Freecharm Limited v. Atlas Wealth Holdings Corporation , 499 F. App'x 941 ( 2012 )

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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
_____________
No. 11-15094
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D.C. Docket No. 1:11-cv-20003-MGC
FREECHARM LIMITED,
Plaintiff - Appellant,
versus
ATLAS WEALTH HOLDINGS CORPORATION,
a Delaware corporation,
ATLAS ONE HOLDINGS, LLC,
a Delaware corporation,
DANIEL KALB,
PAUL WEISS,
JORGE KALB,
NAPOLEON APONTE,
Defendants - Appellees.
____________
Appeal from the United States District Court
for the Southern District of Florida
____________
(December 4, 2012)
Before DUBINA, Chief Judge, PRYOR, and HILL, Circuit Judges.
HILL, Circuit Judge:
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Freecharm Limited brought this action against Atlas Wealth Holdings
Corporation, Atlas One Holdings, LLC, Daniel Kalb, Paul Weiss, Jorge Kalb, and
Napoleon Aponte alleging violations of federal securities law as well as various
state law claims. The district court granted summary judgment to the defendants
based upon res judicata and collateral estoppel resulting from a prior arbitration
award in their favor. This appeal followed.
I.
Freecharm Limited (“Freecharm”) claims that from approximately mid-2007
through the end of 2008, Atlas One Financial Group, LLC (“Atlas One”), through
its brokers, engaged in a pattern of “egregious misrepresentations and fraud” to
Freecharm’s financial detriment. In 2009, Freecharm initiated arbitration
proceedings before the Financial Industry Regulatory Authority (“FINRA”)
against Atlas One, its sister company Atlas One Capital Management, LLC “(Atlas
One Capital”), and various Atlas One brokers. Freecharm also attempted to
include Atlas Wealth Holdings Corporation (“Atlas Wealth”), which is the
managing member and 75% owner of Atlas One and Atlas One Capital. Atlas
Wealth, however, was not obligated to and did not submit to the jurisdiction of the
FINRA arbitration panel.
Freecharm asserted that the arbitration defendants were liable for violation
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of Florida Statutes § 517.011, fraud, breach of fiduciary duty, gross negligence,
and negligent supervision. Freecharm alleged that various Atlas One brokers had
engaged in a pattern of unauthorized activities designed to generate higher
commissions for the company and mislead Freecharm about the value of its
investments.
The arbitration panel held evidentiary hearings on these claims and found
that Freecharm had failed to adequately support any of these claims. The panel
also stated that “any and all claims for relief not specifically addressed herein . . .
are denied.”
After the arbitration panel announced the award, the arbitration defendants
filed a Motion for Confirmation of the award in the United States District Court
for the Southern District of Florida. The district court remanded the case to the
arbitration panel for clarification of the award. The arbitration panel clarified that
the panel had considered and rejected all of the claims brought by Freecharm, and
that “the panel found that Freecharm failed to prove that any of the Respondents
engaged in fraud; breach of fiduciary duty; or were grossly negligent or negligent
in handling Freecharm’s account.” The panel also stated that the claims based on
the secondary liability of Atlas One failed because there was no primary liability.
The district court confirmed the arbitration award.
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Prior to the arbitration award, Freecharm filed a complaint in Florida state
court against Atlas Wealth and four of its corporate officers and directors.
Freecharm also named Atlas One Holdings, LLC (“Atlas Holdings”), the parent
company of Atlas Wealth, as a defendant. The complaint alleged violations of
Florida Statutes § 517; Rule 20(a) of the Securities and Exchange Act of 1934;
state claims for negligent failure to supervise against the individual defendants; a
state vicarious liability claim against Atlas Holdings and two individual
defendants; and a state rescission claim against Atlas Holdings. Each of these
claims alleged that the defendants were liable to Freecharm as the result of alleged
wrongdoing by the arbitration defendants – Atlas One and its various brokers.
The defendants removed the case to federal court. In their answer, the
defendants asserted that all of Freecharm’s claims were barred by res judicata and
collateral estoppel. The parties filed cross-motions for summary judgment on
these defenses.
The district court granted defendants’ motion for summary judgment,
concluding that Freecharm’s claims were barred by res judicata and collateral
estoppel. Freecharm brought this appeal. We review the judgment of the district
court de novo. Kizzire v. Baptist Health System, Inc., 441 F.3d 1306, 1308 (11th
Cir. 2006).
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II.
