Opinion ID: 758403
Heading Depth: 2
Heading Rank: 3

Heading: Negligent and Fraudulent Misrepresentation

Text: 31 Viernow contends that defendants negligently or fraudulently misrepresented their decision and intention to register the warrants and allow them to be exercised. Viernow relies on § 552 of the Restatement (Second) of Torts as grounds for his negligent misrepresentation claim and common law fraud as grounds for his fraudulent misrepresentation claim. 25 Defendants counter, however, that Viernow failed to raise such claims below, and, consequently, he is barred from raising them here. We disagree and turn to the merits of these claims. 32 It appears that under both Utah and Texas law, claims of negligent misrepresentation and fraudulent misrepresentation share at least one common element: Viernow must have suffered a loss as a direct result of his foreseeable, justifiable or expected reliance on the alleged misrepresentations of the Corporation in order to recover on these claims. See Dugan v. Jones, 615 P.2d 1239, 1246 (Utah 1980) (elements of fraudulent misrepresentation); T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 222 (Tex.1992) (same); Price-Orem Investment Co. v. Rollins, Brown and Gunnell, Inc., 713 P.2d 55, 59 (Utah 1986) (elements of negligent misrepresentation); Federal Land Bank Ass'n of Tyler v. Sloane, 825 S.W.2d 439, 442 (Tex.1991). Viernow failed to establish this element. 33 Even if we were to agree that the Corporation fraudulently or negligently led Viernow to believe that the warrants would be exercisable at some future point, he can show no harm caused thereby. Viernow did not act or refrain from acting in reliance upon such representations in such a manner that occasioned him to suffer a loss. In this respect, Viernow contends that had he known that the Corporation was not going to register the warrants, he would have registered them himself in an effort to exercise them. We agree with defendants, however, that such an argument fails to recognize that even if Viernow successfully registered the warrants, they could never have been exercised until the Corporation registered the underlying shares. Thus, even if Viernow had taken all of the actions which he claims he refrained from taking in reliance upon the Corporation's representations, he still could not have exercised the warrants. There is simply nothing Viernow could have done to exercise his warrants, regardless of whether the alleged representations were made or not. Hence, Viernow cannot show that he relied upon the alleged representations to his detriment. These warrants were subject to the condition precedent of the Corporation requiring registration of the underlying shares for the warrants to be exercised. See Aplt.App. Tab 6 at 77. This never happened, and, consequently, the condition was never satisfied. 34 Further, Viernow makes no claim that he was induced into buying the units based on representations from defendants that he would be able to exercise the warrants at some future point. Moreover, even if the Corporation had registered the underlying shares, the plain language of the warrants, as well as the prospectus, precluded Viernow, as a resident of Texas, from exercising them. We therefore hold that Viernow's claims of negligent and fraudulent misrepresentation failed and the summary judgment on these claims was correct.D. Promissory Estoppel 35 Viernow argued below that defendants should be estopped from allowing the warrants to expire without the options being exercised due to defendants' representations that the holders of such warrants would be allowed to exercise them. The record reveals that this issue was initially raised in Viernow's response to defendants' summary judgment motion. 26 The district judge found that although the theory of estoppel is perhaps the most viable claim in the present case, the record is inadequate to support such a claim. Aplt.App. Tab 18 at 42. 36 In order to make out a claim under estoppel, Viernow bears the burden of establishing the following elements: (1) a promise reasonably expected to induce action or forbearance, (2) such promise did in fact induce such action or forbearance, and (3) Viernow suffered detriment as a result. 27 As with his claims under negligent and fraudulent misrepresentation, however, Viernow cannot show that any action or forbearance on his part, occasioned by the defendants' alleged promises to make the warrants exercisable, led to any loss or harm. Although Viernow argues that the promises induced forbearance on his part, there is simply nothing Viernow could have done in order to make the warrants exercisable or otherwise to exercise his warrants. This is not a case in which Viernow, relying on the promises of the Corporation, chose not to do something that he could have otherwise done, which thereby caused him to suffer any injury. Viernow's argument that he would have registered the warrants had he not been mislead by defendants is unavailing, since any such registration would not have changed the fact that the warrants could not have been exercised without the Corporation's registration of the underlying shares. Hence, Viernow failed to show any detrimental reliance. 37 Additionally, there is no indication that Viernow purchased his units in reliance upon any promise from the Corporation that he would be able to exercise the warrants at some future date. On the contrary, the prospectus clearly provides in paragraph 14, Exercise of Warrant Uncertain  (emphasis in original), that such warrants may never be exercisable by any holder, Aplt.App. Tab 6 at 77, and, moreover, the prospectus together with the warrants restrict Viernow's alleged right, as a Texas resident, to exercise them. 28 That is, as a member of an ineligible class of holders, Viernow could not have exercised his warrants in any event. 