Braunstein v. Pickens ( 2011 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 09-2080
PAUL BRAUNSTEIN; KEVIN GASSER; JAMES IHA; D’ARCY BROWN;
CRAIG KANARICK; KATIE FORD; ANDRE BALAZS,
Plaintiffs – Appellees,
v.
THOMAS B. PICKENS, III,
Defendant – Appellant.
Appeal from the United States District Court for the District of
South Carolina, at Charleston. Patrick Michael Duffy, Senior
District Judge. (2:08-cv-00193-PMD)
Argued: October 28, 2010 Decided: January 4, 2011
Before KING, DAVIS, and KEENAN, Circuit Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Thornwell Forrest Sowell, III, SOWELL, GRAY, STEPP &
LAFFITTE, LLC, Columbia, South Carolina, for Appellant. Andrew
Kenneth Epting, Jr., ANDREW K. EPTING, JR., LLC, Charleston,
South Carolina, for Appellees. ON BRIEF: Amy L. B. Hill, Tina
M. Cundari, SOWELL, GRAY, STEPP & LAFFITTE, LLC, Columbia, South
Carolina, for Appellant.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
The defendant, Thomas B. Pickens, III (“Pickens,” or the
“Defendant”), appeals from the district court’s judgment in
favor of the plaintiffs, Paul Braunstein, Kevin Gasser, James
Iha, D’Arcy Brown, Craig Kanarick, Katie Ford, and Andre Balazs
(collectively, the “Plaintiffs”), in this action to recover on a
promissory note (the “Promissory Note”). More specifically,
Pickens contests the January 20, 2009 Order denying his motion
for judgment on the pleadings and granting the Plaintiffs’
motions for summary judgment and to amend their Complaint, see
Braunstein v. Pickens, 593 F. Supp. 2d 834 (D.S.C. 2009) (the
“Summary Judgment Order”), as well as the August 19, 2009 Order
denying Pickens’s motion for reconsideration, see Braunstein v.
Pickens, No. 2:08-cv-00193 (D.S.C. Aug. 19, 2009) (the
“Reconsideration Order”). 1 As explained below, we affirm.
I.
A.
On November 17, 2004, Pickens executed the Promissory Note,
promising to pay the Plaintiffs the principal sum of $250,000.00
on or before July 30, 2007, plus accrued interest at the rate of
1
The unpublished Reconsideration Order is found at J.A.
130-34. (Citations herein to “J.A. __” refer to the contents of
the Joint Appendix filed by the parties in this appeal.)
2
5% per annum commencing on July 30, 2004. 2 The Promissory Note
reflects that it was executed in exchange for the dismissal with
prejudice of claims asserted by the Plaintiffs against Pickens
in a South Carolina state court proceeding. In that state
action, the Plaintiffs had obtained confessions of judgment,
signed by Pickens, in the total amount of $2,886,994.64 plus
interest and fees. 3
On the same day that Pickens executed the Promissory Note
(November 17, 2004), he also signed a hypothecation agreement
(the “Hypothecation Agreement”), pledging his shares of common
2
Although there is some disagreement over certain
immaterial facts, the facts material to the resolution of this
matter are undisputed. Because the district court awarded
summary judgment to the Plaintiffs, we must view the facts and
inferences reasonably drawn therefrom in the light most
favorable to Pickens. See FOP Lodge No. 89 v. Prince George’s
Cnty., 608 F.3d 183, 188 (4th Cir. 2010).
