Court Opinion

ID: 808481
Source: CourtListenerOpinion
Date Created: 2012-09-13 22:50:13+00
Date Added: 2024-06-11T18:00:30.777994
License: Public Domain

NOT PRECEDENTIAL

                  UNITED STATES COURT OF APPEALS
                       FOR THE THIRD CIRCUIT

                               _____________

                                No. 11-1184
                               _____________

 MILL BRIDGE V, INC., as successor to VAN DER MOOLEN OPTIONS USA,
           LLC c/o VAN DER MOOLEN SPECIALISTS, LLC,
                                     Appellant

                                      v.

I. ISABELLE BENTON; BENTON PARTNERS II, LLP; JAMES KENKELEN, a
                transferee; EILEEN WHITE, a transferee
                             _____________

               On Appeal from the United States District Court
                    for the Eastern District of Pennsylvania
                       District Court No. 2-08-cv-02806
             District Judge: The Honorable Ronald L. Buckwalter

              Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
                            September 10, 2012

        Before: SMITH, CHAGARES, and ALDISERT, Circuit Judges

                         (Filed: September 13, 2012)

                          _____________________

                                 OPINION
                          _____________________

SMITH, Circuit Judge.
       Mill Bridge V, Inc. (“Mill Bridge”)1 filed suit against Defendants I. Isabelle

Benton, Benton Partners II, LLP, James Kenkelen, and Eileen White (collectively,

“Benton Partners”), for allegedly failing to disclose material non-public

information about Philadelphia Stock Exchange, Inc. (“PHLX”) before Benton

Partners purchased Mill Bridge’s shares in PHLX. Mill Bridge appeals from three

orders from the District Court: (1) denying Mill Bridge additional discovery; (2)

denying Mill Bridge a third opportunity to amend its complaint; and (3) granting

Benton Partners’ motion for summary judgment. For the following reasons, we

will affirm. 2

                                          I.

       In late 2004, Mill Bridge sought to liquidate its shares in PHLX. Mill

Bridge specifically sought to sell its shares by December 31, 2004, in order to

recognize a tax loss by the year’s end. Mill Bridge approached PHLX to inquire

about potential purchasers; PHLX informed Mill Bridge that Benton, a member of

PHLX’s Board of Directors, had recently expressed interest in purchasing

additional shares of PHLX stock.

1
 Mill Bridge brings suit as the successor in interest to Van Der Moolen Options
USA, LLC, c/o Van Der Moolen Specialists, LLC.
2
 Because Mill Bridge’s complaint raised a federal question, the District Court had
subject matter jurisdiction under 15 U.S.C. § 78aa and 28 U.S.C. § 1331. We have
subject matter jurisdiction over this appeal under 28 U.S.C. § 1291.
                                          2
      On December 6, 2004, Mill Bridge contacted Benton to determine whether

Benton Partners would be interested in immediately purchasing its shares in

PHLX. Between December 7, 2004 and December 9, 2004, Mill Bridge and

Benton Partners negotiated a price for the transaction. During these negotiations,

Benton Partners did not disclose that PHLX was involved in merger negotiations

with Archipelago Holdings, Inc. (“Arca”). On December 9, 2004, the parties

reached an agreement whereby Mill Bridge would sell its 600 shares in PHLX to

Benton Partners for $78,000, or $130 per share.

      Unbeknownst to Mill Bridge, in November 2004, PHLX became aware that

Arca was potentially interested in a merger. Near the end of November 2004,

PHLX contacted Richard Breeden, a member of Arca’s Board of Directors, to

determine the extent of Arca’s interest. Breeden spoke with Arca management and

at some point between November 2004 and December 2004, Breeden informed

PHLX that Arca was willing to begin merger negotiations.

      Arca and PHLX began preliminary merger discussions over the telephone,

focusing on general details about PHLX’s business. On December 3, 2004, Arca

and PHLX entered into a confidentiality agreement, whereby the parties agreed to

keep confidential all non-public information divulged by the other party. As of

December 9, 2004, when Mill Bridge sold its shares to Benton Partners, Arca had

not conducted its official due diligence session with PHLX, which occured “in the

                                        3
middle of December.” App’x 8. On December 15, 2004, after the Mill Bridge-

Benton Partners transaction was already finalized, PHLX’s Board of Directors was

finally informed of the possibility of a merger with Arca.

         The merger negotiations began in full in 2005. In February 2005, PHLX

formed a strategic committee to conduct negotiations. On April 18, 2005, Arca

offered to purchase all of PHLX’s stock for $50 million, at a price of

approximately $900 per share—significantly higher than the price paid by Benton

Partners for Mill Bridges’ shares. PHLX rejected this offer. No merger ever took

place.

