inord er t o m ak e th e st at em en ts m ad e, in th e li gh t o f th e ci rcu m st an ces un de r whi ch th ey were m ad e, no t m is le ad in g, o r
c. To en ga ge inan y

act , pra ct ic e, orco ur se of b us in es s whi ch op erat es or wo ul d o pe rat e as a frau d o r de cei t upo n a ny 10pe rs on ,

in co nn ect io n wi th th e p ur ch as e o r sa le of a ny secu rit y . 17 C.F.R. § 24 0.1 0b -5
. Altho ug h R

ul e 1 0b -5 co ul d b e rea d b ro ad ly to re qu ire di sc lo su re o f an y
no np ub li c in fo rm at io n abo uta se cu rit y th atis th e subjec t o f a tran sa ct io n, the Supr em e Co urt h as he ldth at“ a dut y to di sc lo se un de r § 1 0( b) do es no t ar is e fro m th e m ere p os se ss io n o f no np ub li c m ark etin fo rm at io n.” Ch ia re ll a v . Uni te d Sta tes , 44 5 U.S. 2 22 , 23 5, 1 00 S. Ct. 1 10 8, 1 11 8 (1 98 0) . Rath er, the Ch ia re lla Co urt cl ari fie d t he sco pe of 1 0b -5 , ho ld in g t ha t i n o rd er t o b e li ab le un de r th atsec ti on for fai li ng to di sc lo se a m at eri al fact , an e nt it y m us t h av e a p rio r du ty to d is cl os e th at fact
. Id

. As u nd er the co m

m on law, s uc h adu ty “ ari se s wh enon e p arty ha s in fo rm at io n ‘th atth e o th er [p arty ] is en ti tl edto kn ow b ecau se of afiduc ia ry or ot he r si m il ar re la ti on of t ru stan d c on fid en ce b etweenth em .’ ” Id

. at 2 28 , 10 0 S
. Ct . at 1 11 4 (quo ti ng Res ta te m en t (S eco nd ) of Tort s § 55 1( 2) (a) (1 97 6) ). The Co urt n ot ed , for

in st an ce, tha t “ a p ur ch as er o f st oc k wh o h as no du ty to a pr os pe ct iv e se ll er b ecau se he is ne it he r anin si de r no r a fi du ci ary ha s b een he ldto ha ve no ob li ga ti on to rev eal m at eri al fact s” inco nn ect io n wi thth e st oc k p ur ch as e. Id

. at 2 29 , 10 0 S . Ct. at11 15 (ci ti ng Gen . Time C or p. v. Ta ll ey In du s., In c. , 40 3 F.2 d 1 59 , 16 4 (2 d C ir. 1 96 8) , cer t. d en ie d , 39 3 U.S. 1 02 6, 8 9 S . Ct. 6 31 (19 69 ));
11se e a ls o Ro de r v. Al ph a In du s., In c. , 81 4 F .2d22 , 26 (1s t. Ci r. 19 87 ) (rec og ni zi ng th e lo gi cal co ro ll ary of Ch ia re ll a th at“ [e]venif i nf orm at io n i s m at eri al , th ere i s n o li ab il it y un de r Ru le 10 b- 5 u nl es s t he re was a du ty to d is cl os e it ”). Thu s, the re ca n be no li ab il it y

fora fai lure t o d is cl os e u nd er Ru le 10 b- 5 o r th e co m m on law i n t he ab se nc e o f a dut y

to di sc lo se . Fo ll owi ng Ch ia re lla , th is Co urt h as als o re co gn iz edth at“ a d efen da nt ’s
om is si on to st at e a m at eri al factis pro sc rib edon ly whe n t he de fen dantha s a dut y to di sc lo se .” Zi emb a v . Cas ca de Int ’l, In c. , 25 6 F .3d11 94 , 12 06 (11 th Cir . 20 01 ) (quo ti ng Rud

ol ph v. Arthu r An de rs en &Co
. , 80 0 F .2d10 40 , 10 43 (11 th Cir . 19 86 ) (al te rat io n o m it te d) ). Se e a ls o Will ia ms v. Dr es sl er Indus ., Inc
. , 12 0 F .3d11 63 , 11 73 (11 th Cir . 19 97 ) (rec og ni zi ng indi ct a th at“ a dut y to di sc lo se . . . do es no t
ex is t ab se nta fi du ci ary rel at io ns hi p o r so m e o th er s im il ar re la ti on sh ip of t ru stan d
co nf id en ce”) . In Zi emb a , we no te d t ha t thi s dut y ari se s b ot h “ ‘whe re the law im po se s s pe ci al ob li ga ti on s, as foracco un ta nt s, b ro ke rs , or o th er ex pe rts ’” and

