Greenwald v. Odom
314 Ga. App. 46
| Ga. Ct. App. | 2012Background
- Greenwald purchased Verso Technologies, a defunct telecom company, stock and warrants in August 2007 in a private subscription.
- Offering Documents included a Merger Clause and a Reliance Clause, and warned of high risk and speculative nature of the investment.
- Verso’s August 2007 meetings with Dunaway and Odom allegedly included three oral misrepresentations: 2008 revenue forecast, NetPerformer division sale, and aging of accounts payable.
- Offering Documents incorporated by reference Verso’s SEC filings (Form 10-K 2006 and Form 10-Qs 2007).
- Verso subsequently failed to meet its forecasts, was delisted from NASDAQ in 2008, and filed for bankruptcy; Greenwald lost his investment.
- Greenwald sued Odom, Dunaway, and Kidder for securities fraud, common-law fraud, and negligent misrepresentation; Verso was not named due to bankruptcy.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Greenwald could rely on oral misrepresentations. | Greenwald relied on August 20 statements despite merger clause. | Reliance barred by merger clause and risk disclosures in documents. | Court held two misrepresentations were actionable and reliance could be found under Reliance Clause. |
| Materiality of aging accounts payable misrepresentation. | Aging status was material to the financial condition. | Disclosures in SEC filings and documents rendered it immaterial. | Misrepresentation immaterial as a matter of law due to existing disclosures. |
| Materiality of omissions about NASDAQ delisting and insolvency. | Omissions were materially misleading given risk disclosures. | Disclosures sufficiently warned of delisting and insolvency risks. | Omissions not shown to be materially misleading under the total mix test. |
| Merger Clause vs Reliance Clause effect on reliance. | Merger Clause precludes reliance; Reliance Clause allows it. | Merger Clause should bar reliance; Reliance Clause not controlling. | Reliance Clause authorized Greenwald’s reliance on the August 20 statements. |
| Loss causation and admissibility of causation expert. | Expert testimony establishes loss causation for two misrepresentations. | Need to show causal link; expert testimony unresolved at trial. | Remand to determine admissibility and whether evidence creates genuine issue of loss causation. |
Key Cases Cited
- Castleberry v. Wells, 183 Ga. 328 (Ga. 1936) (true statements of current fact actionable when combined with future promises)
- Golden Atlanta Site Dev. v. Nahai, 299 Ga.App. 646 (Ga. Ct. App. 2009) (current-fact misrepresentations actionable even with future promises)
- Bishop v. Greene, 62 Ga.App. 126 (Ga. Ct. App. 1940) (misrepresentations about solvency actionable when tied to future promises)
- Infrasource v. Hahn Yalena Corp., 272 Ga.App. 703 (Ga. Ct. App. 2005) (mere opinions/predictions generally not actionable)
- Pacrim Assocs. v. Turner Home Entertainment, 235 Ga.App. 761 (Ga. Ct. App. 1998) (knows future event will not take place exception to rule on predictions)
- Novare Group v. Sarif, 290 Ga. 186 (Ga. 2011) (purchaser reliance on merger clause and disclaimer analyzed)
- McCabe v. Ernst & Young, LLP, 494 F.3d 418 (3d Cir. 2007) (loss causation framework for securities misrepresentation)
- Livid Holdings Ltd. v. Salomon Smith Barney, 416 F.3d 940 (9th Cir. 2005) (loss causation in securities actions beyond marketplace price drop)
- Dura Pharmaceuticals v. Broudo, 544 U.S. 336 (U.S. Supreme Court 2005) (loss causation requirement for securities fraud)