Opinion ID: 3011512
Heading Depth: 2
Heading Rank: 5

Heading: violations of pennsylvania laws

Text: Section 1-508 of the Pennsylvania Securities Act bars the basing of certain suits on contracts that violate state securities laws. See Pa. Stat. Ann. tit. 70,S 1-508 (1994). Section 1-401 of the Pennsylvania Securities Act prohibits the use of any device, scheme or artifice to defraud and the omission of any material fact necessary in order to make statements made, in light of the circumstances under which they were made, not misleading. Id. S 1-401(a), (b). Finally, Pennsylvania common law permits [t]he recipient of a misrepresentation [to] avoid the contract by showing that the misrepresentation was either fraudulent or material. Germantown Mfg. Co. v. Rawlinson , 491 A.2d 138, 141 (Pa. Super. Ct. 1985). As GFL asserts, these provisions are functionally identical to Section 29(b) and 34 Section 10(b) of the Exchange Act. See Rosen v. Communication Serv. Group, Inc., 155 F. Supp. 2d 310, 321 n.14 (E.D. Pa. 2001) (Section 401 of the Pennsylvania Securities Act is modeled after Rule 10b-5 of the federal securities laws, and requires virtually the same elements of proof.). Therefore, Colkitt's state securities and common law fraud claims fail for the same reasons his federal securities claims fail.
Colkitt argues that GFL is barred under Pennsylvania law from enforcing the notes because GFL committed a material breach of the contracts by refusing to accept Colkitt's prepayment, even though the notes contain no language prohibiting prepayment. Colkitt claims that he notified GFL in late December 1996 and early January 1997 that he would prepay all outstanding principal and interest on the notes, but GFL improperly rejected Colkitt's request for prepayment in hopes of declaring the notes in default and collecting millions of dollars in penalties. GFL responds that it did not outright reject Colkitt's request for prepayment, but conditionally accepted the prepayment offer while reserving its rights to dispute the balance due. GFL not only disagreed with Colkitt about the amounts due, but refused to allow Colkitt to dictate the terms of any prepayment. Because of its conditional acceptance of Colkitt's offer, GFL maintains that whether or not the notes permitted prepayment is not at issue. 14 GFL also argues that Colkitt's failure to tender any prepayments -- or any payments, for that matter -- undermines his position that he was attempting to make a full prepayment of outstanding principal and interest. _________________________________________________________________ 14. The district court, responding to Colkitt's assertion that the notes do not permit GFL either to reject or accept conditionally an offer of prepayment, stated that nothing in the agreements requires GFL to accept prepayment in an amount unilaterally imposed by Colkitt. GFL Advantage Fund, Ltd. v. Colkitt, No. 4:CV-97-0526, Memorandum and Order at 24 (M.D. Pa. Apr. 25, 2000). Thus, the court concluded that GFL's acceptance while reserving its rights to the disputed amount does not constitute a breach of contract. Id. 35 More importantly, however, Colkitt admitted that he was in material breach of his obligations on the notes before his first prepayment offer. In particular, he was in default on his interest obligations, he failed to maintain a pledge of securities in escrow, and he neglected to file required disclosure documents with the SEC. See Colkitt Dep. at 272-73, 261-62, 195-97 (App. 000581-000582, 000577000578, 000552-000554). In light of these prior breaches, the district court did not err in granting summary judgment in favor of GFL on its breach of contract claim.