3
As background, the Plaintiffs assert that, between 1996
and 1998, they had invested substantial sums of money in various
partnerships of Pickens. In 2000, the Plaintiffs discovered
that Pickens had been making personal use of their investment
monies. As a result, the Plaintiffs filed the state action
against Pickens individually and against various entities
controlled by him. After obtaining the confessions of judgment,
the state action was stayed pending bankruptcy proceedings, and
the Plaintiffs agreed to a $250,000.00 settlement giving rise to
the Promissory Note. As Pickens tells the story, both he and
the Plaintiffs were the victims of a duplicitous New York
financial advisor, and he never promised to be held individually
responsible for the confessions of judgment. In any event, as
the district court recognized in its Summary Judgment Order, the
underlying “sequence of events [is] beyond the scope of the
legal issues presented” in the current action. See Braunstein,
593 F. Supp. 2d at 834.
3
stock in the Code Corporation as security for the performance of
his obligations under the Promissory Note. See Braunstein, 593
F. Supp. 2d at 835 n.1 (explaining that “[h]ypothecation is
defined as the pledging of something as security without
delivery of title or possession” (internal quotation marks and
alteration omitted)). The Hypothecation Agreement provides that
Pickens’s lawyer would “hold the shares in escrow and deliver
them to Plaintiffs’ counsel in the event of any default by
Pickens.” J.A. 19. Additionally, the Hypothecation Agreement
provides that, “[i]n the event of his default on the terms of
the Promissory Note . . . , Pickens hereby authorizes the
[Plaintiffs] to sell any or all of his shares of stock in the
Code Corporation.” Id. at 20. The Hypothecation Agreement
spells out requirements for such a sale, and specifies that
“Pickens shall not remain personally liable for any deficiency.”
Id.
The July 30, 2007 deadline for Pickens’s satisfaction of
his obligations under the Promissory Note passed without Pickens
having paid the Plaintiffs any of the money owed. Thus, on
October 15, 2007, counsel for the Plaintiffs sent a letter to
Pickens’s lawyer warning that he would file suit if the full
amount due — calculated to be $293,023.82 as of October 31, 2007
— was not paid within ten days (the “Plaintiffs’ Demand
Letter”). Additionally, the Plaintiffs’ Demand Letter requests
4
that Pickens’s lawyer forward to Plaintiffs’ counsel the Code
Corporation stock shares pledged in the Hypothecation Agreement
as security for the Promissory Note.
On November 12, 2007, Pickens’s lawyer sent a response
letter to counsel for the Plaintiffs, acknowledging that Pickens
had defaulted on his obligations under the Promissory Note and
that the Plaintiffs therefore had demanded delivery of the Code
Corporation stock shares (“Pickens’s Response Letter”).
Pickens’s Response Letter reflects enclosure of Pickens’s
original stock certificate for 1,861,938 shares of Code
Corporation stock (the “Stock Certificate”), and states that the
Plaintiffs “are now entitled to sell any or all of” such shares.
J.A. 11. Although the Stock Certificate was indeed enclosed
with Pickens’s Response Letter, Pickens had not endorsed the
backside of the Stock Certificate to show transfer of his shares
to the Plaintiffs. Id. at 13-14. Without seeking Pickens’s
endorsement of the Stock Certificate, the Plaintiffs thereafter
initiated this action.
B.
1.
On January 21, 2008, the Plaintiffs filed their Complaint
against Pickens in the District of South Carolina, invoking
diversity jurisdiction under 28 U.S.C. § 1332. According to the
Complaint, Pickens had defaulted on his obligations under the
5
Promissory Note and owed the Plaintiffs the principal sum of
$250,000.00 plus accrued interest. The Complaint did not
mention the Hypothecation Agreement or Pickens’s delivery of the
unendorsed Stock Certificate. Nevertheless, copies of Pickens’s
Response Letter and the unendorsed Stock Certificate were
attached as exhibits to the Complaint.
Pickens filed his Answer to the Complaint on April 10,
2008. As the third defense asserted therein, Pickens contended
that “[t]he debt owed to Plaintiffs by Defendant pursuant to the
Promissory Note was satisfied when Defendant surrendered the
Code Corporation Stock to Plaintiffs’ counsel.” J.A. 16.
Pickens’s fifth defense was that “Plaintiffs’ claims are barred
by the terms of the Hypothecation Agreement dated November 17,
2004 executed by Defendant and accepted by Plaintiffs.” Id. A
copy of the Hypothecation Agreement and a frontside-only copy of
the Stock Certificate (omitting the unendorsed backside) were
attached as exhibits to the Answer.
On April 17, 2008, the district court entered a Scheduling
Order, establishing a June 9, 2008 deadline for motions to amend
the pleadings, an October 7, 2008 discovery deadline, and an
October 22, 2008 deadline for dispositive motions. The
Scheduling Order reflects that, although “[l]ate requests to
amend [the pleadings are] strongly discouraged,” such requests
could be justified with adequate explanation. See J.A. 26. The
6
Scheduling Order was initially characterized as “tentative,” id.
at 27, but it was never formally changed. According to the
parties, however, they subsequently agreed to an abbreviated
schedule requiring them to submit dispositive motions by June
17, 2008.
