2012 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

9-13-2012

Mill Bridge V Inc v. I. Benton

Precedential or Non-Precedential: Non-Precedential

Docket No. 11-1184

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Recommended Citation

"Mill Bridge V Inc v. I. Benton" (2012). 2012 Decisions. Paper 444.

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NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

 

_____________

No. 11-1184

_____________

MILL BRIDGE V, INC., as successor to VAN DER MOOLEN OPTIONS USA, 

LLC c/o VAN DER MOOLEN SPECIALISTS, LLC,

 Appellant

v.

I. ISABELLE BENTON; BENTON PARTNERS II, LLP; JAMES KENKELEN, a 

transferee; EILEEN WHITE, a transferee

_____________

 

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

District Court No. 2-08-cv-02806

District Judge: The Honorable Ronald L. Buckwalter

 

Submitted Pursuant to Third Circuit L.A.R. 34.1(a)

September 10, 2012

Before: SMITH, CHAGARES, and ALDISERT, Circuit Judges

(Filed: September 13, 2012)

 

_____________________

 OPINION

_____________________ 

SMITH, Circuit Judge.
2

Mill Bridge V, Inc. (“Mill Bridge”)1 filed suit against Defendants I. Isabelle 

Benton, Benton Partners II, LLP, James Kenkelen, and Eileen White (collectively, 

“Benton Partners”), for allegedly failing to disclose material non-public 

information about Philadelphia Stock Exchange, Inc. (“PHLX”) before Benton 

Partners purchased Mill Bridge’s shares in PHLX. Mill Bridge appeals from three 

orders from the District Court: (1) denying Mill Bridge additional discovery; (2) 

denying Mill Bridge a third opportunity to amend its complaint; and (3) granting 

Benton Partners’ motion for summary judgment. For the following reasons, we 

will affirm.2

I.

In late 2004, Mill Bridge sought to liquidate its shares in PHLX. Mill 

Bridge specifically sought to sell its shares by December 31, 2004, in order to 

recognize a tax loss by the year’s end. Mill Bridge approached PHLX to inquire 

about potential purchasers; PHLX informed Mill Bridge that Benton, a member of 

PHLX’s Board of Directors, had recently expressed interest in purchasing 

additional shares of PHLX stock. 

 1 Mill Bridge brings suit as the successor in interest to Van Der Moolen Options 

USA, LLC, c/o Van Der Moolen Specialists, LLC.

2 Because Mill Bridge’s complaint raised a federal question, the District Court had 

subject matter jurisdiction under 15 U.S.C. § 78aa and 28 U.S.C. § 1331. We have 

subject matter jurisdiction over this appeal under 28 U.S.C. § 1291.
3

On December 6, 2004, Mill Bridge contacted Benton to determine whether 

Benton Partners would be interested in immediately purchasing its shares in 

PHLX. Between December 7, 2004 and December 9, 2004, Mill Bridge and 

Benton Partners negotiated a price for the transaction. During these negotiations, 

Benton Partners did not disclose that PHLX was involved in merger negotiations 

with Archipelago Holdings, Inc. (“Arca”). On December 9, 2004, the parties 

reached an agreement whereby Mill Bridge would sell its 600 shares in PHLX to 

Benton Partners for $78,000, or $130 per share.

Unbeknownst to Mill Bridge, in November 2004, PHLX became aware that 

Arca was potentially interested in a merger. Near the end of November 2004, 

PHLX contacted Richard Breeden, a member of Arca’s Board of Directors, to 

determine the extent of Arca’s interest. Breeden spoke with Arca management and 

at some point between November 2004 and December 2004, Breeden informed

PHLX that Arca was willing to begin merger negotiations.

Arca and PHLX began preliminary merger discussions over the telephone, 

focusing on general details about PHLX’s business. On December 3, 2004, Arca 

and PHLX entered into a confidentiality agreement, whereby the parties agreed to 

keep confidential all non-public information divulged by the other party. As of 

December 9, 2004, when Mill Bridge sold its shares to Benton Partners, Arca had 

not conducted its official due diligence session with PHLX, which occured “in the 
4

middle of December.” App’x 8. On December 15, 2004, after the Mill BridgeBenton Partners transaction was already finalized, PHLX’s Board of Directors was 

finally informed of the possibility of a merger with Arca. 

The merger negotiations began in full in 2005. In February 2005, PHLX 

formed a strategic committee to conduct negotiations. On April 18, 2005, Arca 

offered to purchase all of PHLX’s stock for $50 million, at a price of 

approximately $900 per share—significantly higher than the price paid by Benton 

Partners for Mill Bridges’ shares. PHLX rejected this offer. No merger ever took 

place.

