Court Opinion

ID: 160592
Source: CourtListenerOpinion
Date Created: 2010-08-14 06:47:46+00
Date Added: 2024-06-11T17:24:35.301408
License: Public Domain

F I L E D
                                                                      United States Court of Appeals
                                                                              Tenth Circuit
                        UNITED STATES COURT OF APPEALS
                                                                              JAN 5 2001
                                 TENTH CIRCUIT
                            __________________________                   PATRICK FISHER
                                                                                  Clerk

 MED SAFE NORTHWEST, INC., a Washington
 corporation; EDWARD G. MIFSUD; JANINE
 MIFSUD; PAUL MAHONEY; CHARLES
 LANGLAIS; MADDISON WON; RICHARD
 DON; CHRIS STARK; DONALD VAN HOOK;                            No. 98-1375
 KIM VAN HOOK; MED SAFE ATLANTIC,                                (D. Colo.)
 INC., a North Carolina corporation; RICHARD               (D.Ct. No. 93-D-2343)
 DRISCOLL,

          Plaintiffs,

 JOHN KOCKOS, KENT KOCKOS, SCOTT
 KOCKOS,

          Plaintiffs-Appellants,
 v.

 MEDVIAL, INC., f/k/a Med Safe, Inc., a
 Colorado, corporation; CWC R&D, INC., a/k/a
 CWC Research & Development, Inc., a
 Colorado corporation; CHILD SAFETY
 SCIENCES, INC., a Delaware corporation,

          Defendants,

 JOHN PINNEY; GRAYDON, HEAD &
 RITCHEY, an Ohio partnership,

          Defendants-Appellees.
                        ____________________________

                             ORDER AND JUDGMENT *

      *
          This order and judgment is not binding precedent except under the doctrines of
law of the case, res judicata and collateral estoppel. The court generally disfavors the
citation of orders and judgments; nevertheless, an order and judgment may be cited under
Before BRORBY, McWILLIAMS, and KELLY, Circuit Judges.

         Plaintiffs John, Kent, and Scott Kockos appeal from two summary

judgment orders entered by the district court in favor of defendants John Pinney

and Graydon, Head & Ritchey,         1
                                         which together resolved a twelve-count

complaint alleging federal securities law violations; liability under the common

law principles of aiding and abetting, fraud, and intentional or negligent

misrepresentation; and violations of the Racketeer Influenced and Corrupt

Organizations Act, 18       U.S.C. § 1961, et seq. The district court held plaintiffs

failed to produce sufficient evidence of at least one element of each cause of

action, and defendants were entitled to judgment as a matter of law.           2

the terms and conditions of 10th Cir. R. 36.3.

         1
             John Pinney is a partner in the law firm of Graydon, Head & Ritchey. (Ape. Br.
at 4.)

         2
          The district court also dismissed some of plaintiffs’ liability theories for failure
to state a claim. Plaintiffs have not appealed this aspect of the district court’s ruling.

                                                -2-
I. Background

       In 1993, fifteen plaintiffs brought this lawsuit against sixteen defendants           3

alleging fraud involving their investments in securities of Medvial, Inc.

(“Medvial”).   4
                   Medvial was created to commercialize a child-safe medicinal vial,

practicing an invention patented as U.S. Patent No. 4,739,890          5
                                                                           (“890 Patent”).

Among the defendants no longer in this case were both CWC R&D, Inc.

(“CWC”), which owned the 890 Patent, and Carl Cooke (“Cooke”), who invented

the 890 Patent and organized CWC.

       In January 1990, prior to plaintiffs’ investments in Medvial, CWC and

Cooke retained defendants to defend them in a dispute involving the 890 Patent.

The parties refer to this dispute as the “IPM arbitration.” CWC entered into a

security agreement and conditional assignment of the 890 Patent (“security

       3
          Only John, Kent, and Scott Kockos remain as plaintiffs after the others settled
and dismissed their claims following the district court’s first summary judgment order.
Only Pinney and Graydon, Head & Ritchey remain as defendants after the others either
settled, filed for bankruptcy, or allowed the entry of a default judgment against them.

       4
          Prior to 1992, Medvial, Inc. was known as Med Safe, Inc. For the sake of
clarity, and consistent with the parties’ briefs, all references in this order and judgment to
Medvial include the time the corporation was called Med Safe, Inc.