On June 17, 2008, Pickens filed a Federal Rule of Civil
Procedure 12(c) motion for judgment on the pleadings. In
support of his motion, Pickens contended that, pursuant to the
Hypothecation Agreement, he had satisfied his obligations under
the Promissory Note by delivering the Stock Certificate to the
Plaintiffs. That same day (June 17, 2008), the Plaintiffs filed
a Rule 56 motion for summary judgment. In their supporting
memorandum, the Plaintiffs maintained that Pickens “cannot claim
that he has delivered the stock, as it has never been endorsed
over to the Plaintiffs. Nor can he claim that the Plaintiffs
accepted the stock in satisfaction of the admitted debt.” J.A.
48. The Plaintiffs attached an affidavit of their counsel
opining that the Stock Certificate “was not signed in order to
ensure that the stock could not be sold,” and that, in any
event, the Plaintiffs “reject the sale of the collateral[, i.e.,
the Code Corporation stock shares] as their remedy” because,
since filing this action, they had learned that such shares were
“worthless.” Id. at 80.
7
Also on June 17, 2008, the Plaintiffs filed a Rule 15(a)(2)
motion to amend their Complaint. The proposed Amended Complaint
included two new allegations: (1) that “[t]he Defendant has not
delivered his shares of stock in the Code Corporation”; and (2)
that, “[e]ven if the Defendant had delivered the stock,
Plaintiffs have elected not to satisfy the [Promissory Note] by
disposition of the collateral, as it is worthless.” J.A. 84.
In the proposed Amended Complaint, the Plaintiffs also asserted
that they were filing the original Stock Certificate in the
district court “as evidence of their rejection of the
collateral.” Id.On July 7, 2008, Pickens filed his response in opposition
to the Plaintiffs’ summary judgment motion. In his response,
Pickens refrained from contending that providing the Plaintiffs
with the unendorsed Stock Certificate was sufficient to satisfy
his Promissory Note obligations. Rather, Pickens asserted that
the Plaintiffs’ summary judgment motion constituted the first
time that the Plaintiffs had raised an issue with the failure to
endorse the Stock Certificate or the value of the Code
Corporation stock shares. According to the response, Pickens’s
lawyer had since contacted counsel for the Plaintiffs to offer
to remedy the lack of an endorsement, which had been an
oversight. Thus, Pickens asserted, the Plaintiffs were actually
seeking a deficiency judgment — the difference between the
8
amount owed on the Promissory Note and the value of the Code
Corporation stock shares — which was explicitly precluded by the
Hypothecation Agreement.
Additionally, on July 7, 2008, Pickens filed a response in
opposition to the Plaintiffs’ motion to amend. Pickens asserted
that he would be unduly prejudiced if the motion to amend were
granted, and that the proposed amendments would be futile
because he was willing to endorse the Stock Certificate.
Finally, on July 7, 2008, the Plaintiffs filed their response to
Pickens’s motion for judgment on the pleadings, reiterating both
their position that the Stock Certificate was not properly
assigned and their rejection of the Code Corporation stock
shares in satisfaction of Pickens’s obligations under the
Promissory Note.
2.
By its Summary Judgment Order of January 20, 2009, the
district court disposed of the Plaintiffs’ motions for summary
judgment and to amend their Complaint, as well as Pickens’s
motion for judgment on the pleadings (which the court treated as
a summary judgment motion). In granting summary judgment to the
Plaintiffs — and denying it to Pickens — the court explained:
Plaintiffs essentially seek a judgment affirming
Defendant’s obligation to pay them $250,000 plus the
relevant interest rate under the promissory note. The
essential facts that form the basis of Plaintiffs’
claim is undisputed — Plaintiffs obtained a judgment
9
against Defendant for $2,886,994.64 plus interest and
attorneys’ fees, but agreed to drop that judgment in
exchange for the $250,000 plus interest provided for
in the promissory note. Defendant acknowledged that
he defaulted on this amount. The only question,
therefore, was whether mailing Plaintiffs the stock
certificate discharged all obligation on the part of
Defendant. . . . [M]ailing the stock certificate
without any sort of endorsement failed to confer the
legal rights upon the Plaintiffs which are attendant
to owning stock. Since Plaintiffs could take no legal
action with regard to the stock, Defendant was still
the proper legal owner of the stock, and when
Plaintiffs then specifically refused to accept the
stock as a discharge of Defendant’s obligations under
the promissory note and filed a legal action,
Defendant remained the actual owner of the stock in
the Code Corporation. Therefore, Defendant still owes
Plaintiffs the $250,000 plus interest he promised to
pay them under the terms of the promissory note.
