Legal Document

532 U.S. 588121 S.Ct. 1776149 L.Ed.2d 845 NOTICE: This opinion is subject to formal revision before publication in the preliminary print of United States Reports. Readers are requested notify Reporter Decisions, Supreme Court States, Washington, D. C. 20543, any typographical or other errors, order that corrections may be made goes press.The Wharf (HOLDINGS) LIMITED, et al., PETITIONERSv.UNITED INTERNATIONAL HOLDINGS, INC. al. No. 00-347. SUPREME COURT OF THE UNITED STATES Argued March 21, 2001 Decided May Syllabus Petitioner The (Holdings) Limited orally granted respondent International Holdings, Inc., an option buy 10% stock Wharf's Hong Kong cable system if rendered certain services, but internal documents suggested never intended carry out its promise. fulfilled obligation, refused permit it exercise option. sued Federal District Court, claiming conduct violated, inter alia, 10(b) Securities Exchange Act 1934, which prohibits using "any manipulative deceptive device contrivance" "in connection with purchase sale security." 15 U.S.C. 78j(b). A jury found for United, and Tenth Circuit affirmed. Held: secret intent not honor sold violates 10(b). Pp. 4-9. (a) must assume "security" at issue stock, because conceded this point below. That concession consistent Act's language defining include both . on security" right purchase" stock. 78c(a)(10). P. 5. (b) claim does cover oral contracts rejected. held Blue Chip Stamps v. Manor Drug Stores, 421 723, protect a person who did actually securities, might have done so had seller told truth. But potential buyer; by providing bought sold. And suggest purchases sales fall outside scope. Neither there convincing reason interpret exclude as class. itself says applies contract" security's sale, 78c(a)(13), (14), securities sufficiently common Uniform Commercial Code statutes frauds every State consider them enforceable. 5-7. (c) Also rejected argument reservation falls relate value security consideration paid, hence implicate 10(b)'s full disclosure policy. Even were case covers only misrepresentations likely affect was such misrepresentation. To sell while secretly intending option's misleading, buyer normally presumes good faith. Similarly, misled about value, was, unbeknownst valueless. 7-8. (d) Finally, rejects interpreting allow recovery like one will numerous plaintiffs bring federal claims reality no more than ordinary state breach-of-contract lying basic objectives. United's simply failed promise (the option) from very beginning Moreover, has shown concern proved serious practical matter past prove future. 8-9. 210 F.3d 1207, ON WRIT CERTIORARI TO APPEALS FOR TENTH CIRCUIT Breyer, J., delivered unanimous Court. Opinion Justice Breyer 1 fraud action focuses upon company question us whether 48 Stat. 891, 78j(b); see also 17 CFR 240.10b-5 (2000). We conclude does. 2 * Respondent Colorado-based company, petitioner Limited, firm, Colorado's said October 1992 new system. But, alleged, time claimed amounted [a] security," prohibited 10(b), violated laws well. favor. Appeals upheld verdict. 1207 we certiorari dispute fell within scope 3 relevant facts, viewed light most favorable verdict winner, follows. In 1991, government announced would accept bids award exclusive license operate television Kong. decided prepare bid. chairman, Peter Woo, instructed managing directors, Stephen Ng, find business partner experience. Ng United. sent several employees help application, negotiate contracts, design system, arrange financing. 4 asked paid services invest should obtain license. During August September 1992, work helping Wharf, negotiated details payment. prepared draft letter contemplated giving become co-investor, owning parties sign intent. September, when submitted bid, authorities system's initial sole owner, Lodging App. AY-4, although "consider" allowing investor, id., AY-6. 5 early met representative, continue gave enforceable invest. then following terms: (1) future stock; (2) price exercising capital requirements minus previous (including expenses); (3) could showed fund share required least first 18 months; (4) expire exercised six months date received continued how write embody these terms, they reduced agreement writing. 