         On June 16, 2008, Mill Bridge filed suit in the Eastern District of

Pennsylvania alleging, inter alia, that Benton Partners had violated § 10(b) of the

Securities Exchange Act (the “Exchange Act”), 15 U.S.C. § 78aa, et seq., had

violated Rule 10b-5, 17 C.F.R. § 240.10b-5, and had exercised control person

liability under § 20 of the Exchange Act, 15 U.S.C. § 78t. Specifically, they

argued that, even though no merger ever took place, the ongoing merger

negotiations between PHLX and Arca was material non-public information that

would have affected the market value of Mill Bridge’s shares in PHLX. That is,

Mill Bridge argued that it would have negotiated a higher price for its shares in

PHLX if it was aware of the negotiations.

                                         4
      After a lengthy procedural history during which Mill Bridge twice amended

its complaint, discovery was set to close on June 15, 2010.             Mill Bridge

successfully petitioned the court to extend the close of discovery until July 15,

2010. On July 15, 2010, Mill Bridge again sought to extend the close of discovery.

On July 28, 2010, the District Court denied this request.

      Meanwhile, on July 16, 2010, Benton Partners filed a motion for summary

judgment. The District Court granted Mill Bridge several extensions of time in

which to respond to the motion. On August 13, 2010, when its response was due,

Mill Bridge filed a motion to amend its complaint a third time, in order: (1) to add

state law claims; (2) to change the date of the stock sale between itself and Benton

Partners from December 1-2 to December 7-9, 2004; (3) to “sharpen the details”

about the negotiations between Arca and PHLX; and (4) to include more

allegations about Benton Partners’ knowledge. On August 23, 2010, the District

Court denied this request, concluding that Mill Bridge had not sufficiently justified

the need for such a late amendment in the face of the undue burden that Mill

Bridge’s delay would place on the court.

      The same day that Mill Bridge moved to amend its complaint, it filed

another motion for an extension of time in which to respond to Benton Partners’

motion for summary judgment. The court granted this motion. Finally, on August

30, 2010, Mill Bridge filed its response to the pending summary judgment motion.

                                           5
      On December 21, 2010, the District Court granted Benton Partners’ motion

for summary judgment. The court concluded that Mill Bridge had failed to show

both that the alleged failure to disclose the potential merger was “material” within

the meaning of § 10(b) and Rule 10b-5, and that Benton Partners knew this

allegedly material information at the time of the purchase. Because the court

dismissed Mill Bridge’s claims under § 10(b) and Rule 10b-5, it also concluded

that Benton Partners could not be subject to control person liability under § 20.

Mill Bridge timely appealed.

                                         II.

      Mill Bridge appeals, in part, from the District Court’s orders denying it the

opportunity to conduct additional discovery, and to file a third amended

complaint.3 We review both of these orders for an abuse of discretion. See Mass.

3
  Benton Partners has separately moved to limit the portion of Mill Bridge’s appeal
concerning the District Court’s July 28, 2010 order denying Mill Bridge’s request
to extend the discovery deadline. Benton Partners notes that Mill Bridge’s notice
of appeal only specified that it was appealing from (1) the court’s August 23, 2010
order denying Mill Bridge’s request to amend its complaint; and (2) the court’s
December 21, 2010 order granting Benton Partners’ motion for summary
judgment. As Mill Bridge notes, however, we may exercise jurisdiction over
orders not specifically identified in a notice of appeal where there is some
“connection between the specified and unspecified orders[.]” Sulima v. Tobyhanna
Army Depot, 602 F.3d 177, 184 (3d Cir. 2010). Here, Mill Bridge claims that the
same evidence disclosed at the close of discovery that motivated its attempt to
amend its complaint justified its request for additional discovery. Under these
particular facts, we will permit Mill Bridge to contest the District Court’s July 28,
2010 order, even though it did not identify that order in its notice of appeal. We
will therefore deny Benton Partners’ motion to dismiss and limit this appeal.
                                          6
Sch. of Law at Andover, Inc. v. Am. Bar Assoc., 107 F.3d 1026, 1032 (3d Cir.

1997) (concerning a motion for additional discovery); Cureton v. NCAA, 252 F.3d

267, 273 (3d Cir. 2001) (concerning a motion for leave to file an amended

complaint). Mill Bridge also appeals from the District Court’s order granting

Benton Partners’ motion for summary judgment. We review de novo, applying the

same legal standard as the District Court. See Doe v. Luzerne Cnty., 660 F.3d 169,

174 (3d Cir. 2011).

      First, the District Court did not abuse its discretion by denying Mill Bridge

the opportunity to conduct additional discovery. Mill Bridge had a long period of

time in which to conduct discovery. It chose, for its own reasons, to wait until the

end of the discovery period to begin to request documents and conduct depositions.