“ ‘[w] he re a d efen da nt ’s fai lu re t o s pe akwou ldren de r th e d efen dant ’s ownpri or sp eech mis le ad in g o r de cep ti ve .’ ” 25 6 F .3dat 1 20 6 (quo ti ng Rud ol ph , 80 0 F .2dat 10 43 ). Inth is cas e, th e p art ie s ag ree t ha t So ut he rnFarm an d P SC were en ga ge d i n
anarm ’s-le ng th tra ns act io n; PSC h as no t as se rte d t he ex is te nc e o f a fi du ci ary 12rel at io ns hi p o r ot he r si m il ar re la ti on sh ip of t ru stan d c on fid en ce b etweenPSC

sh areh ol de rs an d S ou th ernFarm . Rath er, attri al , PSC p ro ceed edon th e th eo ry th atbo th th e Val ua ti onan d s ta te m en t tha t the Valu at io n re pr es en te d a“ fai r pr ic e”
co ns ti tu te d p rio r sp eech by Sou th ernFarm th atwas m is le ad in g o r de cep ti ve witho utth e o m it te d i nf

orm at io n. PSC arg ue d tha t the leg al du ty to d is cl os e aro se be cau se th e o m is si on s m ad e th e Val ua ti on an d t he fai r pr ic e st at em en t m at eri al ly
m is le ad in g. We are d oubt fu l tha t a b uyer’s ass es sm en t o f th e v al ue of asel le r’s de btin st ru m en t, o r a b uyer’s acco m pa nyin g s ta te m en t tha t the ass es sm en t i s fa ir,
co ul d e ve r co ns ti tu te m is le ad in g o r de cep ti ve pri orsp eech gi vi ng ris e to a du ty to di sc lo se . Se e Ki dw el l ex rel . Penf old v . Meikle , 59 7 F .2d12 73 , 12 95 (9t h C ir. 19 79 ) (p ur ch as er o f co rp or at e as se ts owedno du ty to d is cl os e m at eri al fact s t o
m em be rs of s el li ng co rp or at io n, b ecau se sel li ng co rp or at io n “ sh ou ldbe pre su m ed to ha ve kn ownas m

uc h abo utit s o wn as se ts an d a ffai rs ” as purch as er i n an
arm ’s-le ng th de al ); se e a ls o Res ta te m en t (S eco nd ) of Tort s § 54 2 c m

t. d(“ If the
subjec t m at te r of

th e tr an sa ct io n i s o ne up on whi ch bo th pa rti es ha ve an ap pr ox im at el y

equa l co m

pe te nc e to form

a rel iabl e o pi ni on , eachm us t tru stto hi s
own jud gm en t an d n ei th er i s ju st ifi edinrel y in g upo n the op in io n o f th e o th er.”)
. In de ed , we are aware o f no cas e su gg es ti ng th at , inanarm ’s-le ng th trans act io n, th e b uyer’s op in io n o f th e v al ue of t he sel le r’s as se t, u na cco m pani edby a
13m is st at em en t o f fac t o n wh ic h the va lu e is ba se d, co ul d c on st itut e anaffi rm at iv e

st at em en t wh ic h c ou ldbe ren de redm is le ad in g b y anom is si on . W e n eedno t de ci de , ho wev er, wh ethe r th e Val ua ti on or a cco m panyin g s ta te m en t co ul d h av e gi ve n ri se to su ch a du ty to d is cl os e in th is cas e b ecau se erro rs inJu ry Ins tru ct io n 11 requi re re ve rs al
. In st ru ct io n 1 1 i m

po se d o n S ou th ernFarm

a du ty to d is cl os e certa in m at eri al in fo rm at io n t o P SC s ha reh ol de rs if So ut he rnFarm “ kn ew orwas s ev erel y

reck le ss
as to whet he r m at eri al in fo rm at io n h adno t b eenful ly dis cl os edto th e sh areh ol de rs
orth atth e d is cl os ur es m ad e b y [So ut he rnFarm ] to [PSC] were m at eri al ly
m is le ad in g.” Thu s, In st ru ct io n 1 1 a ll owe d t he jury to ho ldSo ut he rnFarm li ab le fo r fai li ng to di sc lo se m at eri al in fo rm at io n t o P SC s ha reh ol de rs eit he r if : (1 ) So ut he rnFarm

“ kn ew or was s ev erel y

reck le ss as t o wh ethe r m at eri al in fo rm at io n ha d n otbe enful ly dis cl os edto th e sh areh ol de rs ” o r (2 ) So ut he rnFarm ha d m ad e di sc lo su res to PSC tha t wer e “ m at eri al ly mis le ad in g.” The fi rs t co nd it io n o f th is di sju nc ti on pe rm it te d t he jury to fin d S ou th ernFarm li ab le form erel y

kn owi ng th atm at eri al in fo rm at io n h adno t b een di sc lo se d t o P SC s ha reh ol de rs , eve n i f So ut he rnFarm

it se lf h adno leg al du ty to d is cl os e th atin fo rm at io n, i .e., eve n i f So ut he rnFarm

ha d n o duty

as d es cri be d i n Ch ia re ll a an d i ts pro ge ny. Bec au se In st ru ct io n 1 1 o m it te d t he requi rem en t tha t So ut he rnFarm m us t h av e h ada le ga l
14du ty to d is cl os e m at eri al in fo rm at io n t o P SC s ha reh ol de rs inord er t o b e h el d l iabl e

