Ledford v. PeeplesLedford v. Peeples
Upon the majority vote of the judges in this Court in active service, on January 19, 2011, the en banc Court vacated this panel‘s prior opinion and granted rehearing en banc. See Ledford v. Peeples, 630 F.3d 1345 (11th Cir. 2011) (en banc); 605 F.3d 871 (11th Cir. 2010), vacated and reh‘g en banc granted, 630 F.3d 1345. The en banc Court has concluded that Appellees in their cross appeal have not shown that the district court abused its discretion in denying sanctions.
Because the en banc Court considered only the sanctions issue, we hereby reissue Parts I, II, IV, and V of the panel opinion of May 6, 2010, as set forth below as now Parts I, II, III, and IV. We affirm the district court‘s grant of summary judgment to Appellees.
In this case, two parties, X and Y, each owned a fifty percent interest in a limited liability company that manufactured and sold carpets. X provided the financing; Y ran the company and marketed its product. The parties had a buy-sell agreement that enabled either party to buy out the other at any time by offering to purchase the other‘s interest in the company at an offered price. After receiving an
Y offered to purchase X‘s interest for $3.5 million. X demanded to know whether Y would be borrowing the funds from Z, who earlier had expressed an interest in purchasing the company. Y said that neither Z nor anyone else would be providing the money. X asked Z if it was financing Y; Z said no.
X, unable to operate the factory and market its product without Y or someone with Y‘s expertise, had to sell and therefore accepted Y‘s offer. Prior to the date set for the closing, however, X told Y that it would not go forward with the closing unless Y represented that no third party was providing the funds to pay X. Y responded that it had no obligation to disclose the source of its funds and that X was bound by contract to transfer its interest to Y unconditionally. X tacitly agreed by appearing at the closing and transferring its interest to Y.
X subsequently learned that Z had provided the purchase price and, following the closing, had acquired the factory‘s assets and hired Y to run the business. After discovering Z‘s involvement, X took Y to court. In a complaint filed in state court, X alleged that Y breached a fiduciary duty to tell it that Z had financed the purchase of its interest, and moreover, that Y‘s failure to disclose Z‘s
X lost both cases on summary judgment.2 Both courts concluded that Y‘s alleged misrepresentation about Z‘s involvement in the buy-out did not cause X to sell its interest. Rather, X sold because it was in X‘s economic self-interest to do so. X needed Y‘s skills; had X purchased Y‘s interest, it would have had no one to run the carpet factory or to market its product. X therefore had no economically viable option but to sell.
The district court granted Z summary judgment. X appealed the district court‘s decision rejecting its claim. This opinion is organized as follows. Part I identifies X, Y, and Z and sets out the events that have given rise to this controversy.3 Part II canvasses the litigation as it evolved in state court and spread
I.
A.
X is DynaVision Group, LLC (“DynaVision“)4 and its principal owners, Jimmy Ledford, Larry O‘Dell, and Bryan Walker.5 Y is Brenda Smith, Robert Thomas, and Bryan Ownbey. Z is Shelby Peeples.
In July 1998, Paul Walker, Bryan Walker‘s father, approached Smith, Thomas, and Ownbey, experienced managers in the carpet manufacturing industry in Dalton, Georgia, with the idea of forming a company to manufacture and sell carpets to hotels, motels, restaurants, and others engaged in the hospitality
Under Signature‘s operating agreement, Smith, Thomas, and Ownbey managed the company, and DynaVision provided the capital.7 Signature sold carpet to hospitality customers—mainly through contacts that Smith, who was well respected in the industry, had previously established—and arranged for manufacturers in the Dalton area to fill the orders. DynaVision provided the funds that Signature needed to pay the manufacturers by establishing a $200,000 line of credit at a bank near Dalton, the First National Bank of Chatworth (“FNBC“).8
Signature initially operated out of rented office space; once the company established itself as a going concern, however, its owners decided to find their own
Under the Agreement, Smith was the company‘s president and the person in charge of marketing, Thomas was the vice-president of sales, and Ownbey was the
The Agreement also contained a buy-sell provision, which is at the center of the present controversy. This provision is contained in Article Nine of the
At any time Dyna-Vision or the Active Members by majority vote within that group, may set a price per percentage Interest and give written notice of that price to the other group, (the “Notice of Offer to Sell or Purchase“). The Members receiving the Notice of Offer to Sell or Purchase shall have thirty (30) calendar days to decide whether to sell all their Interest at that price or to purchase all the Interest of the group giving Notice of Offer to Sell or Purchase at the Price set forth in the Notice of Offer to Sell or Purchase. If the Members receiving the Notice of Offer to Sell or Purchase fail to make an election . . . , the Members receiving the Notice of Offer to Sell or Purchase shall have to sell their Interest at the price set forth in the Notice of Offer to Sell or Purchase.
Following the execution of the Operating Agreement, the parties located a site for Signature‘s manufacturing plant and offices on Green Road in Chatsworth, Georgia, a short distance from Dalton. To purchase the site, which included a building that could be converted to accommodate Signature‘s requirements, the Active Members formed another limited liability company, Signature Leasing, LLC (“Leasing“), with Ledford, O‘Dell, and Bryan Walker.13 On October 19, 1999, Leasing purchased the property (“Green Road Property“) with the proceeds of a $630,000 loan from Dalton Whitfield Bank. Bank employee Cynthia Trammel
Signature then looked to FNBC for working capital. Over a period of several months following its occupancy of the Green Road Property, Signature received several unsecured loans from the bank.16 In October 2001, Signature asked FNBC for a loan that would pay off its FNBC loans and the balance due on the Dalton Whitfield Bank loan and provide Signature with additional working capital. In total, Signature needed $911,000.
At Signature‘s request, Trammel, who had moved from Dalton Whitfield Bank to FNBC the year before, handled the transaction. Trammel informed Signature that, subject to the approval of the FNBC‘s board of directors, the bank
Trammel‘s first task was to have FNBC‘s counsel, Todd McCain,18 examine the title to the Green Road Property. After examining the title, McCain sent Trammel an opinion indicating that Leasing, not Signature, owned the Green Road Property. Signature therefore could not give the bank a deed to secure the debt with the property unless and until Leasing conveyed the property to Signature.
Trammel overlooked the need for the conveyance, and the loan closed on October 24, 2001 without Leasing having conveyed the property to Signature. Therefore, as part of this transaction, Signature gave FNBC a deed to secure debt for real property it did not own.19 A month or so later, Trammel happened to read
Trammel then contacted Smith, informing her that she and the other Guarantors would have to return to the bank and sign a “document” that had been neglected at the closing. The document was the warranty deed, although Trammel did not explain the document‘s significance to Smith at that time. Trammel asked that Smith pass along this message to the other Guarantors, which Smith did.
Smith, Thomas, and Ownbey promptly went to the bank and signed the document before a notary public, Angela Garland, and in the presence of a witness, Trammel. Smith read the document, which bore the heading “Warranty Deed,” and recognized its significance—that Leasing was conveying the Green Road Property to Signature to satisfy one of the conditions on which the bank had made the loan.
Ledford and O‘Dell did not appear to sign the document, so Trammel asked
Ledford and O‘Dell insist that they did not know that they were signing a warranty deed; moreover, they claim that they had no understanding of the legal significance of a warranty deed and would not have signed the instrument had they known that it transferred the Green Road Property to Signature.22
B.
In December 2001, Shelby Peeples, a Dalton businessman with interests in the carpet-manufacturing industry, contacted Paul Walker and Ledford and
On January 9, 2002, Paul Walker, Ledford, O‘Dell and the Active Members met and agreed to offer Signature and the Green Road Property to Peeples for between $10–12 million.25 They designated Paul Walker to represent them in negotiations with Peeples. Later that day, Paul Walker, Thomas, and Ownbey met with Peeples and some of his associates. Walker informed Peeples that the Green Road Property was owned by a separate company but offered to sell both Signature and the property for $12 million. Peeples rejected the offer. Walker countered with an offer of $10 million. Peeples rejected that offer as well. Peeples then asked Walker if he could meet separately with him and, after that, with the Active
As January wore on, Walker met with Peeples once or twice a week to discuss some business ventures in which they were involved. During some of their meetings, Walker asked Peeples whether he had been negotiating with the Active Members. Peeples said no, but his denial was false. Peeples and the Active Members had been meeting all along to discuss ways that Peeples could acquire DynaVision‘s interest in Signature without dealing directly with DynaVision. Moreover, with the assistance of his lawyer, Peeples had memorialized the substance of his discussions with the Active Members in a letter, which he faxed to the Active Members on January 21.
