Court Opinion

ID: 9947985
Source: CourtListenerOpinion
Date Created: 2024-03-06 01:00:36.888973+00
Date Added: 2024-06-11T14:28:50.836602
License: Public Domain

Case: 23-20176           Document: 79-1         Page: 1      Date Filed: 03/05/2024

          United States Court of Appeals
               for the Fifth Circuit                                  United States Court of Appeals
                                                                               Fifth Circuit

                                  ____________                               FILED
                                                                         March 5, 2024
                                    No. 23-20176                        Lyle W. Cayce
                                  ____________                               Clerk

Louis C. Talarico, III,

                                                                 Plaintiff—Appellant,

                                         versus

C. Bradley Johnson; Jerald J. Stratton; Ultra
Petroleum Corporation; Evan Lederman; Fir Tree
Capital Management LP; Karn Chopra; Centerview
Partners, L.L.C.,

                                           Defendants—Appellees.
                  ______________________________

                  Appeal from the United States District Court
                      for the Southern District of Texas
                           USDC No. 4:21-CV-3689
                  ______________________________

Before Stewart, Duncan, and Engelhardt, Circuit Judges.
Per Curiam:*
      Investor Louis C. Talarico, III, proceeding pro se, sued several
defendants, alleging various securities fraud claims. The district court
dismissed all claims with prejudice. We AFFIRM.

      _____________________
      *
          This opinion is not designated for publication. See 5th Cir. R. 47.5.
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                                   No. 23-20176

                               I. Background
                                    A. Facts
                                        1.
        We first set out the parties and their relationships.
        Plaintiff Talarico is a securities investor in the oil and gas sector with
over twenty years’ experience. He now operates his own brokerage firm.
        Defendant Ultra Petroleum Corporation (“Ultra”) was a gas
exploration and development company operating primarily in Wyoming until
2020 when it was dissolved in bankruptcy. Defendant C. Bradley Johnson
worked at Ultra since September 2008 and served as its Chief Executive
Officer (“CEO”) from March 2018 to October 2020. Defendant Jerald J.
Stratton, Jr. served as Ultra’s Chief Operating Officer (“COO”) from June
2018 to October 2020.
        Defendant Fir Tree Capital Management LP (“Fir Tree”) is a private
investment firm that owned a minority stake in Ultra. Defendant Evan
Lederman, a former partner at Fir Tree, joined Ultra’s board of directors and
served as chairman of the board from February 2018 through at least June
2020.
        Defendant Centerview Partners LLC (“Centerview”) is a global
investment banking and advisory firm, which Ultra hired as its investment
banker and financial advisor in February 2018. Defendant Karn Chopra
works for Centerview as an investment banker and advised Ultra from
February 2018 until its dissolution.
                                        2.
        After emerging from its first bankruptcy in April 2017, Ultra sought to
expand its gas projects from vertical to horizontal drilling. It decided to drill

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three test wells using horizontal drilling in late 2017, aiming for the wells to
produce 30 million cubic feet of natural gas equivalent per day
(“mmcfe/day”).1
       In November 2017, Ultra disclosed the results of the first test well,
reporting a strong initial production rate of 51 mmcfe/day. Despite this
encouraging outcome, Ultra did not provide investors any guidance,
forecasts, or projections for the upcoming year 2018. In January 2018, Ultra
disclosed completion of the second and third test wells. It reported that the
second well performed below expectations (only 17 mmcfe/day), while the
third exceeded expectations (45 mmcfe/day).
       Due to the relative success of the test wells, Ultra announced in
January 2018 that it planned to develop more horizontal wells through 2018.
Despite the initial optimism, these subsequent wells produced below
expectations. In August 2018, Ultra disclosed that it was “scaling back the
horizontal effort,” and in March 2019 announced that it would not drill any
horizontal wells in 2019.
                                         3.
       Talarico monitored Ultra’s renewed engagement in horizontal drilling
and decided to invest in the company. Between March 2, 2018, and April 23,
2018, Talarico purchased Ultra common stock and entered into option
contracts. These investments were “long only” positions, meaning that
Talarico would earn a return only if the market price for Ultra’s stock
increased.

       _____________________
       1
         This unit of measurement uses the Roman numeral m to signify “one thousand,”
such that mm represents “one thousand thousand,” i.e., “one million.”

