* The Honorable William H. Stafford, Jr., United States Distri ct Judge for the Northern District of Florida, sitting by designation. RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206

File Name: 06a0392p.06


### UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

_________________

M OROSS L IMITED P ARTNERSHIP
, Plaintiff-Appellant/ Cross-Appellee

,

v.

F LECKENSTEIN C APITAL
, I NC ., W ILLIAM F LECKENSTEIN
, and RTM F UND
, L.P., Defendants-Appellees/ Cross-Appellants

. X - - - -

> , - - - - - - N Nos. 05-2280/2312

Appeal from the United States District Court for the Eastern District of Michigan at Detroit.

No. 01-74307—Avern Cohn, District Judge.

Argued: September 20, 2006

Decided and Filed: October 24, 2006

Before: CLAY and GILMAN, Circuit Judges; STAFFORD, District Judge. *

_________________ COUNSEL

ARGUED: Bradford T. Yaker, BRADFORD T. YAKE R, P.C., Bingham Farms, Michigan, for Appellant. M. William Munno, SEWARD & KISS EL LLP, New York, New York, for Appellees. ON BRIEF: Bradford T. Yaker, BRADFORD T. YAKER, P.C., Bingham Farms, Michigan, for Appellant. M. William Munno, SEWARD & KISSEL LLP, New York, New Yo rk, John H. Dudley, Jr., BUTZEL LONG, Detroit, Michigan, for Appellees.

_________________ OPINION

_________________ RONALD LEE GILMAN, Circuit Judge. This cas e arises from the investment of $750,000 by Moross Limited Partnership into the RTM Fund, L. P, a private investment fund. After the RTM Fund lost 90% of its assets due to an unsuccessful strategy of “short- selling” in the securities market, Moross sued the RTM Fund, its general partner, and its investment manager (collectively, the defendants). Moross’s suit alleged violations of Michigan’s Uniform Securities Act (MUSA), fraud,

1Nos. 05-2280/2312 Moross Ltd. Partnership v. Fleckenstein Capital, et al. Page 2

and breach of fiduciary duty. Both sides moved for summary judgment after a lengthy period of discovery. In addition, the defendants moved for sanctions under Rule 11 of the Federal Rules of Civil Procedure and 28 U.S.C. § 1927. The district court granted summary judgment in favor of the defendants, but denied their motion for sanctions.

On appeal, both parties renew their arguments made below. The defendants further move for sanctions under Rule 38 of the Federal Rules of Appellate Procedure because they claim that Moross has pursued a frivolous appeal. For the reasons set forth below, we AFFIRM the judgment of the district court, but DENY the defendants’ motion for sanctions on appeal.

I. BACKGROUND

A. Factual background

In December of 1996, William Fleckenstein, the so le shareholder of Fleckenstein Capital, Inc., sent a letter to Stanley Dickson, a Michiganattorney, accountant, and investor, soliciting him to invest in the RTM Fund. The RTM Fund, a Dela ware limited partnership that invests in publicly traded securities, was managed by Fleckenstein Capital as its General Partner. Fleckenstein Capital is based in the state of Washington. Included w ith the solicitation letter wa s a “Confidential Private Offering Memorandum” (Offering Memo), which explained that, because “[t]his is a private offering[,] . . . [t]he limited partnership interests offered hereby have not been registered with or approved by the Securities and Exchange Commission or any state securities agency.”

In April of 1997, Dickson established the Moross Limited Partnership as the vehicle for his investment in the RTM Fund. As Moross’s sole general partner, Dickson invested $750,000 with Moross, which was later transferred into the RTM Fund.

The primary investment strategy of the RTM F und was to “sell short,” which meant that the fund would borrow and then immediately sell shares of a stock that it did not own with the intent to buy the shares back at a later time in order to cl ose out the transaction. If the price of the stock dropped between the sale and the later purchase, then the RTM Fund would profit by selling high and buying back low. Only “accredited investor s”—defined by Rule 501 of the Securities and Exchange Commission (SEC) as an individual with a net worth of at least $1,000,000 or an entity with assets of at least $5,000,000—could invest in th e RTM Fund because of its private status and its exemptions from the SEC’s public-offering re gulations. In addition to Dickson and other investors, William Fleckenstein, along with his moth er and his sister, personally invested over $1.1 million in the RTM Fund. Fleckenstein also personally invested in a separately managed account (the Fleckenstein Account) as he was permitted to do under the Offering Memo.