The letter mapped out the steps that Peeples and the Active Members would take. First, the Active Members would acquire DynaVision‘s interest in Signature using the Mandatory Put and Call provision of the Operating Agreement. According to the letter, “on terms and conditions to be set forth in a definitive, legally binding, written agreement, . . . a company owned or controlled by . . .
The letter contained sections entitled “Confidentiality” and “No Discussions with Others.” The “Confidentiality” section provided, in pertinent part:
None of the parties hereto will . . . (1) disclose or publicize in any manner (except as may be required by applicable law) that discussions relating to matters covered [in this letter] or the Loan or the Acquisition are taking place between or among the Active Members,
the Peeples Group, Signature and/or Buyer, or (2) reveal the terms or proposed terms of either this Letter or the Loan . . . to any person or entity other than representatives [of Peeples who would be conducting a due diligence investigation into Signature after the Active Members purchased DynaVision‘s interest].
The “No Discussion” section stated, again in pertinent part:
[N]one of the Active Members . . . will, directly or indirectly (i) negotiate or discuss with any other person or entity any transaction involving any business combination involving Signature, or (ii) solicit . . . negotiate . . . or accept any offer, bid or proposal from any other person or entity respecting any transactions involving a sale of assets of Signature (except for sales of property in the ordinary course of business) or any other business combination involving Signature, or (iii) disclose or reveal . . . [information related to Signature‘s financial condition or methods and plans of operations], other than in the ordinary course of business, to any person or entity not a party to this Letter in connection with the type of transactions described in clauses (i) and (ii) above . . . . In addition, the Active Members will immediately cease and cause to be terminated any previously undertaken or ongoing . . . negotiations with any other person or entity with respect to any transaction of the type described in the preceding clauses (i) and (ii) above.
The letter stated additionally that, “to the extent of any conflict in the provisions of this Letter and the provisions of the Signature Operating Agreement, the provisions of the Signature Operating Agreement shall prevail and the conflicting provision(s) of this Letter shall be void and of no effect whatsoever.”
After the Active Members received the letter, they continued their negotiations with Peeples, which, toward the end of January or early February, led
On February 8, Smith summoned Ledford and O‘Dell to discuss tensions between Ledford and O‘Dell and the Active Members. Toward the end of this meeting, Smith presented Ledford and O‘Dell with the Mandatory Put and Call pursuant to § 9.5 of the Operating Agreement. The Put and Call informed DynaVision that the Active Members would purchase its interest in Signature for $3.5 million unless DynaVision opted to purchase the Active Members’ interests for $3.5 million within thirty days. The Put and Call also stated that if DynaVision elected to purchase the Active Members’ interests, it would release the Active Members from their obligations under the Operating Agreement‘s non-solicitation clause. Ledford asked Smith whether Peeples or anyone else would be providing the purchase price. Smith‘s reply, according to Ledford, was that we “are doing this on our own.”29
On February 22, DynaVision‘s lawyer, H. Greely Joiner, Jr.,30 wrote a letter to the Active Members stating that because § 9.5 of the Operating Agreement precluded the imposition of conditions on a Put and Call, DynaVision would not honor the Put and Call with the non-solicitation clause condition. The Active Members tacitly agreed. On February 25, they presented DynaVision with a new Put and Call at the same price, $3.5 million, but without the requirement that DynaVision void the non-solicitation clause. Paul Walker and DynaVision treated this Put and Call as valid.
SINKFIELD [Counsel for Peeples]: . . . it was marketing help that was the key factor in your decision to sell rather than buy. Is that a fair statement?
LEDFORD: Had we been able to retain Brenda, we would have purchased the company.
SINKFIELD: Is it fair to say that marketing help was the key factor in your decision to sell rather than buy?
LEDFORD: The lack of a marketing group forced us to sell the company.
In his deposition in the state court case, O‘Dell testified:
HORST: Now, Dynavision had the money to pay three and a half million dollars to the active members, didn‘t it?
O‘DELL: I could have got the money
HORST: Why didn‘t you . . . .
O‘DELL: Without an operating group, a managing group, that would be most foolish on my part, in my decision or my opinion.
. . .
HORST: So you didn‘t think that if Dynavision bought out Bob, Brenda, and Bryan, you guys would have the ability to compete with them?
O‘DELL: Not without qualified people in that field, no.
HORST: The Dynavision people were not qualified people in that field?
O‘DELL: No, they weren‘t.
In his deposition in the district court case, O‘Dell testified:
SINKFIELD: You are running out of time, correct?
O‘DELL: Uh-huh.
SINKFIELD: Now, if you bought out the Active Members for 3.5 to give yourself time to complete [a deal with a potential third-party buyer for $8 million], that‘s what, about a million dollars differential . . . . that you could make just on turning it over . . . did you ever consider doing that?
O‘DELL: Well, that would have been a heck of a gamble to take. I mean, you could have, obviously, looked at it that way and thought well, I‘ll maximize this in another 30 days or 60 days but that would have been a gamble you were taking. I could have been left with a company without any managers, without anyone that knew anything about marketing. No, that was — that — I don‘t think that was an option we could take. . . .
SINKFIELD: You thought about, but you did not want to take the risk of buying the Active Members’ interest on the potential that you could turn it and either make a profit or find somebody who could run it in time to keep it from going
for an immediate buyer who would be willing to pay $10 million for the company. If they could find a buyer willing to pay as much as $8.5 million, they would opt to buy out the Active Members for $3.5 million. The $5 million they would net under. Is that a fair statement? O‘DELL: Correct.
In his deposition in the state court case, Walker testified:
HORST: Well, if you thought the company was worth more than the put-and-call offer, were you interested in trying to find somebody to lend you the money or for DynaVision to raise the money to buy out the company?
WALKER: We would have had to have found a marketing group to replace the existing marketing group. So its [sic] more than just the money, its [sic] a matter of also finding a group that can continue to grow the company.
HORST: You needed to find a marketing group because Dynavision did not have anybody that was associated with it that had the skill set that Bob, Brenda, and Bryan did; correct
WALKER: That is correct . . . .
HORST: So if you thought the offer that the active members made on February 8th of three and a half million dollars was too low, why didn‘t Dynavision buy the active members out of Signature Hospitality?
WALKER: I don‘t think that a marketing group could be found in the short period that they had to look for one.
In his deposition in the district court case, Walker testified:
SINKFIELD: So to your knowledge, one, you did not seek to borrow money, get a core investor, or anyone to assist you in buying out the Active Members Group; is that correct? You didn‘t personally do that?
WALKER: No.
SINKFIELD: Why not?
WALKER: There is no need to buy out the Active Members without a marketing group. The ability to obtain a marketing group first was necessary, since none of the Active — none of the Dyna-Vision Group were a part of the everyday management or marketing of Signature Hospitality.
SINKFIELD: Is there any other reason they you did not personally seek a financial source to assist you in buying out the Active Members’ interest?
WALKER: That would have been the only reason.
Ledford and O‘Dell contacted three firms, Mohawk Carpets, Clay Miller Carpets, and Matel Carpets, in their search for a buyer. They initially proposed a $10 million price for Signature, eventually lowering the price to $8.5 million as the thirty-day Put and Call period drew to a close. As part of his pitch to sell Signature, Ledford told Jerry Thomas, Matel‘s owner, that Thomas ought to buy Signature to protect his company from Signature‘s competition should Signature fall into Peeples‘s hands.32 Ledford stressed “the dynamics of what might happen should a . . . company like [Signature] fall into the hands of . . . the Peeples family.”33 But Thomas was not persuaded, nor was anyone else.34 With time running out, Ledford asked Smith if she would be willing to stay on and run the company if he and the others bought the Active Members’ interests. Smith was not interested.
Paul Walker and DynaVision‘s principals discussed among themselves the
C.
On March 27, the thirty-day election period provided by the Put and Call expired. DynaVision had not exercised its option to purchase the Active Members’ interests within the election period; consequently, it had to sell its interest for the $3.5 million Put and Call price. On March 28, DynaVision and the Active Members began to negotiate the finer terms of the sale.