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        Talarico’s option contracts consisted of call options and put options.
These types of options give one of the parties to the contract discretion to
buy or sell securities at a fixed price in the future. See generally Olagues v.
Icahn, 866 F.3d 70, 72 n.1 (2d Cir. 2017).2 Talarico admits he did not exercise
his call options but rather held them until they expired in January 2020.
Talarico also acknowledges that his put options were exercised against him
several times from December 2018 through January 2020.
                                             4.
        In September 2019, Ultra decided to suspend all drilling operations,
due in large part to natural gas prices “remain[ing] near multi-year lows.” A
few months later, on December 4, 2019, Talarico called Ultra’s financial
advisor, Karn Chopra, “to discuss Ultra’s strategic alternative and liability
management activities.” Talarico alleges “Chopra indicated that Fir Tree
and Centerview both viewed there to be significant equity value in Ultra.” A
few days later, on December 9, 2019, Talarico met with Johnson, Ultra’s
CEO. Talarico contends Johnson made representations to him during that
meeting that Johnson would later contradict in his testimony for Ultra’s 2020
bankruptcy proceedings.

        _____________________
        2
          To illustrate: Talarico’s call option bought “the right to require another
[writer/seller] to sell” him Ultra securities at the price fixed at the time of the contract
“even if the market rises” later. Call Option, Black’s Law Dictionary (11th ed.
2019). Talarico would make money on his call options if, after exercising the option to
purchase, he then sold Ultra securities at a higher price than the pre-determined call option
price.
       By contrast, Talarico’s put option sold to others, in exchange for payment of a
premium, “the right to require” him to buy Ultra securities at the price fixed at the time of
the contract “even if the market declines” later. Put Option, Black’s Law
Dictionary (11th ed. 2019). Talarico would make money on his put options if the price
of Ultra securities rose above the pre-determined put option price, such that the
counterparties would choose not to require Talarico to purchase the securities.

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        In February 2020, as the prospect of bankruptcy neared, Ultra
retained Centerview as its financial and restructuring advisor. In May 2020,
Ultra filed for Chapter 11 bankruptcy. Proceeding pro se, Talarico objected to
Ultra’s bankruptcy reorganization plan, but the bankruptcy court approved
Ultra’s plan over Talarico’s objection. The confirmation of the plan canceled
all common stock in Ultra.
        Talarico appealed the bankruptcy court’s decision to the district
court, claiming the plan was procured by “fraud and deceit.” Talarico v.
Ultra Petrol. Corp., 2020 WL 8361996, at *2 (S.D. Tex. Dec. 29, 2020).
Because the plan had already been substantially consummated and Talarico
had not sought a stay, however, the district court dismissed Talarico’s appeal
as moot. Id. at *3. Talarico appealed the district court’s dismissal, and we
affirmed. In re Ultra Petrol. Corp., 2022 WL 989389, at *5 (5th Cir. Apr. 1,
2022) (unreported).
                                      B. Proceedings
        Displeased with Ultra’s bankruptcy outcome, and continuing to
proceed pro se, Talarico filed this action against Ultra,3 its former employees
(Johnson and Stratton), its minority owner and former board chairman (Fir
Tree and Lederman), and financial advisor (Centerview and Chopra). In his
amended complaint, Talarico brought claims under § 10(b) and § 20(a) of
the Securities Exchange Act of 1934 (“the Exchange Act”), a claim under
Rule 10b-5 implementing § 10(b) of the Exchange Act, and claims for
        _____________________
        3
          Talarico named Ultra as a defendant despite its 2020 dissolution in bankruptcy.
Talarico argues we should force Ultra’s counsel to accept service on behalf of Ultra. But
Talarico cites no authority for this course of action and, accordingly, his argument is
forfeited as inadequately briefed. See Gurung v. Holder, 587 F. App’x 834, 837 (5th Cir.
2014) (noting that “[b]riefs are inadequate if they fail to cite any relevant case law from this
court”). Moreover, because we affirm the dismissal of Talarico’s case, this service of
process argument is moot.

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common law fraud and breach of fiduciary duty. See 15 U.S.C. § 78j(b);
17 C.F.R. § 240.10b-5. While Talarico argued in the bankruptcy litigation
that Ultra had fraudulently undervalued its assets, see In re Ultra Petrol. Corp.,
2022 WL 989389, at *1, he alleged in this action that Ultra, before filing for
bankruptcy, had made misrepresentations that overvalued its assets.
       All Defendants moved to dismiss for failure to state a claim. The
magistrate judge issued a thorough sixty-page opinion, recommending that
Talarico’s amended complaint be dismissed and that he should not be given
leave to amend his complaint. The district court adopted the magistrate
judge’s recommendation over Talarico’s objection and dismissed his
complaint with prejudice. Talarico now appeals.
                        II. Standard of Review
       We review de novo a dismissal under Rule 12(b)(6) of the Federal
Rules of Civil Procedure for failure to state a claim. See Norsworthy v. Hous.
Indep. Sch. Dist., 70 F.4th 332, 336 (5th Cir. 2023).
       We review the denial of a motion for leave to amend a complaint for
abuse of discretion. Stevens v. St. Tammany Par. Gov’t, 17 F.4th 563, 575 (5th
Cir. 2021).
                              III. Discussion
                                       A.
       Talarico argues the district court erred on various grounds in
dismissing his Exchange Act and Rule 10b-5 claims. We address each
argument in turn.
                                       1.
       Talarico contends the district court erred in ruling that the “holder”
doctrine precludes him from suing for supposed fraud occurring after April