The RTM Fund’s short-selling strategy proved very unprofitable during the bull market of 1998-2000. In April of 2000, Dickson requested spreadsh eets detailing the daily to tals of profits and losses from both the RTM Fund and the Fleckenst ein Account. Dickson concluded that these spreadsheets demonstrated improprieties on the part of Fleckenstein; namely, that Fleckenstein had been allocating profitable trades made from the RTM Fund’s assets into the Fleckenstein Account, but assigning losing trades to other investors, in cluding Moross. Dickson confronted Fleckenstein with his suspicions about this so-called “cherry -picking” of trades. Thereafter, Fleckenstein transferred $221,500 from his own personal account to the RTM Fund. Fleckenstein did this, according to his declaration, to equalize the short-selling losses for both accounts during that calendar quarter “so no one could say the Flecken stein Account had done better trading securities than the RTM Fund” during that time.

Dickson received his pro rata share of th is transfer, which was approximately $2,000. Dissatisfied with Fleckenstein’s response as compar ed to the total losses that Dickson had incurred,Nos. 05-2280/2312 Moross Ltd. Partnership v. Fleckenstein Capital, et al. Page 3

Dickson withdrew Moross from the RTM Fund. Moross then received approximately $75,000, which was all that remained from its original investment of $750,000.

B. The complaint

In November of 2001, Moross brought suit against the defendants. Based on the spreadsheets furnished by Fleckenstein, Moross allege d that when trades earned profits, Fleckenstein assigned these profits to the Fleckenstein Account, while losses were assigned to the RTM Fund investors. The complaint further alleged that when “Dickson telephoned Fleckenstein to inquire about these ‘suspicious’ trades[,] Fleckenstein admitted his wrongdoing and advised Dickson’s agent that he would refund to Dickson his initial investme nt.” According to the complaint, Fleckenstein reneged on this promise, but later disgorged $221,500 and applied it to the RTM Fund.

Moross’s complaint enumerated four grounds for relief. First, Moross alleged that Fleckenstein violated the MUSA by “misrepresenti ng how profits and losses in the Fund were to be allocated and failing to disclose his plan to keep profitable trades in his own account.” Moross claimed that it invested in the RTM Fund in reliance on the fact that Fleckenstein would “act consistent with his fiduciary duties as managi ng member of Fleckenstein Capital and General Partner of the Fund.” Next, Moross’s complain t sought an accounting of all trades made by Fleckenstein with money from his own account a nd for the accounts of hi s affiliated entities, in addition to an accounting “as to how all Fund prof its and losses were allocated during the period of time that [Moross] was an investor in the Fund.” Moross’s two remaining claims of fraud and breach of fiduciary duty were similarly based on the alleged false representations made in the Offering Memo regarding how defendants would allocate the profits made with the RTM Fund’s

assets.

C. Testimony and proceedings below

In April of 2002, the defendants moved to dismi ss the complaint pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Ci vil Procedure for failure to plead fraud with particularity and for failure to state a claim, respectively. Moross, in opposition to the motion to dismiss, reiterated its claim of “cherry-picking” and argued that “over the brief period Dickson had access to the broker’s spreadsheets, Fleckenstein’s personal account flouris hed, while RTM lost most of its value.” The district court found that Moross’s factual allegati ons were sufficient to survive a Rule 12(b)(6) motion and that Moross had pled fraud with sufficient particularity.

Deadlines for completing discovery and amending the complaint were initially set for November of 2002, but the district court exte nded this deadline until March of 2003. Moross attempted to demonstrate its cherry-picking claim using a “representative sample” of Fleckenstein’s trading records. The defendants produced more than 9,000 pages of documents, including the RTM Fund’s daily records and financial audits conducted by the accounting firm of Ernst & Young.

Moross was asked in several interrogatories to identify the trades that it believed were improperly assigned as part of Fleckenstein’s a lleged cherry-picking scheme, but it never provided answers to these interrogatories. In April of 2003, the defendants moved for summary judgment on the grounds that Moross “has not iden tified in its answers to interrogatories any securities trades that Mr. Fleckenstein allegedly cherry picked” and that there was no evidence in the record of a cherrypicking scheme. Moross’s response, filed inMay of 2003, included anaffidavit by William A. Collison that purported to demonstrate that factual disputes existed as to the cherry-picking claim.