A few days later, Joiner, presumably representing Ledford, O‘Dell, and Bryan Walker as one-half owners of Leasing, asked Smith if he could draw up a lease for the Green Road Property between Leasing, as lessor, and Signature, as lessee. Smith responded that Signature, not Leasing, owned the property. Joiner checked the title and discovered the warranty deed from Leasing to Signature that had been recorded on February 7. Paul Walker and Ledford then demanded that the Active Members consent to a conveyance of the property back to Leasing. The
Meanwhile, at a meeting of DynaVision‘s members, the members unanimously adopted resolutions authorizing O‘Dell and Ledford to “negotiate, execute and convey the interests of Dyna-Vision in Signature . . . to Smith, Thomas, and Ownbey . . . .” The resolutions went on to allow O‘Dell and Ledford to set certain conditions on the conveyance including:
the repayment of all loans due any [DynaVision] member or any affiliate of any member; the release of all [DynaVision] members from any guarantees issued on behalf of Signature to any financial institution or vendor; the repayment of any and all funds due Dyna-Vision by Signature with respect to any distributions which had not been authorized by the Board of Directors of Signature; and a long-term Lease Agreement between Signature and Leasing, with a minimum term of five (5) years at a rental rate of $11,000 per month plus taxes, insurance, maintenance and repair.
The minutes of this meeting indicate that DynaVision‘s members knew that the transaction would close on April 30. They provided that because O‘Dell, DynaVision‘s chairman, would be out of town that day, Ledford would act for DynaVision in his place.36
After this meeting adjourned, Ledford and O‘Dell met with Joiner and spelled out several conditions the Active Members would have to meet before closing. Joiner informed the Active Members of these conditions in an April 11 letter to their attorney, Douglas Krevolin. One called for the Active Members and DynaVision to execute an agreement Joiner had drafted and enclosed in his letter. The agreement contained the following covenant, presumably designed to smoke out the Active Members’ involvement with Peeples:
[e]ach Assignee [i.e., Active Member] does hereby represent and warrant to the Assignor [i.e., DynaVision] that such Assignee has acquired the Interest from the Assignor for investments solely for said Assignee‘s own account . . . without any intention of conveying . . . any portion of such Assignee‘s Interest, and without the financial participation of any other Person in acquiring the Assignee‘s Interest.
Another condition required the conveyance of the Green Road Property from Signature to Leasing.
Krevolin responded to Joiner‘s April 11 letter with a letter dated April 16. He informed Joiner that the Active Members would not consent to either of the two conditions. Responding to the threat implicit in Joiner‘s letter—that DynaVision would not close if the Active Members refused to represent that they were
Joiner informed Ledford of what Krevolin had written and the position that the Active Members would take if DynaVision refused to close, and Ledford instructed Joiner to proceed with the closing on April 30.
D.
In late April, prior to the closing, the Active Members signed two promissory notes and a collateral agreement. In the collateral agreement, entitled “Collateral Assignment of Membership Interest,” they pledged, “as record and beneficial” owner of Signature, all of their ownership interest in Signature as collateral for a loan of $3.5 million from PFLC, LLC and a loan of $855,000 from Internal Management, Inc., both companies owned by Peeples. The proceeds of these loans were to be used, respectively, to pay for DynaVision‘s interest in Signature and to pay the balance due, $855,000, on the loan FNBC had made to Signature the previous October.
At some point between the April 30 closing and May 7, the Active Members and Peeples signed an Asset Purchase Agreement pursuant to which the Active
Contemporaneous with the execution of the Asset Purchase Agreement, PFLC, LLC entered into six-year employment contracts with the Active Members, their compensation to consist of $118,000 signing bonuses, initial salaries of $160,000 per year, annual salary increases of $10,000, and bonuses if Signature made over $1.5 million in pre-tax profits in a calendar year.
II.
A.
On November 15, 2002, DynaVision, Ledford, O‘Dell, Bryan Walker, and Leasing filed suit for equitable and legal relief against the Active Members and Signature in the Superior Court of Murray County, Georgia. The plaintiffs all
The first claim40 was that Leasing, and Ledford, O‘Dell, Smith, Thomas, and Ownbey as owners of interests in Leasing, mistakenly executed the warranty deed conveying the Green Road Property to Signature and thus were entitled to a rescission of that transaction. The second claim41 was that Smith induced Ledford and O‘Dell to execute the warranty deed by falsely representing that FNBC needed a corrective document without warning that the document was in fact a warranty
The fifth and sixth claims involved the transfer of DynaVision‘s interest in Signature.43 The fifth claim,44 a fraud claim, alleged that upon presenting the conditional Put and Call on February 8, 2002, Smith falsely stated that the Active Members were “doing this on our own,” intentionally inducing DynaVision to sell its interest. The sixth claim45 alleged that by failing to disclose their discussions and final arrangements with Peeples, the Active Members breached fiduciary
On August 13, 2003, after the parties had joined the issues,48 plaintiffs moved the state court for leave to amend their complaint to add Peeples and his two companies, PFLC, LLC and Internal Management, Inc., as co-defendants.49 Plaintiffs represented that they had not learned of Peeples‘s involvement until the day before, August 12, when they took Ownbey‘s deposition and Ownbey testified that Peeples had provided the funds to enable the Active Members to trigger the Put and Call.50
The state court heard oral argument on the motion on September 25, 2003,
Plaintiffs moved the court to reconsider its ruling. The court denied their motion on March 8, 2004. In its order, the court was highly critical of plaintiffs’ delay in attempting to join Peeples as a party defendant:
[As a result of Ledford‘s deposition testimony] the Court [in its October 29 order] concluded that the Plaintiffs knew of the involvement of the Peeples Group, at the time the original Complaint was filed . . . . The Plaintiffs then waited nine months, until August 13, 2003, before filing for leave to amend. The Plaintiffs had carefully waited until after the deposition of Shelby Peeples [on June 27, 2003] and until after the close of discovery to have their motion heard [on September 25, 2003]. In making the October 2003 ruling, this Court determined that the Plaintiffs engaged in a deliberate scheme to delay joinder without excuse or justification. Therefore, the Court finds that the [Plaintiffs‘] failure to offer evidence of excuse or justification is an independent reason that the Plaintiffs’ Motion [for Reconsideration] should be denied.
B.
1.
On January 7, 2004, while their motion for reconsideration was pending in state court, plaintiffs, still represented by Joiner, Mixon, and Brackett, brought the instant lawsuit against Peeples52 in the United States District Court for the Northern District of Georgia.53 The complaint was framed in 116 paragraphs and seven counts. Each count incorporated by reference each preceding count, such that
Plaintiffs’ complaint is a “shotgun” pleading in that it lumps multiple claims together in one count and, moreover, appears to support a specific, discrete claim with allegations that are immaterial to that claim. See, e.g., Byrne v. Nezhat, 261 F.3d 1075, 1128-32 (11th Cir. 2001). When faced with a complaint like the one here, in which the counts incorporate by reference all previous allegations and counts, the district court must cull through the allegations, identify the claims, and, as to each claim identified, select the allegations that appear to be germane to the claim. This task can be avoided if the defendant moves the court for a more definite statement or if the court, acting on its own initiative, orders a repleader.
In this case, Peeples did not move the court for a more definite statement, nor did the court require one on its own initiative. Consequently, it is left to this panel to identify in the first instance what plaintiffs were claiming. We do so by proceeding allegation by allegation and count by count, weeding out and disregarding as extraneous the allegations that have no bearing on a claim.
