Strategic Diversity, Inc. v. Alchemix Corporation
666 F.3d 1197
9th Cir.2012Background
- Weiss and Strategic Diversity sought rescission under §10(b) against Horton, Alchemix, and Medici after a July 2002 investment transaction.
- Weiss obtained a Board seat; Strategic and Weiss waived certain rights in exchange for terms tied to Alchemix’s funding.
- A proposed $3M–$36M Western Oil Sands investment and a disputed AFG arrangement framed the negotiations.
- The Western Memo and subsequent interactions led to prepayment of the Note and partial stock transactions.
- District court granted summary judgment for defendants on most claims and awarded attorneys’ fees; appellate court remanded on several issues.
- Weiss alleged misrepresentations and omissions regarding Western investment and related facts; district court held limitations and damages barred some claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the securities claims are time-barred? | Weiss claims discovery under Merck & Co. tolls limits. | Horton contends inquiry notice in 2002 starts the clock. | Remanded for Merck applicability; not time-barred on record. |
| Whether rescission is feasible and damages proper under §10(b)? | Weiss seeks rescission or rescissionary damages. | District court held no damages; seeks limits on rescission. | Remand to consider rescissionary damages and loss causation. |
| Whether §44-1991 state fraud permits rescission without damages? | Arizona law allows rescission without damages. | Weiss failed to show damages under state claim. | Remand to address state securities fraud claim. |
| Whether common law fraud and negligent misrepresentation require damages? | Weiss contends no damages required. | Damages required; injury shown. | Affirmed summary judgment for damages requirement. |
| Whether due to mutual mistake and failure of condition precedent there is relief? | Weiss seeks relief based on mutual mistake; condition precedent. | Risks allocated by contract; not independent grounds. | Summary judgment affirmed on these claims. |
Key Cases Cited
- Merck & Co. v. Reynolds, 130 S. Ct. 1784 (U.S. 2010) (discovery rule for limitations includes reasonably diligent discovery)
- Ambassador Hotel Co. v. Wei-Chuan Inv., 189 F.3d 1017 (9th Cir. 1999) (rescissionary damages and feasibility discussed)
- Jordan v. Duff & Phelps Inc., 815 F.2d 429 (7th Cir. 1987) (two measures of damages; rescissionary vs out-of-pocket)
- Loftsgaarden v. Murchison, 478 U.S. 647 (U.S. 1986) (rescissionary damages concept)
- Grand v. Nacchio, 214 Ariz. 9, 147 P.3d 763 (Ariz. Ct. App. 2006) (consideration of equitable loss causation in Arizona)