       5
         Although plaintiffs’ operative complaint lists the patent as No. 4,736,890, it is
clear from the record the correct designation is No. 4,739,890.

                                              -3-
agreement”) with Graydon, Head & Ritchey in order to ensure payment of

defendants’ legal bills arising from the IPM arbitration. According to the

operative complaint, CWC then granted to Medvial an exclusive worldwide

license to manufacture and sell 890 Patent products, subject to the results of the

IPM arbitration. John, Kent, and Scott Kockos later purchased Medvial

securities, after which CWC remained the majority owner of Medvial.

Subsequently, defendants sought and received from John Kockos and David

Kimmel 6 a “Payment Guarantee” for CWC’s legal bills arising from the IPM

arbitration.   7

       Plaintiffs’ operative complaint alleged defendants perpetrated securities

frauds in joint venture and conspiracy with the dismissed defendants, which

amounted to a Racketeer Influenced and Corrupt Organizations scheme. Plaintiffs

focus on two sets of events: (1) their initial investments in Medvial, and (2)

offers made to them to repurchase their shares in Medvial.       8
                                                                     They claim the

       6
           Apparently, David Kimmel was the first investor in Medvial.

       7
        According to the operative complaint, David Kimmel and John Kockos were
both minority shareholders and directors of Medvial when they provided the Payment
Guarantee to defendants.

       8
          It is undisputed defendants communicated the repurchase offers to plaintiffs via
letters. Plaintiffs state the issue is whether defendants presented the offers on their own

                                            -4-
existence of the security agreement made defendants primary participants in the

alleged securities fraud, and the Payment Guarantee created in defendants a duty

to disclose the existence of the security agreement to plaintiffs.

       Plaintiffs’ appellate brief is very unclear, because they commingle

arguments and offer few subject headings to bring any semblance of order to the

brief. Having done our best to decipher plaintiffs’ argument, we conclude they

make nine distinct claims. The first two address the security agreement for the

890 Patent without reference to a particular legal theory: (1) defendants’ alleged

failure to disclose the existence of the security agreement in and of itself created

a genuine issue of material fact for trial; and (2) the security agreement somehow

transformed defendants into owners of the 890 Patent.      9
                                                               In their next six

behalf, as plaintiffs claim, or on behalf of CWC, as defendants claim. We note all but one
of the letters expressing the repurchase offer unambiguously identify CWC as the offeror,
while the exception appears to be an incomplete copy which nonetheless can be fairly
interpreted to state the same thing. We need not discuss this alleged dispute further,
because it is immaterial under the causes of action on appeal dealing with the repurchase
offer letters. See infra Part III.D, G.

       9
         With regard to these two arguments, plaintiffs assert “the exact legal theory does
not control the erroneous [summary judgment] ruling of the District Court.” This is not
the law. As discussed below, an appellate court cannot reverse a summary judgment
ruling based on alleged factual disputes without reference to the elements of a particular
cause of action. See Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670-71 (10th Cir.
1998) (describing summary judgment standard). Only genuine issues of material fact
preclude a district court from granting a party summary judgment. See Fed. R. Civ. P.
56(c).

                                            -5-
arguments, plaintiffs claim they presented sufficient evidence to create a genuine

issue of material fact as to whether: (3) defendants had a duty to disclose the

security agreement under the common law of fraudulent concealment; (4)

defendant Graydon, Head & Ritchey was a statutory seller under §§ 12(1) and

12(2) of the Securities Act of 1933, 15 U.S.C. § 77l(a),   10
                                                                when plaintiffs

purchased the Medvial securities, and defendants violated § 12(2) with the

repurchase offers; (5) defendants had a duty to disclose the security agreement

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

or Rule 10b-5, 17 C.F.R. § 240.10b-5; (6) defendants were control persons under

§ 15 of the Securities Act of 1933, 15 U.S.C. § 77o, or § 20(a) of the Securities

Exchange Act of 1934, 15 U.S.C. § 78t(a); (7) defendants violated the Williams

Act, 15 U.S.C. § 78n, with the repurchase offers; and (8) defendants entered a

joint venture or conspiracy with CWC and Cooke. Finally, plaintiffs state: (9)

their third through sixth claims on appeal reveal error precluding summary

judgment on their Racketeer Influenced and Corrupt Organizations claims. We

exercise jurisdiction pursuant to 28 U.S.C. § 1291 and affirm.