On June 16, 2008, Mill Bridge filed suit in the Eastern District of 

Pennsylvania alleging, inter alia, that Benton Partners had violated § 10(b) of the 

Securities Exchange Act (the “Exchange Act”), 15 U.S.C. § 78aa, et seq., had 

violated Rule 10b-5, 17 C.F.R. § 240.10b-5, and had exercised control person 

liability under § 20 of the Exchange Act, 15 U.S.C. § 78t. Specifically, they 

argued that, even though no merger ever took place, the ongoing merger 

negotiations between PHLX and Arca was material non-public information that 

would have affected the market value of Mill Bridge’s shares in PHLX. That is, 

Mill Bridge argued that it would have negotiated a higher price for its shares in 

PHLX if it was aware of the negotiations. 
5

After a lengthy procedural history during which Mill Bridge twice amended 

its complaint, discovery was set to close on June 15, 2010. Mill Bridge 

successfully petitioned the court to extend the close of discovery until July 15, 

2010. On July 15, 2010, Mill Bridge again sought to extend the close of discovery. 

On July 28, 2010, the District Court denied this request.

Meanwhile, on July 16, 2010, Benton Partners filed a motion for summary 

judgment. The District Court granted Mill Bridge several extensions of time in 

which to respond to the motion. On August 13, 2010, when its response was due, 

Mill Bridge filed a motion to amend its complaint a third time, in order: (1) to add 

state law claims; (2) to change the date of the stock sale between itself and Benton 

Partners from December 1-2 to December 7-9, 2004; (3) to “sharpen the details” 

about the negotiations between Arca and PHLX; and (4) to include more 

allegations about Benton Partners’ knowledge. On August 23, 2010, the District 

Court denied this request, concluding that Mill Bridge had not sufficiently justified 

the need for such a late amendment in the face of the undue burden that Mill 

Bridge’s delay would place on the court.

The same day that Mill Bridge moved to amend its complaint, it filed 

another motion for an extension of time in which to respond to Benton Partners’

motion for summary judgment. The court granted this motion. Finally, on August 

30, 2010, Mill Bridge filed its response to the pending summary judgment motion.
6

On December 21, 2010, the District Court granted Benton Partners’ motion

for summary judgment. The court concluded that Mill Bridge had failed to show

both that the alleged failure to disclose the potential merger was “material” within 

the meaning of § 10(b) and Rule 10b-5, and that Benton Partners knew this 

allegedly material information at the time of the purchase. Because the court 

dismissed Mill Bridge’s claims under § 10(b) and Rule 10b-5, it also concluded 

that Benton Partners could not be subject to control person liability under § 20. 

Mill Bridge timely appealed. 

II.

Mill Bridge appeals, in part, from the District Court’s orders denying it the 

opportunity to conduct additional discovery, and to file a third amended 

complaint.3

 3 Benton Partners has separately moved to limit the portion of Mill Bridge’s appeal 

concerning the District Court’s July 28, 2010 order denying Mill Bridge’s request 

to extend the discovery deadline. Benton Partners notes that Mill Bridge’s notice 

of appeal only specified that it was appealing from (1) the court’s August 23, 2010 

order denying Mill Bridge’s request to amend its complaint; and (2) the court’s 

December 21, 2010 order granting Benton Partners’ motion for summary 

judgment. As Mill Bridge notes, however, we may exercise jurisdiction over 

orders not specifically identified in a notice of appeal where there is some 

“connection between the specified and unspecified orders[.]” Sulima v. Tobyhanna 

Army Depot, 602 F.3d 177, 184 (3d Cir. 2010). Here, Mill Bridge claims that the 

same evidence disclosed at the close of discovery that motivated its attempt to 

amend its complaint justified its request for additional discovery. Under these 

particular facts, we will permit Mill Bridge to contest the District Court’s July 28, 

2010 order, even though it did not identify that order in its notice of appeal. We 

will therefore deny Benton Partners’ motion to dismiss and limit this appeal.

 We review both of these orders for an abuse of discretion. See Mass. 
7

Sch. of Law at Andover, Inc. v. Am. Bar Assoc., 107 F.3d 1026, 1032 (3d Cir. 

1997) (concerning a motion for additional discovery); Cureton v. NCAA, 252 F.3d 

267, 273 (3d Cir. 2001) (concerning a motion for leave to file an amended 

complaint). Mill Bridge also appeals from the District Court’s order granting 

Benton Partners’ motion for summary judgment. We review de novo, applying the 

same legal standard as the District Court. See Doe v. Luzerne Cnty., 660 F.3d 169, 

174 (3d Cir. 2011).

First, the District Court did not abuse its discretion by denying Mill Bridge 

the opportunity to conduct additional discovery. Mill Bridge had a long period of 

time in which to conduct discovery. It chose, for its own reasons, to wait until the 

end of the discovery period to begin to request documents and conduct depositions. 

