Opinion ID: 504096
Heading Depth: 2
Heading Rank: 2

Heading: Florida Statutory Claim

Text: 10 Rousseff also stated a claim under the Florida Investor Protection Act. Under Fla.Stat. Sec. 517.301, it is unlawful to misrepresent or omit material facts in connection with the sale of a security. The exclusive remedy available to an individual injured by a violation of section Sec. 517.301 is an action for rescission. Fla.Stat. Sec. 517.211. In addition to the failure to submit the issue of proximate cause to the jury, Hutton challenges several other aspects of the trial and judgment entered in the district court. We address these other contentions only with respect to the Florida statutory claim. 11 Hutton first argues that there was insufficient evidence to support the jury's verdict on the issue of reliance. The evidence shows that Rousseff clearly relied significantly upon the guarantee signed by Aaron Fleck. According to Hutton, this indicates that Rousseff did not rely on the amount of reserves projected for the Swift well. We disagree. While Rousseff might not have invested in the project without the guarantee, this does not indicate that the other factors were irrelevant to his investment decision. The guarantee may have been a necessary condition to his investment, but it was not a sufficient condition. Indeed, Rousseff testified that Hutton's less optimistic projections would have been very important in making his investment decision. The jury obviously credited this testimony, and on appeal we may not second guess the jury's assessment of his credibility. Given Rousseff's testimony that he would have considered the omitted information, which bore directly on the value of the investment, there was sufficient evidence to support the jury's verdict on the issue of reliance. 12 Hutton also contends that the district court erred in excluding certain evidence regarding the tax benefits which Rousseff received from his investment in the AOGP project. According to Hutton, the tax benefits were relevant on the issues of reliance and damages. With respect to reliance, we agree that evidence of substantial tax benefits was relevant. Rousseff clearly hoped to reap considerable tax benefits from his investment. Despite Hutton's contention, however, the record indicates that the district court admitted evidence on Rousseff's tax motives. In fact, Rousseff testified that he hoped to deduct approximately 90% of his two million dollar investment. The district court recognized that this was relevant evidence on the issue of reliance and accordingly held it admissible. Given this evidence on Rousseff's motives, we find no error in the district court's evidentiary rulings relating to the issue of reliance. 13 The district court did, however, exclude certain tax forms and documents which Hutton wished to offer on the issue of damages. The court found that tax benefits were not relevant to the issue of damages where rescission is the appropriate remedy. We agree. Under federal law, tax benefits are not relevant to damages in a rescission action. Randall, 106 S.Ct. at 3153-55. The Supreme Court has noted that the recovery in rescission actions is generally taxable as ordinary income and that [a]ny residual gains to plaintiffs thus emerge more as a function of the operation of the Internal Revenue Code's complex provisions than of an unduly generous damages standard for defrauded investors. Id. at 3154. Moreover, the court found that the deterrence of fraud on the part of tax shelter promoters would be significantly undermined if tax benefits were subtracted from securities fraud damage awards. Id. 14 The Supreme Court's conclusion in Randall involved the definition of the term income received in section 12(2) of the Securities Act of 1933. Under that provision, any income received on the investment must be subtracted from a damage award. The Florida provision contains precisely the same language. We conclude that the Supreme Court's reasoning is persuasive in defining the term income received contained in Fla.Stat. Sec. 517.211(3)(a), although we recognize that the decision is not binding with respect to Florida law. Similar provisions in at least one other state have been construed to exclude consideration of tax benefits in calculating damage awards. See Hall v. Johnston, 758 F.2d 421 (9th Cir.1985) (Oregon statute). Although the Florida courts have not yet directly addressed this question, we conclude that a Florida court would be persuaded by the reasoning outlined in Randall if presented with the question. We therefore find that the district court did not err in excluding evidence of tax benefits on the issue of damages. 15 Hutton's final contention is that the district court erred in instructing the jury. First, Hutton claims that the instructions improperly informed the jury that reliance was presumed in this case. This contention is focused largely upon the federal Rule 10b-5 claim and the question of whether reliance should be presumed in this case under Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 153, 92 S.Ct. 1456, 1472, 31 L.Ed.2d 741 (1972). We need not address this issue of federal law because of our disposition of the federal claims above on proximate cause grounds. We deal here only with the Florida statutory claim. The jury instructions were separated along the lines of the three claims that the plaintiff asserted. With respect to the Florida statutory claim, the jury was instructed that the plaintiff bore the burden of proof on the issue of reliance. Moreover, in response to Special Interrogatory No. 5 the jury specifically found that the plaintiff had proven reliance by a preponderance of the evidence. We find that the instruction and verdict on the issue of reliance were clear and that they support the judgment entered against the defendant on the Florida statutory claim. 16 Hutton also challenges the instructions on the grounds that the court declined to instruct the jury that projections and opinions are not statements of fact and that they are neither true nor false. This contention is without merit. The plaintiff claimed that Hutton failed to disclose the existence of its less optimistic projections, and the jury found that the existence of those projections should have been disclosed. Whether those projections were matters of fact and whether they were true or false was not the issue. The existence of the projections was a fact and Hutton failed to disclose that fact to Rousseff. Thus, there was no error in the district court's refusal to give Hutton's requested instruction regarding opinions and projections. 17 Having resolved the above-described contentions regarding the Florida statutory claim, the sole remaining issue is the question concerning proximate cause. We have found that the federal and common law fraud claims fail because the district court did not submit the issue of proximate cause to the jury. We are unable, however, to determine whether proximate cause is an essential element of a claim under the Florida Investor Protection Act. In a separate opinion, we certify the question to the Supreme Court of Florida.