2003 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

5-20-2003

Return on Equity v. MPM Tech Inc

Precedential or Non-Precedential: Non-Precedential

Docket 02-3374

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Recommended Citation

"Return on Equity v. MPM Tech Inc" (2003). 2003 Decisions. Paper 545.

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NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

___________

No. 02-3374

___________

RETURN ON EQUITY GROUP, INC.; JOSEPH KILRAINE;

JOAN DASPIN; NATIONAL CAPITAL CORPORATION;

CONSULTANTS FOR BUSINESS AND INDUSTRY,

Appellants,

v.

MPM TECHNOLOGIES, INC.; MICHAEL LUCIANO, individually

and in his capacity as Chairman and Chief Executive Officer and Director;

GLEN HJORT, individually and in his capacity as Chief Financial

Officer and as Director; ROBERT D. LITTLE, individually and in his

capacity as Corporate Secretary and Director; L. CRAIG SMITH,

individually and in his capacity as Corporate Counsel and as Director;

MYRON KATZ, individually and in his capacity as Director; RICHARD

APPLEBY, individually and in his capacity as Director; MICHAEL

PORTER; ABC CORPORATIONS 1-5, Fictitious defendants;

JOHN AND JANE DOES 1-5, Fictitious defendants.

___________

On Appeal from the Order of the United States District Court

for the District of New Jersey

(Civil Action No. 02-CV-425(JAP))

District Court Judge: The Honorable Joel A. Pisano

___________

Argued on April 7, 2003

Before: ALITO, FUENTES, GREENBERG, Circuit Judges

(Opinion Filed: May 20, 2003)
2

_____________________

Steven B. Stein (argued)

Stein & Stein

164 Route 10 West

Succasunna, NJ 07876

Attorney for Appellants

John M. Toriello (argued)

Joseph P. Augustine

Holland & Knight LLP

195 Broadway

New York, NY 10007

Attorney for Appellees

_______________________

OPINION OF THE COURT

_______________________

FUENTES, Circuit Judge.

Plaintiffs, Return on Equity Group, Inc., two of its related entities, and two of its

executives (collectively, “ROE”) commenced the present action against MPM Technologies,

Inc. and several of its officers (collectively, “MPM”) in connection with the alleged

termination of certain consulting agreements between the parties. ROE asserted two claims

of securities fraud pursuant to section 10(b) of the Securities Exchange Act, 15 U.S.C. §

78j(b), and section 20(a), 15 U.S.C. § 78t. ROE’s Complaint also included three claims

brought pursuant to New Jersey state law for breach of contract, fraud and misrepresentation
1

 Because we agree with the first of the two alternative rationales advanced by the

District Court, we need not address the second.

3

under the New Jersey Consumer Fraud Act, and trade libel. MPM moved to dismiss the

Complaint in its entirety, which the District Court granted.

As to the state law claims, the District Court held that the presence of a valid and

enforceable forum selection clause designating the Superior Court of New Jersey, Morris

County, as the situs of all litigation arising out of the consulting agreements compelled the

dismissal of those claims. ROE does not contest the District Court’s decision in this regard,

and its state law claims are not before us.

With regard to the securities fraud claims, the Court noted exclusive jurisdiction

pursuant to 15 U.S.C. § 78aa. Nevertheless, the District Court held that (1) ROE failed to

allege an essential element of securities fraud--the purchase, sale, or transfer of MPM stock;

and (2) even if it could prove a transfer of MPM stock, ROE failed to allege fraud with

particularity as required by Rule 9(b) of the Federal Rules of Civil Procedure. We agree that

ROE failed to allege any cognizable transfer of MPM stock and, therefore, will affirm the

judgment of the District Court.1 In addition, we will deny ROE’s request, made for the first

time on appeal, to amend its Complaint.

I.

ROE purports to be a management consulting firm, specializing in mergers and
2

 We write solely for the benefit of the parties and, therefore, review the factual

background only to the extent necessary to inform our decision today. The District Court

performed a thorough review of the factual background in its decision on the underlying

motion to dismiss. See Return on Equity Group, Inc. v. MPM Technologies, Inc., No.

02-CV-425, slip op. at 3-7 (D.N.J. July 25, 2002).

4

acquisitions.2 It also claims to be a specialist in reviving companies in poor financial

condition. MPM is a holding company with subsidiaries in the business of designing,

building, installing, and servicing industrial air pollution systems. MPM is a public

corporation whose stock traded on the Nasdaq National Market during the time period

relevant to this dispute.

