Opinion ID: 187176
Heading Depth: 2
Heading Rank: 1

Heading: The claims of fraud

Text: Media General contends the district court erred in entering judgment for Park on its claims of securities fraud under SEC Rule 10b-5 and common-law fraud under District of Columbia law. Under Rule 10b-5, it is unlawful to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading ... in connection with the purchase or sale of any security. 17 C.F.R. § 240.10b-5; see also 15 U.S.C. § 78j(b). To prevail in an action brought under Rule 10b-5, the plaintiff must demonstrate that (1) the misrepresentation or misleading omission was made with an intent to deceive, manipulate, or defraud, Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976); (2) he reasonably relied upon it, see Kowal v. MCI Commc'ns Corp., 16 F.3d 1271, 1276-77 (D.C.Cir.1994); and (3) he suffered an economic loss as a result, 15 U.S.C. § 78u-4(b)(4). The elements of common law fraud are similar: The plaintiff must show that the defendant, with the intent to induce reliance, knowingly misrepresented or omitted a material fact upon which the plaintiff reasonably relied to his detriment. See, e.g., Schiff v. Am. Ass'n of Retired Persons, 697 A.2d 1193, 1198 (D.C.1997); One-O-One Enters. v. Caruso, 848 F.2d 1283, 1286 (D.C.Cir. 1988). It is beyond cavil that a reasonable jury could find representatives of Park made both misleading omissions and untrue statements. Four representatives of Media General testified that they inquired about the Prusator matter repeatedly, both before and during the meetings leading up to the closing, and that the Park representatives, in response, consistently adverted only to Prusator's $139,000 claim, never mentioning his $6 million claim. Those were misleading omissions. See Brody v. Transitional Hosps. Corp., 280 F.3d 997, 1006 (9th Cir.2002) (omission misleading if it affirmatively create[s] an impression of a state of affairs that differs... from the one that actually exists). Further, Dickinson testified that a Media General representative asked specific questions during the closing meeting and was assured the lawsuit was for no more than $139,000, which was an affirmative misrepresentation. The district court, however, held Media General's reliance upon these alleged omissions and misrepresentations was unreasonable because it did not ask to see Park's letters to its auditor, which described the threatened litigation fully. We do not agree. First, several representatives of Media General testified that they asked Burr and Thomas about the Prusator litigation, and were told only about the $139,000 and not about the $6 million claim. If so, then Media General was not obliged to ask for Park's letters to its auditor in order to determine whether the Park people were lying. See Astor Chauffeured Limousine Co. v. Runnfeldt Inv. Corp., 910 F.2d 1540, 1546 (7th Cir.1990) (Securities laws are designed ... to compel the person who knows firm-specific information to reveal it.... To say that a deceived buyer may not recover unless it has tried to verify the seller's statements would prevent the achievement of this objective). Second, Park was contractually obliged to disclose any material litigation threatened prior to the closing  and this court has already concluded a reasonable jury could find the Prusator matter was material. 387 F.3d at 871-72. Absent any evidence to the contrary (of which more in the next paragraph) it was reasonable for Media General to assume Park was not breaching an express term of their contract. Third, Park acted affirmatively to conceal the expanded Prusator claims from Media General. When Prusator informed Media General he would sue for $139,000, Park threatened to sue Prusator if he sent any more correspondence to Media General. Media General could reasonably rely upon Park not only to honor its contractual duty to disclose any threatened lawsuit but, even more certainly, not to hinder Media General from learning about a lawsuit. Banca Cremi, S.A. v. Alex. Brown & Sons, Inc., 132 F.3d 1017, 1028 (4th Cir. 1997) (noting that reliance may be reasonable when the defendant conceal[ed] ... the fraud). The district court also concluded [t]here is no showing that defendants knew Media General was unaware of the expanded claims, 505 F.Supp.2d at 64, but the record is to the contrary. When the defendants were made aware Prusator had alerted Media General to his claim for $139,000, they threatened to sue him if he sent Media General any further correspondence; Park obviously tried to ensure that Media General remained unaware of any further developments in the Prusator litigation. Park got some confirmation at the negotiations prior to the closing that its plan had worked; Media General demanded a reduction in price to offset only the $139,000 claim. Park's representatives could readily infer that Media General was unaware of any greater claim. Their actual state of mind is a question for the jury. In sum, a reasonable jury could find Park made misleading omissions and misrepresentations upon which Media General reasonably relied and which, as we have previously explained, prevented Media General from seeking substantially greater concessions at the closing negotiations. 387 F.3d at 872. Media General is, therefore, entitled to a trial on both its 10b-5 and its common law claims.