We begin this process with Count One, which alleged three violations of the federal securities laws.54 First, after the Put and Call offers of both February 8 and
Second, Peeples “directly or indirectly control[led] the activities of the Active Members” using the “Confidentiality” and “No Discussions with Others” provisions of the January 21 letter, the “secret discussions” of January and February 2002, and the Asset Purchase Agreement. As such, Peeples was responsible for the Active Members’ conduct in violation of § 10(b) and Rule 10b-5(b) as a “controlling person” under § 20(a) of the 1934 Act.56 Specifically, Peeples was responsible for Smith‘s statement that we are “doing this on our own”
In support of their 10b-5(a) claim, plaintiffs, in their opposition to Peeples‘s motion for summary judgment, identified three components of the “scheme”: (1) Peeples and the Active Members agreed not to disclose their negotiations, as evidenced by the January 21 letter; (2) Peeples and the Active Members used the Put and Call provision “to improperly exclude DynaVision from participating in the sale of [Signature] to Peeples”; and (3) Peeples and the Active Members collaborated to “deceive the individual Plaintiffs into signing [the] Warranty Deed.”58
Finally, the plaintiffs alleged that the misrepresentations, omissions, and scheme described in Count One caused DynaVision to sell its interests and suffer injury.59 Paragraph 64 of the district court complaint stated:
Based upon the false and misleading information concerning [Signature] and the source of funding for the buy/sell offers, which had been provided by the Active Members and Defendants, and in reliance on their misrepresentations that there was no offer to purchase [Signature] outstanding, DynaVision chose to sell its interest in [Signature], rather than purchase the interest of the [Active Members]. As a result, in late March 2002, DynaVision became contractually required to sell its interest in [Signature] to the Active Members pursuant to the terms of the [Signature] Operating Agreement.60
Counts Two through Five alleged causes of action under Georgia common law and statutory provisions.61 Count Two, “Violation of the Georgia Securities Act,” alleged that the same conduct that gave rise to the Count One claims for relief rendered Peeples liable to plaintiffs under the Georgia securities laws.62 Count Three, “Conspiracy to Defraud,” alleged that Peeples conspired with the Active Members to (1) fraudulently induce DynaVision to sell its interest in
On March 9, 2004, the day after the state court refused to reconsider its October 29, 2003, order denying plaintiffs’ motion for leave to join Peeples as a party defendant, Peeples moved the district court to dismiss plaintiffs’ complaint. Alternatively, he requested that the district court stay further proceedings pending
2.
On May 18, 2004, the state court ruled on the pending motions for summary judgment. It granted defendants summary judgment on the fourth and fifth claims and on the sixth claim in part. It denied summary judgment on the first, second and third claims and on the sixth claim in part on the ground that material issues of fact remained to be litigated. Regarding the sixth claim, the court found that the Active Members had a fiduciary duty to inform DynaVision of Peeples‘s
Plaintiffs appealed the court‘s dismissal of the fifth claim, that the Active Members fraudulently induced DynaVision to part with its interest in Signature. The Active Members cross-appealed the court‘s disposition of the first claim, that Leasing conveyed the Green Road Property due to mutual mistake; the second claim, that Smith fraudulently induced the transfer of the Green Road Property to Signature by misrepresenting the warranty deed; and part of the sixth claim, that the Active Members breached a fiduciary duty to inform DynaVision of Peeples‘s participation. Plaintiffs did not appeal the court‘s disposition of their fourth claim, unjust enrichment through the transfer of the Green Road Property, and the Active Members did not appeal the court‘s denial of summary judgment on plaintiff‘s third claim, that the Active Members had breached a fiduciary duty to Leasing, O‘Dell, and Ledford with respect to the transfer of the Green Road Property. While these appeals were pending in the Georgia Court of Appeals, the district court set February 26, 2005 as the discovery deadline.
3.
On July 12, 2005, the Georgia Court of Appeals handed down its decision. Ledford v. Smith, 618 S.E.2d 627 (Ga. Ct. App. 2005). The court affirmed the
The court of appeals explained why it held for the Active Members on all but plaintiffs’ first claim. It began with plaintiffs’ sixth claim, that the Active Members had a fiduciary duty under the Limited Liability Company Act and common law to disclose their negotiations with Peeples. After observing that default fiduciary duties are trumped by an operating agreement,65 Ledford, 618 S.E.2d at 636,66 the court explained that Signature‘s Operating Agreement allowed the Active Members to obtain Peeples‘s assistance in funding the Put and Call. Citing § 7.3 of the Operating Agreement, which authorized the Active Members to “engage in all . . . other business ventures . . . but no Active Member shall engage in businesses similar to the business of the [Signature] by competing with the business of the Company,” the court reasoned that:
This provision gave the Active Members wide latitude to engage in all other business activities except those “similar to the business of” [Signature], that is, a “competing” carpet company. The provision was broad enough to allow the Active Members to negotiate with Peeples for the purpose of obtaining financing to fund their buy-out of Dyna-Vision‘s interest in [Signature]. This activity did not “compete” with [Signature]; thus, it did not fall within the exception. Any fiduciary duty of disclosure that the Active Member‘s [sic] may have owed Dyna-Vision with respect to such a business arrangement was eliminated by the terms of an operating agreement that allowed the business activity which occurred. See Stoker v. Bellemeade, 272 Ga.App. at 824, 615 S.E.2d 1 (members of an LLC did not breach
fiduciary duties by participating in other allegedly competing real estate developments because operating agreement allowed them to do so).
The court also rejected plaintiffs’ argument that the Operating Agreement‘s Right of First Refusal provision in § 9.2.1 created a fiduciary duty that required the Active Members to disclose their intention to sell Signature‘s assets to Peeples. The court explained:
As the superior court correctly concluded, this provision was plainly “intended to prevent outsiders from buying into [Signature]. In this way, the Members maintained control over who their business ‘partners’ were to be.” Because the Active Members’ proposed buy-out of Dyna-Vision‘s interest would not allow a third party to buy into [Signature] and become Dyna-Vision‘s business partner, the purpose of the right of first refusal was not implicated. Therefore, [Section] 9.2.1 did not require the Active Members to disclose to Dyna-Vision how it intended to finance its buy-out offer.
Turning to plaintiffs’ fifth claim, that the Active Members fraudulently induced DynaVision to sell its interest, the court held that summary judgment was appropriate because the Active Members’ failure to inform DynaVision of their deal with Peeples did not cause DynaVision‘s decision to sell. Once the Active Members invoked the Operating Agreement‘s Put and Call provision, DynaVision, by its principals’ own deposition testimony, had no feasible option but to sell its
Moreover, both Ledford and O‘Dell deposed that, even if they could have raised the money to buy out the Active Members, owning [Signature] without the Active Members would have been “foolish” and “made no sense” because the Active Members were the heart of [Signature‘s] value. As O‘Dell admitted “we didn‘t really have a choice . . . . We didn‘t have a management group . . . . The day the put and call came in, I wouldn‘t give two cents for finding a group to replace them.” Because Peeples’ involvement did not affect the value of the Active Members’ interest, it was immaterial. Or, stated differently, [plaintiffs] cannot show that they suffered any damage as a result of their alleged reliance on the Active Members affirmative misrepresentation that Peeples was not involved in the buy-out.
The court then addressed the plaintiffs’ second claim, that Smith, and thus the Active Members, fraudulently induced Leasing to sign the warranty deed at FNBC by asking Ledford and O‘Dell to sign the deed without disclosing the nature of the document. Because it found no evidence of misrepresentation, the court concluded that on this claim, the Active Members were entitled to summary judgment. It held:
In this case, the evidence shows that FNBC, on its own initiative, drafted the warranty deed and asked all the parties to the loan closing to sign this “corrective paper.” Although Ledford and O‘Dell contend they signed the document because Smith asked them to do so, the evidence only shows that Smith was relaying the bank‘s request. There is no evidence in the record that Smith caused the deed to be drafted, acted in concert with the bank, or misrepresented or concealed the document‘s nature. In fact, it appears from the record that Smith was
as ignorant of the document‘s significance as Ledford and O‘Dell. Under these circumstances, we see no evidence of a fraudulent statement or the concealment of a material fact that Smith was under a duty to disclose.
4.
On July 15, 2005, shortly after the Georgia Court of Appeals‘s opinion issued, Peeples‘s counsel sent a letter to plaintiffs’ counsel, requesting that plaintiffs dismiss all claims against Peeples. On July 25, plaintiffs’ counsel responded, stating that nothing in the court‘s opinion warranted dismissal and that they had moved the court of appeals for reconsideration. On July 28, 2005, the motion for reconsideration was denied. On August 1, Peeples‘s counsel again wrote plaintiffs’ counsel, asking that plaintiffs agree to a stay of proceedings in the district court. Plaintiffs’ counsel rejected that request the next day; they planned to petition the Supreme Court of Georgia for a writ of certiorari.