Collison, whom Moross describes as a “security industries expert,” spent approximately eight and a half hours reviewing the files in this case. He averred, in relevant part, thatNos. 05-2280/2312 Moross Ltd. Partnership v. Fleckenstein Capital, et al. Page 4

[a]lthough the RTM Fund Confidential Private Offering Memoranda [ sic ] permitted Fleckenstein to maintain and invest funds in his own name, it articulated a very specific investment strategy. Despite a purported consistent, unified investment strategy and discipline, Fleckenstein’s pe rsonal account inexplicably out performed the RTM Fund. For example, on February 29, 2002, the RTM Fund lost 8.03% that day, while Fleckenstein’s personal account gained 1.23%. That same day, the RTM Fund was down 22.72% for the year, while Fleckenstein’s personal account was up 38.44%. The disparity in performance between the RTM Fund and Fleckenstein’s personal account exceeded an astonishing 71%. This fact alone constitutes circumstantial evidence that Defendants committed acts of “front running” and “cherry picking.”

Moross’s response also included a new factual basis for its claims of fraud and breach of fiduciary duty: that “[a]lthough Defendant, William Fleckenstein, was a dir ector of Pan American Silver Corp. and a holder of approximately 60,000 warrants in that company’s stock (material facts omitted from the Offering Memoranda and Amendmen ts), as the investment manager and primary trader for the RTM Fund, Fleckenstein proceeded to acquire in excess of 500,000 shares of Pan American Silver Corp. in the RTM Fund as of December 31, 1999.” This was the first time that Fleckenstein’s association with Pan American Silver was mentioned by Moross.

In their reply memorandum, the defendants asserted that Fleckenstein’s alleged failure to disclose material information relating to his status as a director of Pan American Silver was not mentioned in the complaint. The defendants al so argued that there wa s no “evidence that Mr. Fleckenstein was not permitted to serve as a director on a company board or buy that company’s securities either for the RTM Fund or for the Fleckenstein account while serving as director.” In addition, the reply memorandum described Collison’s affidavit as containing “conclusory assertions” and noted that Collison did not actually identify any cherry-picked trades.

The defendants also filed a motion for sanctions under Rule 11 of the Federal Rules of Civil Procedure and 28 U.S.C. § 1927. They claimed that(1) Moross had prolonged this action even after the trading records failed to rev eal evidence of cherry-picking, and (2) Dickson, in response to being asked to identify cherry-picked claims, threatenedto call the SEC and informed the defendants that he “was prepared to make this case even more expensive for Defendants in the coming year (2003).”

In July of 2003, the district court held a hearing on the defendants’ motion for summary judgment. Although the court found th at Moross was “not even close” to isolating transactions that were alleged to have been improperly assigned to or transferred from the RTM fund, Moross was given an additional 75 days to locate cherry-picked trades in the discovery materials.

Two months later, Moross submitted a letter by Paul Moulden, who was identified as a “Senior Consultant” with Economics Analysis Group, Ltd. of Washington, D.C. The letter did not specifically identify any cherry-picked trades, but concluded that, based upon Moulden’s analysis of a sampling of trades from one calendar quarter, Fleckenstein had engaged in the improper assignments of trades.

Moulden stated in deposition testimony that his report was based on a methodology that did not determine whether trades were being switche d out of the RTM Fund on ce a trade was completed and found to be actually profitable, but instead an alyzed “the way in which trades were being allocated on the day they were executed.” Further, “[t]he analysis really was based on the price of the securities at the time the allocations were made[i.e., before the trade was completed], as opposed to the ultimate profitability of the beginning and ending—opening and cl osing transaction.” In other words, Moulden calculated the theoretical profit of a trade at the time that Fleckenstein chose to allocate the trade to either the RTM Fund or hi s personal account, but did not calculate whether aNos. 05-2280/2312 Moross Ltd. Partnership v. Fleckenstein Capital, et al. Page 5

trade allocated into either account in fact was profitable when completed. This methodology, according to Moulden, would determine whether Fleckenstein was purposely allocating losing trades to the RTM Fund. On the basis of his analysis, Moulden concluded that “[a]llocation decisions were made that caused losing trades [as defined by Moulden’s theoretical analysis] to primarily be allocated to the RTM Fund.”