6 1993, awarded franchise Wharf. raised $66 million designed finance share. July ready Contemporaneous For example, few weeks key meeting, memorandum stating wanted able raise necessary capital. handwritten note Chairman Woo replied, "No, no, don't that." DT-187; AI-1. after meeting board discuss investment wrote another executive, "How do get out?" Id., CY-1. December filed Commission representing negotiating acquisition interest memo stated "[o]ur next move our directors got quite upset over representations Publicly, acknowledge [United's] opportunity" acquire interest. DF-1 (emphasis original). margin 1993 discussing expectation investing wrote, "[B]e careful, deflect this! [H]ow?" DI-1. Other referred need "back ped[al]," DG-1, "stall," DJ-1. 7 These documents, along evidence, convinced through option, violation various laws. compensatory damages $67 and, "circumstances fraud, malice, willful wanton conduct," EM-18, punitive $58.5 state-law claims. As said, jury's award. (CA10 2000). determine II 8 Section makes "unlawful [t]o use employ, ., contrivance contravention rules regulations [SEC] prescribe." 78j. 9 Pursuant provision, SEC promulgated Rule 10b-5. forbids use, device, scheme, artifice defraud"; untrue statement material fact"; omission "a fact make statements misleading"; "act, practice, course business" "operates deceit." 10 succeed 10b-5 suit, private plaintiff show defendant used, security, four kinds devices refers, satisfy here. See, e.g., 78j (requiring "use means instrumentality interstate commerce mails, facility national exchange"); Ernst & Hochfelder, 425 185, 193 (1976) scienter, meaning "intent deceive, manipulate, defraud"); Basic Inc. Levinson, 485 224, 231-232 (1988) misrepresentation material); 243 sustain reliance misrepresentation). 11 deciding circumstances present here, point. F.3d, 1221 ("Wharf contest appeal classification security"). Act, defines ... 78c(a)(10) (1994 ed., Supp. V); 751 (1975) ("holders options, contractual rights duties securities" " 'purchasers' purposes 10b-5"). current effort deny concession, pointing ambiguous reply brief, comes too late unconvincing. See Reply Brief Petitioners 16, n. (citing Appellants Nos. 97-1421, 98-1002 (CA10), pp. 5-6). Consequently, decide (or forbidden Rule) 12 argues Rule's two reasons. First, points grant shares agreement. sale. Stamps, construed "purchase sale" mean "actual purchasers sellers standing damages. U.S., 730-731. notes Court's interpretation flowed part defendants against lawsuits "turn largely version series occurrences credit." supra, 742. pose similar problem proof thus requirement. 13 however, involved different protects buyer, states. nothing Act. Rather, "the abuse problems inherent suits investors neither nor sold, asserted traded absent fraudulent others." O'Hagan, 521 642, 664 (1997). Such "potential rest including plaintiff's mind, "totally unknown unknowable defendant," depriving benefit weighing defendant's version." 746. An actual even oral, create problem, testify events occurred. 14 security. (14). Oral now U. 8-113 (Supp. 2000) ("A contract writing signed record authenticated party whom enforcement sought"); 2C L. A. 77-81 (table enactments Revised Art. (amended 1994)) (noting adoption 8-113, minor variations, all except Rhode Island South Carolina); R. I. Gen. Laws 6A-8-322 (1999) (repealed effective 1, 2001) (making enforceable); 6A-8-113 (2000 Cum. Supp.) (effective (same); S. Ann. 36-8-113 Comment ("[T]he statute unsuited realities business"). Any exception significantly limit coverage, thereby undermining purposes. related narrower encompass unenforceable under law. reach issue. covered then-applicable Colorado frauds, Colo. Rev. 4-8-319 1996), Though disputes correctness holding, ordinarily issue, decline 16 Second, "relat[e] paid"; "not [10(b)'s] policy disclosure." 25, 26 deleted). Cf., Restatement (Second) Torts 530, c ("Since necessarily carries implied assertion intention perform[,] follows without fraudulent"). reasons, value. Since intend supports exemption characterizing "disput[e] ownership securities." 24. expresses claims-actions lie claim, securities. It documentary evidence went well beyond simple failure perform. proven past. Cf. Threadgill Black, 730 F.2d 810, 811-812 (CADC) (per curiam) (suggesting 1984 contracting perform one's obligations 10(b)). Nor persuade Private Litigation Reform 1995, Pub. 104-67, 21D(b)(2), 109 747, codified 78u-4(b)(2) V) (imposing, stricter pleading actions that, among things, require complaint "state particularity facts rise strong inference acted [fraudulent] mind"). judgment Affirmed.

Classification Label: 7