       10
           In 1995, Congress added another subsection to § 12 of the Securities Act of
1933, which means § 12(1) and § 12(2) claims are now technically § 12(a)(1) and
§ 12(a)(2) claims. See Maher v. Durango Metals, Inc., 144 F.3d 1302, 1303 n.1 (10th
Cir. 1998). We will continue to use the terms “§ 12(1)” and “§ 12(2)” for the sake of
clarity in light of their use in the district court’s orders and the parties’ briefs.

                                            -6-
II. Standard of Review

       We review the grant of summary judgment de novo utilizing the standard

described in Rule 56(c).   See Adler v. Wal-Mart Stores, Inc.     , 144 F.3d 664, 670

(10th Cir. 1998). Summary judgment is appropriate if there is no genuine issue

of material fact and the movant is entitled to judgment as a matter of law.         See

Fed. R. Civ. P. 56(c). Under this standard, we view the evidence and draw

reasonable inferences in the light most favorable to the nonmovant.           See Adler ,

144 F.3d at 670.

       An issue is “genuine” if there is sufficient evidence on each side so
       that a rational trier of fact could resolve the issue either way. An
       issue of fact is “material” if under the substantive law it is essential
       to the proper disposition of the claim. If a party that would bear the
       burden of persuasion at trial does not come forward with sufficient
       evidence on an essential element of its prima facie case, all issues
       concerning all other elements of the claim and any defenses become
       immaterial.

Id. (citations omitted). A movant who will not bear the burden of persuasion at

trial satisfies its initial burden on a motion for summary judgment by pointing out

to the court the lack of evidence for the nonmovant on an essential element of the

nonmovant’s claim.     See id. at 670-71. The burden then shifts to the nonmovant,

who must “go beyond the pleadings and ‘set forth specific facts’ that would be

admissible in evidence in the event of trial from which a rational trier of fact

could find for the nonmovant.”     Id. at 671 (quoting Fed. R. Civ. P. 56(e)).

                                            -7-
Conclusory and self-serving affidavits are insufficient to meet this burden.     See

Murray v. City of Sapulpa , 45 F.3d 1417, 1422 (10th Cir. 1995).

III. Discussion

       A. Disclosure of the Security Agreement for the 890 Patent

       Plaintiffs claim defendants’ failure to disclose the security agreement to

them in and of itself creates a genuine issue of material fact for trial. This

argument fails for two reasons. First, it is undisputed defendants filed the

security agreement with the U.S. Patent and Trademark Office, where it was

recorded. At oral argument, plaintiffs’ counsel conceded plaintiffs thereby had

constructive notice of defendants’ security interest in the 890 Patent before they

purchased the Medvial securities.     Cf. 15 U.S.C. § 1072 (“Registration of a mark

on the principal register ... shall be constructive notice of the registrant’s claim of

ownership thereof.”);   Willson v. Graphol Prod. Co. , 188 F.2d 498, 504 (C.C.P.A.

1951) (“[I]n the case of ... a patent assignment, ... any prospective purchaser is

constructively notified of what the pertinent public records contain and will not

be heard to complain that he acted in ignorance of the facts.” (citations omitted).)

Second, whether or not defendants affirmatively disclosed to plaintiffs the

existence of the security agreement is immaterial, because it has no bearing on

the essential elements – as to each cause of action on appeal – the district court

                                            -8-
found deficient on summary judgment.         See Adler , 144 F.3d at 670.

      B. Security Agreement and Ownership of the 890 Patent

      Plaintiffs claim the district court should have ruled the security agreement

somehow transformed defendants into owners of the 890 Patent. Plaintiffs cite

only to 37 C.F.R. § 3.56 as support for this proposition. This regulation simply

states the U.S. Patent and Trademark Office treats conditional assignments as

absolute assignments for its own purposes.         See id. (“Assignments which are

made conditional on the performance of certain acts or events, such as the

payment of money or other condition subsequent, if recorded in the Office, are

regarded as absolute assignments   for Office purposes .” (emphasis added)); 37

C.F.R. § 3.1 (“ Office means the [U.S.] Patent and Trademark Office.”). This

regulation in no way addresses patent ownership. Indeed, another regulation

clearly states the recording of a patent assignment by the U.S. Patent and

Trademark Office “is not a determination by the Office of the validity of the

document or the effect that document has on the title to ... a patent.” 37 C.F.R. §

3.54. Accordingly, plaintiffs’ claim has no merit and we will not consider it

further. See Fed. R. App. P. 28(a)(9);   Phillips v. Calhoun , 956 F.2d 949, 953-54

(10th Cir. 1992) (“[W]e decline to consider the matter, because ... Plaintiff’s

appellate position has not been even minimally supported by legal argument or

                                             -9-
authority.” (citation omitted).) We proceed to look at plaintiffs’ appeal of

specific legal theories.