un de r Ru le 10 b- 5 fo r wit hh ol di ng th atin fo rm at io n, the in st ru ct io n c on ta in s an in co rrec t s ta te m en t o f th e la w un de r Ch ia re ll a an d o urown subs eque ntcas es . Altho ug h t he for eg oi ng erro r in Ins tru ct io n 1 1 i s cl ear, atora l ar gu m en t Pl ai nt iff s ar gu edth atSo uthe rnFarm ne ve r ob jecte d i n t he di st ric t co urt t o t he in st ru ct io n o n t hi s s pe ci fic gro un d. We hav e car efu ll y rev ie wedth os e p orti on s o f th e rec or d c it edby Sou th ernFarm as e vi de nc e th atitpre se rv edit s o bjec ti onto In st ru ct io n 1 1 a ndth in k t he ob jecti on pro babl y

was n otpro pe rly pres erv ed . In ge ne ral , a pa rty m

us t o bjec t t o ajury in st ru ct io n p rio r to de li be rat io ns inord er t o pr es erv e th e is su e o n app eal , andth e fai lu re t o m ak e a t im el y ob jecti on waiv es th e rig htto rai se th e is su e o n app eal
. Lan ds man Packin g C o. v. Co nt ’l C

an Co
. , 86 4 F.2 d 7 21 , 72 6 (1 1t h C ir. 1 98 9) . Thu s, i f So ut he rnFarm di d n otm ak e th is ob jecti oninth e d is tri ctco urt, i t co ul d n otpre va il on th is pa rti cu la r ch al le ng e o n ap pe al un le ss itco ul d s ho w th atth e “ erro r affe ct s s ub st an ti al rig ht s.” Fe d. R. C iv
. P. 51 (d )(2 ) (“ A cou rt m ay co ns id er a p la in erro r in th e in st ru ct io n t ha t h as no t b een pr es erv ed
. . . if t he erro r affe ct s s ub st an ti al rig ht s.”) . Alth ou gh th is erro r m ay well ha ve be en“ res po ns ib le foranin co rrec t v erd ic t, l ead in g t o s ub st an ti al in jus ti ce,” Far le

y v. Na ti on wi de Mut . Ins . Co. , 19 7 F .3d13 22 , 13 30 (11 th Cir
. 19 99 ) (i nt ern al qu ot at io n o m it te d) , we nee d n otde ci de whet he r th e st rin ge nt 15st an da rdforpl ai n e rro r is sat is fie d i n thi s ca se , bec au se So ut he rnFarm ’s ot he r

ch al le ng e to Ins tru ct io n 1 1 was cle arl y pre se rv ed , andis cle arl y m eri to rio us . Thu s, we n ow turn t o S ou th ernFarm ’s arg um en t tha t In st ru ct io n 1 1
erro ne ou sl y

im po se d upo n i t a dut y

to di sc lo se m at eri al in fo rm at io n d ire ct ly to PSC’s s hareh ol de rs . 2. So ut he rnFarm ’s Duty to Dis cl os e Dir ect ly to PS C Sh areh ol de rs So ut he rnFarm

furth er ar gu es th at , eve n i f itha d adu ty to d is cl os e certa in
m at eri al fact s t o P SC i n t he co ur se of n eg ot ia ti on s re ga rd in g t he de be ntur e pu rch as e, Ju ry

Ins tru ct io n 1 1 e rredby im po si ng onSo uthe rnFarm a du ty to 1 di sc lo se th os e fac ts di rect ly to PS C s ha reh ol de rs . Any du ty to d is cl os e, So ut he rn Farm arg ue s, wo ul d h av e b een sat is fie d b y di sc lo su re t o P SC’s o ffi cers or di rect or s. Th is ob

jecti on was c le arl y

pre se rv edbe fo re the di stric t co urt. We agre e th atIns tru ct io n 1 1 was erro ne ou s fo r th is reas on , andacco rd in gl y rev ers e th e jud gm en t o n t hi s g ro un d. In st ru ct io n 1 1 s ta te s, i n re le vantpa rt: [I]f th e Pl ai nt iff

s p ro ve th atth e Defen da ntkn ew or was s ev erel y reck le ss as t o wh ethe r m at eri al in fo rm at io n h adno t b een ful ly di sc lo se d t o t he sh areh ol de rs or t ha t the di sc lo su res m ad e b y th e Defen da ntto th e co rp or at io n wer e m at eri al ly mis le ad in g, the n t he
Of c ourse, the pr ece ding se ction of this opinion sugg ests that there probably was 1 no such owe d duty

to PS C. 16Defen da ntha d adu ty to d is cl os e th e m at eri al in fo rm at io n d ire ct ly to

th e sh areh ol de rs , to in su re tha t the sh areh ol de rs go t p ro pe r di sc lo su re orto de cl in e to en te r th e tr an sa ct io n. The di st ric t co urt fo rm

ul at edIns tru ct io n 1 1 upo n d et erm in in g tha t “ [t]he law im po se s a dut y