The parties entered into an initial agreement in September 2000 (the “September

Agreement”) in which ROE agreed to provide consulting services to MPM. This agreement

entailed the “lend-lease” of an ROE executive to MPM. Although the agreement also set the

price for ROE’s services, MPM could elect to pay ROE in cash or in MPM stock. To this

day, there is no clear statement from ROE as to whether they were paid in cash or in stock.

According to ROE, one of its notable achievements in the consulting arrangement was the

commencement of negotiations for MPM to acquire ST2EP, a company in a line of business

complementary to MPM.

In November 2000, ROE contends that the parties sought to revise the September

Agreement to extend and solidify the relationship between ROE and MPM. These efforts

resulted in additional contracts which contemplated an ROE executive working full-time for

MPM for a five-year term. 
3

 As we have stated before, controlling person liability pursuant section 20(a) is a

derivative claim premised on an independent violation of the federal securities laws. See

In re Rockefeller, 311 F.3d at 211. Therefore, our analysis of ROE’s section 10(b) claim

is equally applicable to its claim pursuant to section 20(a).

5

According to ROE, the relationship between the parties deteriorated soon thereafter.

Although the Complaint is not a model of clarity, particularly with respect to the allegations

of fraud, the fraudulent conduct apparently relates to a dispute between the parties as to

MPM’s potential disclosure obligations to its shareholders in the event of its acquisition of

ST2EP. ROE’s provision of consulting services to MPM ended soon thereafter.

II.

Our review of a District Court’s grant of a motion to dismiss is plenary. See In re

Rockefeller Center Properties, Inc. Securities Litigation, 311 F.3d 198, 215 (3d Cir. 2002).

We are obliged to apply the same standards applied by the District Court. See id. Therefore,

for purposes of this appeal, we accept the well-pleaded allegations in ROE’s Complaint as

true.

III.

We agree with the District Court that ROE failed to allege an essential element of

securities fraud pursuant to section 10(b).3 We have often stated that one of the threshold

elements of a section 10(b) claim is a well-pleaded allegation of a material misrepresentation

or omission in connection with the purchase or sale of securities. See Weiner v. Quaker Oats

Co., 129 F.3d 310, 315 (3d Cir. 1997). 

ROE’s allegations relating to purchase, sale, or transfer are, at best, perplexing. The
4

 Nor is the inherent indefiniteness of ¶ 27 cured by the equally ambiguous

allegation in ¶ 6 that “Plaintiffs are either shareholders or owed shares of MPM

Technologies common stock, and were damaged thereby.” Section 10(b) requires a wellpleaded allegation of purchase, sale, or transfer of securities.

6

only detailed assertion of stock transfer is stated entirely as a theoretical possibility: “[u]nder

the terms of the September Agreement, MPM would have the right to make payment to ROE

of its acquisition fees in common stock at the current market price it trades for at the time of

closing or cash.” Compl. at ¶ 27 (emphasis added). ROE’s allegation establishes no more

than that MPM could choose its method of payment and that payment in stock was one of the

two choices. The District Court correctly observed that, without more, the mere statement

of the theoretical possibility of a stock transfer was not sufficient to allege a purchase, sale,

or transfer of securities.4

IV.

Finally, ROE asks us to remand the case in order to permit it to amend the Complaint,

even though it never filed a proper motion to amend in the District Court. We will deny this

eleventh-hour request to cure ROE’s defective pleading.

It is well-settled that when judgment has been entered, the presumption favoring

liberal amendments is reversed. See Werner v. Werner, 267 F.3d 288, 296 (3d Cir. 2001).

Under these circumstances, leave to amend becomes the “long-odd exception rather than the

rule.” Id. (quoting The Dartmouth Review v. Dartmouth College, 889 F.2d 13, 22 (1st Cir.

1989)). At oral argument, we attempted to give ROE a full and fair opportunity to set forth

specific allegations of purchase, sale, or transfer of MPM stock. Once again, ROE failed to
7

state how an amendment would cure the deficiencies in its Complaint. The mere repetition

of these unspecified allegations in ROE’s briefs, and again at oral argument, convinces us

that leave to amend would not serve the interests of justice.

V.

For the reasons set forth above, we will affirm the judgment of the District Court, and

we will deny leave to amend the Complaint.
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______________________________

TO THE CLERK OF COURT:

Kindly file the foregoing opinion.

By the Court,

/s/ Julio M. Fuentes

Circuit Judge