       C. Fraudulent Concealment

       In order to establish a claim for fraudulent concealment, plaintiffs must

show as a matter of law that defendants had a duty to disclose the information at

issue. See Berger v. Security Pac. Info. Sys., Inc.    , 795 P.2d 1380, 1383 (Colo.

Ct. App. 1990) (utilizing Restatement (Second) Torts 2d §551 (1965) to evaluate

the duty to disclose).     This determination should precede any further analysis of

the other elements.      See id. at 1383-85. The district court held plaintiffs failed to

offer evidence of a relationship that created a duty to disclose.     See Restatement

(Second) Torts 2d § 551(2)(a) (1976) (“One party to a business transaction is

under a duty to exercise reasonable care to disclose to the other before the

transaction is consummated ... matters known to him that the other is entitled to

know because of a fiduciary or other similar relation of trust and confidence

between them”).

       “Despite the crucial nature of the issue, plaintiffs do not cite a single

authority or even present a developed argument for ascribing the requisite” duty

to disclose on defendants.      Brownlee v. Lear Siegler Mgmt. Serv. Corp.    , 15 F.3d

                                             -10-
976, 977 (10th Cir.), cert. denied , 512 U.S. 1237 (1994). Rather, we are

provided only the unsupported, conclusory assertions that “fraud is a factual issue

and the facts as shown above in this brief establish that the [d]istrict court should

have allowed this matter to go to trial.” This is not adequate appellate

argument.   11
                 Brownlee , 15 F.3d at 977-78.

      Even if we assume plaintiffs are alleging the existence of a duty by way of

an attorney-client relationship between themselves and defendants,       12
                                                                              plaintiffs

failed to come forward with sufficient evidence to allow a rational jury to find

such a relationship. In Colorado, “there must be a showing that a person sought

and received legal advice from the attorney concerning the legal consequences of

the person’s past or contemplated action” in order to establish an attorney-client

      11
          Plaintiffs cite two fraudulent concealment cases in their opening brief, which
are unhelpful. The duty to disclose element was not at issue in Teodonno v. Bachman,
404 P.2d 284, 285-86 (Colo. 1965), and the court in Wilbourn v. Mostek Corp., 537 F.
Supp. 302 (D. Colo. 1982), a case that preceded Berger, inappropriately concluded it did
not need to find a duty to disclose before engaging in an elements analysis. See id. at
305-06.

      12
           In Colorado, “[t]he formation of a relationship between an attorney and his or
her client is based upon contract, which may be either express or implied by the conduct
of the parties.” Turkey Creek, LLC v. Rosania, 953 P.2d 1306, 1311 (Colo. Ct. App.
1998). Plaintiffs do not claim an express contract existed between themselves and
defendants, but state the Payment Guarantee “shows the privity between Appellant John
Kockos and Respondent Attorneys.” Accordingly, plaintiffs appear to claim defendants’
conduct established an attorney-client relationship between them.

                                           -11-
relationship based on the conduct of the parties.      Turkey Creek , 953 P.2d at 1311.

A nonclient’s payment of attorney fees on behalf of the client is insufficient.    See

id. at 1312. Accordingly, the Payment Guaranty entered into by John Kockos

cannot create such a relationship, especially since it appears undisputed he never

made any payment pursuant to this guarantee. Further, the plain language of the

Payment Guarantee does not reflect any effort by John Kockos to obtain legal

advice concerning his past or contemplated action, nor does it contain any

representation by defendants regarding the initiation of an attorney-client

relationship with him.    The guarantee of payment, standing alone, is insufficient

to show an attorney-client relationship.

       We therefore affirm the district court’s decision to grant summary

judgment for defendants on plaintiffs’ fraudulent concealment claim.