to m ak e fu ll di sc lo su re t o wh om ev er the in ve st or or d eci si on m ak er is inth is cas e.” Tria l Tr., Dkt . 25 6 a t 1 51 . The co urt the refo re re as on edth at , be cau se th e sh areh ol de rs ha d t he rig htto vo te on th e d eb en tu re s al e, So uthe rn Farm ’s du ty to d is cl os e m at eri al in fo rm at io n i n re la ti on to th e sa le randi rect ly to th e sh areh ol de rs . Thi s i s anin co rrec t s ta te m en t o f th e la w. In fac t, co urts ha ve un ifo rm ly de cl in edto fin d adu ty to d is cl os e ru nn in g fr om on e p arty

inanarm ’s-le ng th
se cu rit ie s t ran sa ct io n t o the sh areh ol de rs of t he co un te rp arty to th e tr an sa ct io n, ab se ntso m e fi du ci ary orot he r sp eci al rel at io ns hi p b etweenth em . Se e Reg en ts of Uni v. of Ca . v. Cre di t S

uiss e Fir st Bos to n, In c. , 48 2 F .3d37 2, 3 84 (5th C ir. 2 00 7) (s ta ti ng th atge ne ral du ty of ba nk s “ no t t o e ng ag e in a frau du le ntsch em e” d idno t
crea te on be ha lf o f ba nk s a dut y to di sc lo se to a co m

pa ny’ s i nv es to rs a se rie s o f tra ns act io ns be twee n b an ks an d t he co m pa ny, becau se ba nk s wer e n otfiduc ia rie s
an d wer e n otot he rwis e o bl ig at edto th e in ve st or s) ; Aren t v. Distri b. S cis., In c. , 97 5 F .2d13 70 , 13 73 -7 4 (8 th Cir . 19 92 ) (h ol di ng th atpa rty to apo te nt ia l m erg er ha d n o dut y

to di sc lo se to co un te rp arty ’s sh areh ol de rs factth atm erg er wo ul d fa ll
17th ro ug h b ecau se “un rel at edpa rti es to a m erg er ag reem en t n orm al ly deal at arm s’

le ng th un ti l the m erg er i s co ns umm at ed , un le ss a di ffer en t re la ti on sh ip is de fin ed in th e ag reem en t t o m erg e”); Ki dw el l , 59 7 F .2dat 1 29 5 (n ot in g t ha t p ur ch as er o f
co rp or at e as se ts owedno du ty to d is cl os e m at eri al fact s t o m em be rs of s el li ng
co rp or at io n, i n p artbe cau se sel li ng co rp or at io n “ sh ou ldbe pre su m edto ha ve kn own as m

uc h abo utit s o wn as se ts an d a ffai rs ” as pu rch as er i n a n a rm ’s-le ng th de al ); W ri gh t v. Hei ze r , 56 0 F .2d23 6, 2 48 (7t h C ir. 1 97 7) (ho ld in g t ha t co rp or at e le nd er an d s ha reh ol de r who di d n otco ntro l n orserve on th e b oa rdof the
co rp or at io n was en ti tl edto actso le ly in i ts own in te res t i n d eal in g wi th th e
co rp or at io n’s m an ag em en t, wh os e res po ns ib il it y itwas t o a dv is e th e co rp or at io n’s sh areh ol de rs ); In re Di

gi ta l Is la nd

Se c. Li ti g. , 22 3 F . Sup p. 2 d 5 46 , 55 1- 52 (D. Del. 2 00 2) (ci ti ng Sh eeh an , in fr a , to ho ldth at“ anacqui rin g c om pany owes no du ty to the tar ge t s ha reh ol de rs , abs en t a s pe ci al rel at io ns hi p” ); Sh eeh an v. Lit tl e Sw it ze rl an d, In c. , 13 6 F . Sup p. 2 d 3 01 , 31 0 (D. Del . 20 01 ) (h ol di ng th at , alt ho ug h th e d efen da nt s co m

m it te d a n o m is si on gi vi ng ris e to a du ty to d is cl os e, on ly the sh areh ol de rs ’ own bo ardof d ire ct or s, n otth e acqui rin g c or po rat io n, wer e li ab le
un de r § 1 0b -5 forfai lu re t o d is cl os e b ecau se th e acqui rin g c or po rat io n “ owe d n o du ty to the [] sh areh ol de rs or t he pl ai nt iff s i n t hi s ca se ”); Lerne r v. FNB Ro ch es te r Co rp . , 84 1 F . Sup p. 9 7, 1 03 (W .D.N.Y. 19 93 ) (s ta ti ng th atanacqui rin g 18co rp or at io n o wes no du ty of di sc lo su re t o t arg etco m pa ny’ s s ha reh ol de rs ); Gordo n v. Dia gn os te k, In c. , 81 2 F . Sup p. 5 7, 6 0 (E.D. Pa. 1 99 3) (ho ld in g t ha t an acqui rin g
co rp or at io n “ owe d n o s pe ci al fiduc ia ry res po ns ib il ity

