Saxe v. DluskySaxe v. Dlusky
Having had the benefit of oral argument and having carefully considered the record on appeal, the briefs of the parties, and the applicable law, we are not persuaded that the district court erred in adopting the recommendation of the magistrate judge and denying defendant‘s motion to set aside default and default judgment.
Because the reasoning which supports the district court‘s order has been articulated by the magistrate judge and the district court, the issuance of a detailed written opinion by this court would serve no useful purpose. Accordingly, the order of the district court is affirmed upon the reasoning employed by the magistrate judge in his report and recommendation dated October 27, 2006, and by the district court in its order dated March 15, 2007, 2007 WL 836659.
Jon Michael Cope, Moots, Carter & Hogan, Columbus, OH, for Defendant-Appellee.
BEFORE: BOGGS, Chief Judge; GIBBONS, Circuit Judge; and BELL, Chief District Judge.*
PER CURIAM.
Plaintiff-Appellant Donna Saxe (“Saxe“) appeals the district court‘s grant of summary judgment in favor of Defendant-Appellee Thomas P. Dlusky (“Dlusky“) based on the district court‘s determination that Saxe had not raised a genuine issue of material fact with regard to her Securities Exchange Act claim. Saxe also appeals the district court‘s decision to decline to exercise supplemental jurisdiction over her state law claims. This is Saxe‘s second appeal. The district court had previously granted summary judgment for Dlusky sua sponte and this court reversed and remanded in an unpublished opinion. On remand Dlusky again moved for summary judgment, and again the district court granted summary judgment in favor of Dlusky. For the reasons set forth below, we affirm the judgment of the district court.
I.
Saxe is the widow of Ronald Saxe and the executor of his estate.1 Dlusky and Ronald Saxe were partners in the accounting firm of Pritchett, Dlusky & Saxe (“PDS Accounting“). Dlusky and Ronald Saxe also each owned a twenty-five percent interest in PDS Planning Inc., a closely held financial planning firm. Robert Hamilton owned the remaining fifty percent of PDS Planning.
Ronald Saxe died on December 29, 1997. In June 1998 Dlusky approached Saxe about purchasing Ronald Saxe‘s twenty-five percent interest in PDS Planning. Dlusky offered Saxe $30,000 for the twenty-five percent interest. Dlusky based this figure on the “rule of thumb” valuation of four and one-half times the previous year‘s profits. Donna and Ronald Saxe‘s son, Douglas Saxe, assisted his mother in the transaction. Douglas Saxe is an accountant and was then a partner in PDS Accounting. Douglas Saxe had previously prepared tax returns for Dlusky and assisted with payroll and financial statements for PDS Planning. Saxe waived the right to have the estate‘s interest in PDS Planning appraised, and the probate court approved the transaction. The lawyer for Ronald Saxe‘s estate drafted the document memorializing the sale. The sale was executed on November 23, 1999.
In July 2000 Hamilton offered Dlusky $250,000 for the fifty percent interest in PDS Planning that he then owned. Dlusky accepted Hamilton‘s offer. The sale was executed in July 2000, but the documents were backdated to January 1, 2000. As a result of the sale, Hamilton became the sole shareholder of PDS Planning. As part of the sale to Hamilton, Dlusky agreed to serve as a consultant to PDS Planning after the sale to facilitate the transition of clients to Hamilton.2
II.
A.
This court reviews a district court‘s grant of summary judgment de novo. Holloway v. Brush, 220 F.3d 767, 772 (6th Cir. 2000) (en banc). Summary judgment may be granted only if “there is no genuine issue as to any material fact” and “the movant is entitled to judgment as a matter of law.”
B.
To prevail on a securities fraud claim under
“[I]n order to prevail on a Rule 10b-5 claim, a plaintiff must show that the statements were misleading as to a material fact. It is not enough that a statement is false or incomplete, if the misrepresented fact is otherwise insignificant.” Basic Inc. v. Levinson, 485 U.S. 224, 238 (1988). “[M]ateriality depends on the significance the reasonable investor would place on the withheld or misrepresented information.” Helwig, 251 F.3d at 555 (quoting Basic, 485 U.S. at 240). The test for materiality in securities fraud cases is fact-intensive. Id.
Saxe contends that the district court erred in concluding that there was not a genuine issue of material fact regarding the following alleged misrepresentations: (1) the profitability of PDS Planning, (2) the value of Ronald Saxe‘s twenty-five percent interest in PDS Planning, (3) Saxe‘s lack of the professional licenses necessary to own part of PDS Planning, and (4) Dlusky‘s plan to immediately resell his ownership interest to Hamilton.
As to the profitability of PDS Planning, Saxe alleged that Dlusky made a material misrepresentation when he represented that PDS Planning “never made much money.” (J.A. at 96-97, 184.) The district court concluded that as a matter of law such a statement could not be material because it was vague and subjective. (Id. at 333.) The district court further concluded that Saxe had not introduced any substantial evidence that this statement was false. (Id.) Saxe contends that the district court erred in concluding that the statement was not material. The state of PDS Planning‘s finances was material, see Rubin v. Schottenstein, Zox & Dunn, 143 F.3d 263, 268 (6th Cir. 1998) (en banc); however, it does not necessarily follow that Dlusky‘s statement was material. Dlusky‘s statement in this context represents Dlusky‘s opinion about the quality of PDS Planning‘s profitability, not a statement about PDS Planning‘s actual profits. See In re Ford Motor Co. Sec. Litig., 381 F.3d 563, 571-72 (6th Cir. 2004). “Material statements which contain the speaker‘s opinion are actionable under Section 10(b) of the Securities Exchange Act if the speaker does not believe the opinion and the opinion is not factually well-grounded.” Helwig, 251 F.3d at 562 (quoting Mayer v. Mylod, 988 F.2d 635, 639 (6th Cir. 1993)). Saxe contends that Dlusky‘s statement was false because PDS Planning paid Dlusky $67,800 in 1998 and $77,552 in 1999. (J.A. at 88-89, 128-29.) In 1998 and 1999 Dlusky worked for PDS Planning by bringing in clients and providing other assistance as requested by Hamilton. (Id. at 88-89.) Dlusky‘s income from PDS Planning in 1998 and 1999 does not demonstrate that Dlusky did not believe his statement that PDS had “never made much money.” See In re Ford Motor Co. Sec. Litig., 381 F.3d at 571-72.
