Court Opinion

ID: 4706092
Source: CourtListenerOpinion
Date Created: 2021-07-23 17:00:24.962457+00
Date Added: 2024-06-11T08:06:34.748763
License: Public Domain

United States Court of Appeals
                      For the First Circuit

No. 20-1810

                 EDGEPOINT CAPITAL HOLDINGS, LLC,

                      Plaintiff, Appellant,

                                v.

                    APOTHECARE PHARMACY, LLC,

                       Defendant, Appellee.

          APPEAL FROM THE UNITED STATES DISTRICT COURT
               FOR THE DISTRICT OF MASSACHUSETTS

         [Hon. Nathaniel M. Gorton, U.S. District Judge]

                              Before

                   Lynch, Lipez, and Thompson,
                         Circuit Judges.

     Michael D. Brier, with whom Kevin T. Peters and Gesmer
Updegrove, LLP were on brief, for appellant.
     Andrew R. Dennington, with whom Julie M. Muller and Conn
Kavanaugh Rosenthal Peisch & Ford, LLP were on brief, for appellee.

                           July 6, 2021
           LYNCH, Circuit Judge.       In this breach of contract action

by EdgePoint Capital Holdings, LLC ("EPCH"), arising out of the

sale of the defendant Apothecare Pharmacy, LLC ("Apothecare"), two

primary issues were raised: one of federal securities law and one

of state contract interpretation law. On cross-motions for summary

judgment    the    district   court    rejected    Apothecare's   federal

securities law defense that the contract sued on was void under

Section 29(b) of the Securities Exchange Act of 1934 ("Exchange

Act").   EdgePoint Cap. Holdings, LLC v. Apothecare Pharmacy, LLC,

478 F. Supp. 3d 75, 81-82 (D. Mass. 2020).           However, it granted

summary judgment in Apothecare's favor on the ground that, as a

matter of Massachusetts contract interpretation law, EPCH was not

entitled to the fee it sought.        Id. at 83.   We affirm the grant of

summary judgment to Apothecare.         Apothecare's federal securities

law defense is valid, and therefore the plaintiff EPCH may not

recover.

                                I. Facts

           EPCH is an investment banking firm based in Beachwood,

Ohio.    Most of EPCH's work is assisting companies in the selling

of their businesses.     EdgePoint Capital Advisors, LLC ("EPCA") is

affiliated with EPCH and together the parties refer to them as

"EdgePoint."      EPCH and EPCA are legally distinct, but they are

owned by the same person and share expenses, office space, and

some employees.     EPCH handles asset sales and is not registered

                                  - 2 -
and has never been registered as a broker-dealer.         EPCA, by

contrast, is a registered broker-dealer and was registered in

Massachusetts at the time of the events in this case.    EdgePoint

benefits from using EPCH rather than its higher-cost registered

arm EPCA to complete transactions that do not require a broker-

dealer.

          EdgePoint's practice when engaging a new client is to

allocate the contract to either EPCH, its non-registered arm, or

EPCA, its registered arm.   It says it does this based on its view

of whether the engagement will involve a securities transaction,

as only registered brokers may broker securities transactions.   15

U.S.C. § 78o(a)(1).   EdgePoint admits it assigns contracts from

EPCH to EPCA well after it has started its efforts on behalf of

its client if it comes to believe the engagement will involve a

securities transaction.     EdgePoint says it often looks to the

Letter of Intent between its client and a prospective buyer to

determine whether an EPCH contract should be reassigned to EPCA,

and its practice allows contracts to be assigned "within . . . a

month of closing."    EdgePoint prefers to handle transactions

through EPCH when possible to avoid the "[Financial Industry

Regulatory Authority ("FINRA")] tax on all FINRA transactions . .

. [and the] record-keeping obligations for FINRA."   Because of the

expense sharing agreement between EPCA and EPCH, EdgePoint also

                               - 3 -
finds it "easier to administ[er] the transactions that are done

[through EPCH]."

           The defendant Apothecare is a long-term care pharmacy

company serving group home patients, hospice patients, and others

who require special pharmaceutical packaging.        Apothecare provides

services to over 5,100 "beds" at more than 1,000 institutions in

New England and had sales of approximately $26 million in 2015.

Rudy Dajie purchased Apothecare in 2012 and served as its Chief

Executive Officer until November 2019.

A. Apothecare's Dealings with EdgePoint

           Sometime before December 2015, Dajie became interested

in selling Apothecare.       Dajie was introduced to EdgePoint in

December 2015.      On December 18,      Daniel Weinmann, a        managing

director at EdgePoint employed by both EPCH and EPCA, delivered a

pitch presentation to Dajie about the services EdgePoint could

provide.   The presentation listed "EdgePoint" as a registered

broker-dealer,     and   Weinmann's   email    signature    included   the

language "EdgePoint, Member of FINRA."

           The next day, on December 19, Weinmann emailed Dajie a

draft engagement letter (the "Sell-Side Agreement") listing EPCA,

EdgePoint's   registered    broker-dealer     arm,   as   the   contracting

party.