The district court found that Moulden’s report “carries [Moross] across the threshold of establishing that there may be a genuine issue of a material fact.” For that reason, and “for administrative convenience,” the court denied the defendants’ motion for summary judgment in July of 2004. The court also denied the defendants’ mo tion for sanctions, stating that “I traditionally do not award sanctions.”

Discovery continued, and the defendants procured a court order requiring Dickson to appear so that they could depose him. Dickson testif ied in his deposition that he was “not capable” of identifying either profitable trades that were “switched from the RTM Fund to the Fleckenstein Account in [the] representative sample that forms th e basis of plaintiff’s claims” or losing trades that were “switched from the Fleckenstein Account to the RTM Fund.” After both Dickson and Moulden were deposed, the defendants renewed their motion for summary judgment in February of 2005.

In their renewed motion, the defendants argued that (1) documentary discovery had yielded no evidence of cherry-picking or fraud, (2) the methodology used by Moulden in calculating “theoretical profits and losses” was flawed and his small sample of the voluminous trading records was insufficient, (3) any claims regarding self-dealing in Pan American Silver shares were not asserted in the complaint and were time-barred, and (4) Fleckenstein was permitted by the Offering Memo to serve as a director of Pan American Silver and Dickson had been informed of the directorship.

Moross responded to the defendants’ renewed motion for summary judgment by filing a cross-motion for partial summary judgment. For th e first time, Moross included the fact that the defendants’ 1996 Form ADV—a document that Fleckenstei n Capital, as an investment advisor, was required to file with the SEC—failed to ac knowledge that Fleckenstein Capital would be recommending “to clients that they buy and sell securities in which [Fleckenstein Capital] has some financial interest.” The RTM Fund had in fact purchased securities in Pan American Silver, of which Fleckenstein was a director. This alleged misrepresentation by omission formed the basis of Moross’s motion for partial summary judgment. Mo ross also maintained its position that there were sufficient factual issues for the district court to deny summary judgment to the defendants on Moross’s cherry-picking claim.

The district court resolved these conflicti ng motions by granting summary judgment to the defendants on all aspects of Moross’s claims. As to the cherry-picking claim, it stated that “[w]hile up to this point the Court had given Moross every indulgence in letting its cherry-picking claim go forward, the time has come for it to end.” The court held that Moulden’s report was “seriously flawed” because it analyzed only one third of the trades from a single calendar quarter out of the eight trading quarters during which Moross invested in the RTM Fund. It also discredited the report because, according to the district court, Moul den “admitted he guessed” whether trades were profitable or unprofitable, and Moulden’s concept of “theoretical” profits and losses was too speculative to overcome summary judgment against Mo ross. The court held that “[i]t is not enough to overcome summary judgment by broadly asserted [ sic ] that Moulden’s opinion creates a genuine issue of material fact.”

In dismissing Moross’s cherry-picking claim, the district court relied in part on a letter written to Moross by the Securities Division of the state of Washington’s Department of Financial Institutions. Moross had filed a complaint with th e agency in February of 2005. In response, theNos. 05-2280/2312 Moross Ltd. Partnership v. Fleckenstein Capital, et al. Page 6

Securities Division reviewed Moulden’s report and conducted “additional field work on the allocation question.” According to the Securities Division,

in order to make a case that improper allocations have been made, we need to be able to establish that the allocations were ma de after it was known which trades had made money and which had lost money. The report of your expert [Moulden] does not address timing of the allocation of the tr ades. Our field examiner also found no evidence that trades were allocated to accounts after it was known which trades had been profitable. We therefore do not havethe evidence we would need to bring an action against [the] advisor for improper allocation of trades.

The district court concluded that this letter from the Securities Division further discredited Moulden’s expert testimony.

In addition, the district court dismissed Mo ross’s accounting claim because the defendants had already produced daily reports of the RT M Fund’s trading activity, and Moross failed “to articulate what additional information it needs for its equitable accounting claim.” The court further granted summary judgment on Moross’s “eleventh-hour newly-minted claim” that Fleckenstein breached his fiduciary duty by failing to disclose hi s involvement with Pan American Silver on the 1996 Form ADV. According to the court, Fleckenst ein did not become a di rector of the company until 1997, so the 1996 Form ADV did not contain any material omissions. In addition, Moross did “not identify or explain the source of the [1996 Form ADV], nor was the form part of the initial offering materials or ever before referred to in the many prior filings in this case.” Fleckenstein, moreover, had sent Dickson a letter in 1997 specifically disclosing his new status as a director. The court therefore found that Moross had not produced enough evidence to create a genuine issue of material fact as to any of its claims against the defendants.

