Opinion ID: 628267
Heading Depth: 2
Heading Rank: 1

Heading: F.R. Sec. 230.405(f) (quoted in Id. at 957-58)

Text: 16 The corporation marketed mortgage loans. Id. at 949 17 The court found that evidence of, inter alia, a lender's 18% ownership of the borrower's stock, and proxy on a controlling interest of the borrower's subsidiary, did not establish actual control over the operations of the corporation in general; but, at most, demonstrated the potential for influence over some business decisions. Id. at 631-32 18 We note that Dennis does not accurately reflect our rejection in Thompson of a culpable participation requirement. 918 F.2d at 509. We need not resolve this inconsistency, because our holding turns on appellants' failure to establish Home and Graham's power to control Equity 19 Glick testified that he had reviewed roughly a dozen PPM's for other Equity projects in his capacity as agent or broker 20 Appellants point to Home and Graham's influence over the execution and contents of certain financing documents; their request to approve documents relating to the transaction, including the PPM (which contained exculpatory language requested by Home); and memoranda from Glick to Equity, discussed supra, regarding suggested changes to the PPM 21 Section 10(b) provides: It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national security exchange-- (b) To use or employ, in connection with the purchase or sale of any security ... any manipulative or deceptive device or contrivance.... 15 U.S.C. Sec. 78j(b). 22 Rule 10b-5 provides: It shall be unlawful for any person, directly or indirectly ... (a) to employ any device, scheme, or artifice to defraud, (b) to make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statement made, in light of the circumstances under which they were made, not misleading or (c) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security. 17 C.F.R. Sec. 240.10b-5 (1992) 23 Although Abell has been vacated, it remains authoritative on the non-RICO issues. First Nat. Bank of Commerce v. Monco Agency, Inc., 911 F.2d 1053, 1061 n. 15 (5th Cir.1990) 24 This court has often reiterated that, [i]f the evidence shows no more than transactions constituting the daily grist of the mill, we would be loathe to find 10b-5 liability without clear proof of intent to violate the securities law. See, e.g., Abell, 858 F.2d at 1126 (quoting Woodward v. Metro Bank, 522 F.2d 84, 97 (5th Cir.1975)) 25 Our court defined recklessness in Broad v. Rockwell International Corp., 642 F.2d 929, 961-62 (5th Cir.), cert. denied, 454 U.S. 965, 102 S.Ct. 506, 70 L.Ed.2d 380 (1981): Severe recklessness is limited to those highly unreasonable omissions or misrepresentations that involve not merely simple or even inexcusable negligence, but an extreme departure from the standards of ordinary care, and that present a danger of misleading buyers or sellers which is either known to the defendant or is so obvious that the defendant must have been aware of it. As noted in Akin, 959 F.2d at 526 n. 2, although we used the modifier severe, our definition of recklessness is the same as applied by other circuits. 26 As discussed infra, subsequent to final judgment, appellants attempted to recharacterize the primary violation (adding Rule 10b-9) 27 Contrary to appellants' assertions, the district court did not find genuine issues of material fact concerning the existence of a primary securities violation; rather, noting appellants' settlement with Equity, it merely assumed so to abbreviate its analysis 28 As stated, we also assume that fact issues remain concerning Equity's violation of Rule 10b-5. Home and Graham did not challenge appellants' evidence on this element (except with respect to those who allegedly failed to read the PPM); and, as discussed, we do not have the benefit of a district court ruling 29 Of course, First Virginia Bankshares is also precedent for the Eleventh Circuit, because it was decided before October 1, 1981. See Bonner v. Prichard, 661 F.2d 1206, 1209 (11th Cir.1981) (en banc) 30 By contrast, Glick stated by affidavit: None of the information that affiant received from the Equity Group or its securities counsel during the course of his activities described herein, whether oral or written, and whether received prior or subsequent to affiant's receipt of the PPM, in any way contradicted any of the information in the PPM. 31 The Duane Memo lacks probative value, as it was based solely on the PPM, see supra, which was received by each appellant 32 The supplement stated: THE SURETY AND ITS AGENT HAVE NOT MADE ANY INVESTIGATION OR DETERMINATION AS TO THE MERITS, OR RISKS, FINANCIAL OR OTHERWISE, OF THE LIMITED PARTNERSHIP INVESTMENT AND MAKE NO REPRESENTATION NOR EXPRESS ANY OPINION WITH RESPECT THERETO,.... IN EXECUTING THE INVESTOR APPLICATION, EACH INVESTOR ACKNOWLEDGES THAT SUCH INVESTOR HAS INDEPENDENTLY, AND WITHOUT RELIANCE ON THE SURETY, MADE SUCH INVESTIGATION AND INQUIRIES AS THE INVESTOR DEEMED NECESSARY AND PRUDENT TO REACH A REASONABLE INVESTMENT DECISION WITH RESPECT TO THE LIMITED PARTNERSHIP INVESTMENT. 