to th e sh areh ol de rs of a
se pa rat e co rp or at io n wh os e st oc k i t was pl an ni ng to acqui re as pa rt o f an
arm s- le ng th tra ns act io n” ); se e a ls o C hi ar el la , 44 5 U.S. at22 9, 1 00 S. Ct. at11 15 (“ A pu rch as er o f st oc k wh o h as no du ty to a p ro sp ect iv e se ll er b ecau se he is
ne it he r anin si de r no r fi du ci ary ha s b een he ldto ha ve no ob li ga ti on to rev eal
m at eri al fact s.”) . In ad di ti on to th is gre atweig htof aut ho rit y , we als o n ot e th at Pl ai nt iff s ci te no pre ced en t fo r th e p ro po si ti on th at , inth e ab se nc e o f so m e fiduc ia ry or s pe ci al rel at io ns hi p, a dut y to di sc lo se di rect ly to s ha reh ol de rs co ul d ari se ina si tu at io n s uc h a s t hi s. The di stric t co urt, an d P la in ti ffs on ap pe al , rel ie d p rimaril y on W ri gh t v. Heiz er forth e p ro po si ti on th atSo ut he rnFarm ’s du ty to d is cl os e th e al le ge dl y
om it te d m at eri al fact s ra n d ire ct ly to PS C’s sh areh ol de rs . The arg um en t i s gr ou nd edin W

ri gh t ’s ass ert io n t ha t “ [w]hensh areh ol de r ap pr ov al is requi redby st at e co rp or at io n l aw . . . it i s t he sh areh ol de rs who rep res en t the co rp or at io n a ndit is th ey who are en ti tl edto di sc lo su re o f al l m at eri al fact s.” 5 60 F.2dat 2 47 . It ap pe ars th e d is tri ctco urt re as on edfro m th is st at em en t tha t i f So ut he rnFarm ha d a du ty to d is cl os e m at eri al fact s re la te d t o t he de be ntur e sa le , th atdu ty ran d ire ct ly
19to PSC s ha reh ol de rs be cau se th e sh areh ol de rs were en ti tl edto vo te on th at

tra ns act io n. Th e Pl ai nt iff s n ow u rg e u s t o a ccep t the same reaso ni ng . The fl aw in th e d is tri ctco urt’s re as on in g i s t ha t W ri gh t ap pl ie d t ha t p rin ci pl e, an d i m po se d th atdu ty, on ly whe n d et erm in in g t he ob li ga ti on s o f a d efen da ntwho oweda fiduc ia ry du ty to the sh areh ol de rs . The Pl ai nt iff s’ arg um en t el id es im

po rta ntfact s ab ou t the rel at io ns hi ps be twee n the W ri gh t pa rti es gi vi ng ris e to th e dut y to di sc lo se inth atcas e, an d i n d oi ng so m is st at es W ri gh t ’s ho ld in g. The W ri gh t pl ai nt iff s, wh o wer e m in or ity

sh areh ol de rs of I DC, br ou gh t a de riv at iv e act io n a ll eg in g t ha t the de fen da nt , Heize r Co rp or at io n, d efraud edIDC in a se rie s o f fi ve trans act io ns by fail in g t o m ak e ap pr op ria te di sc lo su res ab ou t th os e tr an sa ct io ns . Id

. at 2 45 -4 6. Th e co urt d et erm in edth atHeiz er was on ly li ab le forom it ti ng m at eri al in fo rm at io n c on cern in g t he fin al two tra ns act io ns be cau se Heiz er ex erci se d v ot in g c on tro l o ve r IDC dur in g t ho se tra ns act io ns , and th eref or e o ccupi eda fi du ci ary po si ti on with re sp ectto IDC: Inth e fi rs t thr ee tran sa ct io ns Heiz er was a le nd er t o, an d s ha reh ol de r of , a co rp or at io n i t d idno t co nt ro l an d o n wh os e b oa rditwas n ot rep res en te d. We m ay

ass um e th atas s uc h i t was en ti tl edto actso le ly in it s o wn i nt eres t i n d eal in g wi th IDC’s m an ag em en t, wh os e res po ns ib il it y

itwas t o a dv is e th e sh areh ol de rs . By th e ti m e o f th e fo urthtra ns act io n, h owe ve r, Heiz er h adga in edvo ti ng co nt ro l o f IDC an d h adpl acedtwo of i ts off ic ers on IDC’s bo ardof d ire ct or s. Thus itst oo d i n afiduc ia ry

po si ti on an d c ou ldno lo ng er ac t fo r it se lf al on e. Whe n Hei zer c ho se to co nt in ue it s p art ic ip at io n i n 20co m

m un ic at io ns to th e IDC s ha reh ol de rs , itowedth em th e duty of fu ll di sc lo su re. As we h av e al ready no te d, Hei zer b reac he d t ha t dut y by fail in g t o d is cl os e an y of t he m at eri al fact s co nc ern in g t he tra ns act io n. Id