Moreover, the District Court previously did grant Mill Bridge additional time for

discovery. The District Court did not abuse its discretion, given Mill Bridge’s lack

of diligence during discovery, and given that Mill Bridge had access to discovery

and trial testimony from a related case arising out of the same incident.

      Second, the District Court did not abuse its discretion by denying Mill

Bridge the opportunity to amend its complaint for the third time. Delay in seeking

to amend a complaint “may become undue when a movant has had previous

opportunities to amend a complaint.” Cureton, 252 F.3d at 273 (citation omitted).

The District Court did not err when it concluded that the delay here was undue.

                                          7
Mill Bridge had already amended its complaint twice, and did not persuasively

explain why it could not have sought to amend its complaint any earlier.4

      Finally, we agree with the District Court that the record before the District

Court demonstrated as a matter of law that the merger negotiations between Arca

and PHLX had not yet become material under the Supreme Court’s test set forth in

Basic Inc. v. Levinson, 485 U.S. 224, 239 (1988). 5 On December 9, 2004, when

Mill Bridge and Benton Partners agreed to the stock sale, the negotiations between

4
  Although Mill Bridge now offers several reasons purportedly justifying its
motion to amend, it presented the District Court with fewer and less convincing
reasons, and included no details about the evidence it allegedly discovered. As
Benton notes, this court will not reverse a district court’s decision to deny leave to
amend on a ground never presented to the district court. See Lloyd v. HOVENSA,
LLC, 369 F.3d 263, 272-73 (3d Cir. 2004).
5
  Benton Partners has moved to strike certain documents from the appendix on the
basis that those documents were never filed before the District Court. Federal Rule
of Appellate Procedure 10(a) defines the documents that are part of the record, and
Rule 30(b) governs what documents can be included in an appendix. We agree
with Benton Partners that the documents highlighted in its motion, spanning App’x
301-09, 314-15, 317, 319-22, 324-26, 330-34, 336-45, 347-63, 368-69, and 371-73
are not part of the record under Rule 10(a), and thus should not have been included
in the appendix for our consideration.
       We have recognized that in limited circumstances, we may have the
equitable power under Federal Rule of Appellate Procedure 10(e) to allow a party
to supplement the record with documents that were not presented to the District
Court. See In re Capital Cities/ABC, Inc.’s Application for Access to Sealed
Transcripts, 913 F.2d 89, 97 (3d Cir. 1990). Even if such a power did exist, equity
would not permit supplementing the record in this instance, where Mill Bridge has
failed to justify its failure to place these documents into the record before the
District Court. Consequently, we will grant Benton Partners’ motion to strike
documents from the appendix. We nonetheless note that even if we considered
these additional documents, we would reach the same result.
                                          8
Arca and PHLX were only in their infancy. No reasonable juror could conclude

otherwise. The evidence raised by Mill Bridge is insufficient to create a genuine

issue of fact on this issue. The fact that a confidentiality agreement had been

signed does not necessarily imply that the negotiations had progressed to the point

where they were necessarily material—as the District Court noted, such

agreements are “often entered into at the outset of the [merger] process before any

material terms are negotiated.” App’x 35 (emphasis in original). 6 Because the

merger negotiations were still in their infancy, the fact of the negotiations does not

constitute material information that Benton Partners was required to disclose prior

to their transaction with Mill Bridge.

      Further, we agree with the District Court that Mill Bridge has failed to show

that Benton Partners knew of the ongoing merger negotiations at the time of the

stock sale. The record suggests that the negotiations were announced to the Board

of Directors on December 15, 2004, after Mill Bridge had agreed to the sale. We

agree with the District Court that Mill Bridge’s evidence, which consists primarily

of some scattered inconsistencies and ambiguities in deposition transcripts, is

insufficient to raise a genuine issue of fact as to Benton Partners’ knowledge.

6
  Mill Bridge argues that various portions of deposition testimony are sufficient to
raise a genuine issue of fact on the materiality of the merger negotiations. For the
reasons outlined in the District Court’s opinion, we agree that these efforts are
unavailing. See App’x 27-35.
                                         9
      Because we conclude that Mill Bridge has failed to raise a genuine issue of

fact as to whether Benton Partners failed to disclose material non-public

information, or whether it knew of such information, we agree with the District

Court that Mill Bridge’s claims under § 10(b) and Rule 10b-5 fail as a matter of

law. Further, because Mill Bridge has failed to assert “an independent violation of

the federal securities laws,” it cannot succeed on a claim for control person liability

under § 20(a). See In re Rockefeller Ctr. Props., Inc. Secs. Litig., 311 F.3d 198,

211 (3d Cir. 2002).     Consequently, we will affirm the District Court’s order

granting Benton Partners’ motion for summary judgment.

                                         III.

      For the foregoing reasons, we will affirm the judgment of the District Court.

                                          10