           Six months later, on June 15, 2016, Weinmann sent Dajie

a new draft of the Sell-Side Agreement. EdgePoint had unilaterally

                                 - 4 -
revised the agreement to list EPCH, its non-registered arm, rather

than EPCA as the contracting party.1     The file name of the revised

agreement    was   "EPCA-Apothecare   Sell-side   Agreement   6-15-16,"

contrary to the terms of the revised agreement. (Emphasis added.)

The cover message did not explain or identify this change, and

stated only that "[a]ttached is the revised sell-side agreement we

discussed on our call today." The change was also not highlighted,

"redlined," or otherwise emphasized in the draft.      Dajie testified

that no one at EdgePoint told him that there were two separate

entities, explained the distinction between EPCH and EPCA, or

alerted him that the agreement had been modified to list EPCH as

the contracting party.

            The final Sell-Side Agreement was executed on September

6, 2016.    It stated that

            Apothecare Pharmacy, LLC and all related
            affiliates   (collectively    known   as   the
            "Seller") hereby engages and authorizes
            EdgePoint Capital Holdings, LLC ("EdgePoint")
            to assist the Seller in the sale of all or
            part of the Company or its assets (including
            real estate assets held in a related holding
            company) or assisting in the formation of a
            joint venture. Seller agrees to advise
            EdgePoint of any buyers, agents (i.e. Brokers,
            etc.), or other Transactional Partners that
            the Seller wishes to consider in addition to
            those identified by EdgePoint and agrees to

     1    At his deposition Weinmann said he made the change
because he "thought that [any transaction] was most likely going
to be an asset sale," but that "if we later determined that we did
find a buyer that was willing to do a stock transaction, we could
always assign it to [EPCA]."

                                 - 5 -
              allow EdgePoint to pursue discussions with
              them.
              . . .
              Seller agrees to engage EdgePoint as its sole
              representative in the sale of Seller, and
              further agrees to direct all Inquiries as to
              the sale of such company(ies) to EdgePoint.
              (Emphasis added.)

              The Sell-Side Agreement required Apothecare to make an

initial payment of $35,000: $15,000 as a "commitment fee" and

$20,000 as an "additional" payment thirty days later.                 It also

specified that if a sale was made, Apothecare would be required to

pay EPCH a "Success Fee" equal to the greater of $350,000 or 1.75%

of the transaction value up to $40 million plus 7.0% of the

transaction value in excess of $40 million.

              This breach of contract suit is based on the "tail

provision" of the contract, which stated that if the agreement was

terminated by either party, "[Apothecare] . . . shall be obligated

to pay [EPCH] a fee as previously outlined [if] . . . within 18

months   of    the   date   of   the   termination   of   this   contract"   it

completed "any Transaction with a company or individual identified

or contacted by [Apothecare] or EdgePoint during the term of this

agreement (a 'Transactional Partner')."2

              On October 26, 2016, Matthew Lazowski, an EdgePoint

employee, sent Dajie a draft sixty-page Confidential Information

     2    The Sell-Side Agreement also included an indemnification
provision which is the basis for EPCH's attorneys' fees claim.

                                       - 6 -
Memorandum ("CIM").          The following day, Lazowski sent Dajie a

"Potential Buyers List" of approximately four hundred companies.

Clearview    Capital,    LLC     ("Clearview")     and   Starboard    Capital

Partners, LLC ("Starboard") were on the list.

            The CIM is a marketing document designed to inform

potential buyers about Apothecare's business.               The CIM draft

explained EdgePoint's role in selling Apothecare.              It stated that

EPCA, not EPCH, had prepared the CIM and was "the Company's

exclusive   advisor     in    th[e]   proposed    transaction."      The   CIM

explained that it was "solely for use by prospective purchasers

considering acquiring the Company" and that Apothecare "reserves

the right to negotiate with one or more prospective purchasers at

any time and to enter into a definitive agreement for sale of the

Company . . . ." (Emphasis added.)            The CIM asked that "[p]arties

interested in pursuing this transaction" specify their preferred

"[d]eal structure (i.e., stock/asset)."            It also stated that the

existing    Apothecare       management   team   "intend[ed]    to   continue

leading the growth of Apothecare to the extent desired by a buyer."

            After reviewing the October 26 draft CIM with Dajie,

Weinmann emailed a revised draft to Dajie on November 2.                   The

November 2 draft also referred to EPCA and did not mention EPCH.

Dajie and Weinmann agreed, due to concerns that Apothecare's

financial records understated its accounts receivable, not to

circulate the November 2 CIM to potential buyers until the CIM was

                                      - 7 -
updated    with       new   financial     statements.     The   problems     with

Apothecare's accounts receivable were not fully resolved before

Apothecare terminated its engagement with EPCH and the CIM was

never shown to any potential investors.