II. ANALYSIS

A. Standard of review

We review the district court’s grant of summary judgment de novo. Int’l Union v. Cummins, Inc. , 434 F.3d 478, 483 (6th Cir. 2006). Summary judgment is proper where no genuine issue of material fact exists and the moving party is entitle d to judgment as a matter of law. Fed. R. Civ. P. 56(c). In considering a motion for summary judgment, the district court must construe the evidence and draw all reasonable inferences in favor of the nonmoving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587 (1986). The central issu e is “whether the evidence presents a sufficient disagreement to require submission to a ju ry or whether it is so one-sided that one party must prevail as a matter of law.” Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 251-52 (1986). “The mere existence of a scintilla of eviden ce in support of the plaintiff’s position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff.” Id. at 252.

B. Cherry-picking

The MUSA prohibits “any person, in connection with the offer, sale, or purchase of any security, directly or indirectly . . . [t]o engage in any act, practice, or course of business which operates or would operate as a fraud or dece it upon any person.” Mich. Comp. Laws § 451.501. In addition, the MUSA renders unlawful “any untrue stat ement of a material fact or any omission to state a material fact necessary in order to make the statements made . . . not misleading.” Mich. Comp. Laws § 451.810(a)(1).

Common law fraud requires proof of the same basic elements as a claim under the MUSA; namely,Nos. 05-2280/2312 Moross Ltd. Partnership v. Fleckenstein Capital, et al. Page 7

(1) [t]hat defendant made a material representation; (2) that it was false; (3) that when he made it he knew that it was false, or made it recklessly, without any knowledge of its truth and as a positive assertion; (4) that he made it with the intention that it should be acted upon by plaintiff; (5) that plain tiff acted in reliance upon it; and (6) that he thereby suffered injury.

U.S. Fid. & Guar. Co. v. Black , 313 N.W.2d 77, 82 (Mich. 1981) (quotation marks omitted). The common law further imposes an obligation on fiduciaries to act in their clients’ best interests and to not betray their clients’ confidence. See Fassihi v. Sommers

, Schwartz, Silver, Schwartz & Tyler, P.C. , 309 N.W.2d 645, 648 (Mich. 1981); see also Rose v. Nat’l Auction Group, Inc. , 646 N.W.2d 455, 464 (Mich. 2001) (“A breach of fiduciary duty cl aim requires that the plaintiff reasonably reposed faith, confidence, and trust in the fiduciary.”) (citation and quotation marks omitted) (emphasis omitted).

Moross alleged in its complaint that the defendants violated the MUSA, committed fraud, and breached their fiduciary duties by “misrepresenting how profits and losses in the Fund were to be allocated and failing to disclose [Fleckenstein’s] pl an to keep profitable tr ades for his own account.” According to Moross, “[a]t the end of the tradi ng day, Fleckenstein, as mana ger of both his personal account and RTM, assigned ‘winning’ trades to his own personal account, while ‘losers’ were assigned to RTM.”

On appeal, Moross devotes little attention to its cherry-picking claim. It does argue, however, that “fact issues persist” with respect to the cherry-picking claim based on both Moulden’s expert report and the defendants’ voluntary transfer of $221,500 to the RTM Fund once Dickson voiced his suspicions of improper trading. The testimony of Collison, Moross’s other expert, is not mentioned in Moross’s briefs, and Collison actually was removed from Moross’s witness list that was filed with the district court.

Despite the allegations in the complaint that Dickson “discovered” cherry-picked trades, Dickson’s deposition testimony reveals that he was unable to identify any trades that were improperly allocated to either the RTM Fund or Fleckenstein’ s personal account. We are thus left to consider whether the evidence of Fleckenstein’s voluntary transfer and the expert report by Moulden are enough to create a genuine issue of material fact on this issue.