       D. Sections 12(1) and 12(2) of the Securities Act of 1933

       In Pinter v. Dahl , 486 U.S. 622 (1988), the Supreme Court held liability

for the unlawful sale of unregistered securities under § 12(1) of the Securities

Act of 1933 extends to both the person who passes title to the securities and “the

person who successfully solicits the purchase, motivated at least in part by a

desire to serve his own financial interests or those of the securities owner.”    Id. at

                                            -12-
647. However, “[b]eing merely a ‘substantial factor’ in causing the sale of

unregistered securities is not sufficient in itself to render a defendant liable under

§ 12(1).” Id. at 654. Therefore, § 12(1) liability does not attach to lawyers

“whose involvement is only the performance of their professional services.”               Id.

at 651. Citing to John Pinney’s affidavit,       13
                                                      the district court held plaintiffs failed

to establish a genuine issue of material fact on the elements of passing title to or

soliciting the purchase of the Medvial securities. Specifically, it held “plaintiffs

failed to produce evidence sufficient to create a genuine issue of material fact

whether, in connection with plaintiffs’ acquisition of securities, [defendants]

       13
             The district court cited, in part, the following portions of John Pinney’s
affidavit:

               At all times that [defendants] had any communications with
       plaintiffs, [defendants] did so as attorneys for Cooke or CWC.
               ....
               [Defendants] did not participate in or plan any of the discussions or
       communications between Cooke/CWC and any of the plaintiffs in
       connection with plaintiffs’ acquisition of stock in Medvial; any interest in
       any of the Medvial license royalties; or any distribution rights from
       Medvial.
               [Defendants] did not furnish or supply any information to any of the
       plaintiffs in connection with any of their alleged securities transactions.
               [Defendants] did not furnish any written opinion to or for any
       plaintiff in connection with any of the transactions or discussions that any
       plaintiff had relating to stock in Medvial; distribution rights from Medvial;
       or any Medvial license royalties.
               With the possible exception of J. Kockos, [defendants] had no
       communication whatsoever with any of the plaintiffs before they acquired
       any stock in Medvial; any interest in the Medvial license royalties; or any
       distribution rights from Medvial.

                                               -13-
acted in a capacity other than that of attorneys performing professional services

for their clients.”

       On appeal, plaintiffs concede defendants did not pass title to the Medvial

securities, but claim their Supplemental Declarations presented sufficient

evidence to create a genuine issue of material fact as to whether defendants

solicited and encouraged their investments in Medvial. However, these

declarations do not set forth specific facts about any contact or information

exchanged between plaintiffs and defendants with regard to the acquisition of the

Medvial securities. Rather, they are full of conclusory and self-serving

statements that do not create a genuine issue of material fact.   See Fed. R. Civ. P.

56 (e); Murray , 45 F.3d at 1422. For example, all three declarations contain the

following identical language:

       [Defendants] communicated directly with Kimmel, Kockos and
       Kimmel’s attorney Mallette, to plan Medvial’s formation with the
       Kimmel Agreement, which Pinney revised and approved in final
       form .... [Defendants] revised and approved the Medvial License
       which misrepresented CWC’s exclusive ownership of the 890 Patent
       and failed to disclose the [Graydon, Head & Ritchey] interest in the
       890 Patent, a material document given to minority investors to
       induce their investment contracts (exclusive rights to exploit 890
       Patent products), upon which I relied in making my investment
       decision. This affirmative misrepresentation of CWC’s exclusive
       ownership and rights to the 890 Patent was passed on by
       [defendants] to underwriters, knowing the false information would
       be communicated to me, either orally, or by submission to me of the
       Medvial License document, which I received and reviewed, and

                                           -14-
      relied upon, prior to my investment decision.

First, it is unclear which “Kockos” was allegedly involved in direct

communications with defendants. Second, plaintiffs do not provide record

citations for either the “Kimmel Agreement” or “Medvial License.” Third,

plaintiffs appear to concede the “Medvial License” was not directly

communicated to them by defendants, but rather it went from defendants to

“underwriters” to them. Finally, plaintiffs do not provide any citation to

evidence supporting their assertion defendants “revised and approved” the

“Kimmel Agreement” and “Medvial License.”