. at 2 48 . The ru le pro pe rly deri ve d fr om W ri gh t is th ata pa rty to atra ns act io n ha s a duty

to di sc lo se to th e co un te rp arty ’s sh areh ol de rs on ly whe n fa il ur e to di sc lo se wou ldres ul t i n t he bre ach of afiduc ia ry or o th er dut y . The Pla in ti ffs ha ve ne ve r as se rte d t he ex is te nc e o f an y fiduc ia ry rel at io ns hi p be twee n S ou th ernFarm

an d P SC. Thu s, W

ri gh t do es no t s up po rt t he di stric t
co urt’s co nc lu si on th atSo ut he rnFarm oweda du ty to d is cl os e m at eri al in fo rm at io n d ire ct ly to PS C’s sh areh ol de rs . The d is tri ctco urt’s ap pl ic at io n o f W ri gh t co nf la te s two d is ti nc t que st io ns : (1 ) whe th er s hareh ol de rs are o wed di sc lo su re o f certa in m at eri al fact s, an d (2 ) who se du ty it i s t o d is cl os e th os e fac ts . Whi le W ri gh t supp orts th e p ro po si ti on th atPSC s ha reh ol de rs ha d arig htto di sc lo su re o f m at eri al fact s re la te d t o the de be ntur e sa le , itdo es no t, co nt rary to th e d is tri ctco urt’s re as on in g, s up po rt t he pro po si ti on th atsu ch a du ty fell to So ut he rnFarm . Rath er, an y du ty to d is cl os e p ur su an t t o W ri gh t m us t fa ll on pa rti es who oc cupy a fiduc iary or o th er s pe ci al rel at io ns hi p t o t he sh areh ol de rs . In th is cas e, su cha du ty w ou ldfal l o n P SC’s o ffi cers an d d ire ct or s ra th er tha n o n

21So ut he rnFarm
. 2

Inad di ti on to fin di ng no supp ort i n t he law, the di rectdi sc lo su re requi rem en t ad vo cat edby PSC als o ra is es pra ct ic al co nc ern s. Th e d is tri ctco urt’s
ru le wou ldha ve requi redSo ut he rnFarm to cir cum

ve ntbo thBras he ar, wit h wh om So ut he rnFarm

was n eg ot ia ti ng , andth e PSC bo ardof d ire ct or s i n o rd er t o i ss ue it s
own st at em en t t o t he PSC s ha reh ol de rs . It i s u nc le ar wh ethe r itis ev enfeas ib le for
a co m pa ny suc h a s So ut he rnFarm to m ak e a s ta te m en t d ire ct ly to an othe r
co m pa ny’ s s ha reh ol de rs . For e xa m pl e, th ere i s n o re as on to ass um e th atSo ut he rn Farm ev enha s ac ces s t o ali stof P SC s ha reh ol de rs to whi ch to sen d s uc h a st at em en t. Bec au se itis un di sp ut edth atth e tr an sa ct io n i n t hi s ca se oc cu rredat a rm ’sle ng th , we nee d n otde fin e th e p aram et ers of abu y er’s dut y to di sc lo se to sh areh ol de rs of asel le r’s co rp or at io n u nd er ci rcu m st an ces inwhi ch th e b uyer ha s
co ns pi redwith o r ot he rwis e ex ert edim pr op er i nf

lu en ce o ve r th e se ll er’s b oa rdof
Other c ases c ited by

Plaintiffs also fail to persua de us that the dire ct disclosure 2 duty described in W

right runs from one party

in an ar m’s-length transac tion to the shareholder s of the c ounterpa

rty , beca use ea ch of those c ases discusse d whether a duty to disclose exis ted on the par t of share holders’ own boards of direc tors, rathe r than on the pa rt of a disintere sted third party . See, e .g. , Ray v . Karris , 780 F.2d 636, 642- 43 (7th Cir. 1985) (discussingdeception under Rule 10b-5 in the context of a suit by minority share holders ag ainst board of direc tors); Maldonado v. Flynn , 597 F.2d 789, 796 ( 2d Cir. 1979) (findingno deception for the purpose s of Rule 10b-5 wher e ame ndments to stock option plan were validly enac ted by

a vote of disinterested boa

rd member s who had be en fully informed of

all materia l fac ts, and whose knowledg e wa s theref

ore attributable to the corpor ation). 22di rect or s. Here , th ere i s n o s ug ge st io n t ha t So uthe rnFarm ex ert edim

pr op er
co nt ro l o ve r PSC’s o ffi cers or b oa rdof d ire ct or s, o r th atSo ut he rnFarm co ns pi red with P SC’s ag en ts to de pr iv e PSC sh areh ol de rs of m at eri al in fo rm at io n. Cf

. Sc ho en ba um v. Fi rs tb ro ok, 40 5 F .2d21 5, 2 19 (2dCir . 19 68 ) (en ba nc ) (aff irming di st ric t co urt’s d is m is sa l o f a co m pl ai ntall eg in g s ecu rit ie s fr au d upo n d et erm in in g th at“ th ere i s n o re as onto be li ev e th at[th e d efen dant ] was inan y po si ti on to in flu en ce the jud gm en t o f th e [p la in ti ff’s b oa rdof d ire ct or s] by an y im pr op er
m ean s” ). Fin al ly, we no te th atif PS C’s sh areh ol de rs be li ev e th atth ey were
m at eri al ly mis in fo rm edwith re ga rdto th e d eb en tu re s al e, th ey are fr ee t o s ue PSC’s ag en ts forbre ach in g t he ir f iduc ia ry du ti es . Inco nc lu si on , Ju ry

