92 F. Supp. 3d 1041
D. Kan.2015Background
- Ross borrowed $210,000 from Rothstein on March 30, 2012 secured by Infinity Energy stock; Ross defaulted and later executed a Forbearance and (Superseding) Pledge Agreement pledging 77,310 shares.
- Court previously entered judgment for Rothstein on contract counterclaims and released the 77,310-share certificate to Rothstein, who sold the shares on the OTCQB on September 16, 2013 for net proceeds of $221,361.91.
- Ross sued for wrongful disposition of collateral under K.S.A. §§ 84-9-624, 84-9-625, and 84-9-626 alleging no notice and an uncommercial sale; Rothstein counterclaimed for fraud in the inducement and sought deficiency and fees.
- Magistrate Judge James recommended (and the district court adopted) excluding Underwood’s legal conclusions but admitting his factual market testimony; she recommended granting Rothstein summary judgment on wrongful disposition, a deficiency determination, and entitlement to contractual attorney’s fees.
- Key factual findings: Ross had waived post-default notice in the Pledge Agreement; the OTCQB sales were made in six lots via Fidelity within 40 minutes at prevailing quoted prices; the OTCQB was treated as a recognized market for purposes of Article 9 analysis.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Admissibility of expert Underwood’s testimony | Underwood’s affidavit is impermissible legal opinion and should be excluded in full | Underwood is qualified; may provide factual background on OTC markets even if legal conclusions are for the court | Court excluded Underwood’s legal conclusions but allowed factual market and trading-process testimony under Rule 702 |
| Waiver of notice under K.S.A. § 84-9-624 | Ross: waiver in Pledge Agreement was not a post-default waiver and ¶12.1’s “except as specified below” preserves notice-of-sale rights | Rothstein: Ross defaulted May 31, 2012; Pledge Agreement was executed after default and expressly waived notice | Court held waiver was post-default and ¶12.1 waived prior notice; paragraph 17 does not resurrect a notice-of-sale requirement |
| Commercial reasonableness / "recognized market" (K.S.A. § 84-9-627) | Ross: OTCQB is not a recognized market because prices can be individually negotiated; sale method depressed value | Rothstein: OTCQB functions with standardized, disseminated bid/ask and trades at market prices; sales were consistent with public trading practices | Court held OTCQB qualified as a recognized market here; sales were commercially reasonable and not individually negotiated for these transactions |
| Deficiency and attorney’s fees entitlement | Ross: statutory limits and K.S.A. § 84-9-626 bar deficiency if procedures weren’t followed; fees should be limited | Rothstein: complied with Article 9; agreements entitle him to recover reasonable out-of-pocket costs and attorney’s fees | Court awarded summary judgment for deficiency determination and held Rothstein is contractually entitled to recover reasonable attorney’s fees (amount to be determined under Rule 54) |
| Fraud-in-the-inducement counterclaim (timeliness/merits) | Ross: moves for summary judgment claiming no clear-and-convincing proof; motion was filed late | Rothstein: genuine disputes of fact exist regarding Ross’s statements and nondisclosures; motion untimely | Court denied Ross’s summary judgment: motion untimely and genuine factual disputes preclude summary judgment on fraud claim |
Key Cases Cited
- Nahno-Lopez v. Houser, 625 F.3d 1279 (10th Cir. 2010) (summary-judgment evidence viewed in light most favorable to nonmoving party)
- Anderson v. Liberty Lobby, 477 U.S. 242 (U.S. 1986) (trial court role at summary judgment is not to weigh evidence but to decide whether genuine issue exists)
- Daubert v. Merrell Dow Pharm., 509 U.S. 579 (U.S. 1993) (district court’s gatekeeping role for expert testimony)
- Specht v. Jensen, 853 F.2d 805 (10th Cir. 1988) (expert may not state legal conclusions; court is arbiter of law)
- Layne v. Bank One, Ky., N.A., 395 F.3d 271 (6th Cir. 2005) (sale of stock on recognized securities market can be commercially reasonable under Article 9)