      We note defendants produced a copy of an “Agreement” between David

Kimmel and CWC as well as a “License Agreement” between CWC and Med

Safe, Inc. Even assuming these are the documents to which plaintiffs were

referring, plaintiffs have not provided any specific facts to dispute that: (1) the

only relationship between defendants and Cooke/CWC at this point in time was

attorney-client, in light of the IPM arbitration; (2) Cooke requested defendants

review these two documents only for the purpose of suggesting revisions to

conform them to the anticipated litigation positions of CWC and Cooke in the

IPM arbitration; (3) defendants are not parties or signatories on the documents;

(4) the documents do not contain any warranty, representation, or guaranty of

                                         -15-
defendants; and (5) defendants did not provide a written opinion to anyone

regarding the accuracy or sufficiency of any of the provisions of the two

documents. We therefore affirm the district court’s decision to grant summary

judgment for defendants on plaintiffs’ § 12(1) claims, because such liability does

not attach to lawyers whose only involvement is the performance of their

professional services.   See Pinter , 486 U.S. at 651, 654.

       “Under § 12(2) of the Securities Act of 1933, buyers have an express cause

of action for rescission against sellers who make material misstatements or

omissions ‘by means of a prospectus.’”       Gustafson v. Alloyd Co., Inc. , 513 U.S.

561, 564 (1995) (quoting 15 U.S.C. § 77l(a)(2)). The existence of a prospectus

is an essential element of the cause of action.    See id. at 567-68. In this case, the

district court granted defendants’ summary judgment motion because plaintiffs

failed to create a genuine issue of material fact as to whether: (1) they had

received a prospectus in connection with their purchase of the Med Vial

securities, and (2) defendants were a statutory seller of the Med Vial securities.

Plaintiffs challenge only the statutory seller holding. Because, regardless of

whether defendants are statutory sellers, plaintiffs must present evidence of a

prospectus, we affirm the district court’s decision to grant summary judgment for

defendants based on its uncontested ruling regarding plaintiffs’ failure to create a

                                            -16-
genuine issue of material fact that they had received a prospectus.           See Griffin v.

Davies , 929 F.2d 550, 554 (10th Cir.) (“We will not undertake to decide issues

that do not affect the outcome of a dispute.”),     cert, denied , 502 U.S. 878; Snell v.

Tunnell , 920 F.2d 673, 676 (10th Cir. 1990) (citing case law supporting the

court’s refusal to decide an issue “when the party adversely affected had not

appealed the adverse order”),      cert. denied , 499 U.S. 976 (1991).   14

       E. Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5

       There is no liability under § 10(b) of the Securities Exchange Act of 1934

or Rule 10b-5 for failure to disclose information absent a duty to do so.            See

Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A.            , 511 U.S.

164, 174 (1994) (section 10(b));      Arst v. Stifel, Nicolaus & Co., Inc.     , 86 F.3d 973,

981 (10th Cir. 1996) (Rule 10b-5).        “‘[T]he duty to disclose arises when one

       14
           Plaintiffs’ appellate brief focuses heavily on the repurchase offers
communicated to them by defendants. Language contained in their discussion of § 12(2)
appears to reference this portion of their brief and could be construed as an appeal of the
district court’s ruling “the express language of § 12(2) applies only to offers to sell or
distribute securities, not to offers to purchase.” We agree with the district court. See 15
U.S.C. § 77l(a)(2) (“Any person who ... offers or sells a security [with material
misstatements or omissions] ... shall be liable ... to the person purchasing such security
from him.”). Therefore, the alleged dispute whether CWC or defendants were the offeror
is immaterial. See Adler, 144 F.3d at 670. Accordingly, we affirm the district court’s
decision to grant defendants’ motion for summary judgment for failure to demonstrate a
genuine issue of material fact whether the repurchase offers involved any offering or sale
of a security.

                                             -17-
party has information that the other party is entitled to know because of a

fiduciary or other similar relation of trust and confidence between them.’”     Arst ,

86 F.3d at 981 (citing Windon Third Oil & Gas Drilling P’ship v. Federal

Deposit Ins. Corp. , 805 F.2d 342, 347 (10th Cir. 1986)). The district court held

plaintiffs failed to present sufficient evidence to create a genuine issue of

material fact as to whether a relationship of trust and confidence existed between

them and defendants.