Ins tru ct io n 1 1’s s ta te m en t tha t So uthe rnFarm ’s du ty to di sc lo se randi rect ly to PS C s ha reh ol de rs is anin co rrec t s ta te m en t o f th e la w. W e
are c on vi nc edth atth is in st ru ct io n “ m is [le d] th e jury with res pe ctto th e ap pl ic ab le pr in ci pl es of l aw,” Y

un , 32 7 F .3dat 1 28 1, an d re qu ire s re ve rs al of t he jud gm en t ag ai ns t So ut he rnFarm
. B. Lega l Su ffi ci en cy

of P ro of Und erl y in g B as es of Li ab il it y As an ad di ti on al gro un d fo r rev ers al , Sou th ernFarm arg ue s t ha t the jud gm en t b el ow cann otst an d b ecau se li ab il it y was b as edon So ut he rnFarm
om it ti ng on e o r m or e m at eri al fact s i n i ts di sc lo su res to PSC, y etth e ev id en ce i s 23in su ffi ci en t as a m at te r of law t o s ho w th atat l eas t s om e o f th os e o m is si on s
oc cu rred . The v erd ic t fo rm ’s sp eci al in te rro ga to rie s p ert ai ni ng to th e se cu rit ie s frau d c la im

ask edth e jury: “ Do you f in d fr om a pr ep on de ran ce o f th e ev id en ce . . . [t]hatth e Defen da nt ’s con du ctin co nn ect io n wi th th e tr an sa ct io n v io la te d R ul e 10 b- 5( b) by m ak in g afal se rep res en ta ti on of am at eri al fact , or o m it ti ng a m at eri al fact(as ex pl ai ne d i n t he Co urt’s i ns tru ct io ns )? ” Verd ic t Fo rm : Sp eci al Int erro gs ., Dkt . 21 2 a t 1 . The jury

an swe red“ Yes .” As n ot edab ov e, th e al le ge d o m is si on s
se t fo rth inth e in st ru ct io ns were: (a) th at[So uthe rnFarm ] was att em pt in g t o e xt en d the Ch art er Trea ty and th atitco ul d n otdo so witho utth e co ns en t o f th e d eb en tu re h ol de r; (b ) th atFlo rid a Hol di ng an d t he Flo rid a Fed erat io n wo ul d o nl y co ns en t to th e ex te ns io n o f th e Ch art er Trea ty if [So ut he rnFarm ] fir st pu rch as edth e d eb en tu re; (c) th atth e Til li ng ha stValu at io n d idno t co ns id er (i ) th e Defen da nt ’s at te m pt s t o e xt en d the Ch art er Trea ty, (ii ) Pl ai nt iff s’ con tro l o f an y su ch ex te ns io n, an d (i ii ) [So ut he rnFarm ]’ s n eedto purch as e th e de be ntur e b ecau se Flo rid a Hol di ng an d F lo rid a Fed erat io n wo ul d on ly con se ntto th e ex te ns io n o f th e Ch art er Trea ty if [So ut he rnFarm ] fir stpurch as edth e d eb en tu re; (d ) th atco nt em

po ran eo us with [S ou th ernFarm ]’ s p ur ch as e o f th e de be ntur e, itpu rch as eda fu tu re i nc om e in te res t h el d b y th e Alaba m a Farm Bu reauFed erat io n u si ng a di sc ou ntrat e o f 4.9 %; an d (e) th atinord er t o o bt ai n t he co ns en t o f th e Tex as Farm Bu reauto ex te nd th e Ch art er Trea ty, [So uthe rnFarm ] ag reedto in crea se pa y ou ts to all te n (1 0) farm

bu reaufed erat io ns by $82 m il li on .

24Ju ry

Ins tru ct io ns , Dkt . 20 8 a t 1 1- 12 , 19 -2 0. In st ru ct io n 9 , whi chsetforth th e el em en ts of a§ 1 0b -5 cla im , requi redth e jury to fi ndon ly tha t the So ut he rnFarm
om it te d “ on e o r m or e”o f th es e m at eri al fact s. Ju ry Ins tru ct io ns , Dkt . 20 8 a t 1 2. In st ru ct io n 1 0, wh ic h s etforth th e el em en ts of aco m m on -la w frau d c la im , ex pr es sl y in st ru ct edth e jury tha t “ [i]t i s n otne ces sa ry th atth e Pl ai nt iff

s p ro ve all of th em inord er t o re co ve r.” Ju ry Ins tru ct io ns , Dkt . 20 8 a t 2 0. So ut he rnFarm

