Opinion ID: 677610
Heading Depth: 2
Heading Rank: 1

Heading: Due diligence instructions.

Text: 60 A Sec. 11 expert defendant can avoid liability by proving that, after reasonable investigation, he had reasonable ground to believe and did believe that the expertised portions of the registration statement contained no material misstatements or omissions. 15 U.S.C. Sec. 77k(b)(3)(B)(i) (1988). The district court concluded its instructions on this due diligence defense with the following statement: 61 What constitutes a reasonable investigation and reasonable ground to believe will vary depending on all the factual circumstances. To prove that they did a reasonable investigation and had reasonable ground for their beliefs, Arthur Young and Karl Haushalter must prove that they acted as a prudent man would have acted in the management of his own property. To demonstrate that they did a reasonable investigation, Arthur Young and Karl Haushalter must demonstrate at least that they undertook to verify the registration statement by examining the available original documents. Mere inquiry of others, without more, is insufficient. 62 (Emphasis added). AY contends that the highlighted language rendered the instructions erroneous. We consider jury instructions as a whole to determine if they are misleading or inadequate. Oviatt v. Pearce, 954 F.2d 1470, 1481 (9th Cir.1992). 63 AY contends first that the statement required AY to verify the offering documents, rather than conduct a reasonable investigation. This contention is meritless. The statement simply defined reasonable investigation as undertaking to verify the registration statement; the instruction did not require AY to do more than a reasonable investigation. 64 AY also contends that the statement expanded its duty of investigation to cover the entire registration statement, rather than only the expertised portions. While the highlighted section does refer generally to the registration statement, in the three pages of instructions on the due diligence defense prior to this section the district court stated five times that AY could be held liable only for the expertised portion of the registration statement. The instructions taken as a whole were not misleading or inadequate. 65