Moulden’s evidence of “theoretical profits” does not support a claim that defendants improperly allocated trades after they were completed and profitable. The report, however, could provide circumstantial evidence that Fleckenstein monitored trades made with unassigned funds for a brief period of time and then allocated the trad es to either his own account or the RTM Fund once he determined whether they were likely to be pr ofitable. Moulden’s report is thus supportive of a claim that the defendants engaged in the manipulation of trades in which those that were likely to be profitable (based on an examination of short-term performance after the purch ase of the trade) were assigned to Fleckenstein’s account and those likely to lose money were assigned to the RTM Fund. After years of discovery, however, Moross has never b een able to articulate the precise nature of his cherry-picking claim or how Fleckenstein allegedly manipulated trades.

Although “mere weaknesses in the factual basis of an expert witness’ opinion . . . bear on the weight of the evidence rather than on its admissibility,” McLean v. 988011 Ontario, Ltd. , 224 F.3d 797, 801 (6th Cir. 2000) (quotation marks omitted), Moulden’s analysis still does not explain the mechanism through which Fleckenstein allegedly engaged in improper activity. Moross’s complaint charges that Fleckenstein allocated profitable tr ades to his own personal account, while losses were assigned to the RTM Fund investors, including Moro ss. Moulden’s report, however, does not address this type of cherry-picking. Moulden’s analysis is especially deficient given the high degree of regulation to which Fleckenstein was subjected as the fund’s manager. The Securities Division ofNos. 05-2280/2312 Moross Ltd. Partnership v. Fleckenstein Capital, et al. Page 8

Washington’s Department of Financial Institutions came to a similar conclusion when it wrote that Moulden’s report “does not address timing of the allocation of the trades.”

In SEC v. Slocum, Gordon, & Co. , 334 F. Supp. 2d 144 (D.R.I. 2004), the SEC was permitted to present a “thorough analysis of [the defendant’s] tr ades over the relevant period [in order to reveal] certain trends in firm security purchases supporting an inference of cherry picking. . . .” Id. at 172. Moulden’s circumstantial evidence of cherry-picking, however, is not thorough, nor does it reveal a pattern of behavior or disparities in performance between the RTM Fund and Fleckenstein’s personal account. In fact, Fleckenstein’s account performed almost as badly as the RTM Fund for the full calendar year of 1999, and worse than the RTM Fund in 2000. We therefore agree with the district court that Moulden’s report does notcreate a genuine issue of material fact.

Evidence that Fleckenstein voluntarily transferred $221,500 to the RTM Fund also fails to provide a sufficient basis for a jury to rule in favor of Moross. This one fact, which can be interpreted either as an admission of wrongdoing or as a means to avoid the appearance of impropriety, is not enough to allow a rational trier of fact to find for the pl aintiff by a preponderance of the evidence, especially when compared to all of the evidence that weighs against a conclusion of cherry-picking. See Anderson , 477 U.S. at 252 (holding that the summary judgment “inquiry, therefore, unavoidably asks whether reasonabl e [factfinders] could find by a preponderance of evidence that the plaintiff is entitled to a [judgment]”); see also Knecht v. Collins , Nos. 96-3682, 96- 3735, 96-4114, 1999 U.S. App. LEXIS 13645, at *12 (6th Cir. June 15, 1999) (unpublished) (holding that a plaintiff’s speculative evidence “is not e nough to survive summary judgment or for a rational trier of fact to conclude by a preponderance of th e evidence that a due process violation has taken place”).

The district court further held that Moross ha d not provided any coherent theory or evidence to support the calculation of damages, which Moro ss must prove in order to succeed on its claims. Finally, Moross’s argument that the district court improperly relied on the Securities Division’s letter, which “fails to address in any meaningful way the scope of the Division’s investigation; the methodology of the investigation; the witnesses inte rviewed; or the standard of the review,” is without merit. The district court did not even mention the letter until afte r the court had already determined that Moulden’s methodology was “seriously flawed” for a variety of reasons. We therefore conclude that the district c ourt did not improperly consider the letter. In sum, Moross had four years to produce reliable eviden ce of cherry-picking, either direct or circumstantial, and it failed to do so.