      On appeal, plaintiffs claim there was a relationship of trust and confidence

between themselves and defendants, but do not provide any citations to the

record for evidence of such a relationship. Instead, they merely state:

             [Defendants’] status at the time of [plaintiffs’] investments
      was: (1) counsel for Cooke, the controlling shareholder of offeror
      CWC; (2) counsel for CWC, an offeror; (3) counsel for Medvial[;]
      (4) counsel in the IPM litigation representing an identity of
      [Graydon, Head & Ritchey], Cooke, CWC, Medvial, and Medvial
      minority investors’ interests to defeat IPM 890 Patent claims and
      collect the IPM Note; (5) [Graydon, Head & Ritchey], as assignee of
      90 [sic] Patent interests, was itself a statutory seller; and[] (6) by
      solicitous behavior [defendants] were statutory underwriters.
      [Defendants’] status in relationship to the offerings imposes a duty
      to disclose under § 10(b) and Rule 10b-5.

             ...

            In addition, [defendants]: (1) obtained individual personal
      guarantees from Medvial directors Kimmel and John Kockos of
      [defendants’] attorney fees; (2) had ongoing communications with
      Medvial RSD investors regarding interruption in product and other

                                           -18-
       disputes; (3) negotiated with investors to repurchase their interests.
       All [plaintiffs] relied on [defendants] in a relationship of trust and
       confidence, as Medvial’s counsel to fully disclose and accurately
       communicate the particulars of the offers.

These unsupported, conclusory assertions do not create a genuine issue of

material fact as to a relationship of trust and confidence between plaintiffs and

defendants, see Fed. R. Civ. P. 56(e); Murray , 45 F.3d at 1422, and we decline to

sift through the record in search of evidentiary support for plaintiffs’ assertions.

See Securities & Exch. Comm’n v. Thomas         , 965 F.2d 825, 827 (10th Cir. 1992).     15

We therefore affirm the district court’s decision to grant summary judgment for

defendants on plaintiffs’ § 10(b) and Rule 10b-5 claims for fraud by omission.            16

       F. Control Person Liability

       15
         The two cases cited by plaintiffs in support of their control person claims are
inapposite. The duty to disclose element was neither discussed nor at issue in Shumate v.
McNiff, No. 88 CIV 6820 (JFK), 1990 WL 6549, at *1, 3-5 (S.D. N.Y. Jan. 23, 1990), and
Odesser v. Continental Bank, 676 F. Supp. 1305 (E.D. Pa. 1987) does not address § 10(b)
or Rule 10b-5.

       16
           Finally, we will not address plaintiffs’ reply brief argument that summary
judgment was inappropriate on its affirmative misrepresentation claim under § 10(b) of
the Securities Exchange Act of 1934, because they did not raise it in their opening brief, it
does not go to jurisdiction, and defendants’ discussion of this claim in its brief does not
provide an alternative basis for its arguments on any of the claims raised by plaintiffs in
their opening brief. See Sadeghi v. INS, 40 F.3d 1139, 1143 (10th Cir. 1994) (refusing to
consider issues raised for the first time in a reply brief “except when those issues relate to
jurisdictional requirements” or when appellant is responding to an argument raised in
appellee’s brief that addresses an issue raised in appellant’s opening brief).

                                            -19-
       Under § 15 of the Securities Act of 1933 and § 20(a) of the Securities

Exchange Act of 1934, “a person who controls a party that commits a violation of

the securities laws may be held jointly and severally liable with the primary

violator.” Maher , 144 F.3d at 1304-05. To state a     prima facie case of control

person liability, plaintiffs “must establish (1) a primary violation of the securities

laws and (2) ‘control’ over the primary violator by the alleged controlling

person.” Id. at 1305. In this case, the district court held plaintiffs failed to

produce evidence sufficient to create a genuine issue of material fact whether

defendants had “control” – defined as “the possession, direct or indirect, of the

power to direct or cause the direction of the management and policies of a

person, whether through the ownership of voting securities, by contract, or

otherwise.” 17 C.F.R. § 230.405;      see Maher , 144 F.3d at 1305 (citing with

approval the SEC’s “broad definition of ‘control’” in 17 C.F.R. § 230.405). On

appeal, plaintiffs claim to “have introduced evidence to satisfy that two prong

test” in the regulation, but do not explain how they have done so or provide any

citations to the record. This unsupported, conclusory assertion does not create a

genuine issue of material fact.    See Fed. R. Civ. P. 56(e); Murray , 45 F.3d at

1422. Moreover, none of the factual evidence we have reviewed establishes this

element. We therefore affirm the district court’s decision to grant summary

judgment for defendants on plaintiffs’ control person liability claims.

