Court Opinion

ID: 8974013
Source: CourtListenerOpinion
Date Created: 2022-11-27 10:46:15.366151+00
Date Added: 2024-06-11T17:10:30.386379
License: Public Domain

JOHNSON, Circuit Judge,
dissenting:
Although I agree with the majority in sustaining the fraud on the underdeveloped market framework as set forth in Shores v. Sklar, et al., 647 F.2d 462 (5th Cir.1981) (en banc), I would hold that summary judgment is inappropriate in this particular case. I join in Judge Clark’s thorough discussion of how the admitted unfeasibility of the first proposed bond issue raises a disputed question of material fact to preclude summary judgment, but write separately on the issue of sham pre-sales.
The majority is correct that complete disclosure of all the material facts surrounding the pre-sale of the Mount Royal apartment units would have defeated the plaintiffs’ argument that the bonds were unmarketable. If bonds were sold after all material facts were made public, it can hardly be said that the bonds were unmarketable based on those disclosed facts. Judge Clark’s dissent somewhat finesses the point that disclosure of a set of facts is a valid defense to the claim that the facts disclosed are responsible for the bonds’ un-marketability.
That defense, however, is unavailing in this case. The majority fails to note that some material facts were omitted from the official statement. The majority states that “the documents disclosed that there were no binding pre-sales, that a certain number of pre-sales had no deposit or reduced deposit.” However, the documents do not show the high percentage of units pre-sold to relatives and employees at the last moment in order to meet the 50% minimum pre-sale level. The question of the materiality of these non-disclosures can be evaluated in light of the following question: Had the omitted facts been disclosed, would the market have been substantially more likely to reject the bonds? Given the nature of the pre-sales and the tenuous nature of the financing involved, market rejection of the bonds would have been quite likely. I cannot say as a matter of law that complete disclosure would not have rendered the bonds unmarketable. Therefore, the question of how the market would have reacted to complete disclosure *747is for the jury. Plaintiffs have succeeded in raising a disputed issue of material fact regarding whether disclosure of the nature of the pre-sales would have undermined the marketability of the bonds.
For the foregoing reasons, I respectfully dissent.