Moreover, the District Court previously did grant Mill Bridge additional time for 

discovery. The District Court did not abuse its discretion, given Mill Bridge’s lack 

of diligence during discovery, and given that Mill Bridge had access to discovery 

and trial testimony from a related case arising out of the same incident. 

Second, the District Court did not abuse its discretion by denying Mill 

Bridge the opportunity to amend its complaint for the third time. Delay in seeking 

to amend a complaint “may become undue when a movant has had previous 

opportunities to amend a complaint.” Cureton, 252 F.3d at 273 (citation omitted). 

The District Court did not err when it concluded that the delay here was undue. 
8

Mill Bridge had already amended its complaint twice, and did not persuasively 

explain why it could not have sought to amend its complaint any earlier.4

Finally, we agree with the District Court that the record before the District 

Court demonstrated as a matter of law that the merger negotiations between Arca 

and PHLX had not yet become material under the Supreme Court’s test set forth in 

Basic Inc. v. Levinson, 485 U.S. 224, 239 (1988).

 

5

 4 Although Mill Bridge now offers several reasons purportedly justifying its 

motion to amend, it presented the District Court with fewer and less convincing 

reasons, and included no details about the evidence it allegedly discovered. As 

Benton notes, this court will not reverse a district court’s decision to deny leave to 

amend on a ground never presented to the district court. See Lloyd v. HOVENSA, 

LLC, 369 F.3d 263, 272-73 (3d Cir. 2004).

 On December 9, 2004, when 

Mill Bridge and Benton Partners agreed to the stock sale, the negotiations between 

5 Benton Partners has moved to strike certain documents from the appendix on the 

basis that those documents were never filed before the District Court. Federal Rule 

of Appellate Procedure 10(a) defines the documents that are part of the record, and 

Rule 30(b) governs what documents can be included in an appendix. We agree 

with Benton Partners that the documents highlighted in its motion, spanning App’x 

301-09, 314-15, 317, 319-22, 324-26, 330-34, 336-45, 347-63, 368-69, and 371-73 

are not part of the record under Rule 10(a), and thus should not have been included 

in the appendix for our consideration. 

We have recognized that in limited circumstances, we may have the 

equitable power under Federal Rule of Appellate Procedure 10(e) to allow a party 

to supplement the record with documents that were not presented to the District 

Court. See In re Capital Cities/ABC, Inc.’s Application for Access to Sealed 

Transcripts, 913 F.2d 89, 97 (3d Cir. 1990). Even if such a power did exist, equity 

would not permit supplementing the record in this instance, where Mill Bridge has 

failed to justify its failure to place these documents into the record before the 

District Court. Consequently, we will grant Benton Partners’ motion to strike 

documents from the appendix. We nonetheless note that even if we considered 

these additional documents, we would reach the same result.
9

Arca and PHLX were only in their infancy. No reasonable juror could conclude 

otherwise. The evidence raised by Mill Bridge is insufficient to create a genuine 

issue of fact on this issue. The fact that a confidentiality agreement had been 

signed does not necessarily imply that the negotiations had progressed to the point 

where they were necessarily material—as the District Court noted, such 

agreements are “often entered into at the outset of the [merger] process before any 

material terms are negotiated.” App’x 35 (emphasis in original).6

Further, we agree with the District Court that Mill Bridge has failed to show 

that Benton Partners knew of the ongoing merger negotiations at the time of the 

stock sale. The record suggests that the negotiations were announced to the Board 

of Directors on December 15, 2004, after Mill Bridge had agreed to the sale. We 

agree with the District Court that Mill Bridge’s evidence, which consists primarily 

of some scattered inconsistencies and ambiguities in deposition transcripts, is 

insufficient to raise a genuine issue of fact as to Benton Partners’ knowledge.

 Because the 

merger negotiations were still in their infancy, the fact of the negotiations does not 

constitute material information that Benton Partners was required to disclose prior 

to their transaction with Mill Bridge.

 6 Mill Bridge argues that various portions of deposition testimony are sufficient to 

raise a genuine issue of fact on the materiality of the merger negotiations. For the 

reasons outlined in the District Court’s opinion, we agree that these efforts are 

unavailing. See App’x 27-35.
10

Because we conclude that Mill Bridge has failed to raise a genuine issue of 

fact as to whether Benton Partners failed to disclose material non-public 

information, or whether it knew of such information, we agree with the District 

Court that Mill Bridge’s claims under § 10(b) and Rule 10b-5 fail as a matter of 

law. Further, because Mill Bridge has failed to assert “an independent violation of 

the federal securities laws,” it cannot succeed on a claim for control person liability 

under § 20(a). See In re Rockefeller Ctr. Props., Inc. Secs. Litig., 311 F.3d 198, 

211 (3d Cir. 2002). Consequently, we will affirm the District Court’s order 

granting Benton Partners’ motion for summary judgment.

III.

For the foregoing reasons, we will affirm the judgment of the District Court.