               Lazowski stated at his deposition that at some point

between September 27 and October 27, 2016, he contacted Matthew

Blevins, an employee at Clearview.                Lazowski said that, without

referring to Apothecare directly, he asked Blevins if Clearview

would be "interested in a roughly 6 million dollar [Earnings Before

Interest, Taxes, Depreciation, and Amortization] pharmacy/drug

distribution business located east of the Mississippi."                Between

October 2016 and February 2017, EPCH contacted six additional

companies as "potential investor[s] or purchaser[s]."               It did not

disclose the name of or confidential information about Apothecare

to these companies.            No additional potential buyers were contacted

after February 2017.

               On August 21, 2017, Apothecare sent EPCH a notice of its

intent    to       terminate    the   Sell-Side   Agreement.3   EPCH   did    not

respond.

               3     The letter stated:
               Apothecare recognizes [that] the Agreement
               contemplates certain payments to EdgePoint
               could be required during the 18-month period
               following the termination of this agreement
               . . .    if   such   sale  occurs   with   a
               "Transactional Partner" . . . . As no
               "Transactional Partner" was identified or

                                         - 8 -
B. Apothecare's Eventual Sale Independent of EdgePoint

          On November 30, 2017, Dajie's estate planning attorney

Christopher Graham had lunch with P.J. Smith, a managing director

of Starboard to discuss an investment opportunity unrelated to

Apothecare.   At this lunch, Smith stated that Starboard was

interested in investing in companies in the healthcare and pharmacy

industries.   Graham told Smith about Apothecare.     This was the

first time Starboard had heard of Apothecare.       About one week

later, on December 6, 2017, Smith of Starboard reached out to

Clearview to see if it was interested in jointly investing in

Apothecare.

          On December 22, 2017, Starboard and Apothecare executed

a non-binding Letter of Intent ("LOI") for an eventual acquisition

of Apothecare.    The LOI valued Apothecare at $47 million and

"contemplated that the acquisition shall be primarily consummated

          contacted by Seller or EdgePoint prior to the
          date of this notice of termination, the 18-
          month survival period is, for all intents and
          purposes, moot and without effect.
          . . .
          Mr. Dajie is not interested in selling
          Apothecare as originally contemplated back
          when the Agreement was entered into in
          September of 2016. . . . Unless I am advised
          otherwise, I will assume the contents of this
          letter are accepted and the Agreement shall
          be terminated effective as of September 22,
          2017.

                              - 9 -
as an acquisition of the stock of Apothecare by a newly-formed

entity established by the Buyer ('Newco')."     Dajie would receive

$36 million in cash plus $9 million of "junior participating

preferred stock" in Newco. It also stated that the "Sellers" would

be able to purchase a "pro rata share of the common stock" of

Newco.

          In January 2018, Starboard and Clearview executed a Co-

Sponsorship Agreement for the acquisition of Apothecare.          The

transaction closed on July 17, 2018.

          The transaction was structured such that the existing

owners of Apothecare transferred their equity interests to AGD

Investments Inc., a newly formed holding company, so that AGD

Investments   owned   all   of   Apothecare.   Another   new   entity,

Apothecare Pharmacy Acquisition Corporation, then purchased $36

million of Apothecare's LLC units from AGD Investments. Apothecare

Pharmacy Acquisition Corporation was wholly owned by Apothecare

Pharmacy Holdings, LLC.      Apothecare Pharmacy Holdings, LLC then

bought the remaining units of Apothecare from AGD Investments in

exchange for 9 million of its own units. Clearview acquired 64.48%

of the membership units in Apothecare Pharmacy Holdings, LLC,

Starboard acquired 5.47%, and AGD Investments acquired 30.05%.

AGD Investments received $36 million, minus transaction costs and

other adjustments, in cash and $9 million in LLC units.

                                 - 10 -
                      II. Procedural History

           On September 18, 2018, EPCH filed a complaint in the

Northern District of Ohio alleging that Apothecare had breached

the Sell-Side Agreement by failing to pay the Success Fee.    EPCH

argued that it was entitled to the Success Fee under the tail

provision because Apothecare's equity had been sold to Clearview

and Starboard, both of which had been "identified" or "contacted"

by EPCH.   The complaint also alleged that EPCH was entitled to any

costs and fees incurred in the lawsuit under the contract's

indemnification clause.

           On November 20, 2018, Apothecare filed a motion to

dismiss for lack of jurisdiction and improper venue, or in the

alternative to transfer venue.   EPCH opposed the motion, which was

granted as to the transfer.      EdgePoint Cap. Holdings, LLC v.

Apothecare Pharmacy, LLC, No. 1:18-CV-2155, 2019 WL 1255205, at *6

(N.D. Ohio Mar. 19, 2019).       On March 19, 2019, the case was

transferred to the District of Massachusetts.     On May 2, 2019,

Apothecare filed its answer and asserted various defenses.

           On April 14, 2020, EPCH filed a motion for summary

judgment on all claims and argued that Apothecare's affirmative

defenses failed as a matter of law.     Apothecare filed a cross-

motion for summary judgment arguing (1) that EPCH's failure to

register as a broker-dealer barred enforcement of the Sell-Side

Agreement under Section 29(b) of the Exchange Act, which makes

                               - 11 -
voidable contracts "made" in or whose performance "involves" a

violation of securities law,4 (2) that EPCH was not entitled to a

Success Fee because neither Clearview nor Starboard had been

identified or contacted by EPCH as a "Transactional Partner," and

(3) that the indemnification provision did not require Apothecare

to pay legal fees that EPCH incurred in affirmatively suing

Apothecare for breach of contract.