C. Misrepresentations relating to the 1996 Form ADV

On appeal, Moross dedicates the majority of its attention to the alleged misrepresentations on the 1996 Form ADV. Moross claims that Fleckenstein’s 1996 Form ADV contained material omissions regarding his involvement with Pan Am erican Silver and that Fleckenstein failed to disclose his practice of trading in securities for himself “that were also being bought, sold, or recommended for clients.” The district court “put[] aside defendants’ arguments that this claim is barred by Moross’ failure to plead it within the statut e of limitations.” It held that (1) Fleckenstein did not have a duty to disclose his position in Pa n American Silver because “Moross received the offering materials in December 1996, more than 5 m onths before Fleckenstein became a director in Pan American Silver,” and (2) “the Form ADV itsel f shows that Fleckenstein disclosed his intention to buy or sell securities also recommended to clients.”

The defendants correctly assert that the “complaint contains no reference of any kind either to Mr. Fleckenstein’s position as director of Pan American Silver Corporation or to Mr. Fleckenstein’s ability to make investments in his own name along with investments for the RTM Fund.” Moross argues that the district court should have permitted it to amend its complaint toNos. 05-2280/2312 Moross Ltd. Partnership v. Fleckenstein Capital, et al. Page 9

include these claims, but there is no evidence in the record that Moross sought such an amendment. Instead, Moross first mentioned these claims in May of 2003 as part of its response to the defendants’ motion for summary judgment.

Even if Moross had sought to amend its complaint, the claims would have been barred by Michigan’s three-year statute of limitations for breach of fiduciary duty and six-year statute of limitations for fraud. See Mich. Comp. Laws § 600.5805(8), (10); Boyle v. Gen. Motors Corp. , 661 N.W.2d 557, 559 n.3 (Mich. 2003) (holding that “a plaintiff now has, in any case, the full period of six years from the date of the fraudulent act” to bring an action for fraud); Miller v. Magline, Inc.

, 256 N.W.2d 761, 774 (Mich. Ct. App. 1977) (stating that a breach of fiduciary duty claim sounds in tort and is governed by the three-year statute of limitations under Michigan law). The Form ADV and the Offering Memo—Moross’s basis for th ese new claims—were submitted in 1996, over six years before Moross’s introduction of the claims in his 2003 response to the defendants’ motion for summary judgment. Moross argues, however, that th ese claims would “relate back” to the date of the filing of the original complaint.

Under Rule 15(c)(2) of the Federal Rules of Ci vil Procedure, an amended complaint relates back to the original complaint when “the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading.” Moross’s claims of misrepresentation and lack of disclosure about self-dealing, however, allege completely different conduct from the c onduct underlying its claim of cherry-picking. The Form ADV claim alleged misrepresentations and omissions made in the defendants’ offering materials, whereas the cherry-picking claim alle ged the purposeful allocation of unprofitable trades to the RTM Fund. In addition, Moross’s new clai ms do not constitute “added events leading up to the same injury” or “an added theory of liability for the same occurrence.” See Miller v. Am. Heavy Lift Shipping , 231 F.3d 242, 248-49 (6th Cir. 2000) (citation and quotation marks omitted) (discussing Rule 15(c)(2)). The new claims, which raise the issue of whether the defendants properly adhered to the statements made in their offering materials regarding self-dealing, involve a completely different set of factual disputes fr om the circumstances regarding the cherry-picking claim.

Finally, “[u]ndue delay in filing, lack of noti ce to the opposing party, bad faith by the moving party, repeated failure to cure deficiencies by previous amendments, undue prejudice to the opposing party, and futility of amendment are all factors which may affect the decision” of whether an amended complaint relates back to the original. Hageman v. Signal L.P. Gas

, Inc. , 486 F.2d 479, 484 (6th Cir. 1973). Moross waited a year and a half af ter filing its complaint before inserting the Form ADV claims of misrepresentation and self-dealing into a response to the defendants’ motion for summary judgment. As the defendants argue, “[i]t wa s as if Plaintiff at the last minute had simply pulled the form out of thin air.” The undue delay in raising the Form ADV claims and their likely futility due to the statute of limitations support the district court’s decision to grant the defendants’ motion to dismiss.

