Opinion ID: 197195
Heading Depth: 2
Heading Rank: 1

Heading: The Federal Securities and Common Law Fraud Claims

Text: 44 The federal securities claim alleged violations of § 10(b) of the Securities Exchange Act and Rule 10b-5. Defendants argue that the district court erred in denying their motion for a judgment as a matter of law on the federal securities law and Mississippi common law fraud claims. Specifically, defendants assert that there was no evidence of omission or misrepresentation, of fraudulent intent, of materiality or of reliance. 45 Review of the district court's denial of a motion for judgment as a matter of law is plenary. See Correa, 69 F.3d at 1191. As did the district judge, we review the record in the light most favorable to the non-moving party. Id. We will reverse the denial of such a motion only if reasonable persons could not have reached the conclusion that the jury embraced. Sanchez v. Puerto Rico Oil Co., 37 F.3d 712, 716 (1st Cir.1994). 46 The record shows sufficient evidence to support the jury's verdict. Defendants contend that there was no material omission because Simons testified that he told Larry Ansin, in early 1992, about the initial contact with J.C. Bradford. However, Simons himself never claimed that he had told Ansin about J.C. Bradford's specific recommendations as to the possible timing of an IPO, or that he had told Ansin about the valuation analyses performed by the investment bank. Nor did Simons or Keenum mention the possibility of an IPO to Maraghy at the time of the negotiated sale. Thus, even crediting Simons' uncorroborated testimony, which the jury need not do, the jury could reasonably find that information about the IPO negotiations was omitted. 47 As to evidence of intent, defendants contend that there was no possible motive for fraud, because River Oaks resold the Ansin shares to other insiders at the same price the corporation had paid for them, thereby depriving the corporation of the fruits of its fraud. However, the jury could reasonably infer, from the evidence, that the individual defendants, officers and directors of River Oaks, were working to exclude the Ansins, the only remaining non-management shareholders, from the River Oaks IPO, and were seeking ultimately to benefit themselves and the other Mississippi management shareholders at the Ansins' expense. 48 Defendants also argue that there was no evidence that the undisclosed information was material. The materiality standard under the federal securities laws is a familiar one: Information is material if there is a reasonable likelihood that a reasonable investor would consider it important. Glassman v. Computervision Corp., 90 F.3d 617, 632 (1st Cir.1996); see also Shaw v. Digital Equip. Corp., 82 F.3d 1194, 1219 (1st Cir.1996)(citing Basic, Inc. v. Levinson, 485 U.S. 224, 231-232, 108 S.Ct. 978, 983-84, 99 L.Ed.2d 194 (1988)). This court has repeatedly held that the question of the materiality of omitted information is one peculiarly for the trier of fact. See Lucia v. Prospect St. High Income Portfolio, Inc., 36 F.3d 170, 176 (1st Cir.1994)(citing cases). 49 Defendants contend that the prior discussions with J.C. Bradford were insignificant because no negotiations were ongoing at the time of the Ansin repurchase. However, the evidence showed that less than two weeks after the Ansin repurchase, River Oaks' management was looking at a July or August 1993 IPO, and adjusting its accounting strategies accordingly. This is not a case where the defendants themselves placed no special significance on the omitted information. Cf. Jackvony v. RIHT Fin. Corp., 873 F.2d 411, 415 (1st Cir.1989); Taylor v. First Union Corp., 857 F.2d 240, 244 (4th Cir.1988)(vague agreement as to future merger not material where neither the factual nor the legal predicates for transaction were in place). The jury's conclusion that the earlier negotiations were material is patently reasonable. 50 Finally, defendants contend that there was no evidence of reliance on the omissions. Because of the logical impossibility of proving that plaintiffs relied on information that they did not have, [p]ositive proof of reliance on omissions is not necessary where materiality has been established. Holmes v. Bateson, 583 F.2d 542, 558 (1st Cir.1978). In any case, Harold Ansin testified that he did rely on information obtained from Simons. 51 Thus, defendants' insufficiency arguments with regard to the securities law and fraud claims are unavailing. A reasonable jury could, and did, conclude that defendants intentionally defrauded plaintiffs by failing to disclose material information about the contemplated IPO.