            On May 4, 2020, Apothecare filed an amended answer adding

an affirmative defense of fraudulent inducement alleging that

Weinmann had misled Apothecare as to whether "EdgePoint" was a

registered broker-dealer and member of FINRA.      On June 15, 2020,

EPCH filed a motion for summary judgment on this affirmative

defense.     Apothecare did not file a cross-motion for summary

judgment on this defense.

            The district court denied EPCH's motions for summary

judgment.    EdgePoint Cap. Holdings, LLC, 478 F. Supp. 3d at 81-

84.   It granted Apothecare's cross-motion for summary judgment as

to each of EPCH's claims based on the following reasoning.        It

      4   Apothecare also argued that the Sell-Side Agreement was
unenforceable under Massachusetts law. The Massachusetts Uniform
Securities Act requires broker-dealers to register before
effecting transactions in securities in Massachusetts. Mass. Gen.
Laws ch. 110A, §§ 201, 401(c).     Under Massachusetts law, "[n]o
person who has made or engaged in the performance of any contract
in violation of any provision of this chapter . . . may base any
suit on the contract." Mass. Gen. Laws ch. 110A, § 410(g). Because
we conclude that the contract is voidable under federal law, we do
not reach this argument.

                                - 12 -
first rejected Apothecare's affirmative defense under Exchange Act

Section 29(b).    It determined that the contract was enforceable

despite the fact that EPCH was not registered as a broker-dealer

because EPCH did not in fact broker a securities transaction for

Apothecare and "EPCH could have fulfilled its obligations without

violating the securities laws by facilitating an asset sale."   Id.

at 81-82.

            The district court next held as a matter of contract

interpretation that EPCH was not entitled to the Success Fee

because neither Clearview nor Starboard was properly considered a

"Transactional Partner" in the context of the agreement.   Id. at

83. It reasoned that "[t]he act of listing Clearview and Starboard

among 300 entities or vaguely describing a look-alike to an

associate in passing does not satisfy the Fee Tail Provision or

entitle EPCH to compensation."   Id.

            The district court also concluded that EPCH, as an

"unsuccessful plaintiff in this lawsuit," was not entitled to

attorneys' fees because "[w]hen an indemnitee seeks to recover

'self-inflicted costs incurred in prosecuting affirmative claims

against an indemnitor' . . . there is a 'strong argument that [the

indemnitor] should not be required to reimburse attorneys' fees.'"

Id. at 84 (second alteration in original) (quoting Caldwell Tanks,

Inc. v. Haley & Ward, Inc., 471 F.3d 210, 217 (1st Cir. 2006)).

                              - 13 -
          The district court did not reach Apothecare's fraudulent

inducement defense.      Id.   EPCH timely appealed.

                               III. Analysis

          We    review   the   grant   of    summary   judgment   de   novo,

construing the record in the light most favorable to the non-

moving party.      Roman Cath. Bishop of Springfield v. City of

Springfield, 724 F.3d 78, 89 (1st Cir. 2013).          "On an appeal from

cross-motions for summary judgment, the standard does not change;

we view each motion separately and draw all reasonable inferences

in favor of the respective non-moving party."          Id.   We may affirm

a district court's decision on any ground supported by the record.

Robinson v. Town of Marshfield, 950 F.3d 21, 24 (1st Cir. 2020).

          EPCH argues on appeal that it is entitled to the Success

Fee because it identified or contacted Clearview and Starboard.

EPCH also argues that if it prevails on appeal, it is entitled to

attorneys' fees and litigation expenses under the indemnification

provision.     Because we agree with Apothecare that the Sell-Side

Agreement is voidable under Section 29(b) of the Exchange Act, the

contract is unenforceable and EPCH cannot recover.

A. Statutory Background: Exchange Act Sections 15(a) and 29(b)

          Section 15(a) of the Exchange Act states that it is

unlawful for unregistered brokers to "effect any transactions in,

or to induce or attempt to induce the purchase or sale of, any

security."     15 U.S.C. § 78o(a)(1).       A "broker" is defined as "any

                                  - 14 -
person   engaged   in   the   business   of   effecting   transactions   in

securities for the account of others."5        15 U.S.C. § 78c(a)(4)(A).