38 E. Fiduciary Duty and Covenant of Good Faith and Fair Dealing 39 Viernow contends that the directors of the Corporation owned approximately 76% of its outstanding common stock and were presumably aware of the Corporation's true plans and intentions not to register the warrants. Similar to his arguments regarding promissory estoppel and misrepresentation, Viernow asserts that he relied upon assurances that the Corporation would continue to extend the warrants until they could be registered and subsequently exercised. This, Viernow suggests, also forms the basis of his fiduciary duty claim. 40 However, even assuming that the directors of the Corporation owed a fiduciary duty to Viernow individually, a proposition clearly contrary to the majority rule, Lochhead v. Alacano, 662 F.Supp. 230, 232 (D.Utah 1987), and that this duty was breached in the making of misleading representations that the warrants would be exercisable, Viernow can show no harm. The simple fact is that Viernow, as a Texas resident, could not have exercised his warrants in any event. 29 Thus, even assuming that the individual officers and directors of the Corporation instilled a reasonable belief in warrant holders residing in states where the initial public offering was registered that their warrants would be exercisable, such a belief could not have been reasonable with respect to Viernow. Further, there is no indication that Viernow either purchased the warrants in reliance upon such alleged representations or that he would have relocated to a state in which he would have been eligible to exercise his warrants had the Corporation registered the underlying stock. 41 Viernow's good faith and fair dealing argument similarly must fail. Both parties cite and rely upon Republic Group, Inc. v. Won-Door Corp., 883 P.2d 285 (Utah App.1994), for establishing the standard of good faith controlling here. Republic Group stands for the proposition that under the doctrine of good faith and fair dealing, the parties constructively promise that they will not intentionally or purposely do anything to destroy or injure the other party's right to receive the fruits of the contract. Compliance with this covenant or duty depends upon the agreed common purpose and justified expectations of the parties. Id. at 291. 42 The Corporation makes the sound argument that any right to exercise the warrants was subject to conditions precedent, which were never satisfied, and, as such, no warrant holder had the right to exercise them at any time. Even taking all Viernow's allegations as true, i.e., that defendants breached their duty of good faith and fair dealing by misleading him, he cannot prevail under this theory. First, as a warrant holder residing in Texas, he never had any right to receive the fruits of the warrants because the stock and warrants of the initial public offering were not registered in Texas. Viernow had no justified expectation of ever exercising the warrants as long as he resided in Texas, in light of the restrictions plainly set forth on the face of such warrants and contained in the prospectus. 43 In sum, the claim of breach of fiduciary duty and of the covenant of good faith and fair dealing was properly rejected by the summary judgment. F. Securities and Common Law Fraud 44 On appeal, Viernow claims that defendants violated Section 10(b) of the Securities and Exchange Act, Rule 10b-5, and engaged in common law fraud. However, our review of the record reveals that these issues were not raised in the district court, and, accordingly, we will not consider them on appeal. Harris v. Champion, 51 F.3d 901, 907 (10th Cir.1995) (citing Lyons v. Jefferson Bank & Trust, 994 F.2d 716, 720-21 (10th Cir.1993) (we exercise our discretion to hear issues raised for the first time on appeal only in the most unusual cases)). 45 Viernow also relies on Tex.Rev.Civ. Stat. Ann. art. 581-33 (West 1964) of the Texas Securities Act, a claim which he did present below. In his original complaint, Viernow alleged that the manner in which the Corporation structured and sold the initial public offering violated Article 581-33 because the units could be and were sold to residents of Texas notwithstanding the fact that the securities were not registered in Texas. In his brief on appeal, Viernow claims that if the Corporation did not intend to register the warrants so as to allow them to be exercised, its statements were not truly reflections of its future intent, but misrepresentations of state of mind at that time. Appellant's Brief at 28. 46 Article 581-33 generally provides for civil liability for persons who offer or sell securities in violation of the Texas registration requirements, Article 581-33A(1), and for any person who offers or sells a security by means of an untrue statement of material fact or fails to state a material fact necessary to make the statements made not misleading. Article 581-33A(2). While Viernow seemed to rely on subsection A(1) in his original complaint, Aplt.App. at 13, it is clear that he now relies on subsection A(2). Appellant's Brief at 28-30. 