Mark Adams v. John Klein ( 2022 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 21-3052
___________
MARK ADAMS; AV SELECT INVESTMENTS, LLC; DR. GREGORY SIMONIAN;
WADE HARTMAN; FRANK EDWARD SMITH
v.
JOHN H. KLEIN,
Appellant
____________________________________
On Appeal from the United States District Court
for the District of Delaware
(D. Del. Civil No. 1:18-cv-01330)
District Judge: Honorable Richard G. Andrews
____________________________________
Submitted Pursuant to Third Circuit LAR 34.1(a)
May 12, 2022
Before: RESTREPO, PHIPPS and RENDELL, Circuit Judges
(Opinion filed: May 25, 2022)
_________
OPINION*
_________
*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
PER CURIAM
John H. Klein appeals pro se from the District Court’s judgment, which followed a
bench trial and awarded damages to plaintiffs on several claims brought against Klein.
For the following reasons, we will affirm the District Court’s judgment.
I.
Because we write primarily for the parties, we recite only the facts necessary for
our discussion; these facts are undisputed unless otherwise noted.1 Klein was the founder
and CEO of Cambridge Therapeutic Technologies (“CTT”). CTT’s business model was
the creation of pre-packaged combinations of generic pharmaceutical drugs
(“Compliance PACs”), which were to be distributed from doctors’ offices. CTT operated
as a New Jersey LLC (“CTT-NJ”) until 2016, when its operating entity changed to a
Delaware LLC (“CTT-DE”).
Plaintiffs — Mark Adams, AV Select Investments, LLC (“AV Select”), Dr.
Gregory Simonian, Wade Hartman, and Frank Edward Smith — all purchased shares in
CTT-NJ from Klein, after he presented them with information about CTT and its
projected earnings. In those presentations, Klein stated in writing that CTT had fully
developed a Compliance PAC, that CTT owned one federally registered New Drug
Application (“NDA”), and that CTT owned four valuable Investigational New Drug
1
To the extent that Klein does not discuss certain facts in his opening brief, we consider
them to be undisputed. We do not reach any of the allegations or arguments that Klein
raises “for the first time in [his] reply brief.” See Barna v. Bd. of Sch. Dirs. of Panther
Valley Sch. Dist., 877 F.3d 136, 146 (3d Cir. 2017).
applications (“INDs”) registered with the Food and Drug Administration. Klein indicated
that pharmaceutical suppliers and proprietary dispensing software had been secured, and
that Compliance PACs would be ready for launch within months. Klein predicted
millions of dollars in projected earnings for CTT in the coming years, which all plaintiffs
found to be plausible because of Klein’s previous experience in the pharmaceutical
industry and his representations that CTT’s products were ready to go to market.
Between October 2014 and November 2015, plaintiffs purchased shares of CTT-
NJ from Klein, with several months separating each plaintiff’s purchase.2 According to
plaintiffs, Klein told each of them that they would be CTT’s first outside investor and that
Klein owned 100% of the shares in CTT at the time of each purchase.3 Each plaintiff
purchased shares with the understanding that the money would be an investment in the
business, to be used to get it off the ground.
Klein used a substantial amount of each plaintiff’s payment for personal expenses
and reimbursements to prior, undisclosed investors in CTT. Klein contends that he was
free to personally spend the money for any purpose, maintaining that the payments were
not investments in CTT. He also maintains that each investor should have known that the
business was in the early conceptual stages of development and that his presentations
2
Adams paid over $580,000 for six shares in October 2014. AV Select paid $450,000
for three shares in January 2015. Simonian paid $600,000 for three shares in August
2015. Hartman and Smith paid $400,000 for two shares in November 2015.
3
Klein’s sales to Simonian, Hartman, and Smith were memorialized in written
agreements, explicitly stating that Klein was the owner of 100% of the shares in CTT.
merely represented his vision and ideas for the company, not its readiness for immediate
launch.
In 2016, CTT received an investment of over $12 million from a non-party, after
which CTT transferred its operating business from CTT-NJ to CTT-DE. Plaintiffs were
not listed as investors in CTT-DE, as Klein was again listed as the owner of 100% of
CTT-DE’s shares. CTT never owned the NDA or INDs that Klein identified to plaintiffs,
and as of early 2017, CTT’s Compliance PAC business had ended. As a result, plaintiffs’
investments are valueless.
In 2018, plaintiffs filed a civil action against Klein in the District Court. In their
amended complaint, they sought damages for (1) federal securities fraud under Section
10(b) of the Securities and Exchange Act of 1934 and Securities and Exchange
Commission Rule 10b-5, (2) fraud in violation of the New Jersey Uniform Securities Act
(“NJUSA”), (3) common law fraud/intentional misrepresentation, (4) negligent
misrepresentation, and (5) unjust enrichment.4
The District Court proceedings culminated in a four-day bench trial in April 2021.
