Court Opinion

ID: 4698046
Source: CourtListenerOpinion
Date Created: 2021-06-23 20:00:35.589335+00
Date Added: 2024-06-11T09:02:22.601445
License: Public Domain

NOT FOR PUBLICATION                           FILED
                    UNITED STATES COURT OF APPEALS                        JUN 23 2021
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                           FOR THE NINTH CIRCUIT

ENSOURCE INVESTMENTS LLC, a                     No.    20-55322
Delaware limited liability company,
                                                D.C. No. 3:17-cv-00079-H-LL
                Plaintiff-Appellee,

 v.                                             MEMORANDUM*

MARK A. WILLIS, an individual,

                Defendant-Appellant,

and

THOMAS P. TATHAM, an individual; et
al.,

                Defendants.

                   Appeal from the United States District Court
                     for the Southern District of California
                    Marilyn L. Huff, District Judge, Presiding

                        Argued and Submitted June 9, 2021
                                Portland, Oregon

Before:      WARDLAW, TALLMAN, and HURWITZ, Circuit Judges.

      Mark Willis appeals a district court judgment, entered after a five-day jury

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
trial, in this action brought by EnSource Investments LLC (“EnSource”) under

Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and

Securities and Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-5. The suit

stemmed from EnSource’s investment in Hopewell-Pilot Project, LLC

(“Hopewell”), a company started by Willis and his brother-in-law, Tom Tatham.

EnSource alleged that while Willis was soliciting EnSource’s investment in

Hopewell, he misrepresented the state of development and functionality of new

land-title-searching software that Hopewell would purportedly employ. The jury

ultimately found for EnSource and awarded $205,000 in damages. We have

jurisdiction under 28 U.S.C. § 1291, and we affirm.

      1. Willis argues that the district court erred by instructing the jury on control

person liability under Section 20(a), 15 U.S.C. § 78t(a). We agree that the district

court should not have instructed the jury on this theory of liability over Willis’s

objection because neither the operative complaint nor the pretrial order included a

claim under Section 20(a). However, this error was harmless in light of the trial

record as a whole.

      The record makes plain that Willis was the “maker” of misstatements to

investors. See Janus Capital Grp. v. First Derivative Traders, 564 U.S. 135, 142

(2011) (“For purposes of Rule 10b–5, the maker of a statement is the person or

entity with ultimate authority over the statement, including its content and whether

                                          2
and how to communicate it.”). Indeed, the jury rendered a special verdict finding

that Willis “ma[d]e an untrue statement of a material fact or omit[ted] a material

fact necessary under the circumstances to keep the statements that were made from

being misleading in connection with the sale of securities.”

      2. Willis timely moved for judgment as a matter of law at the close of

EnSource’s case-in-chief under Federal Rule of Civil Procedure 50(a), and again in

a post-verdict motion under Rule 50(b), which the district court denied. Reviewing

de novo and viewing the evidence at trial in the light most favorable to EnSource,

First Nat’l Mortg. Co. v. Fed. Realty Inv. Tr., 631 F.3d 1058, 1067 (9th Cir. 2011),

we conclude that sufficient evidence supports each of the special verdict findings.1

The jury heard evidence that Willis misrepresented (or directly ordered the

misrepresentation of) the state of the software under development, that EnSource’s

belief that the software was functional was material to its decision to invest, and

that the software had no value several months later when Willis placed Hopewell

into bankruptcy after EnSource withdrew further support. The record also

permitted the jury to find loss causation, i.e., that misrepresentations about the

1
 The parties dispute whether Willis preserved a sufficiency challenge to all of the
elements of the Rule 10b-5 claim or whether he is only entitled to de novo review
of the sufficiency of the evidence of loss causation. We need not decide this
question because our review of the entire trial record while determining the
harmlessness of the Section 20(a) jury instruction assures us that the evidence is
sufficient to establish each element of the Rule 10b-5 claim.

                                           3
software were “directly related to the actual economic loss” EnSource suffered and

were a “substantial factor” in that loss. Nuveen Mun. High Income Opportunity

Fund v. City of Alameda, 730 F.3d 1111, 1119–20 (9th Cir. 2013) (cleaned up).

      3. Willis argues for the first time on appeal that the district court erred in

failing to instruct the jury to answer additional special interrogatories under a

provision of the Private Securities Litigation Reform Act (“PSLRA”), 15 U.S.C.

§ 78u-4(f)(3)(A), to determine whether Tatham, who settled before trial, also had

violated the securities laws and, if so, the percentage of his responsibility for

EnSource’s loss. In civil cases, we exercise our discretion to correct unpreserved

claims of error only where “review is needed to prevent a miscarriage of justice,

meaning that the error seriously impaired the fairness, integrity, or public

reputation of judicial proceedings.” C.B. v. City of Sonora, 769 F.3d 1005, 1019

(9th Cir. 2014) (en banc) (cleaned up).

      We decline to do so here. The jury awarded only $205,000 in damages

when asked to “determine the economic loss, if any, incurred by Plaintiff EnSource

Investments LLC as a result of the violation of Rule 10b-5 of the Securities and

Exchange Act” for which it had just found Willis liable. This amounted to less

than half of the amount EnSource lost by investing in Hopewell and does not

constitute a miscarriage of justice that warrants correction on plain error review.

      4. Finally, the district court did not abuse its discretion in denying Willis’s

                                           4
Federal Rule of Civil Procedure 59(e) motion to amend the judgment to grant an

offset in the amount of Tatham’s settlement. Willis argued below that an offset

was necessary to prevent manifest injustice. However, the special verdict form and

the evidence presented at trial focused on Willis’s actions, and the district court

concluded that “the jury’s award was for damages attributable to Defendant

Willis.” The district court’s determination was not “illogical, implausible, or

without support in inferences that may be drawn from the facts in the record” so as

to amount to an abuse of discretion, United States v. Hinkson, 585 F.3d 1247, 1263

(9th Cir. 2009) (en banc), nor do we perceive a manifest injustice in allowing the

judgment to stand.

      AFFIRMED.

                                          5