On September 22, Peeples moved the district court for summary judgment on all of plaintiffs’ claims. In the brief accompanying the motion, Peeples cited the court of appeals‘s Ledford decision and stated:
Should the Georgia Supreme Court deny Plaintiffs’ petition for certiorari or affirm the Georgia Court of Appeals’ order, then Plaintiffs’ derivative liability claims in the federal action are collaterally estopped. In the absence of affirmance or denial, the
reasoning of the Georgia Court of Appeals, the applicable Georgia law as cited, and the conclusions reached on the undisputed facts as present in this case are instructive and may be considered by this Court.
On October 31, plaintiffs’ counsel responded to this statement in their brief in opposition to Peeples‘s motion for summary judgment:
As an initial matter, throughout their brief, the Defendants refer to an Opinion of the Georgia Court of Appeals in a state court proceeding between the Plaintiffs and the Active Members . . . . The state court case has no effect on the central securities fraud claims in this action; the opinion is not binding on this Court. Furthermore, a petition for certiorari has been filed with the Georgia Supreme Court seeking to correct the multitude of legal and factual errors contained in that opinion.67
On November 18, the Georgia Supreme Court denied plaintiffs’ petition for certiorari review in the state court case. Ten days later, plaintiffs moved the Court to reconsider its decision.68 The court denied plaintiffs’ motion on December 16. The denial operated to make the court of appeals‘s Ledford decision binding authority on matters of Georgia law. See Lexington Developers, Inc. v. O‘Neal Const. Co., Inc., 238 S.E.2d 770, 770–771 (Ga. Ct. App. 1977).
On December 22, the district court, in a comprehensive sixty-eight page
5.
On January 9, 2006, Peeples moved the district court pursuant to
Plaintiffs and their attorneys filed separate responses to Peeples‘s request for attorney‘s fees and expenses under the PSLRA. Plaintiffs, represented in the matter of sanctions by new attorneys, claimed that they did not misrepresent the historical facts to counsel, did not advise counsel regarding the law, and were not responsible for the manner in which counsel litigated the case. Relying on our decision in Byrne v. Nezhat, 261 F.3d 1075 (11th Cir. 2001), plaintiffs averred that sanctions against them would not be appropriate. In their separate response, plaintiffs’ attorneys asserted, in essence, that a reasonably competent attorney
On March 21, 2006, the district court granted Peeples‘s motion to the extent that it sought PSLRA findings, but refused to sanction plaintiffs or their counsel, finding that they had acted in compliance with
6.
All five plaintiffs now appeal the district court‘s disposition of each of their claims. Their brief, however, presents no argument as to Counts Three and Five through Seven. We therefore treat as abandoned their appeal of the district court‘s disposition of those counts. We also treat as abandoned the appeal of the court‘s disposition of plaintiffs’ claims under two of the federal securities laws. As noted, Count One contained claims under § 20(a) of the 1934 Act and Rules 10b-5(a) and (b). Plaintiffs’ brief presents no argument in support of their § 20(a) and Rule 10b-5(a) claims,73 and, as in the case of Counts Three and Five through Seven, we deem
Our review proceeds as follows. We first consider plaintiffs’ Count One 10b-5(b) claims.76 Next, we move to plaintiffs’ Count Four aiding and abetting claims.
III.
We address these claims in sequence, affirming the district court‘s grant of
A.
In a typical § 10(b) civil action for a violation of Rule 10b-5(b), a plaintiff must prove (1) a material misrepresentation or omission by the defendant, (2) scienter, (3) a connection between the misrepresentation or omission and the purchase or sale of a security, (4) reliance upon the misrepresentation or omission, (5) economic loss, and (6) loss causation. Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 552 U.S. 148, 157, 128 S. Ct. 761, 768, 169 L. Ed. 2d 627 (2008).77
To establish a genuine issue of material fact as to the reliance element,78
The evidence in the record, viewed in the light most favorable to Plaintiffs, shows that Plaintiffs themselves did not have the necessary experience, marketing skills, and expertise to run [Signature] in the absence of the Active Members, and that Plaintiffs’ attempts to obtain a management group and necessary personnel to work with [Signature] were unsuccessful. Plaintiffs themselves testified that it would be foolish or risky to purchase the Active Members’ interests in [Signature] without having a management group or marketing group in place to replace the Active Members. Although Plaintiffs summarily contend that they would have acted differently if they had known of Defendant Peeples’ involvement, that summary and conclusory contention is not sufficient to allow Plaintiffs to avoid summary judgment. Indeed, knowledge of Defendant Peeples‘s involvement would not have changed the fact that Plaintiffs did not have the necessary experience, marketing skills, and expertise to run [Signature], and that Plaintiffs’ attempts to obtain a management group and necessary personnel to work with [Signature] were unsuccessful. The failure to disclose Defendant Peeples’ involvement thus did not cause Plaintiffs’ decision to sell Plaintiff DynaVision‘s interest under the February 25, 2002, Put and Call . . . .81
B.
To obtain a reversal of the district court‘s resolution of the reliance issue, plaintiffs must satisfy us that the evidence in the record creates a jury issue as to whether DynaVision would have purchased the Active Members’ interests, rather than sell its interest, had Peeples told Paul Walker and Ledford that he was providing the Active Members the $3.5 million they needed to close the transaction. There is no direct evidence that DynaVision would have elected to buy the Active Members’ interests had Peeples admitted that he was providing the money. Because there is no direct evidence that DynaVision would have elected to buy, we ask whether such election can be inferred from the record. Specifically, we ask whether it can be inferred as an ultimate fact from the subsidiary, circumstantial facts shown by the evidence, viewed in the light most favorable to plaintiffs.
Plaintiffs argue that circumstantial facts sufficient to create the inference are present. Peeples argues that they are not, that the circumstantial facts create the contrary inference: DynaVision sold because doing so was in the economic self-
In assessing these opposing positions, our first task is to identify the circumstantial facts that the evidence establishes as a matter of law. Once that is done, we determine whether it would have been permissible for a jury to draw the inference that DynaVision would have elected to purchase the Active Members‘s interests had it known that Peeples was providing the $3.5 million that enabled the Active Members to close.
The evidence discloses three sets of circumstantial facts, with inferences flowing from each set. We summarize each set in the headings of the following subparts and conclude that, as a matter of law, DynaVision‘s principals would have sold even if they had known about Peeples‘s involvement.
1.
DynaVision lacked the expertise necessary to operate Signature‘s factory and market Signature‘s product. Consequently, if the Active Members left, there would be no one to run the company, and Signature‘s value would rapidly decline.
There is no dispute regarding the roles that DynaVision‘s principals and the Active Members performed for Signature. The principals functioned as Signature‘s financiers. By establishing the $200,000 line of credit, they were able
By their own admission in depositions taken in the state court case and in this case,82 DynaVision‘s principals could not, themselves, replace the Active Members, most notably Smith, for the principals had no experience in manufacturing carpet and were virtually incapable of marketing Signature‘s products. Ledford testified that the principals had no “experience with [the] customer base” and therefore could not run the company. He emphasized Smith‘s key role in marketing Signature‘s products, stating that “had we been able to retain Brenda, we would have purchased the company.”83 Paul Walker said that “none of
In addition to this testimony, DynaVision‘s principals’ conduct towards the Active Members spoke volumes about how important the principals felt it was to keep the Active Members in the company, at least until the principals themselves decided to sell.84 The principals included in the Operating Agreement a provision that made it highly unlikely that the Active Members would leave Signature before the principals were ready to sell. If an Active Member sold his or her interest in the company, § 10.4 of the Agreement would preclude that Member from competing with Signature for a period of one year.85 Because they were not financially independent, the Active Members would presumably need to find other
The principals also included a provision to make it hard for the Active Members to buy out DynaVision before DynaVision was ready to sell. Section 9.1 of the Operating Agreement addressed the possibility that the Active Members might attempt to buy DynaVision‘s interest pursuant to the § 9.5 Put and Call provision. DynaVision‘s principals knew the Active Members lacked the personal resources sufficient to make an offer that DynaVision’ principals would be tempted to accept;86 consequently, the Active Members would have to borrow the money to fund any buy-out.87 Obtaining a conventional loan from a bank or other lending
the subject at the time?
LEDFORD: At the time we received the Put and Call . . . I had an opinion, yes, sir.