As to the value of Ronald Saxe‘s twenty-five percent interest in PDS Planning, Saxe alleged that Dlusky made a material misrepresentation when he represented to Saxe that the twenty-five percent interest was worth $30,000. (J.A. at 91.) Saxe‘s principal contention in support of the $30,000 figure being a material misrepresentation is that Dlusky sold his fifty percent interest to Hamilton for $250,000, which effectively valued a twenty-five percent interest at $125,000. The district court concluded as a matter of law that the difference in the purchase prices did not support an inference that Dlusky misrepresented the value of Saxe‘s twenty-five percent share. (Id. at 333.) These two transactions occurred in distinct contexts. Dlusky was a participant in PDS Planning and had the ability to facilitate the transition of clients to Hamilton. Additionally, Hamilton made his offer two years later and the transaction made him the sole owner of PDS Planning. Upon consideration of these distinctions, the difference between the amount paid in these two transactions does not support an inference
As to Saxe lacking the professional licenses (e.g., certified financial planner) necessary to own part of PDS Planning, Saxe alleged that Dlusky made a material misrepresentation when he represented to Saxe that she had to be professionally licensed to own part of PDS Planning. (J.A. at 92.) Dlusky has acknowledged that Saxe would not need to be professionally licensed to own part of PDS Planning. (Id. at 92-94.) The compensation paid to an individual shareholder of PDS Planning was in part based on the revenue that he or she generated. (Id. at 85-88.) No contention has been made that someone could offer financial planning or investment advice through PDS Planning without the appropriate professional licenses. Although someone could legally own twenty-five percent of PDS Planning without holding any professional licenses, practically such a person would have derived very little benefit from such ownership because he or she would have been unable to offer professional services in the form of financial planning or investment advice. Hence such a person would be unable to generate business for PDS Planning and would not receive the associated compensation. Based on the professional licenses required to offer professional services through PDS Planning and the compensation scheme employed by PDS Planning, Dlusky did not make a material misrepresentation to Saxe about the significance of her lack of professional licenses.
As to Dlusky‘s plan to immediately resell his ownership interest to Hamilton, Saxe alleged that Dlusky made a material omission in not disclosing that he was going to sell his interest to Hamilton. Saxe alleged that the two sales were only six weeks apart and that Dlusky knew of the sale to Hamilton at the time he purchased Saxe‘s shares. Dlusky and Saxe agreed on the purchase price in June 1998.3 Dlusky and Hamilton agreed on the purchase price for their transaction in July 2000. Saxe contends the dates on the documents memorializing the two transactions should govern this analysis. As to the sale between Dlusky and Saxe there is no dispute that the agreement was reached in June 1998, though the transaction was not completed until November 23, 1999. (J.A. at 30.) As to the sale between Dlusky and Hamilton, the testimony is that Dlusky and Hamilton first discussed the transaction in July 2000 and completed the transaction that same month. (Id. at 100-01.) Although the documents are dated January 1, 2000, the unrebutted testimony is that the documents were backdated. (Id. at 100.) Thus two years passed between Dlusky agreeing to purchase Saxe‘s shares and Hamilton agreeing to purchase Dlusky‘s shares. Moreover, Saxe has offered no evidence to suggest that Dlusky knew of the possibility of a transaction with Hamilton at the time of the transaction with Saxe. Therefore Dlusky did not make a material omission in not disclosing the sale to Hamilton.
The district court properly concluded that as a matter of law Dlusky did not make any material misrepresentations or omissions in his purchase of Saxe‘s shares. In the absence of any material misrepresentations or omissions Saxe cannot prevail on her
III.
Saxe also appealed the district court‘s decision to decline to exercise supplemental jurisdiction over her state law claims. Although this court‘s prior opinion indicated that Saxe had appealed the district court‘s decision to decline to exercise supplemental jurisdiction over Saxe‘s state law claims, the district court concluded that Saxe had not appealed the dismissal of the state law claims. (J.A. at 269, 323.) Instead the district court concluded that the state law claims were no longer before it because Saxe had filed her state law claims in state court. (Id. at 271, 278 n. 2, 323.) As the state law claims were in fact before the district court, Sagan v. United States, 342 F.3d 493, 500-01 (6th Cir. 2003), this court will evaluate those claims as if the district court had again decided to decline to exercise supplemental jurisdiction over the state law claims for the reasons stated in the district court‘s first summary judgment opinion. (J.A. at 263.)
This court reviews a district court‘s decision to decline to exercise supplemental jurisdiction for abuse of discretion. Robert N. Clemens Trust v. Morgan Stanley DW, Inc., 485 F.3d 840, 853 (6th Cir. 2007). If a district court has dismissed all of the claims over which it has original jurisdiction then the court may decline to exercise supplemental jurisdiction over the state law claims.
The district court had original jurisdiction over Saxe‘s
IV.
For the foregoing reasons, we AFFIRM the judgment of the district court.