Braunstein, 593 F. Supp. 2d at 839.
Additionally, the district court granted the Plaintiffs’
motion to amend their Complaint “to add the theories that the
shares are essentially worthless” and “that the stock
certificate was never properly endorsed.” Braunstein, 593 F.
Supp. 2d at 839. With respect to the “worthlessness” theory,
however, the court observed that “allegations about the lack of
value of the stock in question are rendered moot by the court’s
decision that the stock in question was never properly
endorsed.” Id. at 839-40. Furthermore, with respect to the
“endorsement” theory, the court concluded that Pickens failed to
demonstrate he would be prejudiced by amendment of the
Complaint. The court explained:
10
Plaintiffs raised [the “endorsement” theory] in their
Motion to Amend and their Motion for Summary Judgment,
which were filed simultaneously. This was a purely
legal question, which Defendant had ample opportunity
to address but chose not to, and an issue on which the
facts were plainly clear and in need of no further
discovery. Defendant does not dispute that he mailed
Plaintiffs the stock certificate without properly
transferring it through endorsement. No additional
amount of time, discovery, or legal debate would
change these undisputed facts, nor would it change the
court’s holding that without a proper legal transfer
of the stock shares, Plaintiffs could not have sold
the shares and therefore the portion of the
Hypothecation Agreement which Defendant’s entire case
is reliant upon never came into play and thus offers
him no protection.
Id. at 840. The court concluded that, “[i]n accordance with
Rule 15, . . . justice requires that the court consider the fact
that the stock certificate was not endorsed, and the court holds
that Defendant is not improperly prejudiced by this
consideration.” Id.
3.
On February 3, 2009, Pickens filed a motion for
reconsideration, requesting the district court to alter or amend
the judgment under Rule 59(e). Pickens therein raised — for the
first time in these proceedings — numerous arguments as to why
providing the Plaintiffs with the unendorsed Stock Certificate
satisfied his obligations under the Promissory Note.
Additionally, Pickens reiterated his summary judgment contention
that he had offered to remedy the lack of an endorsement.
Pickens also asserted that the court erred by granting summary
11
judgment on the basis of issues raised only in the Plaintiffs’
motion to amend their Complaint, in that such motion was granted
in conjunction with the summary judgment award.
In addition to filing his motion for reconsideration on
February 3, 2009, Pickens filed an Answer to the Amended
Complaint. The next day (February 4, 2009), he filed an Amended
Answer to the Amended Complaint. On February 23, 2009, the
Plaintiffs filed a response to Pickens’s motion for
reconsideration, asserting that he had not satisfied the
standard for Rule 59(e) relief and that his contentions were
without merit.
On March 5, 2009, Pickens filed a reply memorandum in
support of his motion for reconsideration, yet again raising a
new contention: that, based on the bare statement in the
Hypothecation Agreement that “Pickens shall not remain
personally liable for any deficiency,” J.A. 20, he was no longer
liable on the Promissory Note once he provided the Plaintiffs
with the unendorsed Stock Certificate, even without a sale of
the stock shares. Pickens also refined his contention that it
was improper to grant summary judgment on the basis of issues
raised only in the Plaintiffs’ concurrently granted motion to
amend their Complaint. In that regard, Pickens asserted that
the summary judgment award was premature because he had not been
afforded the opportunity to answer the Amended Complaint.
12
Pickens also pointed out that it was unclear whether the Amended
Complaint had actually been filed in the district court, and
that he had filed his Answer to the Amended Complaint out of an
abundance of caution.
4.