SINKFIELD: And what was that opinion?
LEDFORD: That they probably could not.
SINKFIELD: And based on that opinion, how did you think they would pay for the Dyna-Vision interest if y‘all decided not to buy them out?
LEDFORD: I didn‘t know.
SINKFIELD: Did you have an opinion as to what they would have to do?
LEDFORD: Well, I assumed if they bought us out . . . they would . . . have to borrow the money. If they couldn‘t do that, they would have to get the money from someone else.
In Walker‘s district court deposition, he testified as follows:
SINKFIELD: So you knew [the Active Members] had to have funding from [an outside] source, is that correct?
WALKER: If they closed the deal, yes.
SINKFIELD: And you knew, to the best of your knowledge, that they did not have sufficient resources among themselves to do it without outside funding; is that correct?
WALKER: I would say with suspicion, they didn‘t have. But to my initial knowledge, no.
SINKFIELD: But to the best information you had told you they couldn‘t fund it without outside help. Is that correct?
WALKER: To the best information I had, yes.
Joiner revealed how indispensable the Active Members were to Signature‘s value in the letter he wrote to Krevolin on April 11, 2002, nineteen days before the closing was to take place. In the letter, Joiner informed Krevolin that DynaVision would refuse to close unless the Active Members signed a new agreement with DynaVision and, as required by that new agreement, represented in writing that they were acquiring DynaVision‘s interest “solely for [their] own account . . . without the financial participation of [a third party].”89
Krevolin‘s response, in a letter to Joiner dated April 16, was brief: The Active Members would not make the representations Joiner‘s letter was seeking, and moreover, if DynaVision refused to close, the Active Members would take it to
2.
DynaVision‘s principals could not have persuaded the Active Members to remain with the company, obtained a management team to replace them, or located a buyer for Signature, even if Peeples admitted his involvement.
DynaVision‘s principals have conceded that they were unable to persuade the Active Members or Smith individually to remain with Signature and that they were unsuccessful in finding a suitable management team to replace them. They
In their brief to us, however, plaintiffs argue that Ledford and O‘Dell would have been able to find a buyer for $8.5 million if Peeples had simply admitted his involvement in the Put and Call. With a buyer‘s commitment in hand, DynaVision would have then purchased the Active Members’ interest for $3.5 million and reaped a $5 million profit.
Plaintiffs explain that once Peeples admitted his involvement, DynaVision‘s principals would have discovered that he agreed to pay $10 million for Signature (including $3.5 million to DynaVision). Ledford and O‘Dell would have then had two excellent selling points when offering Signature to Mohawk, Clay Miller, and Matel. First, because Peeples was going to pay $10 million for Signature, their asking price of $8.5 million was not only reasonable, it was an exceptional bargain.
Had [DynaVision] known the truth, DynaVision‘s chances of finding a buyer willing to pay more than $7 million for [Signature] would have increased dramatically.
. . . .
Potential buyers and investors would certainly view the [Active Members‘] agreement to sell [Signature] for $10 million to the Peeples Group as material. Thus, those contacted by DynaVision during the [thirty-day] election period may have acted differently, themselves, had they known of the agreement between the Peeples Group and the Active Members. Such knowledge may have increased their assessment of the value of the company or validated the value mentioned by DynaVision. Moreover, knowledge of a strategic acquisition by Shelby Peeples might have inspired those with marketing experience to assist DynaVision in order to maintain their competitive advantage. Knowledge of the truth could have enabled DynaVision to find a purchaser and/or marketing group for [Signature].
Appellants’ Br. at 39–40.
Several flaws in plaintiffs’ argument are immediately obvious. First, there is no support in the record for the statement that Peeples agreed to pay the Active Members $10 million for Signature at any time, let alone during the thirty-day election period. The most Peeples ever offered for Signature was roughly $6.5 million. In the January 21 letter of intent, Peeples discussed loaning the Active Members $3.5 million to enable them to purchase DynaVision‘s interest and then
To arrive at the $10 million figure, plaintiffs add the bonuses Peeples agreed to pay the Active Members under the Asset Purchase Agreement and employment contracts95 to the amount he actually paid for Signature‘s assets.96 The amount of these bonuses, however, was contingent on Signature‘s future performance; the Active Members would only be eligible if Signature made a profit above a certain amount on a yearly basis.97 Consequently, the bonuses are
Second, plaintiffs have not explained how they would have learned of the price Peeples intended to pay for Signature.98 According to the Georgia Court of Appeals, the Active Members had no obligation under the Operating Agreement to reveal the details of their plan. Ledford, 618 S.E.2d at 633–36. If Paul Walker had asked about these details, Peeples‘s response would therefore undoubtedly have been that it was none of his business. This is essentially what Krevolin told Joiner when Joiner demanded that the Active Members represent prior to closing that they were purchasing DynaVision‘s interest “solely for [their] own account” and “without the financial participation of any other Person,” meaning without Peeples‘s participation.
3.
The principals had to choose between purchasing the Active Members’ interest and risking the loss of their investment or selling their interest for a $3.5 million profit.
DynaVision‘s principals had thirty days to decide whether to buy or sell. They opted to sell and received a $3.5 million profit, an extraordinary return on their initial investment.99 Ledford and O‘Dell also received the release of their obligation to FNBC to guarantee payment of the $911,000 loan the bank had given Signature.100 Had they opted to buy instead, they would have assumed the risk that
Faced with these alternatives, DynaVision‘s principals had to choose the one that satisfied their economic self-interest: They had to sell. As the Georgia Court of Appeals, drawing on what Ledford and O‘Dell had to say on deposition,101 observed:
Either the Active Members’ interest in [Signature] was worth $3.5 million to Dyna-Vision or it was not. The fact that Peeples financed the offer could not have materially affected Dyna-Vision‘s decision-making with respect to [Signature‘s] value, because if Dyna-Vision chose to buy the Active Member‘s interest, it could not force Peeples (or any other prospective buyer) to buy [Signature] for a fixed price. And there is no evidence in the record that Dyna-Vision had an interested buyer or that [Signature] had any value to any other prospective buyer. Moreover, both Ledford and O‘Dell deposed that, even if they could have raised the money to buy out the Active Members, owning [Signature] without the Active Members would
have been “foolish” and “made no sense” because the Active Members were the heart of [Signature‘s] value. As O‘Dell admitted “we didn‘t really have a choice. . . . We didn‘t have a management group. . . . The day the put and call came in, I wouldn‘t give two cents for finding a group to replace them.” Because Peeples’ involvement did not affect the value of the Active Members’ interest, it was immaterial.
Ledford, 618 S.E.2d at 634–35.
We began this discussion by stating that to obtain a reversal of the district court‘s determination that they failed to create a jury issue as to the reliance element of their
C.
Perhaps realizing the futility of the arguments they have advanced, plaintiffs present an argument that they failed to present to the district court while it was considering the merits of their claims. The argument is founded on § 9.1 of the
The allegation that DynaVision‘s principals would have rejected the Put and
The argument appeared for the first time in plaintiffs’ response to Peeples‘s post-judgment motion for PSLRA sanctions. Peeples, in his motion, argued that plaintiffs lacked a factual basis to assert that DynaVision‘s principals relied to their
It requires no citation of authority to say that, except when we invoke the “plain error doctrine,” which rarely applies in civil cases, we do not consider arguments raised for the first time on appeal. A mere recitation of the underlying facts, furthermore, is insufficient to preserve an argument; the argument itself must have been made below. See City of Nephi v. Fed. Energy Regulatory Comm‘n, 147 F.3d 929, 933 n.9 (D.C. Cir. 1998) (holding that a party does not preserve an argument for appellate review by “merely informing the [district] court in the statement of facts in its opening brief [of the factual basis for the claim]“); Wasco Products, Inc. v. Southwall Tech., Inc., 166 Fed. App‘x 910, 911 (9th Cir. 2006) (unpublished) (“Although [the argument was] stated in a statement of facts, it was never argued and never ruled upon. Without any proffered explanation for this default, the argument is waived.“). Here, plaintiffs did not use the factual statement in arguing the reliance issue.
Given what we have said thus far in this opinion, we think it appropriate to
IV.
We now address what remains of plaintiffs’ Count Four claims that Peeples aided and abetted Smith, Thomas, and Ownbey in breaching their fiduciary duties
A.