D. Claim for accounting

Moross further requested that the defendants pr ovide an equitable accounting so that it could “determine the basis for the limited credit previ ously provided by Defendants.” But the defendants have already produced all of the trading record s from the RTM Fund and the Fleckenstein Account for the entire period that Moross was an investor in the RTM Fund. In addition, the defendants provided Moross with accounting records prepar ed by Ernst & Young, the defendants’ accountant. Because the district court properly held that Moro ss “fails to articulate what additional information it needs for an equitable accounting claim,” we find no error in the district court’s grant of summary judgment on this claim.Nos. 05-2280/2312 Moross Ltd. Partnership v. Fleckenstein Capital, et al. Page 10

E. Motion for sanctions under Rule 11 and 28 U.S.C. § 1927

In June of 2003, the defendants moved for sanctions under Rule 11 of the Federal Rules of Civil Procedure, which provides that an individual who files a pleading or brief with a federal court “is certifying that to the best of the person’s know ledge, information, and belief” that the factual allegations have evidentiary support. Fed. R. Civ. P. 11(b)(3). The defendants claimed that Moross knew that it could not support its cherry-picking claim when it filed this action and that it then refused to dismiss the claim even after discovery revealed no evidence of cherry-picking. On appeal, the defendants further contend that Moross “falsely represented that Mr. Dickson personally discovered facts supporting a cherry picking claim in the Complaint.”

The defendants also moved for sanctions under 28 U.S.C. § 1927, which provides that “[a]ny attorney . . . who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct. ” According to the defendants, Moross has vexatiously multiplied the proceedings by pursuing a frivolous cherry-pic king claim and adding other claims at the last minute. The district judge denied the defendants’ motion for sanctions, commenting that “I traditionally do not award sanctions.”

Although the denial of a motion for sanctions is reviewed under the abuse-of-discretion standard, this circuit has remanded close questions regarding a motion for sanctions where a district court denies sanctions without explanation . See Palmer v. Nationwide Mut. Ins. Co. , 945 F.2d 1371, 1377 (6th Cir. 1991) (remanding the deni al of sanctions because, “partic ularly in the close or serious sanction cases, . . . the district court should set out its analysis and discrete findings with respect to its decision on the allowance or rejection of sanc tions”) (quotation marks omitted). Appellate courts in other circuits have also found an abuse of discretion where the district court denies sanctions in a close case with no explanation. See, e.g.

, S. Bravo Sys., Inc. v. Containment Techs. Corp. , 96 F.3d 1372, 1375 (Fed. Cir. 1996) (“When the requesting party makes a strong showing that Rule 11 violations may have occurred, . . . the district c ourt should provide some explanation for disregarding the proffered showing.”)

In the present case, the district court was remiss in not providing some explanation for denying defendants’ claim that Moross was purposel y prolonging this litigation in order to increase the defendants’ legal expenses. The issue of sanc tions is not so close, however, that the district court’s lack of explanation constitutes an abus e of discretion. Sanctions are awarded where an attorney pursues claims that he should know are “frivolous.” Tareco Props, Inc. v. Morriss , 321 F.3d 545, 550 (6th Cir. 2003). In this case, Moross provided the expert testimony of Paul Moulden in order to demonstrate circumstantially that Fleckenstein did not allocate trades to either his own account or the RTM Fund until he had forecaste d their likelihood of profitability. The $221,500 voluntary transfer on the part of Fl eckenstein, moreover, can be seen as raising at least an inference of consciousness of guilt. We therefore find that the district court did not abuse its discretion in denying the defendants’ motion for sanctions.

F. Sanctions for this appeal

The defendants have also moved for sanctions under Rule 38 of the Federal Rules of Appellate Procedure, which provides that a court of appeals may award “just damages and single or double costs to the appellee” if it determines that an appeal is frivolous. An appeal is frivolous where an appellant “essentially had no reasonable expectati on of altering the district court’s judgment based on law or fact.” Wilton Corp. v. Ashland Castings Corp. , 188 F.3d 670, 677 (6th Cir. 1999).

Although we agree with the district court that Moross’s evidence is insufficient to survive summary judgment, a close enough question is presented to allow this appeal to escape categorizationNos. 05-2280/2312 Moross Ltd. Partnership v. Fleckenstein Capital, et al. Page 11

as frivolous. In addition, despite Moross’s Form ADV claim ultimately proving meritless, the district court declined to decide whether it was barred by the statute of limitations. The district court’s focus on the merits of the Form ADV claim permitted Moross to reasonably believe that the statute of limitations issue was a close question.

We therefore deny the defendants’ motion fo r sanctions under Rule 38. As the prevailing parties, however, the defendants will be entitled to recover the normal costs of this appeal.

III. CONCLUSION

For all of the reasons set forth above, we AFFIRM the judgment of the district court, but DENY the defendants’ motion for sanctions on appeal.