           "The broker-dealer registration requirement serves as

the 'keystone of the entire system of broker-dealer regulation'"

and "[a] broker-dealer that has registered with the [Securities

and Exchange] Commission is bound to abide by numerous regulations

     5    "[A] person may 'effect transactions'" "by assisting an
issuer to structure prospective securities transactions, by
helping an issuer to identify potential purchasers of securities,
or by soliciting securities transactions." SEC v. Morrone, 997
F.3d 52, 61 (1st Cir. 2021) (quoting Strengthening the Commission's
Requirements Regarding Auditor Independence, Exchange Act Release
No. 34-47265, 79 SEC Docket Nos. 1284, 1571, at *18 n.82 (Jan. 28,
2003)); see also SEC v. Mieka Energy Corp., 259 F. Supp. 3d 556,
561 (E.D. Tex. 2017); SEC v. Gagnon, No. 10-cv-11891, 2012 WL
994892, at *11 (E.D. Mich. Mar. 22, 2012); SEC v. Deyon, 977 F.
Supp. 510, 518 (D. Me. 1997).         A broker also "effects" a
transaction when it is involved in the negotiations between a
purchaser and seller of securities. Cornhusker Energy Lexington,
LLC v. Prospect St. Ventures, No. 804CV586, 2006 WL 2620985, at *6
(D. Neb. Sept. 12, 2006) (unpublished); 5 The Law of Securities
Regulation § 14.63 (7th ed. May 2021 update).       The receipt of
transaction-based compensation or holding oneself out as a broker-
dealer further indicates that a party is engaged in the business
of effecting transactions.      Morrone, 997 F.3d at 61 (citing
Strengthening the Commission's Requirements Regarding Auditor
Independence, 79 SEC Docket Nos. 1284, 1571, at *18 n.82); see
also SEC v. Bio Def. Corp., No. 12-11669-DPW, 2019 WL 7578525, at
*17-20 (D. Mass. Sept. 6, 2019); Cornhusker Energy Lexington, LLC,
2006 WL 2620985, at *6.       Transaction-based compensation is a
"hallmark" indication that a party has acted as a broker and must
register because it "represents a potential incentive for abusive
sales practices that registration is intended to regulate and
prevent."   Legacy Res., Inc. v. Liberty Pioneer Energy Source,
Inc., 322 P.3d 683, 688-89 (Utah 2013) (quoting Cornhusker Energy
Lexington, LLC, 2006 WL 2620985, at *6).
          In the transaction at issue, EdgePoint held itself out
as a broker-dealer to Apothecare, agreed to identify and be
involved in negotiations with purchasers, and was to receive
transaction-based compensation.

                                  - 15 -
designed     to     protect    prospective       purchasers      of     securities,

including        standards      of      professional      conduct,          financial

responsibility       requirements,       recordkeeping       requirements,          and

supervisory obligations over broker-dealer employees."                       Roth v.

SEC, 22 F.3d 1108, 1109 (D.C. Cir. 1994); see also, e.g., FINRA

Rule 2010; FINRA Rule 2210(d)(1); FINRA Rule 4513.

            As the Fifth Circuit said in Eastside Church of Christ

v. National Plan, Inc., "[t]he requirement that brokers and dealers

register is of the utmost importance in effecting the purposes of

the [Exchange Act]."          391 F.2d 357, 362 (5th Cir. 1968); see also

Roth, 22 F.3d at 1109; Turbeville v. FINRA, 874 F.3d 1268, 1270

(11th    Cir.     2017)   (explaining     that    the   Exchange      Act   requires

registered brokers to comply with "conduct rules 'designed to

prevent fraudulent and manipulative acts and practices, to promote

just and equitable principles of trade, . . . [and] to protect

investors and the public interest'" (quoting 15 U.S.C. § 78o-

3(b)(6))).       "It is through the registration requirement that some

discipline may be exercised over those who may engage in the

securities       business    and   by   which    necessary    standards       may   be

established with respect to training, experience, and records."

Eastside Church of Christ, 391 F.2d at 362.               Registration ensures

that sellers of securities "understand[] and appreciate[] both the

nature      of     the      securities      [they]      sell[]        and     [their]

responsibilities to the investor[s]."              Roth, 22 F.3d at 1109.

                                        - 16 -
            An entity "attempts" to induce the sale of securities

and therefore must register when it publishes advertisements for

securities or contacts potential buyers to solicit investment.

See, e.g., SEC v. Nutra Pharma Corp., 450 F. Supp. 3d 278, 291

(E.D.N.Y.   2020)    (holding      that   the    SEC    adequately   alleged     a

violation   of    Section   15(a)    where      its    complaint   stated     that

defendant had "induced or attempted to induce the purchase or sale

of   securities     by   calling    investors,        mailing   invitations     to

promotional events, and attending dinners and lunches and making

promotional pitches"); SEC v. Schmidt, No. 71 Civ. 2008, 1971 WL

293, at *1-2 (S.D.N.Y. Aug. 26, 1971); In re First Cap. Funding,

Inc., Exchange Act Release No. 30,819, 50 SEC 1026, 1027-28 (June

17, 1992) (explaining that transmitting a "pre-qualification form"

to   potential    investors   describing        investment      opportunity    and

including "language of solicitation" was an attempt to induce the

purchase or sale of securities).