33 The remainder of appellants' evidence on this issue is equally deficient. Namely, they urge that a reasonable jury could conclude that Home and Graham's activities were not simply grist of the mill in view of Graham's prior involvement with Equity, and the earlier discussed 1985 internal memorandum from Graham's Pine to Glick stating, inter alia, Reaction to The Home Insurance Company--positives & negatives compared to A.I.G. etc. Anything that he doesn't like? Without Home, Courtside wouldn't have been done As for the former, we conclude that the summary judgment evidence of Graham's involvement as bonding agent for other Equity projects, see supra note 19, does not create the inference of particularly substantial or unusual assistance. Our finding to the contrary in Akin, 959 F.2d at 531, is distinguishable. Suffice it to say, the scope and degree of involvement by the defendant/accountant in Akin was far greater than that before us. As for the latter, the above-quoted statement is perhaps probative evidence of Home's substantial assistance, but it is not sufficient evidence from which a jury could conclude that such assistance was unusual. Interpreting the statement, Pine explained that Home was critical to the closing, and more helpful than A.I.G. (National Union Insurance Company) due to its ability to efficiently process the multitude of documents. Of course, contrary inferences are possible, including that urged by appellants; however, such an inference is not sufficient to create a material fact issue. 34 In fact, in addition to appellants' evidence not creating a material fact issue on conscious intent, we question whether it even establishes recklessness. Although the language in the Duane Memo alerts Home and Graham to deficiencies in the PPM, it does not imply that they were highly unreasonable; nor does correspondence between Glick and Equity indicate that it was so construed. Rather, Glick requested Equity's cooperation in adopting Duane Morris's suggestions, noting that [f]rom past experience we have found that obtaining another viewpoint on our clients' Memorandums has often resulted in some worthwhile improvement, both from a legal and marketing standpoint. (Emphasis added.) Without expressing any opinion as to the merits of Duane Morris's assessment, or discomfort with the adequacy of the Duane Memo, Glick concluded: I hope these comments will be helpful to you and that they will provide additional comfort to The Home Insurance Company in conjunction with the issuance of its bond. (Emphasis added.) In addition, Glick testified that the supplemental PPM sufficiently addressed the concerns of Home and Graham. Finally, in late December, 1984, Home and Graham received an opinion letter from counsel for Courtside stating that [n]othing has come to our attention, after inquiry, which would lead us to believe that the Memorandum (except for the financial statements and other financial and statistical data and the projections included therein, as to which we do not express any belief), on the date of the Memorandum, contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 35 Appellants also point to Home and Graham's motive to close the deal once involved as surety; however, because appellants did not contend in the district court that the formation of the E-C partnerships was fraudulent, or that Home and Graham had knowledge of same, this motive, standing alone, carries little weight 36 Appellants' claims under the Louisiana Blue Sky Law were also properly dismissed, because it is undisputed that Home and Graham were not sellers of securities as defined by Sec. 12(2) of the 1933 Act. Abell, 858 F.2d at 1130-31 37 It is undisputed that Louisiana law applies in this diversity case. Except as to the issue of duty, discussed infra, appellants waived their fraud claim by failing to properly brief the issue. See infra note 50 38 Negligent misrepresentation is encompassed within the broad language of articles 2315 and 2316 of the Louisiana Civil Code. Devore v. Hobart Mfg. Co., 367 So.2d 836, 839 (La.1979). In order to recover, the plaintiff must show (1) a legal duty to supply correct information; (2) breach; and (3) damages resulting from justifiable reliance on the misrepresentation. Commercial Nat. Bank v. Audubon Meadow Part., 566 So.2d 1136, 1139 (La.App. 2d Cir.1990) 39 Of the five appellants: (1) Koerner could not recall reading the PPM and provided no pertinent testimony regarding reliance; (2) Parrish possibly read parts of the PPM, but could not recall any specifics nor did he provide pertinent testimony as to factors influencing his investment decision; (3) Sibley skimmed the PPM, not really relying on its contents but instead relying on oral representations that the project was low risk and catered to professionals (which are both inconsistent with the PPM); and (4) Turnbull did not read the PPM, and in fact would not have invested had she done so; instead, she relied on her accountant who focused on tax projections. As for (5) Bradke, although he read the PPM, there is no evidence of actual reliance on specific misrepresentations or material omissions in it, except for references to the stated fair market value contained in Teel's appraisal, which is irrelevant given the district court's conclusion (in support of summary judgment for Teel) that appellants failed to show that the appraisal was misleading Of course, Home and Graham are not responsible for oral misrepresentations inconsistent with, or not pertinent to, aspects of the PPM discussed in the Duane Memo, as appellants' action against them is based on appellees' failure to correct or otherwise disclose misleading information referenced in the Duane Memo, and their