Opinion ID: 1782194
Heading Depth: 3
Heading Rank: 2

Heading: Alleged Misrepresentations or Omissions

Text: Blackmon argues that he came forward with substantial evidence indicating that the Nexity defendants misrepresented or omitted five material facts. After reviewing each of those five instances, we conclude that his arguments are unpersuasive.
Blackmon argues that Lee, Nexity's chief executive officer, personally assured him that Nexity was doing well and it was progressing per [its] model [and] their budget [was] on plan. [6] He contends that this was a material misrepresentation because Nexity had a net operating loss of approximately $2,400,000 as of May 2000, exceeding its internal projected loss as of that date. Blackmon further argues that the net operating loss of $5,657,287 in 1999 was not indicative of the loss Nexity might incur in the future because he understood from one of the notes in the financial statement that over $4,000,000 of that loss was due to a one-time, nonrecurring compensation expense to Nexity's founders. Review of Blackmon's deposition testimony reveals that he understood from the Nexity officers that the company was progressing according to its general strategic plan. Nexity officers apparently stated only in general terms that Nexity was doing well. The following is an excerpt from Blackmon's deposition transcript: A: . . . I had conversations with Ken [Vassey] about how Nexity was doing, and he assured me that Nexity was doing fine, that all they needed was the capital to continue their growth and profitability. I want to say I had one conversation via telephone with Greg [Lee] and received general assurances from Greg that Nexity was doing well. Verbally at the meeting that I had with David [Long] and Greg on May 30th, I again got verbal updates on Nexity that Nexity was doing fine and things were progressing as per their plans. But I did not receive anything in writing. Q: Now, when you say Nexity was progressing as per their plans, do you mean the plans as outlined in the offering memorandum? A: No. As per their general strategic plan that they had within the bank is what I understood them to say. Q: In what respect, if any, was that different than what was said about the plans in the offering memorandum? A: I guess the main thing that was different is that their plan  strategic plan, their budget, their model had more financial forward-looking information in it than the prospectus did. The prospectus virtually had no forward-looking financial information with it. . . . . A: . . . But with Mr. Lee, the question led into what was I told, I believe was your question, or the question was what was I told or what did I receive from them. And the conversation moved to what I was told. And I was told that Nexity was progressing as per their model and doing well, general comment. Q: Was that the extent of what you were told, that's as specific as it got? A: That's correct. Now, your other question  your other question is are you telling me that Nexity  or you asked me a question, are you telling me that Nexity had budgeted or had financial information that was not included in the prospectus, I believe that was your question. And the answer is yes, they did. Q: All right. And my question really was did Mr. Lee or anybody else at Nexity before you made your investment tell you that such information, in fact, existed? A: The only thing I was told was that Nexity was doing well and that it was progressing as per their model or their budget on plan. Blackmon admitted that he had not asked to review Nexity's strategic plan or budget. Given the vague generality of the representation that Nexity was progressing as per their model or their budget [was] on plan, no reasonable investor would rely on it. See Hillson Partners Ltd. P'ship v. Adage, Inc., 42 F.3d 204, 213-16 (4th Cir.1994) (holding that vague on schedule and on track statements were immaterial misrepresentations); see also Glassman v. Computervision Corp., 90 F.3d 617, 631 (1st Cir.1996)(holding that federal securities law focuses on disclosure of backward-looking hard information, not on information such as internal projections and budgets and that [t]he mere fact that intraquarterly results lagged behind internal projections does not, without more, require disclosure). Blackmon received the POM, which contained a number of cautionary statements, including the statements that Nexity may suffer losses during the first few years of operations, that Nexity had incurred a loss in the previous year, and that investment in Nexity was highly speculative. These cautionary statements sufficiently related to the alleged misrepresentations so as to render them immaterial. See Amdocs Ltd., 390 F.3d at 548 (stating that if cautionary statements relate to the alleged misrepresentations, such cautionary statements render the misrepresentations immaterial). Furthermore, written cautionary statements generally take precedence over contradictory oral representations and render the oral representations immaterial as a matter of law. See Carr v. CIGNA Sec., Inc., 95 F.3d 544, 547 (7th Cir.1996)(holding that if a literate adult is given a written document with warnings but is orally told something that contradicts those warnings, then that person cannot maintain an action for fraud against the issuer); see also Alfa Life Ins. Corp. v. Green, 881 So.2d 987, 992-93 (Ala.2003)(holding that a person could not reasonably rely on oral representations that contradict a written document); Ex parte Caver, 742 So.2d 168, 173 (Ala.1999)(stating that a person cannot blindly rely on an agent's oral representations that are contrary to written disclosures); and Wamser v. J.E. Liss, Inc., 838 F.Supp. 393, 399 (E.D.Wis.1993)(holding that written information cures oral misstatements and omissions). Therefore, the alleged oral misrepresentations and omissions regarding Nexity's financial performance in the year 2000 were immaterial as a matter of law.