            Section 29(b) of the Exchange Act states that "[e]very

contract made in violation of any provision of this chapter . . .

and every contract . . . the performance of which involves the

violation of or the continuance of any relationship or practice in

violation of, any provision of this chapter . . . shall be void

. . . as regards the rights of any person who, in violation of any

such provision, rule, or regulation, shall have made or engaged in

the performance of any such contract."                15 U.S.C. § 78cc(b).      As

                                    - 17 -
stated by the Supreme Court in Mills v. Electric Auto-Lite Co.,

Section 29(b) does not immediately void the contract at issue;

instead the contract is "voidable at the option of the innocent

party."    396 U.S. 375, 387-88 (1970).

            A party seeking to void a contract under Section 29(b)

must show (1) that it is in contractual privity with the opposing

party,    (2)   that   it   is   within   the   class   of   people   that   the

securities acts were designed to protect, and (3) that the contract

involved a prohibited act.           See Berckeley Inv. Grp., Ltd. v.

Colkitt, 455 F.3d 195, 205 (3d Cir. 2006); Reg'l Props. Inc. v.

Fin. & Real Est. Consulting Co., 678 F.2d 552, 559 (5th Cir. 1982).

There is no dispute that Apothecare was in privity with EPCH or

that Apothecare is among the class of persons intended to be

protected by the securities acts.          See Eastside Church of Christ,

391 F.2d at 362 (holding that issuer of bonds sold by unregistered

broker was within the class of persons meant to be protected by

Section 15(a)'s registration requirements).

            Section 29(b) is not limited to voiding contracts which

"on their face" violate the Exchange Act.           See Reg'l Props. Inc.,

678 F.2d at 560 ("A statute that voided only contracts by which

persons have agreed in express terms to violate the Act would be

so narrow as to be a waste of the congressional time spent in its

enactment.").     There is also no requirement that the contract's

making or performance "necessarily" required a violation of the

                                    - 18 -
Exchange Act.        See id. at 560-61 ("That these contracts, under

different        circumstances,     could   have     been    performed     without

violating the [Exchange Act] is immaterial."). Instead, a contract

may be voidable under Section 29(b) if its performance in fact

involved a violation of the Exchange Act.                See id.

B. The Sell-Side Agreement is Voidable under Section 29(b)

             We agree with Apothecare that the contract is voidable

and   hold   that     EPCH's   performance     of    the    Sell-Side    Agreement

involved     a    "practice    in   violation       of   [the   Exchange    Act],"

specifically "induc[ing], or attempt[ing] to induce the purchase

or sale of any security" as an unregistered broker.                     15 U.S.C.

§§ 78o(a)(1), 78cc(b).

             EPCH states that after drafting the CIM, it contacted

seven companies, including Clearview, as "potential investor[s] or

purchaser[s]" of Apothecare.            From the text of the Sell-Side

Agreement, the CIM, and deposition testimony from EPCH employees,

it is clear that these contacts were an attempt to induce the

purchase or sale of Apothecare's equity.                 The Sell-Side Agreement

explicitly contemplated the sale of securities, stating that EPCH

would attempt to sell "all or part of the Company" and any

affiliates, which would include any holding company.                 The CIM was

a further elucidation of the proposed sale and confirmed that the

deal included a possible sale of securities.                 The CIM stated that

Apothecare was looking for a prospective buyer "of the Company,"

                                      - 19 -
that buyers could specify if they were interested in a "stock"

transaction,          and     falsely        listed      EPCA    as     Apothecare's

representative, which would wrongly reassure potential buyers that

a registered broker was at that time handling the purchase and

sale.    Weinmann also testified that EPCA maintained its broker-

dealer registration in Massachusetts "because of the Apothecare

engagement," and that EPCH was prepared to assign the contract to

EPCA at any time.

               The fact that Apothecare is an LLC, whose units are not

always classified as securities under the Exchange Act, does not

alter our conclusion that EPCH attempted to induce the sale of

securities.        LLC      units    can    be   classified     as    securities,    so

depending on the deal structure, the sale of Apothecare's LLC units

could have been a securities transaction.                   See 15 U.S.C. § 77b;

Affco Invs. 2001, LLC v. Proskauer Rose, LLP, 625 F.3d 185, 189

(5th Cir. 2010) (holding that ownership interests in an LLC were

securities       under      the     Exchange     Act).      Further,     any   equity

transaction between Apothecare and a purchaser was likely to be a

complex transaction involving the purchase or sale of holding

corporation stock or other securities.                   This is evidenced by the

fact    that    the    Sell-Side       Agreement      explicitly      discussed     the

possibility that Apothecare would be sold alongside "all related

affiliates," and that the CIM asked potential investors to indicate

whether they were interested in a "stock" transaction.

                                           - 20 -
          Nor does the fact that a buyer could have requested that

the sale be completed as an asset sale create a safe harbor for

EPCH.   Requiring registration even when the ultimate form of the

transaction is uncertain not only serves the statutory purposes of

protecting investors but also ensures that brokers comply with

FINRA's codes of conduct, meant to effect the statutory purposes,

from their first contact with potential purchasers of securities.