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23, 2018. This doctrine restricts securities claims “only to purchasers and
sellers, not to holders, of securities.” Chadbourne & Parke LLP v. Troice, 571
U.S. 377, 382 (2014) (citing Blue Chip Stamps v. Manor Drug Stores, 421 U.S.
723, 737 (1975)); see also Krim v. BancTexas Grp., 989 F.2d 1435, 1443 n.7 (5th
Cir. 1993) (“It is well established that mere retention of securities in reliance
on material misrepresentations or omissions does not form the basis for a
§ 10(b) or Rule 10b–5 claim.”); Birnbaum v. Newport Steel Corp., 193 F.2d
461, 464 (2d Cir. 1952) (classic formulation of holder doctrine affirmed by
Blue Chip Stamps). On appeal, Talarico focuses only on the option contracts
he purchased before April 23, 2018, not his common stock purchases, and
presents two arguments for his standing to sue.
       First, Talarico quotes the definitions of “buy” and “purchase” in the
Exchange Act to support his contention that the holder doctrine should not
apply to his claims premised on events occurring after April 23, 2018. See
15 U.S.C. § 78c(a)(13) (“The terms ‘buy’ and ‘purchase’ each include any
contract to buy, purchase, or otherwise acquire.”). We are unpersuaded. The
definitions simply include any contract to purchase future securities. See SEC
v. Nat’l Sec., Inc., 393 U.S. 453, 466 (1969) (these definitions “only declare
generally that the terms ‘purchase’ and ‘sale’ shall include contracts to
purchase or sell” (citing 15 U.S.C. § 78c(a)(13))). Talarico has thus failed to
establish that the holder doctrine does not apply in this case. Specifically,
after April 23, 2018, Talarico made no more investment decisions beyond
holding his contractual right for common stock options, and therefore, he has
no basis to bring a § 10(b) or Rule 10b-5 claim after April 23, 2018.
Chadbourne & Parke LLP, 571 U.S. at 382; Krim, 989 F.2d at 1443 n.7.
       Second, Talarico quotes dicta in Blue Chip Stamps to try to evade the
holder doctrine. There, the Supreme Court stated that “the holders of puts,
calls, options, and other contractual rights or duties to purchase or sell
securities have been recognized as ‘purchasers’ or ‘sellers’ of securities for

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purposes of Rule 10b-5 . . . because the definitional provisions of the 1934 Act
themselves grant them such a status.” Blue Chip Stamps, 421 U.S. at 751. But
this dicta merely reiterates what the definitional statute says: when an
investor enters into an option contract, he is a purchaser or seller.
15 U.S.C. § 78c(a)(13). The dicta did not adopt Talarico’s position, namely,
that once an investor enters into an option contract, he remains a purchaser
or seller in perpetuity such that the holder doctrine does not apply.
        Accordingly, the district court did not err in ruling the holder doctrine
bars Talarico’s claims for supposed fraud occurring after April 23, 2018.4
                                            2.
        Talarico also argues that the district court erred in ruling that he failed
to plead with particularity facts sufficient to state a claim for fraud before
April 23, 2018. We again disagree.
        As to Stratton, Talarico concedes in his opening brief that “there are
no claims against Defendant Stratton before he was an employee of Ultra in
June 2018.” Accordingly, the district court did not err by dismissing
Talarico’s claims against Stratton.
        As to the other defendants, Talarico does not show any error in the
magistrate judge’s thorough opinion. Talarico cites almost no legal authority
supporting his characterizations of the magistrate judge’s analysis, instead
merely reiterating his version of the facts. Talarico has thus forfeited this

        _____________________
        4
          Because we affirm the dismissal on this ground, we need not address whether
Talarico sufficiently alleged facts to satisfy all elements of his post-April 23, 2018 fraud
claim.

