Ensource Investments LLC v. Mark Willis
20-55322
| 9th Cir. | Jun 23, 2021Background
- EnSource invested in Hopewell-Pilot Project, LLC, a startup formed by Mark Willis and Tom Tatham to develop land-title-search software.
- Willis solicited EnSource’s investment and represented the software as functional and advanced; EnSource relied on those representations in deciding to invest.
- After EnSource’s initial investment and refusal to provide further support, Willis placed Hopewell into bankruptcy and the software had no value.
- EnSource sued Willis under Section 10(b) and SEC Rule 10b-5; Tatham settled before trial.
- Following a five-day jury trial, the jury found Willis made material misstatements and awarded $205,000; district court denied Willis’s Rule 50 and Rule 59 motions.
- The Ninth Circuit affirmed: concluded the Section 20(a) instruction was erroneous but harmless, found sufficient evidence supporting the Rule 10b-5 verdict, declined to correct unpreserved PSLRA-interrogatory error, and upheld denial of a settlement-offset.
Issues
| Issue | Plaintiff's Argument (EnSource) | Defendant's Argument (Willis) | Held |
|---|---|---|---|
| Whether instructing jury on Section 20(a) control-person liability was permissible | Instruction appropriate because Willis exercised ultimate authority over statements | Instruction improper because neither complaint nor pretrial order alleged Section 20(a) | Instruction was error but harmless given record showing Willis was the "maker" of misstatements |
| Sufficiency of evidence for Rule 10b-5 (material misstatement, reliance, loss causation) | Evidence showed Willis misrepresented software, EnSource relied, and misrepresentations caused economic loss | Evidence insufficient to prove elements, including loss causation | Evidence sufficient on all Rule 10b-5 elements; JMOL denied |
| Failure to submit PSLRA special interrogatories re: settled co-defendant (Tatham) and apportionment | EnSource implicitly supports omitting because jury focused on Willis; no plain-error relief needed | Jury should have answered interrogatories allocating fault to Tatham under PSLRA | Appellate court declined to correct unpreserved error; no plain error (award small relative to total loss) |
| Denial of Rule 59(e) motion to offset Tatham’s settlement | Offset not required; verdict attributed damages to Willis | Offset required to prevent manifest injustice | District court did not abuse discretion; denial affirmed |
Key Cases Cited
- Janus Capital Grp. v. First Derivative Traders, 564 U.S. 135 (2011) (defines the "maker" of a statement for Rule 10b-5 purposes)
- First Nat'l Mortgage Co. v. Federal Realty Inv. Trust, 631 F.3d 1058 (9th Cir. 2011) (standard for reviewing sufficiency of the evidence on appeal)
- Nuveen Mun. High Income Opportunity Fund v. City of Alameda, 730 F.3d 1111 (9th Cir. 2013) (explains loss-causation and causation standards in securities cases)
- C.B. v. City of Sonora, 769 F.3d 1005 (9th Cir. 2014) (en banc) (standard for correcting unpreserved errors to avoid miscarriage of justice)
- United States v. Hinkson, 585 F.3d 1247 (9th Cir. 2009) (en banc) (abuse-of-discretion standard for district-court factual findings)