By its Reconsideration Order of August 19, 2009, the
district court denied Pickens Rule 59(e) relief on the ground
that “the previous [Summary Judgment] Order need not be amended
or altered in order to correct a clear error of law or to avoid
a manifest injustice.” Reconsideration Order 5. The court
specifically addressed several of Pickens’s arguments, including
the contention in his reply memorandum that the Hypothecation
Agreement does not require a sale of his Code Corporation stock
in order to satisfy his obligations under the Promissory Note.
On this issue, the court observed:
Defendant claims that, “[t]he simple statement in the
Hypothecation Agreement is, ‘Pickens shall not remain
personally liable for any deficiency.’ This is a one
sentence statement. It does not have any
contingencies surrounding it.” The Court disagrees.
If this were, in fact, “a one sentence statement,”
without “any contingencies surrounding it,” then
Defendant would have been immediately released from
any obligation as soon as Plaintiffs signed the
Hypothecation Agreement. However, this would have run
directly counter to the express purpose of the
Hypothecation Agreement, which was to ensure that
Defendant paid the small fraction of the damages he
had allegedly caused to Plaintiffs [as] he had
previously promised. Here, Defendant seeks to avoid
this obligation.
13
The most logical reading of the portion of the
Hypothecation Agreement in question is that Defendant
would be released from his obligation upon sale of the
stock . . . . Plaintiffs clearly were not simply
releasing Defendant from his obligations. Instead,
they were seeking some security that Defendant would
in fact perform these obligations, by reserving the
right to sell the shares of stock in question to
obtain what was due to them. Here, the stock was
never sold, Defendant acknowledges that no attempt to
sell the stock was ever [made], and Defendant
acknowledges that the stock is no longer in
Plaintiffs’ possession.
Exactly why Plaintiffs’ counsel demanded the
shares of stock and then refused possession and sale
of the stock is unclear. However, the reason is not
relevant to the matter before the Court. What does
matter is that Defendant has failed to live up to his
obligations under the settlement and subsequent
Hypothecation Agreement, and that Plaintiffs never
sold the shares of stock in Code Corporation, which
would have released Defendant from those obligations.
Id. at 4-5 (first alteration in original) (citation omitted).
The district court also rejected Pickens’s contention that
the summary judgment award was premature because he had not been
afforded the opportunity to answer the Amended Complaint after
the court authorized its filing. The court explained that
Pickens “did have an opportunity to respond, since he filed an
Answer to the Amended Complaint.” Reconsideration Order 4. The
court further recognized that, in any event, “it is undisputed
that the stock certificate was not indorsed when it was
delivered to Plaintiffs’ counsel.” Id.
14
Pickens timely noted this appeal from the Summary Judgment
Order and the Reconsideration Order, and we possess jurisdiction
pursuant to 28 U.S.C. § 1291.
II.
We review a district court’s ruling on a motion for leave
to amend a complaint for abuse of discretion, bearing in mind
that, under Rule 15(a)(2), such leave should freely be given
“when justice so requires.” See Franks v. Ross, 313 F.3d 184,
192 (4th Cir. 2002). “The law is well settled that leave to
amend a pleading should be denied only when the amendment would
be prejudicial to the opposing party, there has been bad faith
on the part of the moving party, or the amendment would be
futile.” Edwards v. City of Goldsboro, 178 F.3d 231, 242 (4th
Cir. 1999) (internal quotation marks omitted).
We review de novo a district court’s award of summary
judgment, viewing the facts and inferences reasonably drawn
therefrom in the light most favorable to the nonmoving party.
See FOP Lodge No. 89 v. Prince George’s Cnty., 608 F.3d 183, 188
(4th Cir. 2010). Summary judgment is appropriate only if the
record shows “that there is no genuine issue as to any material
fact and that the movant is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56(c)(2).
15
We review a district court’s denial of a Rule 59(e) motion
for abuse of discretion. See Bogart v. Chapell, 396 F.3d 548,
555 (4th Cir. 2005). “[A] court may grant a Rule 59(e) motion
in three circumstances: (1) to accommodate an intervening
change in controlling law; (2) to account for new evidence not
available at trial; or (3) to correct a clear error of law or
prevent manifest injustice.” Id. (internal quotation marks
omitted). Importantly, Rule 59(e) “permits a district court to
correct its own errors, sparing the parties and the appellate
courts the burden of unnecessary appellate proceedings.” Pac.