Blackmon argues that the Nexity defendants misrepresented the closing date of the offering as June 15, 2000, because Nexity actually allowed investors to purchase stock even after August 2000. Blackmon bases this argument on the new factual allegation in the stricken amended complaint. Because we hold that the amended complaint was properly disallowed, the trial court was correct in not addressing this argument. See Kaplan v. Rose, 49 F.3d 1363, 1370 (9th Cir.1994)(holding that the trial court properly refused to consider allegations in the disallowed amended complaints). Therefore, we do not consider this argument. [7]
Blackmon argues that Nexity's officers misrepresented that it could raise the original minimum offering of $15,000,000. The trial court found that Blackmon was aware that he could cancel or reduce his subscription and chose not to do so. Blackmon testified at his deposition (1) that he understood, after he received the supplement, that Nexity might not raise $15,000,000 and (2) that he voluntarily purchased Nexity stock even though he knew Nexity might not raise that amount. Blackmon received the supplement, which states that the offering minimum had been lowered to $10,000,000, and Blackmon testified that he understood that change. We will not attribute a childlike simplicity to investors in determining whether a misrepresentation or omission is material. Parnes, 122 F.3d at 547. In this case, the written notice in the supplement that the minimum offering was being lowered to $10,000,000 rendered any contrary oral misrepresentations immaterial. Carr, 95 F.3d at 547.
Blackmon claims that the Nexity defendants misrepresented the likelihood that Nexity would conduct an IPO in 2000. He argues that Nexity had not hired an investment advisor or otherwise prepared to conduct an IPO when it represented that it anticipated conducting an IPO. Thus, Blackmon argues, the Nexity defendants materially misrepresented that Nexity would conduct an IPO when there was no such prospect. Although the POM and Ken Vassey, a Nexity officer, may have indicated that Nexity expected to conduct an IPO in the latter part of 2000, the POM also contained explicit warnings that such an IPO might never occur. The POM stated that no decision regarding such offer has been made . . . [and] [t]here is no assurance that a public offer can be made on terms . . . acceptable to Nexity. Thus, Nexity pointed out that its stock might not be traded publicly and that, if it were not, the investors will be limited in their ability to resell shares. These cautionary statements directly relate to the alleged misrepresentation at issue. Nexity's statements regarding the possibility of conducting an IPO in context with these cautionary statements would not have misled a reasonable investor. See P. Stolz Family P'ship L.P. v. Daum, 355 F.3d 92, 98 (2d Cir.2004)(holding that cautionary statements neutralized any misrepresentations regarding future IPOs); Halperin v. eBanker USA.com, Inc., 295 F.3d 352, 357-58 (2d Cir.2002)(holding that representations and omissions must be considered together and in context to determine whether they affect the total mix of information and mislead a reasonable investor). Therefore, any representation by Nexity and its officer, Ken Vassey, regarding the possibility of an IPO is, as a matter of law, not material.
Finally, Blackmon argues that he presented substantial evidence indicating that Nexity offered a side deal to potential institutional investors to entice them to purchase stock. He argues (1) that the side deal was not offered to individual investors and (2) that the POM and the supplement did not disclose the side deal. Blackmon bases this argument on the new factual allegation in the stricken amended complaint. The trial court properly did not address this argument, and we do not address it. [8] See Kaplan, 49 F.3d at 1370 (holding that the trial court properly refused to consider allegations in the amended complaints that were disallowed).