See, e.g., FINRA Rule 2210(d)(1)(B) (prohibiting brokers from

predicting or projecting performance of a security or making any

"exaggerated, unwarranted, promissory or misleading statement or

claim"); FINRA Rule 2010 (requiring FINRA members to "observe high

standards of commercial honor and just and equitable principles of

trade"); FINRA Rule 4513 (requiring registered brokers to keep

records of any complaints made "in connection with the solicitation

. . . of any transaction").

          That EPCH is able to assign contracts to EPCA does not

change that EPCH was required to register.     When EPCH solicits

purchasers, it at least "attempt[s] to induce" and arguably also

"induce[s]" the sale of securities regardless of any subsequent

assignment to EPCA.   15 U.S.C. § 78(o)(a)(1); See SEC v. Morrone,

997 F.3d 52, 61 (1st Cir. 2021); Cornhusker Energy Lexington, LLC

v. Prospect St. Ventures, No. 804CV586, 2006 WL 2620985, at *6 (D.

Neb. Sept. 12, 2006) (unpublished); SEC v. Mieka Energy Corp., 259

F. Supp. 3d 556, 561 (E.D. Tex. 2017); see also In re Baker & Getty

                              - 21 -
Fin. Servs., Inc., 106 F.3d 1255, 1261 (6th Cir. 1997) (explaining

in bankruptcy context that a broker "effects" transactions when it

acts as an "essential link in the chain of distribution"). Section

15(a)'s   text    and   purpose   make   clear   that   the     registration

requirement applies as soon as a broker attempts to induce a

securities    transaction,    and    EdgePoint's   plan    to    assign    the

Apothecare contract from EPCH to EPCA does not release it from the

requirements of the Exchange Act during the "inducement" phase of

a transaction.

           EPCH makes several counterarguments, none of which is

persuasive.      Its lead argument is that it has a safe harbor as to

whether the contract was "made" in violation of securities law as

long as it was possible that the sale of Apothecare would not

involve a sale of securities. This argument relies on a misreading

of Berckeley Investment Group, Ltd. v. Colkitt, and fails for

several   reasons.6      As   a   threshold   matter,     the   argument   is

     6    The Berckeley decision is factually and legally
distinct.   The case involved a contract for a loan between two
parties and the security for the loan. Berckeley Inv. Grp., Ltd,
455 F.3d at 198.    Plaintiff Berckeley purchased from defendant
Colkitt debentures which could be converted into unregistered
stock. Id. at 199. At issue was whether Section 29(b) would allow
Colkitt to void the loan agreement if a trier of fact determined
that Berckeley, after converting the debentures, had illegally
sold those unregistered securities.    Id. at 206-07.   The court
held that it would not. Id. at 207.
          In Salamon v. Teleplus Enterprises Inc., the District of
New Jersey also rejected the argument that Berckeley held that
Section 29(b) voided only those contracts which "are inherently
unlawful and could not, in any circumstances, be performed in a

                                    - 22 -
immaterial because we conclude the contract's performance involved

a violation of the Exchange Act, not that the contract was "made"

in violation of the Exchange Act.         Further, the mere fact that it

is possible to legally perform a contract does not mean the

contract was not made in violation of securities law.                       See Indus

Partners, LLC v. Intelligroup, Inc., 934 N.E.2d 264, 265 n.1, 271

(Mass.   App.    Ct.   2010)   (holding   that      a    contract     was    made   in

violation of securities law where it required an unregistered

broker to advise on a "possible Transaction" and "'Transaction'

was defined to include, among other things, the 'sale or other

transfer, directly or indirectly of all or any portion of the

assets or securities . . . of Intelligroup'" (emphasis added));

see also Cornhusker Energy Lexington, LLC, 2006 WL 2620985, at *6.

           If EPCH also means to argue that a contract is not

voidable -- despite its performance involving a violation of the

Exchange Act -- unless the contract "necessarily" required a

violation of securities law, that argument also fails.                      Berckeley

does not hold that a contract is only voidable if its performance

necessarily required a violation of the Exchange Act.                  Instead, it

holds that a contract is voidable if the contract "involved a

prohibited      transaction"   and   there    was       "a   direct   relationship

between the violation at issue and the performance of the contract;

legal manner." No. 05-2058, 2008 WL 2277094, at *6-7 (D.N.J. June
2, 2008) (unpublished).