In support of their aiding and abetting claim, plaintiffs allege two separate breaches of fiduciary obligation. First, they contend that Smith breached her
The district court, concluding that Georgia did not recognize a cause of action for aiding and abetting the breach of a fiduciary duty, dismissed plaintiffs’ claims. The Georgia Court of Appeals subsequently held, however, in Insight Techs., Inc. v. FreightCheck, LLC, 633 S.E.2d 373 (Ga. Ct. App. 2006), that such
In light of the court of appeals decision in that case, we assume for purposes of this case that the obligation
B.
We begin with plaintiffs’ argument that Smith should have explained the
Smith‘s explanation, to be complete and leave no stone unturned, would have taken Ledford and O‘Dell back to October 2001, when Ledford, O‘Dell, and the Active Members applied to FNBC for a loan on behalf of Signature. That loan was intended to pay off Signature‘s current loans at FNBC, pay off the balance due on the note Leasing gave the Dalton Whitfield Bank,112 and provide Signature with additional working capital. Signature needed in excess of $900,000 to accomplish all of this.
Smith would have reminded Ledford and O‘Dell that Cynthia Trammel—the FNBC officer who processed their loan application and, before that, handled the loan they had obtained from the Dalton Whitfield Bank for Leasing—had to submit their application to FNBC‘s board of directors for approval. She would
Next, Smith would have explained that Trammel, having obtained their consent to these conditions, took the steps necessary to close the transaction. One was to have the bank‘s lawyer, Todd McCain, conduct a title search of the Green Road Property. McCain conducted a search, issued an opinion, and delivered it to Trammel. The opinion stated that title to the property was held by Leasing and that Signature could not give the bank a deed to secure debt unless Leasing deeded the property to Signature before the loan closed.
Smith would have gone on to say that the closing went as planned except that Signature gave the bank a deed to secure debt on property it did not own;
Upon reading McCain‘s letter, Trammel realized that she had to obtain a deed from Leasing to Signature so that the deed to secure debt Signature had given the bank would not be worthless.114 To solve the problem, Trammel called McCain‘s office, and it prepared the warranty deed at issue. Trammel then called Smith. She told Smith that a “document” needed to complete the loan closing had to be signed and asked her to come to the bank with Ledford, O‘Dell, Thomas, and Ownbey for that purpose. Smith immediately informed the others of Trammel‘s request. A day or so later, she arrived at the bank with Thomas and Ownbey and signed the document, the warranty deed, before a notary and a witness. When Ledford and O‘Dell failed to appear, Trammel called Smith again. Smith, in turn, called Ledford, who contacted O‘Dell, and they, too, signed the deed, before the same notary and witness. At that time, plaintiffs argue, Smith should have informed them that the document was a warranty deed.
McCain would have told Ledford and O‘Dell‘s lawyer that Ledford, O‘Dell, Smith, Thomas, and Ownbey induced the bank to loan Signature $911,000 on the condition that Signature give the bank a deed to secure debt on the Green Road Property. To do that, Signature would have to possess clear title to the property.
McCain would have then observed that, in executing Signature‘s deed to secure debt, Ledford and O‘Dell represented that Signature owned the property, on the surface a false representation. If making such representation was intentional, as their current position seems to imply, they obtained the bank‘s funds under false pretenses. And, moreover, Leasing lined its pockets, and the guarantors of Leasing‘s debt to the Dalton Whitfield Bank were relieved of potential liability, at Signature and FNBC‘s expense. McCain would inform Ledford and O‘Dell‘s counsel of the elements of the federal bank fraud statute,
Given the representations Smith and the others made to induce the FNBC to make the Signature loan and the benefit that inured to Leasing and its guarantors when its note to the Dalton Whitfield Bank was paid off, we fail to discern how Smith could be said to have breached her
C.
This brings us to the second alleged breach, the refusal of Smith, Thomas,
The district court, had it entertained Count Four on the merits, would have been required to grant Peeples summary judgment. We accordingly affirm its judgment dismissing the count for failure to state a claim for relief.
For the reasons set out herein, we AFFIRM the district court‘s judgment granting defendants’ motion for summary judgment.
AFFIRMED.
Notes
On its face, § 10.4 appears to apply to DynaVision as well as the Active Members. In reality, it applied only to the Active Members. DynaVision had no contact with Signature‘s customers and, if it sold its interest, lacked the know-how to compete with Signature. In this opinion, we therefore treat § 10.4 as applying only to the Active Members.No Solicitation of Company Employees or Customers. In the event a Member sells his Interest in the Company, the Member . . . for a period of one (1) year after the sale of the Interest, shall not . . . call, solicit or fulfill orders from customers or prospects who have been contacted by the Company within twenty-four (24) months prior to the sale of the Interest . . . for the purpose of inducing those customers or prospects to cease doing business with the Company or to induce those customers to do business with another in competition with the business of the Company. . . .
HORST [Counsel for the Active Members]: So they [the Active Members] talked to you about these Crescent Extrusions invoices, and then after that discussion, they hand you the February 8th put-and-call letter?
LEDFORD: Well, it was — Larry [O‘Dell] and I were sitting at the table, and Brenda [Smith] said something to the effect, “we may as well do this now,” or something. I don‘t know. She was standing at that corner of her desk and she handed the put-and-call to us. I don‘t know if we had stopped discussing the Crescent invoices. I don‘t know if we had resolved any — I don‘t know. I just know that we discussed that and then we got the put-and-call.
HORST: What was your reaction when you got the put-and-call?
LEDFORD: I was shocked.
HORST: Why?
LEDFORD: I thought we had a good partnership.
HORST: What did you say to her when you got it?
LEDFORD: Well, after we read it, I asked if there was anybody else involved or a third party funding it, and she said “No, this is us. We‘re doing this on our own.” I said, “Is there any chance that this could be undone?” And I think Larry [O‘Dell] made the comment that “This partnership is over with.” . . . .
HORST: What else did Mr. O‘Dell say at that meeting other than “This partnership is over with?”
LEDFORD: I don‘t recall.
HORST: Didn‘t he say something to the effect that, “Oh, hell, Jim [Ledford], you know who‘s funding this and he‘s going to screw us“?
LEDFORD: He could‘ve said something about that. I‘m sure we had a real good idea who was funding it. . . .
HORST: At any time did you say, “Hey, I‘ll kick in $1 million or $100,000 or some other amount if we can get some other people to kick in some money to buy out Bob [Thomas], Brenda [Smith] and Bryan [Ownbey]“?
LEDFORD: We discussed — we discussed that, but the first thing was marketing. If we had marketing, we would have done — if we could have secured people to do the marketing, we would have been interested.
HORST: So you needed people who could run the business like Bob, Brenda and Bryan had?
LEDFORD: We needed people that could run the business, yes, sir.
HORST: Because you within Dynavision didn‘t have the competency or the skill set to run Signature Hospitality?
LEDFORD: I didn‘t have the experience with the customer base, no sir.
The Active Members did not consider their discussions with Peeples and his offer to loan them the funds to acquire DynaVision‘s interest as a “bona fide offer” to purchase their interests in Signature so as to require them to notify DynaVision pursuant to § 9.2.1; hence, they did not notify DynaVision of the discussions. Accordingly, to prevail on their sixth claim based on §§ 9.2.1 and 9.2.3, plaintiffs would have to prove that, prior to March 27 (when DynaVision became obligated to sell its interest), Peeples made the Active Members a bona fide offer to purchase their interests at a set price and on set terms, that they “desire[d] to sell” their interests to Peeples, that § 9.2.1 therefore obligated them to notify DynaVision of the offer, that their failure to notify DynaVision breached that obligation, and that but for the breach, DynaVision would have exercised its right of first refusal and bought the Active Members’ interests at the price and on the terms indicated in Peeples‘s offer. Under this scenario, the Active Members’ February 25 Put and Call would become a nullity, replaced by the triggering of § 9.2.3 of the Operating Agreement. That is, DynaVision would have purchased the Active Members’ interests pursuant to § 9.2.3 instead of selling its interest pursuant to the § 9.5 Put and Call provision.9.2.1 Notice of Intended Disposition. No Member in the Company may sell less than all their Interest, and in the event a Member receives a bona fide offer from any person in an arms length transaction to purchase all of the Interest which they own in the Company and if the person receiving the offer of purchase desires to sell all the Interest that is the subject of the offer, notice of the desire to sell the Interest shall be given in writing to the other Members and the terms of the offer, which notice shall include the price offered, the name of the offeror, and the payment terms (the “Notice of Intended Disposition”).