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      G. Williams Act

      In the portion of their appellate brief addressing § 10(b), Rule 10b-5, and

control person liability, plaintiffs appear to challenge the district court’s

conclusion defendants did not violate the disclosure requirements and anti-fraud

provisions of §§ 14(d) and (e) of the Williams Act in connection with the

repurchase offers.   See 15 U.S.C. §§ 78n(d), (e). The district court held plaintiffs

failed to produce sufficient evidence to create a genuine issue of material fact as

to whether the repurchase offers were tender offers covered by the Williams Act.

      Sections 14(d) and (e) apply to a “tender offer.” 15 U.S.C. §§ 78n(d)(1),

(e). The district court held a tender offer is defined as “a general, publicized bid

by an individual or group to buy shares of a publicly[] owned company, the

shares of which were traded on a national securities exchange, at a price

substantially above the current market price.”    Hanson Trust PLC v. SCM Corp. ,

774 F.2d 47, 54-55 (2d Cir. 1985) (citing legislative history of the Williams Act).

Plaintiffs do not challenge this legal ruling. Assuming, without deciding, this is

a correct statement of the law, we note plaintiffs have not cited any evidence the

repurchase offer letters were a “general, publicized bid,” Medvial is a publicly-

owned company, or Medvial securities were traded on a national securities

exchange. Moreover, none of the factual evidence we have reviewed establishes

                                           -21-
any of these criteria. We therefore affirm the district court’s decision to grant

summary judgment for defendants on plaintiffs’ Williams Act claims.

       H. Joint Venture or Conspiracy

       In Colorado, an essential element of joint venture liability is the existence

of “an express or implied agreement [between the alleged joint venturers] to

share in profits or losses of the venture.”     Hancock Constr. Co. v. Cummins , 791

P.2d 1208, 1209 (Colo. Ct. App. 1990). The district court concluded plaintiffs

failed to produce sufficient evidence to create a genuine issue of material fact as

to whether defendants entered into such an agreement with CWC or Cooke. On

appeal, plaintiffs claim there exist “issues of material fact for trial concerning

profit-sharing arising from [defendants’] deferral of fees and the active

participation in ... the ongoing CWC enterprise,” but again provide no citations

to the record. Such unsupported, conclusory assertions do not create a genuine

issue of material fact.   See Fed. R. Civ. P. 56(e); Murray , 45 F.3d at 1422.

       In the alternative, plaintiffs claim a written agreement is unnecessary to

create a joint venture and the security agreement fulfills the element of joint

venture liability requiring a joint interest in property. However, on summary

judgment, issues concerning all other elements of the claim become immaterial if

                                              -22-
the plaintiffs do not come forward with sufficient evidence on any essential

element of the cause of action.    See Adler , 144 F.3d at 670.    Accordingly, we

affirm the district court’s decision to grant summary judgment for defendants in

light of plaintiffs’ failure to produce sufficient evidence on the element of a

profit sharing agreement.

       Regarding plaintiffs’ conspiracy claim, the district court held as a matter of

law an attorney acting within the scope of the attorney-client relationship cannot

conspire with his client, as long as the attorney does not actively participate in a

fraud. See Astarte, Inc. v. Pacific Indus. Sys., Inc.   , 865 F. Supp. 693, 708 (D.

Colo. 1994) (applying Colorado law in a diversity case). Plaintiffs do not

challenge this legal ruling. Rather, they appear to focus on the fraud exception to

this rule, implying the alleged error by the district court on the fraudulent

concealment claim infects its decision on this issue.    17
                                                              In light of our ruling above

that no such error occurred on the fraudulent concealment claim, we affirm the

district court’s decision to grant defendants’ summary judgment motion on

plaintiffs’ conspiracy claim.

       17
          We decline to address plaintiffs’ argument that an attorney for a corporation has
the same fiduciary duties as a director, because we fail to see how it has anything to do
with their conspiracy claim.

                                            -23-
      I. Racketeer Influenced and Corrupt Organizations Act

      Plaintiffs appear to base their appeal of the district court’s ruling under the

Racketeer Influenced and Corrupt Organizations Act on their claims the district

court erred in granting summary judgment for defendants on the fraudulent

concealment and federal securities law claims. In light of our above rulings that

no such errors exist, we affirm the district court’s grant of summary judgment to

defendants here as well.

IV. Conclusion

      The judgment of the United States District Court for the District of

Colorado is AFFIRMED .

                                       Entered by the Court:

                                       WADE BRORBY
                                       United States Circuit Judge

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