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

Heading: The loss causation verdict.

Text: 66 Under Sec. 11, defendants are liable only for the losses caused by material misrepresentations or omissions in the registration statement. Once the plaintiff has established damages, the defendant may prove that all or part of those damages were caused by factors other than those misrepresentations or omissions. 3 Thus, while in the Sec. 10(b) context it is the plaintiff who must prove loss causation, in the Sec. 11 context it is the defendant who has the burden of proving that his misdeeds were not the cause of the losses. 67 At trial, AY requested that the court submit to the jury an interrogatory asking them to make a specific finding regarding loss causation. Although the jury's general verdict found for the plaintiffs, 4 the jury announced in its response to the interrogatory that 90 percent of the loss was caused by factors other than misrepresentations or omissions contained in the 1985-I prospectus. 5 68 Plaintiffs' attorney immediately requested a sidebar to seek clarification of this finding, on the ground that the jury might have misunderstood the instruction. The court decided to inquire as to that one question, and asked the jury whether it was allocating 90 percent of the fault to other factors or whether it was placing fault at that figure upon [AY]? The court then asked the jury to 69 go back to the jury room with that verdict, and to consider it. You will have to consider it further. You come right back out, with the number. It is not to deliberate further on that aspect of it. 70 The jury returned with the following answer to the interrogatory: 90 percent at fault, Arthur Young. (Emphasis added). 71 It is unclear from the record why the district court felt that the interrogatory needed to be resubmitted to the jury. The judge made the following statement prior to resubmission: 72 Was [the original 90 percent] valuation based on your determination that there were other factors other than what [AY] did or did not do with reference to the [1985-I] prospectus, or was it that you were placing fault at that figure upon [AY]? [ ...] 73 The jury has some understanding about what they were being asked in that question. As to whether that was the percentage of fault that you would attribute to the conduct of [AY], because you found for the plaintiffs, or whether it was a fact that other persons may have made misrepresentations and you felt that [AY] was only responsible for 10 percent of the loss, I'm not going to answer that. 74 The judge apparently felt that the jury might have misunderstood the interrogatory, that they might have felt that it was asking for the percentage of losses attributable to AY's conduct when in fact it was asking for the percentage of losses not attributable to AY's conduct. In addition, the plaintiffs and the district court both apparently felt that the jury's original 90 percent finding was contrary to the weight of the evidence. Plaintiffs' attorney Heimann stated at the time that [t]here is absolutely no evidence at all that any of the losses are not attributable to misrepresentations or omissions, and the district court later awarded plaintiffs attorneys' fees on the ground that AY's defense was frivolous, stating that the jury found that 10%, if it has any validity, and there had been a motion for judgment not withstanding [sic] the verdict on that issue alone, I would have granted it. 75 AY contends that the district court's resubmission of the verdict violated the Seventh Amendment. The Seventh Amendment requires a court to adopt a jury's verdict if the answers to the interrogatories in the verdict are consistent. Nance v. Gulf Oil Corp., 817 F.2d 1176, 1178 (5th Cir.1987). Furthermore, it is the duty of the courts to attempt to harmonize the answers, if it is possible under a fair reading of them. Gallick v. Baltimore & Ohio R.R. Co., 372 U.S. 108, 119 (1963). If the answers cannot possibly be harmonized, then Fed.R.Civ.P. 49(b) authorizes the trial court to return to the jury for further consideration answers to interrogatories that are inconsistent with each other or with the general verdict. 6 76 However, the jury's initial answer to the interrogatory was clear on its face and not inconsistent with the general verdict or the other special verdict. 7 Answers to special interrogatories do not present a square conflict with the general verdict where such answers do not exhaust all of the possible grounds on which the finding implicit in the general verdict may have been based. United Air Lines, Inc. v. Wiener, 335 F.2d 379, 407 (9th Cir.), cert. dismissed, 379 U.S. 951 (1964) (citing Arnold v. Panhandle & Santa Fe Ry. Co., 353 U.S. 360, 361 (1957)). Here, a jury could find that a Sec. 11 expert defendant was liable under Sec. 11(a)(4) for the material misstatements and omissions which purport[ ] to have been prepared or certified by him, but also consistently find, pursuant to Sec. 11(e), that not all of the plaintiffs' damages resulted from those misstatements and omissions. In other words, a defendant can be culpable without his misdeeds being responsible for all the losses. 77 Thus, the jury's finding that 90 percent of plaintiffs' losses were due to factors other than the misstatements and omissions for which AY was responsible was not inconsistent with the general Sec. 11 verdict in favor of plaintiffs. Consequently, Rule 49(b) did not authorize the district court to resubmit the special interrogatory to the jury. The district court erred by not entering the appropriate judgment pursuant to Rule 58: that AY's misdeeds caused 10% of plaintiffs' losses. 78 However, had the district court done so, the plaintiffs would almost certainly have made a Fed.R.Civ.P. 50(b) motion for judgment notwithstanding the verdict, 8 because they did so even after the jury returned its second answer finding AY responsible for 90% of plaintiffs' losses. The district court denied the motion, and plaintiffs appeal this denial. We review the denial of a Rule 50(b) motion de novo, and reverse only if it is clear that the evidence and its inferences cannot reasonably support a judgment in favor of the opposing party. Erickson v. Pierce County, 960 F.2d 801, 804 (9th Cir.), cert. denied, 113 S.Ct. 815 (1992). 79 We find no evidence in the record to support the jury's finding that AY had proved that even 10 percent of the plaintiffs' losses were due to factors other than misrepresentations and omissions in the 1985-I prospectus. 9 AY argues that the non-expertised text failed to inform prospective investors about the Ponzi scheme to divert newly invested funds to earlier partnerships, and that the jury could have found that this omission caused far more loss than any inaccuracies in the audited financial statements. However, the interrogatory did not distinguish between the expertised and non-expertised portions of the prospectus; it simply asked the jury to determine the portion of the losses that AY had proved were caused by factors other than misrepresentations or omissions contained in the Nursery Partners 1985-I prospectus. (Emphasis added). The evidence shows that there were no factors other than those concealed by the fraudulent offering documents that caused any of plaintiffs' losses. 10 Thus, the jury's finding that 10 percent of the plaintiffs' losses had independent causes was clearly inconsistent with the evidence in any event. 11 80 We thus hold that the district court erred by not granting plaintiffs' Rule 50(b) motion for judgment notwithstanding the verdict. For this same reason, we hold that the district court's error in resubmitting the loss causation interrogatory to the jury was irrelevant and not determinative of the ultimate outcome on the Sec. 11 claim. Regardless of whether the jury's answer was 10 percent or 90 percent, the district court should have granted plaintiffs' Rule 50(b) motion, and entered judgment against AY for 100 percent of the 1985-I plaintiffs' losses. We direct the district court to enter the appropriate judgment on remand. 12 81