Ins. Co. v. Am. Nat’l Fire Ins. Co., 148 F.3d 396, 403 (4th Cir.
1998) (internal quotation marks omitted). “Rule 59(e) motions
may not be used, however, to raise arguments which could have
been raised prior to the issuance of the judgment, nor may they
be used to argue a case under a novel legal theory that the
party had the ability to address in the first instance.” Id.III.
On appeal, Pickens first contends that the district court
erred in concurrently granting the Plaintiffs’ motions for
summary judgment and to amend their Complaint without first
affording him an opportunity to answer the Amended Complaint.
In that regard, Pickens points to the court’s observation in its
Reconsideration Order that Pickens “did have an opportunity to
16
respond, since he filed an Answer to the Amended Complaint” — a
statement that ignores the fact that Pickens’s Answer
necessarily post-dated the Summary Judgment Order granting the
Plaintiffs’ motion to amend. See Reconsideration Order 4.
Additionally, Pickens asserts the theory — not raised in the
district court or supported by citation to any authority — that
the court erred by granting the Plaintiffs’ motion to amend even
though it was filed after the Scheduling Order’s deadline for
such motions. Unfortunately for Pickens, even assuming the
court erred in its handling of the Plaintiffs’ motion to amend,
its error was harmless. See Fed. R. Civ. P. 61 (“At every stage
of the proceeding, the court must disregard all errors and
defects that do not affect any party’s substantial rights.”);
McDonough Power Equip., Inc. v. Greenwood, 464 U.S. 548, 554
(1984) (“[I]t is well settled that the appellate courts should
act in accordance with the salutary policy embodied in Rule
61.”).
Simply put, there was no need for the Plaintiffs to amend
their Complaint to address the issue of whether Pickens
satisfied his Promissory Note obligations pursuant to the terms
of the Hypothecation Agreement, because that issue was first
raised in these proceedings by Pickens himself. More
specifically, once the Plaintiffs had alleged in their original
Complaint of January 21, 2008, that Pickens had defaulted on his
17
Promissory Note obligations, Pickens filed an April 10, 2008
Answer asserting the defenses that “[t]he debt owed to
Plaintiffs by Defendant pursuant to the Promissory Note was
satisfied when Defendant surrendered the Code Corporation Stock
to Plaintiffs’ counsel” and that “Plaintiffs’ claims are barred
by the terms of the Hypothecation Agreement dated November 17,
2004 executed by Defendant and accepted by Plaintiffs.” J.A.
16. In these circumstances, the Plaintiffs were entitled to
refute Pickens’s defenses in their dispositive motion papers,
without any need to amend their Complaint. And, as the district
court properly recognized, Pickens had “ample opportunity” at
the summary judgment stage to address the Plaintiffs’
Hypothecation Agreement-related contentions, “but chose not to”
do so. See Braunstein, 593 F. Supp. 2d at 840.
Pickens also contends on appeal that the district court’s
summary judgment award was inappropriate because “questions of
material fact exist.” Br. of Appellant 18. Many of the
“questions of material fact” identified by Pickens are actually
questions of law. Moreover, Pickens failed to raise any of
those issues at the summary judgment stage, as his entire
defense against the Plaintiffs’ summary judgment motion was that
he was willing to provide an endorsement of the Stock
Certificate. And, although Pickens belatedly raised some of his
“questions of material fact” at the reconsideration stage (e.g.,
18
that he could satisfy his Promissory Note obligations pursuant
to the Hypothecation Agreement without a sale of the Code
Corporation stock), other issues were even more belatedly
introduced in this appeal (e.g., that the Plaintiffs accepted
the original Stock Certificate by submitting it to the district
court rather than returning it to him).
Having had the benefit of oral argument and having
carefully considered the briefs, the Joint Appendix, and the
applicable authorities, we are satisfied that the district court
properly awarded summary judgment in this matter. Furthermore,
we are satisfied that the court did not abuse its discretion in
refusing to alter or amend the judgment under Rule 59(e).
Accordingly, we affirm the judgment entered in favor of the
Plaintiffs, substantially for the reasons spelled out by the
district court in its Summary Judgment Order and subsequent
Reconsideration Order.
AFFIRMED
19