Next Century Communications Corp., a Delaware Corporation v. U. Bertram Ellis, Jr.Next Century Communications Corp., a Delaware Corporation v. U. Bertram Ellis, Jr.
Plaintiff Next Century Communications Corp. (“Next Century”) appeals the district court’s judgment of dismissal in favor of defendant U. Bertram Ellis, Jr. (“Ellis”) on its Georgia state law claims sounding in fraud and negligent misrepresentation. On appeal, Next Century contends that viewed in the light most favorable to it, its complaint states claims on which relief can be granted.
We review
de novo
the dismissal of a complaint pursuant to
Upon thorough review of the record and careful consideration of the parties’ briefs, we find' no reversible error and affirm.
This case arises from the precipitous decline in the value of the common stock of iXL Enterprises, Inc. and the resultant pecuniary loss to Next Century. iXL was a publicly traded corporation engaged in the business of providing strategic consulting, including Internet-based solutions, to corporate users of information technology. Net Response, LLC (“Net Response”), which was wholly owned by appellant, developed Internet sites and provided Internet-related services, such as website design and maintenance. On September 22, 1998, Net Response was merged into iXL-DC, a wholly owned subsidiary of iXL. As a consequence of this merger, Next Century received 701,375 shares of Class B common stock in iXL.
Next Century says that based on these representations it decided not to sell its iXL shares on or around February 17, 2000, when those shares each were valued at $40. Instead, it waited to sell until November 7, 2000, when iXL merged with Scient Corporation, at which time the same shares were each valued at $.29, representing a loss of $39.71 per share, or a total loss of $27,851,601.25.
On March 23, 2001, based on this pattern of dealing, Next Century filed a lawsuit in the United States District Court for the Northern District of Georgia, in which it asserted claims sounding in fraud, negligent misrepresentation and breach of fiduciary duty. Appellant argued that despite Ellis’s representation regarding iXL’s “strong performance,” appellee knew that the company actually had been plagued by an inability to complete projects, numerous resultant customer disputes and overstated accounts receivable, revenues, assets and earnings. Moreover, Next Century alleged that Ellis was aware that iXL’s share price of $40 had been intentionally and artificially inflated.
However, on October 17, 2001 the district court dismissed each of appellant’s claims pursuant to
On appeal, Next Century contends that contrary to the district court’s conclusions, its complaint does state claims for fraud
Ellis argues in response that (1) appellant’s complaint fails to satisfy the heightened pleading standard for fraud set forth in
Under Georgia law, which applies in this diversity action, the tort of fraud consists of five elements: “(1) false representation by defendant; (2) scienter; (3) intent to induce the plaintiff to act or refrain from acting; (4) justifiable reliance by the plaintiff; and (5) damage to the plaintiff.”
Ades v. Werther,
In its brief, appellant points to— and, indeed, repeatedly draws our attention to — only one specific
1
statement made by Ellis that fabs within' this definition.
2
That is his representation in his February 13, 2000 memorandum that: “I think our share price will start to stabbize and then rise as our Company’s strong performance continues.” Notably, the first half of this sentence plainly is not actionable under a fraud theory, as it is framed as a mere opinion as to future events.
See GCA Strategic Inv. Fund, Ltd. v. Joseph Charles & Assocs., Inc.,
However, we believe that the sounder interpretation of these words is that they constitute mere “puffing,” and that as such appellant Next Century cannot demonstrate the satisfaction of either the first or fourth element of fraud under Georgia law.
3
There are two primary bases for this conclusion. First, Ellis’s characterization of iXL’s performance as “strong” is not the sort of empirically verifiable statement that can be affirmatively disproven, as it is inherently a label expressive of, and generated by, opinion. As such, although to our knowledge the Georgia courts never have addressed whether the characterization of a company’s performance as “strong” constitutes mere puffery, other courts have answered this question affirmatively.
See, e.g., San Leandro Emergency Med. Group Profit Sharing Plan v. Philip Morris Companies, Inc.,
This conclusion is perfectly consistent with the Georgia courts’ explanation of the concept of puffery.
See Sheffield v. Darby,
The second basis for our conclusion that Ellis’s statement is not actionable under Georgia law is especially relevant to the reasonable rebanee element of the prima facie showing of fraud. Specifically, when considered in the context of the February 13, 2001 memorandum as a whole, it is perfectly plain that appellee’s comment regarding iXL’s “strong performance” cannot possibly have induced the rebanee of any reasonable investor, especially one possessing the financial sophistication of Next Century. Indeed, this question is not sufficiently close to warrant presentation to a jury.
See generally Tri-Eastern,
Ellis’s memorandum was replete with caveats that iXL’s stock price had been on a “downward” track, and that the hopeful tone of the correspondence was a product of Ebis’s personal beliefs and opinions. Moreover, it not only clarified in the most explicit conceivable terms that Next Century was entitled to sell its shares, but it
Appellant’s negligent misrepresentation claim fails for largely the same reason. Under Georgia law, the tort of negligent misrepresentation consists of 3 elements: (1) the defendant’s negligent supply of false information to foreseeable persons, known or unknown; (2) such persons’ reasonable reliance upon that false information; and (3) economic injury proximately resulting from such reliance.
Hardaway Co. v. Parsons, Brinckerhoff, Quade & Douglas, Inc.,
Because Next Century is not entitled to relief even when its claims are viewed in the light most favorable to it, the district court correctly granted Ellis’s motion for dismissal pursuant to
AFFIRMED.
Notes
. The need for specificity here derives from
. The district court noted that appellant had alleged that a November 29, 1999 press release and iXL's 1999 and 2000 financial statements also were fraudulent. However, in its brief, Next Century plainly points to these statements as evidence that Ellis was aware of the falsity of his characterization of iXL's performance as "strong” when he so labeled it on February 13, 2001. Despite its reiteration before us that these statements were themselves false, appellant does not raise on appeal separate fraud claims based on these statements.
. It seems to us evident that these prongs of the fraud inquiry overlap to a substantial extent. If a fraud claim is based on a mere statement of opinion or expectation, then the court is not presented with a representation as to an empirically verifiable truth such as would satisfy the first prong.
See King v. Codisco, Inc.,
. It is to the issue of whether Next Century actually enjoyed such an opportunity to form its "own independent opinion” that appellant’s "special knowledge” argument is directed. Under Georgia law, as explained above, reliance on puffing or mere expressions of opinion generally is unjustifiable as a matter of law; a commercial actor is required to investigate the veracity of such statements before he may reasonably relied thereon.
See Wilkinson v. Walker,
We also note that Next Century has directed us to no holding of the Georgia courts indicating that otherwise non-actionable puffery is rendered actionable by the existence of a personal relationship between the speaker and listener.