                                     - 23 -
i.e., the violation must be 'inseparable from the performance of

the   contract'    rather   than   'collateral   or   tangential    to   the

contract.'"       Berckeley,   455   F.3d   at   205.7      Berckeley    also

approvingly cited Regional Properties, in which the Fifth Circuit

explained that Section 29(b) voids contracts "that are illegal

when made or in fact performed" and rejected any argument that

only contracts which "by their terms" "necessarily" required the

violation of the Exchange Act were voidable.             Reg'l Props. Inc.,

678 F.2d at 560.      Our holding is consistent with Berckeley and

Regional Properties.        EPCH's attempts      to induce the sale of

securities were inseparable from the contract's central purpose of

selling Apothecare and the Sell-Side Agreement was illegal as in

fact performed.8

      7   The Berckeley court then explained that when a contract
"could [not] be performed without violating the securities laws,"
that was a circumstance in which the violation was "inseparable"
from the contract. 455 F.3d at 206.
      8   EPCH also relies on NTV Management Inc. v. Lightship
Global Ventures, 140 N.E.3d 436 (Mass. 2020), in which the
Massachusetts Supreme Judicial Court held that unregistered broker
NTV Management Inc. did not "make" a contract in violation of
securities law, because the contract did not "require[] NTV to act
as a broker-dealer." Id. at 444. The contract at issue in NTV
provided that "NTV was to 'source capital and structure financing
transactions from agreed-upon target investors and/or lenders,'
and that 'NTV expect[ed] to introduce and facilitate investment
from third party sources collectively able to finance all levels
of the transactions (i.e., both equity and debt).'" Id. at 446.
          NTV presented a different set of facts and a different
legal question. In NTV the parties agreed to limit the analysis
to whether the contract on its face was made in violation of
securities law and no evidence was presented as to whether

                                   - 24 -
            EPCH's suggestion that we read Section 29(b) to void

contracts   only    when   their   performance    necessarily     involves   a

violation of securities law would also defeat the purposes of the

Exchange    Act.      Section      29(b)   does   not   include    the   word

"necessarily" and we are precluded from inserting such language.

See Reg'l Props. Inc, 678 F.2d at 560.

            EPCH next argues that the final transaction between

Apothecare, Clearview, and Starboard was a sale of non-security

LLC units and thus the performance of the Sell-Side Agreement could

not have "involved" a sale of securities. We reject this argument.

Whether EPCH attempted to induce the sale of securities under the

Sell-Side Agreement does not turn on whether the later transaction

-- in which EPCH was not involved -- was ultimately completed as

a securities transaction.

            EPCH also argues that a possible later assignment of the

Sell-Side Agreement to EPCA, as was its practice should it choose

to do so, would not undercut the purposes of the registration

requirement.9      EPCH contends that the close relationship between

performance involved NTV attempting to broker a securities
transaction. Id. at 444 n.17. Again, in this case we conclude
that EPCH's performance of the Sell-Side Agreement involved
impermissible conduct and there is significant evidence that EPCH
attempted to induce the purchase or sale of securities.
     NTV's interpretation of federal securities law is also not
binding on this court. Cf. Elkins v. United States, 364 U.S. 206,
224 (1960).
     9      EdgePoint has not established that it would be able to

                                    - 25 -
EPCH and EPCA meant "there was no danger that a transaction would

be brokered by someone who did not know what he or she was doing."

The language of the statute forecloses this argument. The purposes

of registration also go far beyond ensuring that broker-dealers

are educated.        Registered broker-dealers      have record-keeping,

record-retention, and financial responsibility requirements, must

follow standards of professional conduct, and are subject to self-

regulation.    See Roth, 22 F.3d at 1109; 15 U.S.C. §§ 78(q), 78o.

These requirements protect both the public and the markets.              See

United Hous. Found., Inc. v. Forman, 421 U.S. 837, 849 (1975); 15

U.S.C. §§ 78b; 78o-3(b)(6).           Despite their close relationship,

EPCH and EPCA are legally distinct entities subject to different

regulation at every stage of a transaction.

          We respond to a final argument suggested in EPCH's brief.

The argument is that factually the cases cited earlier in this

opinion do not go so far as to establish that EPCH's actions in

this transaction, which was at the preliminary stages, violated

securities    law.     After   all,    the   argument   would   go,   EPCH's

freely assign this contract for professional services without
Apothecare's approval. See 29 Williston on Contracts § 74:30 (4th
ed. June 2021 update) ("A contractual duty is personal, and
performance of it cannot be delegated where, for example . . .
professional services are contracted for."); id. at § 74:28
("Contractual duties are . . . not delegable if they involve the
personal qualities or skills of the obligor."). Its conclusory
statement that contracts are, in general, freely assignable is
insufficient.

                                 - 26 -
representatives had done nothing more than make some phone calls

to    identify    potential         buyers   in    furtherance      of     effecting   a

transaction that might involve the transfer of securities but did

not    certainly      involve    such    a   transaction.          EPCH's     suggested

argument conveniently ignores that it is the very contract with

EPCH    which    is    the    basis    for   its    claim    for    damages      against

Apothecare.

            Regardless,         we     believe      the     policies       behind     the

securities statutes, the cases articulating those policies, and

the FINRA rules effectuating those policies would lead us to the

same conclusion.         EdgePoint knew it was attempting to induce a

type of transaction expressly contemplated to include a possible

securities transaction and chose to do it using its unregistered

arm.     The     policies      described     above    impose       the    risk   of   the

transaction on EdgePoint, not Apothecare.

            Because we conclude that the Sell-Side Agreement is

voidable, Apothecare is not required to pay either the Success Fee

or EPCH's litigation expenses as outlined in the indemnification

provision.

                                     IV. Conclusion

            The       grant    of     summary     judgment    for        Apothecare    is

affirmed.

                                         - 27 -