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                                      No. 23-20176

argument.5 See Rollins v. Home Depot USA, Inc., 8 F.4th 393, 397 (5th Cir.
2021) (appellant forfeits argument “by failing to adequately brief the
argument on appeal”); SEC v. Hallam, 42 F.4th 316, 327 (5th Cir. 2022)
(“To be adequate, a brief must ‘address the district court’s analysis and
explain how it erred.’” (quoting Rollins, 8 F.4th at 397 n.1)). Even if we
reached the merits, however, we see no error in the district court’s decision
to dismiss Talarico’s § 10(b) claims against Johnson, Lederman, Fir Tree,
Centerview, and Chopra.6
                                            3.
        Finally, Talarico brought claims under Rule 10b-5 scheme liability and
§ 20(a) of the Exchange Act. The district court dismissed Talarico’s Rule
10b-5 claim because his allegations were too “impermissibly vague and
generalized to state a claim for scheme liability.” Again, Talarico fails on
appeal to engage with the magistrate judge’s thorough analysis, so he forfeits
these arguments. Rollins, 8 F.4th at 397.
        As to Talarico’s § 20(a) claim, the magistrate judge correctly stated
that the failure to state a § 10(b) claim for primary securities fraud also
constitutes a failure to state a § 20(a) claim for control person liability. See
Alaska Elec. Pension Fund v. Flotek Indus., Inc., 915 F.3d 975, 986 (5th Cir.
2019); see also Southland Sec. Corp. v. INSpire Ins. Sols., Inc., 365 F.3d 353, 383
(5th Cir. 2004) (“Control person liability is secondary only and cannot exist

        _____________________
        5
          Even though Talarico proceeds pro se, he must still grapple with the legal issues
and cite authorities in support of his position to avoid forfeiture. See Hannah v. United
States, 523 F.3d 597, 600 n.1 (5th Cir. 2008).
        6
           Because we affirm the dismissals for failing to plead with particularity facts
sufficient to state a claim for supposed fraud before April 23, 2018, we need not address
Defendants’ independent argument to dismiss for an insufficient showing of scienter.

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in the absence of a primary violation.”). Talarico fails to show any error in
this ruling.
       Accordingly, the district court did not err when dismissing Talarico’s
Rule 10b-5 and § 20(a) claims.
                                        B.
       Addressing Talarico’s remaining claims, we see no error in the district
court’s decision to dismiss them. As to Talarico’s common law fraud claim,
Talarico has forfeited any argument about supposed fraud occurring after
April 23, 2018. Rollins, 8 F.4th at 397. As to supposed fraud before that date,
the only legal authority Talarico cites is dicta in Bombardier Aerospace Corp.
v. SPEP Aircraft Holdings, LLC discussing situations when a duty to disclose
may arise. 572 S.W.3d 213, 220 (Tex. 2019). But Talarico argues only in
conclusory fashion that those situations apply here. In addition, Talarico
overlooks that Texas has not expressly adopted the Bombardier approach. See
Mercedes-Benz USA, LLC v. Carduco, Inc., 583 S.W.3d 553, 562 (Tex. 2019)
(noting that the Texas Supreme Court “has never expressly adopted” § 551
of the Second Restatement of Torts, on which Bombadier’s dicta was based).
Talarico responds only that Mercedes-Benz did not decide a motion to dismiss,
so we should not find it persuasive. That argument fails.
       As to his breach of fiduciary duty claims, Talarico seems to argue that
Canadian law, not Texas law, applies. But he fleshes out this argument only
in his reply brief, thus forfeiting it. Rollins, 8 F.4th at 397; Lockett v. EPA, 319
F.3d 678, 684 n.16 (5th Cir. 2003) (“To the extent that appellants attempt to
raise the issue . . . in their reply brief, we view the issue waived.”). In any
event, we see no error in the district court’s decision to dismiss these claims.

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                                             C.
        The district court denied Talarico leave to file a second amended
complaint because “it does not appear that the deficiencies could be
corrected      and     adding     his    new      claim     would      be    futile.”    See
Fed. R. Civ. P. 15(a)(2); Goldstein v. MCI WorldCom, 340 F.3d 238, 254–
55 (5th Cir. 2003). Talarico argues that he should be allowed to amend his
complaint because he has not repeatedly failed to address deficiencies. We
disagree. Even though we construe pro se filings like Talarico’s liberally,
Andrade v. Gonzales, 459 F.3d 538, 543 (5th Cir. 2006), Talarico must still
demonstrate what material facts he would include in a new iteration of his
complaint. Brewster v. Dretke, 587 F.3d 764, 768 (5th Cir. 2009) (per curiam).
He has failed to do so despite being on ample notice of his complaints’
deficiencies through multiple correspondences with Defendants over the
course of this litigation. Accordingly, we see no abuse of discretion in the
district court’s ruling.7 See Jones v. S. Univ., 834 F. App’x 919, 922 (5th Cir.
2020) (per curiam) (affirming dismissal with prejudice of pro se complaint
where plaintiff did not explain “how she could have overcome the fatal
deficiencies”).
                                                                            AFFIRMED.

        _____________________
        7
           This case does not require de novo review of the motion to amend because the
denial of leave to amend was not based solely on futility. See Def. Distributed v. Platkin, 55
F.4th 486, 494 (5th Cir. 2022) (quotation omitted).

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