47 With respect to subsection A(1), there is no indication in the record that the any of the defendants intended to offer securities in Texas or in fact did offer such securities in Texas. Rather, the record reveals that the securities which Viernow purchased in Texas were sold by an independent broker in the secondary market. Moreover, it is clear that the statute of limitations barred this action seeking damages arising out of a violation of subsection A(1). Article 581-33H(1) provides that any such action may not be brought more than three years after the date of the sale. Brief of Defendants-Appellees at 20; Memorandum in Support of Defendants' Motion for Summary Judgment. Aplt.App. Tab 5 at 64. Here, Viernow completed his purchase of the units in January of 1990, but he did not bring this action until January of 1995, well beyond the limitations period. 48 Viernow's argument under subsection A(2) is similarly flawed. There is no indication that any representations were made to Viernow by the defendants, at the time he purchased the units, that he would ever be able to exercise his warrants. Thus, Viernow simply cannot meet the requirement of subsection A(2) to show that the units were sold by means of an untrue statement of material fact or an omission to state a material fact necessary to make statements made not misleading. Rather, the untrue statements of which Viernow now complains were actually made between late 1992 and early 1994. Aplt.App. 123-124, 153-154, 181, 183. These statements, however, do not come with the ambit of subsection A(2) since they played no part in the 1989 and 1990 sales of the units inasmuch as no one offered or sold the units in 1989 or 1990 by means of these allegedly untrue statements made between 1992 and 1994. Moreover, there is no evidence that the defendants were the ones who offered or sold the units to Viernow; rather, an independent broker offered and sold these units. 49 The summary judgment's rejection of these claims was proper. G. Motion to Amend 50 Viernow's remaining assignment of error challenges the district court's refusal to permit him to amend his complaint. As discussed more fully above, Viernow filed the present action in January of 1995 in Texas State Court, the case was removed to federal court in Texas in February 1995, and later transferred to the federal court in Utah in February 1996. Shortly after the transfer, defendants filed their motion for summary judgment in March 1996, and the district court heard arguments on August 12, 1996. At the conclusion of the hearing, the district judge orally granted the defendants' summary judgment motion. 51 Before the district court entered a formal judgment in favor of the defendants, Viernow filed his motion to amend his complaint on August 23, 1996. The record reveals that the district court never specifically addressed this motion, and the court entered its formal order and judgment in favor of the defendants on September 9, 1996, effectively dismissing the entire case along with the motion to amend. 52 The decision to grant leave to amend a complaint, after the permissive period, is within the trial court's discretion, Fed.R.Civ.P. 15(a), and will not be disturbed absent an abuse of that discretion. Pallottino v. City of Rio Rancho, 31 F.3d 1023, 1027 (10th Cir.1994) (quoting Woolsey v. Marion Labs., Inc., 934 F.2d 1452, 1462 (10th Cir.1991)). Although a district court is normally required to give reasons for its refusal to grant leave to amend, failure to do so can be harmless error where the reason is apparent, Id. (quoting Long v. United States, 972 F.2d 1174, 1183 (10th Cir.1992)), and we have often found untimeliness alone a sufficient reason to deny leave to amend. Id. 53 In the present case, Viernow sought leave to amend some nineteen months after filing his original complaint, and such leave was only sought after the trial judge orally granted the defendants' summary judgment motion. Viernow argues that the transfer of his case to Utah and his unfamiliarity with Utah law, coupled with threats of sanctions from defendants and the expense of associating local counsel, had a chilling impact on him and caused him to delay filing his amended complaint. Viernow also contends that the timing of his motion to amend resulted from conservative case management rather than inexcusable delay. 54 It is clear to us that Viernow's amended complaint proposed new theories that he did not choose to advance until after his primary [theories] had been dismissed. Id. Further, although Viernow now claims that he did not include federal claims under the Securities and Exchange Act in his original state court petition because such claims provide for exclusive federal jurisdiction, he had approximately eighteen months in which to include such claims after the case was removed to federal court. We find no justification for his failure to do so, and we do not favor permitting a party to attempt to salvage a lost case by untimely suggestion of new theories of recovery, especially after the trial judge has already expressed adverse rulings. Here, the case was essentially over once the trial judge orally stated at the motion hearing that he was granting summary judgment in favor of defendants--all that was required in order to formally close the case was the entry of judgment. Hence, although the district court did not give reasons for refusing to grant leave to amend, the grounds for refusal are clear from the record, Pallottino, 31 F.3d at 1027. Indeed, in announcing his ruling on the summary judgment motion the judge said that the case was correctly termed a moving target. It seems to change from time to time, including right up until oral argument today.... Aplt.App. Tab 18 at 42. We find no abuse of discretion in refusing to permit amendment. 55 AFFIRMED.