continued participation in the Courtside transaction despite their knowledge of same. 40 In their motion for summary judgment, Home and Graham specifically pointed to appellants' failure to allege actual reliance in support of the state law claims of fraud and negligent misrepresentation. In response, appellants failed to point to specific evidence of reliance; nor did they do so in their motion for a new trial, despite the district court's finding. And, as stated, they fail to assert error on appeal. As a result, our review of the record is without assistance from those with the burden of proof 41 As stated supra, the investors sought rescission of the agreements; Home counterclaimed for their enforcement. The district court granted summary judgment in favor of Home on the rescission action and subsequently granted it on Home's counterclaim. On appeal, appellants focus on the latter 42 In Turtur, National Union issued a bond in exchange for the investor's execution of an indemnification agreement, which was attached to the PPM. The Second Circuit held that, if the indemnification agreement and the subscription agreement are considered under New York law as interdependent, a fraudulent inducement as to one of the contracts might [ ], in at least some situations, excuse performance by the defrauded party of the other contract. Id. at 204 (emphasis added). The Second Circuit reversed the grant of summary judgment because fact issues remained on the interdependency vel non of the agreements. Id. at 205 43 It has been agreed in the district court and on appeal that the indemnity agreements should be construed under Louisiana law 44 There, an investment bond insurer brought suit against the insured, an investor in a limited partnership. Like the case at bar, the investor paid partly in cash and partly in the form of a promissory note payable to the partnership. The partnership in turn secured a loan with the investor's note, which the surety bonded in return for an indemnity agreement executed by the investor. Subsequent to the investor's default, the surety brought suit against the investor to enforce the indemnity agreement. In defense, the investor asserted that the indemnification agreements were contracts related to a securities fraud and thus unenforceable. Id. at 1098, 1100 45 We emphasize that we are assuming, for purposes of our discussion, that the agreements should be considered interdependent under Louisiana law. Compare General Ins. Co. v. Fort Lauderdale Partnership, 740 F.Supp. 1483, 1488 (W.D.Wash.1990) (distinguishing Turtur and concluding, that, under Washington law, the indemnification agreement was independent) 46 Turtur is not necessarily inconsistent. There the court concluded that appellants had raised a fact issue as to whether the bond insurer was a party to any fraud or illegality affecting the [Notes]. 892 F.2d at 205; see Bruce v. Martin, 1993 WL 148904,  10, 11, 1993 U.S.Dist.LEXIS 5776,  32, 33 (S.D.N.Y. April 28, 1993) (restricting Turtur to a situation where the fraud in the inducement of the subscription agreements ... was the same fraud to which the surety was alleged to be a party) 47 We also reject appellants' attempt to nullify the indemnity agreement based on the failure of cause. Cause is the reason why a party obligates himself. La.Civ.Code.Ann. art. 1967. According to appellants, [i]f the partnership agreement is extinguished by fraud, the cause for the indemnity contract no longer exists. This, of course, cannot be; otherwise, the validity of all such indemnity agreements would unconditionally hinge on the validity of the separate subscription agreement 48 The bonds provide: Surety waives for the benefit of the Permitted Assignee only all defenses of any kind either Surety or any Principal might have with respect to any or all Note(s) or the obligation to pay any or all Note(s) up to the Sub-Limit of Liability applicable on each Note or the Limit of Liability as defined herein . (Emphasis in original.) 49 It states: Because each investor's obligation to the Surety under the Indemnification and Security Agreement is unconditional, the result may be that the investor will be obligated to make payments to the Partnership or a financial institution even though it may have a claim against the lender of the Term Debt or the Partnership. The essence of the Financial Guarantee Bond is that each investor's obligation to make payments on the Installment Notes are absolute and may not be avoided or postponed for any reason. 50 In addition, we refuse to consider those issues that were not raised in district court (the abuse of rights doctrine), or properly briefed on appeal (La.Civ.Code Ann. art. 1759 and 1772). See Jernigan v. Collins, 980 F.2d 292, 297 n. 1 (5th Cir.1992) (issues waived if presented for the first time on appeal), cert. denied, --- U.S. ----, 113 S.Ct. 2977, 125 L.Ed.2d 675 (1993); United Paperworkers Int'l Union v. Champion Int'l Corp., 908 F.2d 1252, 1255 (5th Cir.1990) (same regarding issues raised for the first time in a reply brief) 51 Pursuant to La.Civ.Code Ann. art. 3052, a surety who has paid the debt of a principal/debtor has a right of indemnification from the debtor, subject to certain restrictions 52 See also Liem, 569 So.2d at 608 (reiterating that the indemnity contract forms the law between the parties, and noting that [t]he purpose of an indemnity agreement is to allocate