9.2.3 Option to Purchase – Sale by Active Member other than Dyna-Vision. Dyna-Vision shall have the right to purchase all of the . . . Interest[s] to be sold at the same price and under the same terms and conditions as described in the [Active Members‘] Notice of Intended Disposition. The election to purchase by Dyna-Vision shall be exercised by giving written notice to [the Active] Members within . . . thirty (30) calendar days after receipt of [the Notice of Intended Disposition].
In managing the business or affairs of a limited liability company:
(1) A member or manager shall act in a manner he or she believes in good faith to be in the best interests of the limited liability company and with the care an ordinarily prudent person in a like position would exercise under similar circumstances. A member or manager is not liable to the limited liability company, its members, or its managers for any action taken in managing the business or affairs of the limited liability company if he or she performs the duties of his or her office in compliance with this Code section.
Rule 10b-5,[t]o use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act [15 U.S.C.S. § 78c note]), any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.
“Rule 10b-5 encompasses only conduct already prohibited by § 10(b). Though the text of the Securities Exchange Act does not provide for a private cause of action for § 10(b) violations, the [Supreme] Court has found a right of action implied in the words of the statute and [Rule 10b-5].” Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 157, 128 S. Ct. 761, 768, 169 L. Ed. 2d 627 (2008) (citations omitted). In this opinion, we refer to the § 10(b) and Rules 10b-5(a) and (b) claims in this case as claims under Rules 10b-5(a) and/or (b).It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.
Every person who, directly or indirectly, controls any person liable under any provision of this chapter or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action.
(4) To the extent that, pursuant to paragraph (1) of this Code section or otherwise at law or in equity, a member or manager has duties (including fiduciary duties) and liabilities relating thereto to a limited liability company or to another member or manager:
(A) The member‘s or manager‘s duties and liabilities may be expanded, restricted, or eliminated by provisions in . . . a written operating agreement; provided, however, that no such provision shall eliminate or limit the liability of a member or manager:
(i) For intentional misconduct or a knowing violation of law; or
(ii) For any transaction for which the person received a personal benefit in violation or breach or any provision of a written operating agreement; and
(B) The member or manager shall have no liability to the limited liability company or to any other member or manager for his or her good faith reliance on the provisions of a written operating agreement, including, without limitation, provisions thereof that relate to the scope of duties (including fiduciary duties) of members and managers.
The Ledford court explained the basis for this policy:
The contractual flexibility provided in [
O.C.G.A. § 14-11-305 ] is consistent withO.C.G.A. § 14-11-1107(b) of the [Limited Liability Company] Act which provides that: “It is the policy of this state with respect to limited liability companies to give maximum effect to the principle of freedom of contract and to the enforceability of operating agreements.”
Ledford, 618 S.E.2d at 636 (quotation omitted).
The literal definition of a security under the 1934 Securities and Exchange Act, as codified in
Our independent research of this issue indicates that whether DynaVision‘s interest could be considered a security is problematic. We are satisfied, however, that plaintiffs’ allegation that DynaVision‘s interest was a security passes the threshold test set forth in Bell v. Hood. See Williamson v. Tucker, 645 F.2d 404, 416 (5th Cir. May 1981) (holding that the plaintiff‘s allegation that joint venture interests were securities was not so obviously frivolous as to fail the low jurisdictional bar in Bell v. Hood). In the absence of any briefing on this issue by the parties and in light of our resolution of plaintiffs’ Rule 10b-5(b) claims in favor of Peeples, we see no need to decide whether DynaVision‘s interest was a security.
This is essentially verbatim what the Georgia Court of Appeals said in Ledford, that DynaVision would have sold its interest notwithstanding Peeples‘s involvement. Ledford, 618 S.E.2d at 634–35; see also supra part II.B.2. The court of appeals, after considering the evidence in the light most favorable to plaintiffs, inferred this ultimate fact because the evidence pointed to the fact as a matter of law. The question for the district court was whether it should invoke the doctrine of collateral estoppel and conclusively rely on the court of appeals‘statement of ultimate fact in determining whether, in resolving plaintiffs’ Rule 10b-5(b) claim (and the comparable Georgia securities law claim), DynaVision‘s principals would have sold DynaVision‘s interest notwithstanding Peeples‘s denial of involvement. The district court invoked the doctrine
The expert opinion testimony DynaVision proffered to the district court concerning Signature‘s value buttressed the fact that Signature‘s value was tied to the Active Members’ management, marketing skills, and good will. DynaVision‘s expert, in estimating that Signature was worth $14 million, assumed not only that the Active Members would remain with the company but also that Smith would increase her ownership interest in Signature to the point that the firm would qualify as minority owned, and therefore receive additional revenue—presumably from sales set aside for minority-owned entities. The expert provided no
In Ledford‘s state court deposition, he testified as follows:
HORST: Did it make any difference to you whether there was a third party involved in funding Bob, Brenda, and Bryan‘s offer to purchase Dynavision . . . .
LEDFORD: Yes, it would make a difference to me.
HORST: Why?
LEDFORD: Because if Bob, Brenda, and Bryan didn‘t have financial backing from them, I don‘t think they could have bought our interest and I don‘t think this whole thing would have come up.
In Ledford‘s district court deposition, he testified as follows:
SINKFIELD: Do you know whether collectively and without help from a third person in some form or the other they had the resources to pay three-and-a-half million dollars for the Dyna-Vision interest?
LEDFORD: No, sir, I don‘t know.
SINKFIELD: You don‘t know one way or the other . . . . Did you have any opinion on
Like the Right of First Refusal Provision, supra note 46, this restriction had an uneven effect. Although the Active Members would have to obtain DynaVision‘s consent in order to pledge their interests in Signature as collateral for a loan, DynaVision‘s principals, namely Ledford, O‘Dell, and Walker, would not have to obtain the Active Members’ consent in order to pledge their interests in DynaVision—and, indirectly, their interests in Signature—as collateral for a loan. The Active Members’ consent would be necessary only if DynaVision itself wanted to pledge its interest in Signature as collateral for a loan it was obtaining.The Members have . . . agreed that, without the express written consent of the Company and all other Members in the Company, they will not transfer, assign, sell, pledge, encumber, hypothecate . . . any of their Interests . . . except strictly in accordance with the terms and requirements of the this Agreement, the same being exhaustive of all methods and means by which such [Interests] may be transferred. Any purported transfer in violation of any provision herein shall be void and of no effect, and shall not operate to transfer any title or interest to the purported transferee.
There is no reference in the Asset Purchase Agreement to any bonuses “capped at $5 million,” so we assume plaintiffs refer to the bonus provisions referred to in note 28, supra.The defendants purchased the assets of [Signature] for consideration that was valued at over $10 million at the time of their agreement. . . . The bonuses in the Asset Purchase Agreement, which are capped at $5 million, combined with the direct payments to the Active Members and the forgiveness of the loan used to buy out DynaVision, exceeds $10 million.
The employment contracts add the caveat that “the maximum amount payable by Employer to Employee [in bonuses] shall be one [$1.6 million].”In addition to the base salary, each of the Active Members shall be entitled to an annual bonus, equal to twenty percent (20%) of the amount by which the net pre-tax profits of [Peeples] exceed One Million Five Hundred Thousand Dollars on an annual basis: provided, however (a) shortfalls in annual net pre-tax profits shall be carried forward to succeeding years . . . .
Insight Technologies, Inc. v. FreightCheck, LLC, 633 S.E.2d 373, 379 (Ga. Ct. App. 2006). at 379.(1) through improper action or wrongful conduct and without privilege, the defendant acted to procure a breach of the primary wrongdoer‘s fiduciary duty to the plaintiff;
(2) with knowledge that the primary wrongdoer owed the plaintiff a fiduciary duty, the defendant acted purposely and with malice and the intent to injure;
(3) the defendant‘s wrongful conduct procured a breach of the primary wrongdoer‘s fiduciary duty; and
(4) the defendant‘s tortious conduct proximately caused damage to the plaintiff.