Freecharm argues that the district court erred in giving preclusive effect to
the prior FINRA arbitration award, which found that Atlas One and its brokers had
no liability to Freecharm because Freecharm failed to prove that their conduct was
fraudulent, negligent, or breached any duty owed Freecharm. Freecharm also
asserts that the district court’s conclusion that collateral estoppel bars relitigation
of these issues is error. We disagree.1
Collateral estoppel applies to prevent Freecharm from relitigating factual
and legal issues resolved against it in the arbitration if:
(1) the issues in this action are identical to those alleged in the
arbitration; (2) these issues were actually litigated in the arbitration;
and (3) the arbitration panel’s determination of these issues was a
critical and necessary part of the arbitration decision.
See Greenblatt v. Drexel Burnham Lambert, Inc., 763 F.2d 1352, 1360 (11th Cir.
1985) (citing Deweese v. Town of Palm Beach, 688 F.2d 731, 733 (11th Cir.
1982)). In addition, Freecharm must have had a full and fair opportunity to litigate
these issues in the arbitration. See id.Our review of the record reveals that all four of these requirements are met
here. First, Freecharm conceded at oral argument that the factual allegations of
1
Because we decide that collateral estoppel applies to bar relitigation of the issues
presented here, we do not decide whether res judicata might also bar relitigation of the claims.
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wrongdoing in this action are identical to those alleged in the arbitration Statement
of Claim. These factual issues were resolved against it by that panel. As a result,
the panel resolved the legal issues in the defendants’ favor, holding that
“Freecharm failed to prove that any of the Respondents engaged in fraud; breach
of fiduciary duty; or were grossly negligent or negligent in handling Freecharm’s
account.”
In this action, Freecharm seeks to hold the principals (the parent companies
and their individual officers) liable for the same alleged wrongdoing for which the
arbitration panel has already exonerated the agents (Atlas One and its brokers).
Having failed in its efforts to prove wrongdoing by the agents, Freecharm seeks to
relitigate this issue with a new cast of defendants by suing the principals. This we
do not allow. Citibank, N.A. v. Data Lease Financial Corp., 904 F.2d 1498, 1500-
04 (11th Cir. 1990). The exoneration of the agent necessarily operates as a
preclusive exoneration of the principal’s liability. Id.The fact that Freecharm also brought a § 20(a) claim in this action does not
change this result.2 Control person liability depends upon proof of the underlying
wrongdoing of those controlled. Boguslavsky v. Kaplan, 159 F.3d 715, 721 (2d
2
Freecharm’s negligent failure to supervise and recision claims are predicated upon the
same factual allegations of wrongdoing.
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Cir. 1998) (liability under § 20(a) depends upon proof of a primary violation by a
controlled person). The factual allegations of wrongdoing for which the control
persons are said to be liable in this action are the exact same factual allegations of
wrongdoing asserted in the arbitration and resolved against Freecharm.3 That a
different legal conclusion – no control person liability – flows from that adverse
factual determination is irrelevant to the applicability of collateral estoppel. See
CSX Transp., Inc. v. Brotherhood of Maintenance of Way Employees, 327 F.3d
1309, 1317 (11th Cir. 2003) (“Collateral estoppel or issue preclusion forecloses the
relitigation of an issue of fact or law that has been litigated and decided in a prior
suit”).4 When an issue of ultimate fact has been determined by a valid and final
judgment, that issue cannot be relitigated. Schiro v. Farley, 510 U.S. 222, 232
(1994). We conclude that Freecharm’s factual allegations of wrongdoing by Atlas
One and its brokers were identical before both the arbitration panel and the district
court, satisfying the first requirement of collateral estoppel.
3
Although the § 20(a) claims refer to the primary violations as including Section 10(b),
there are no additional factual allegations to support the reference. Nor is there any discussion to
suggest that Section 10(b) violations can be established by less proof of fraudulent misconduct.
We have held that the elements of a Section 10(b) claim are virtually identical to a Section
517.301 claim, Alna Capital Assocs. v. Wagner, 758 F.2d 562, 565 (11th Cir. 1985), which was
asserted and denied in its entirety by the FINRA. We express no opinion on the outcome were
there additional allegations of wrongdoing here, that were not present at arbitration.
4
The claim for control person liability must have (or could have) been litigated in a prior
action for res judicata to bar its relitigation; but the prior resolution of the factual issues
underlying that claim also prevents their relitigation.
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Furthermore, the clarified arbitration award makes absolutely clear that
these factual issues were actually litigated in the arbitration and that these issues
were a critical and necessary part of the arbitration decision. There is no
suggestion that Freecharm did not have every opportunity to litigate these issues in
that forum. We conclude, therefore, that collateral estoppel operates to bar their
relitigation here.5
As collateral estoppel bars the relitigation of Freecharm’s factual allegations
made in support of its claims here but resolved against it in the arbitration, the
judgment of the district court is due to be
AFFIRMED.
5
Freecharm’s attempt to cast doubt on whether these issues were actually litigated by
suggesting that the burden of proof or substantive law might change the outcome was raised for
the first time at oral argument and we do not consider it.
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