the risk inherent in the activity between the parties to the contract) 53 Under Sec. 29(b), an innocent party may avoid a contract if (1) the contract was made or performed in violation of the securities laws; (2) the plaintiff is in contractual privity with the defendant; and (3) the plaintiff is in the class of persons the statute was designed to protect. Regional Properties, Inc. v. Financial & Real Estate Consulting Co., 678 F.2d 552, 559 (5th Cir.1982) 54 As stated supra, they maintain that the fraudulently induced subscription agreements rendered the indemnity agreements unenforceable 55 Rule 10b-9 states in pertinent part: It shall constitute a manipulative or deception device or contrivance, as used in section 10(b) of the Act, for any person, directly or indirectly, in connection with the offer or sale of any security, to make any representation: . . . . . (2) to the effect that the security is being offered or sold on any other basis whereby all or part of the consideration paid for any such security will be refunded to the purchaser if all or some of the securities are not sold, unless the security is part of an offering or distribution being made on the condition that all or a specified part of the consideration paid for such security will be promptly refunded to the purchaser unless (i) a specified number of units of the security are sold at a specified price within a specified time, and (ii) the total amount due to the seller is received by him by a specified date. 17 C.F.R. Sec. 240.10b-9 (1992) (emphasis in original). Once the part or none representation has been made, it may not be circumvented by transactions primarily designed to create the appearance of a successful offering in order to avoid the refund feature of the offering. C.E. Carlson, Inc. v. S.E.C., 859 F.2d 1429, 1434 (10th Cir.1988) 56 As appellants point out, Rule 10b-9 is often coterminous with Rule 10b-5; see Carlson, 859 F.2d at 1434 (stating Rule 10b-5 proscribes conduct violative of Rule 10b-9); however, the reverse is less often true. Here, for example, appellants' Rule 10b-5 theory was not based on misrepresentations surrounding the alleged part-or-none offering. Accordingly, among the issues discussed at length by appellants for the first time were (1) whether Courtside was a part-or-none offering; (2) whether investor funds were used by Equity without first meeting the minimum offering amount; and (3) whether the minimum offering amount was reached through non-bona fide purchases Appellants' assertion that these arguments were raised previously is not supported by the record. Evidence of the formation of the E-C partnerships was used primarily to establish Home and Graham's involvement with Equity, not to establish that formation of those partnerships contravened the terms of the offering in violation of Sec. 10 and Rule 10b-5. 57 After the district court's refusal to reopen the case, Turnbull filed a motion requesting that her supplemental memorandum (with attached deposition excerpts and exhibits) be included in the record for appeal purposes, which the court denied, stating: Mrs. Turnbull's request and her reasons for that request are in the record. That, the court permitted. Turnbull then filed a second motion to supplement the record with approximately 150 pages of deposition excerpts relating to her Rule 10b-9 theory. The court, referring to Topalian v. Ehrman, 954 F.2d 1125 (5th Cir.1992), again denied her attempt to include materials in the appellate record that were not before the district court, stating: I think they don't belong here. I didn't consider them. There was a new issue that your client is attempting to inject in this record at this late date and I'm just going to not rule in your favor Even if the court abused its discretion in refusing to allow Turnbull to supplement the record for appeal, any error is harmless, because our review is limited to the record before the district court when it ruled. See Topalian, 954 F.2d at 1131-32 n. 10 (This court's inquiry is limited to the summary judgment record before the trial court: the parties cannot add exhibits, depositions, or affidavits to support their positions on appeal.). For the same reason, we refuse to consider that evidence as it appears in Turnbull's record excerpts. 58 In fact, this circuit has not yet determined whether Rule 10b-9 provides a private cause of action, and, if so, whether that encompasses a claim based on allegations of aiding and abetting. See Bormann v. Applied Vision Systems, Inc., 800 F.Supp. 800, 806 (D.Minn.1992) (concluding private action exists under Rule 10b-9); accord Beaumont v. American Can Co., 797 F.2d 79, 84 (2d Cir.1986) (questioning existence of private remedy for violations of Rules 10b-6 and 10b-13) 59 Of course, in keeping with the district court's considerable discretion in deciding whether to reopen a case, we do not read these cases to imply that it lacks discretion to consider a new legal theory on a post-judgment motion. See United States for use of American Bank v. C.I.T. Const., Inc., 944 F.2d 253, 259 n. 8 (5th Cir.1991) (district court possesses the discretion to consider a claim raised for the first time in a posttrial motion) 60 It follows that the court did not abuse its discretion by refusing to review the merits of the supplemental memorandum. Once the court considered the above factors, it was under no obligation to do so