Opinion ID: 504096
Heading Depth: 2
Heading Rank: 1

Heading: Federal and Common Law Fraud Claims

Text: 7 The district court found that Rousseff was entitled to seek rescission of his deal with Hutton. As a result, the court concluded that Rousseff need not prove that Hutton's misconduct was the proximate cause of Rousseff's loss. Hutton was thereby precluded from showing that the decline in value of Rousseff's investment was caused by market conditions rather than by any factor relating to Hutton's alleged misconduct. The issue of proximate cause was not submitted to the jury. Rousseff argues that this is appropriate in an action for rescission. Insofar as this case involves claims under the federal securities law or the theory of common law fraud, we disagree. 8 While the case law suggests that rescission may be an available remedy in some actions under the federal securities law, see Randall v. Loftsgaarden, 478 U.S. 647, 106 S.Ct. 3143, 3152-53, 92 L.Ed.2d 525 (1986); Huddleston v. Herman & MacLean, 640 F.2d 534, 554 (5th Cir. Unit A 1981), aff'd in part, rev'd in part on other grounds, 459 U.S. 375, 103 S.Ct. 683, 74 L.Ed.2d 548 (1983), 1 the potential availability of this remedy does not alter the essential elements of the cause of action. In a section 10(b) claim, the plaintiff must establish the following: (1) a misstatement or an omission (2) of material fact (3) made with scienter (4) on which the plaintiff relied (5) that proximately caused his injury. Huddleston, 640 F.2d at 543 (footnote omitted). The proximate cause element of the claim prevents section 10(b) and Rule 10b-5 from becoming a system of investor insurance. See id. at 549; Lipton v. Documentation, Inc., 734 F.2d 740, 742 (11th Cir.1984), cert. denied, 469 U.S. 1132, 105 S.Ct. 814, 83 L.Ed.2d 807 (1985). The same holds true with respect to the common law fraud cause of action. See Sherban v. Richardson, 445 So.2d 1147, 1148 (Fla.Dist.Ct.App.1984); Alexander/Davis Properties, Inc. v. Graham, 397 So.2d 699, 706 (Fla.Dist.Ct.App.1981). 9 In the present case, the district court did not require Rousseff to establish that his loss, if any, was caused by Hutton's omissions. Indeed, the court did not allow Hutton to offer proof that any loss Rousseff may have incurred was caused by general market forces and the considerable decline in the oil and gas market during the period of the investment. 2 The court thus removed an essential element of the federal securities law and common law fraud claims from the jury's consideration. This was error. The district court's finding that rescission was the appropriate remedy in this case does not eliminate the requirement that the plaintiff establish that his loss was proximately caused by the defendant's misconduct. 3 Because an essential element of the case was not submitted to the jury, the judgment may not stand insofar as it was entered on the federal securities law and common law fraud claims. We therefore reverse the judgment to that extent.