Following post-trial briefing, the District Court issued a bench opinion. The District
Court concluded that plaintiffs had proven their federal securities fraud claims, as well as
4
Klein also brought counterclaims against Adams; the District Court dismissed one
counterclaim and granted summary judgment in favor of Adams on the other. Klein has
forfeited any challenge to those decisions by failing to address them in his opening brief.
See United States v. Pelullo, 399 F.3d 197, 222 (3d Cir. 2005).
their NJUSA and common law fraud claims.5 Klein has timely appealed.
II.
We have jurisdiction under 28 U.S.C. § 1291. “After a bench trial, . . . we review
the District Court’s factual findings, and mixed questions of law and fact, for clear error,
and we review the Court’s legal conclusions de novo.” Alpha Painting & Constr. Co. Inc.
v. Del. River Port Auth. of Pa. & N.J., 853 F.3d 671, 682-83 (3d Cir. 2017).
III.
To prevail on their federal securities fraud claims, plaintiffs needed to prove the
following: (1) a material misrepresentation or omission; (2) “scienter, i.e., a wrongful
state of mind”; (3) “a connection with the purchase or sale of a security”; (4) reliance;
(5) economic loss; and (6) “loss causation, i.e., a causal connection between the material
misrepresentation and the loss.” See Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 341-42
(2005) (internal quotation marks and certain emphasis omitted). The District Court
determined that Klein made five material misrepresentations to plaintiffs, and that
plaintiffs satisfied the other five elements of the aforementioned test.
Klein’s opening brief challenges the District Court’s findings as to three of the
material misrepresentations, but he does not cite record evidence to support his
5
The District Court concluded that it need not decide plaintiffs’ claims for negligent
misrepresentation and unjust enrichment, which were brought in the alternative to their
fraud claims. Further, the District Court determined that Simonian had proven a breach
of contract claim that he independently brought against Klein. Klein does not discuss the
breach of contract claim in his opening brief and thus has forfeited any challenge to its
resolution. See Pelullo, 399 F.3d at 222.
arguments. See Fed. R. App. P. 28(a)(8) (explaining that an appellant’s “argument . . .
must contain . . . [the] appellant’s contentions and the reasons for them, with citations to
the authorities and parts of the record on which the appellant relies”); 3d Cir. L.A.R.
28.3(c) (“All assertions of fact in briefs must be supported by a specific reference to the
record.”); see also Doeblers’ Pa. Hybrids, Inc. v. Doebler, 442 F.3d 812, 820 n.8 (3d Cir.
2006) (“Judges are not like pigs, hunting for truffles buried in the record.”) (quotation
marks and citation omitted). Furthermore, even if Klein’s arguments had record support,
his opening brief does not challenge the District Court’s findings regarding the other two
material misrepresentations, which are supported by the record and are sufficient to meet
the first element of the six-part test.
As for the remaining five elements of the test, the only direct argument that Klein
makes in his opening brief is his contention that if those elements could be established,
“why did we not hear about it until [two] years later.”6 See Appellant’s Opening Br. at
ECF p. 29. We construe this argument as a challenge to the credibility of plaintiffs’
testimony, but Klein does not cite any evidence showing that the District Court erred in
crediting plaintiffs’ testimony over his. We thus discern no clear error in the District
Court’s findings of fact and no error in its legal conclusions on plaintiffs’ federal
6
To the extent that Klein makes other arguments indirectly relating to these remaining
elements, based on allegations without record citations or support, we conclude that none
entitles him to any relief here.
securities fraud claims.7
Klein also contests the District Court’s damages award, which included the cost of
each plaintiff’s investment, punitive damages under New Jersey law for the common law
fraud claims, and prejudgment interest. Klein admits in his opening brief that plaintiffs’
investments are now valueless but argues that plaintiffs’ loss should have been offset by
earned compensation that they later received for work they did with CTT. However, he
has not cited to any record evidence to support this argument.8 See Fed. R. App. P.
28(a)(8). We see no reason to disturb the District Court’s damages calculation.
For these reasons, we will affirm the judgment of the District Court.
7
Although Klein does not specifically address the District Court’s resolution of
plaintiffs’ NJUSA and common law fraud claims in his opening brief, these claims share
many elements with plaintiffs’ federal securities fraud claims. See Frederico v. Home
Depot, 507 F.3d 188, 200 (3d Cir. 2007); N.J. Stat. Ann. § 49:3-71(a)(2), (b)(1)-(2). For
the reasons discussed above, Klein’s arguments concerning those elements do not warrant
disturbing the District Court’s disposition of the NJUSA or common law fraud claims.
8
Klein’s appellate filings contain numerous other factual allegations that are not
supported by the record and are not relevant to the disposition of plaintiffs’ claims.