arg ue s t ha t the un refu te d e vi de nc e sh ows th atPSC’s at to rn ey , Bras he ar, h adful l kno wled ge of a t l eas t two o f th es e al le ge d o m is si on s. Inli gh t o f ou r ho ld in g t ha t So ut he rnFarm di d n othave a du ty to d is cl os e m at eri al fact s d ire ct ly to PS C s ha reh ol de rs , we furth er h ol d t ha t i t was erro r to pe rm itth e jury to fi ndli ab il it y

on th e b as is of o m is si on s t ha t wer e kno wn t o B ras he ar, wh o
was act in g a s PS C’s ag en t. At tria l, und is pu te d e vi de nc e sh owe d t ha t Br as he ar was ful ly aware of fact s (a) a nd(b) . In fa ct , up on lea rn in g t ha t So ut he rnFarm was a tt em

pt in g t o e xt en d th e Ch art er Trea ty, itwas B ras he ar wh o wro te to Flo rid a Hol di ng to rem in d i t tha t itco ul d n otvo te to ex te ndth e Treat y witho utPSC’s co ns en t. PSC ev enco nc ed ed attri al th at“ Mr. Br as he ar kne w th e fu nc ti on al it y of the de be ntur e as a ve to po wer
ov er an yth in g t ha t the Fed erat io n wan te d t o d o wi th res pe ctto ex te nd in g o r al te rin g t he va lu e o f Fl or id a Hol di ng .” Tria l Tr., Dkt . 25 4 a t 1 85
. 25Bec au se Bras he ar ac te d a s an ag en t o f PSC i n h is de al in gs with b ot h F lo rid a

Hol di ng an d S ou th ernFarm , Bras he ar’s kno wled ge with re sp ectto th os e tra ns act io ns is im

pu te d t o P SC: The ge ne ral rul e is well est ab li sh edth ata co rp or at io n i s ch arg ed with c on st ru ct iv e kno wled ge , reg ard le ss of i ts actua l kno wled ge , of al l m at eri al fact s o f whi ch it s o ffi cer o r ag en t re cei ve s n ot ic e o r acqui res kn owl ed ge whi le act in g i n t he co ur se of h is em pl oym en t withi n t he sco pe of h is auth or it y , eve n t ho ug h t he off ic er o r ag en t do es no t i n fa ctco m

m un ic at e h is kn owl ed ge to th e co rp or at io n. Am. Sta nd

ar d C re di t, In c. v. Na t’l

Cemen t Co
. , 64 3 F .2d24 8, 2 71 n.1 6 (5 thCir
. 19 81 ) (quo ti ng 3 W. Flet ch er, Cyclo pe di a o f th e Law of Pri va te Co rp or at io ns s 79 0, at12 (rev . perm . ed. 1 97 5) ) (al te rat io n o m it te d)
. Thu s, b ecau se Bras he ar 3 kn ew “ th at[So ut he rnFarm ] was att em pt in g t o e xt en d t he Ch art er Trea ty andth at itco ul d n otdo so witho utth e co ns en t o f th e d eb en tu re h ol de r,” So ut he rnFarm
can no t b e h el d l iabl e fo r fai li ng to di sc lo se th atin fo rm at io n t o P SC. The ve rd ic t fo rm

di d n otrequi re the jury to st at e whi ch om is si on (s ) pr ov id edth e b as is forit s l iabi li ty find in g, an d i t i s cl ear t ha t atlea stso m e o f th e al le ge d o m is si on s ca nn otsupp ort the ve rd ic t. Un le ss PSC “ can supp ort
subm is si on of e ach th eo ry of l iabi li ty sub m it te d t o t he jury, we m us t re m an d t he

In Bonner v. City of Prichard, 661 F.2d 1206, 1209 ( 11th Cir. 1981) (en ba nc), w e 3 adopted a s binding pre cede nt all decisions of the for mer F ifth Circuit handed down be fore October 1, 1981. 26cas e fo r a n ew tr ia l.” Roy al Typ ewr it er

Co . v. Xero gr ap hi c S

up pl ies C or p. , 71 9 F.2 d 1 09 2, 1 09 9 (1 1t h C ir. 1 98 3) . Becau se so m e o f PSC’s the or ie s o f li ab il it y th at are b as edon cert ai n o m is si on s ar e le ga ll y de fic ie nt , andbe cau se we can no t kno w fro m th e v erd ic t fo rm

whet he r th e jury im

po se d l iabi li ty on S ou th ernFarm ba se d
on on e o f th es e im

pe rm is si bl e th eo rie s, the jud gm en t o f th e d is tri ctco urt m us t b e
rev ers edon th is ad di ti on al gro un d. Fo r th e fo reg oi ng reas on s, we rev ers e jud gm en t b el ow an d re m an d t hi s ca se 4 fo r pr oc eed in gs co ns is te ntwith t hi s o pi ni on . REVERSED an d R EMANDED.

Be cause we c onclude that ther e ar e multiple gr ounds for re versingthe judg ment 4 below, we need not r eac h Southern Fa rm’s additional arguments that the jury ’s deter minations of scienter , materia lity , or dama g es we re a g ainst the great weight of the evide nce, or that the district court e rre d in calculating the r ate of prejudgment interest to apply to the damag es aw ard. 27