Med Safe Northwest, Inc. v. Medvial, Inc.

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
JAN 5 2001
TENTH CIRCUIT
__________________________ PATRICK FISHER
Clerk
MED SAFE NORTHWEST, INC., a Washington
corporation; EDWARD G. MIFSUD; JANINE
MIFSUD; PAUL MAHONEY; CHARLES
LANGLAIS; MADDISON WON; RICHARD
DON; CHRIS STARK; DONALD VAN HOOK; No. 98-1375
KIM VAN HOOK; MED SAFE ATLANTIC, (D. Colo.)
INC., a North Carolina corporation; RICHARD (D.Ct. No. 93-D-2343)
DRISCOLL,
Plaintiffs,
JOHN KOCKOS, KENT KOCKOS, SCOTT
KOCKOS,
Plaintiffs-Appellants,
v.
MEDVIAL, INC., f/k/a Med Safe, Inc., a
Colorado, corporation; CWC R&D, INC., a/k/a
CWC Research & Development, Inc., a
Colorado corporation; CHILD SAFETY
SCIENCES, INC., a Delaware corporation,
Defendants,
JOHN PINNEY; GRAYDON, HEAD &
RITCHEY, an Ohio partnership,
Defendants-Appellees.
____________________________
ORDER AND JUDGMENT *
*
This order and judgment is not binding precedent except under the doctrines of
law of the case, res judicata and collateral estoppel. The court generally disfavors the
citation of orders and judgments; nevertheless, an order and judgment may be cited under
Before BRORBY, McWILLIAMS, and KELLY, Circuit Judges.
Plaintiffs John, Kent, and Scott Kockos appeal from two summary
judgment orders entered by the district court in favor of defendants John Pinney
and Graydon, Head & Ritchey, 1
which together resolved a twelve-count
complaint alleging federal securities law violations; liability under the common
law principles of aiding and abetting, fraud, and intentional or negligent
misrepresentation; and violations of the Racketeer Influenced and Corrupt
Organizations Act, 18 U.S.C. § 1961, et seq. The district court held plaintiffs
failed to produce sufficient evidence of at least one element of each cause of
action, and defendants were entitled to judgment as a matter of law. 2
the terms and conditions of 10th Cir. R. 36.3.
1
John Pinney is a partner in the law firm of Graydon, Head & Ritchey. (Ape. Br.
at 4.)
2
The district court also dismissed some of plaintiffs’ liability theories for failure
to state a claim. Plaintiffs have not appealed this aspect of the district court’s ruling.
-2-
I. Background
In 1993, fifteen plaintiffs brought this lawsuit against sixteen defendants 3
alleging fraud involving their investments in securities of Medvial, Inc.
(“Medvial”). 4
Medvial was created to commercialize a child-safe medicinal vial,
practicing an invention patented as U.S. Patent No. 4,739,890 5
(“890 Patent”).
Among the defendants no longer in this case were both CWC R&D, Inc.
(“CWC”), which owned the 890 Patent, and Carl Cooke (“Cooke”), who invented
the 890 Patent and organized CWC.
In January 1990, prior to plaintiffs’ investments in Medvial, CWC and
Cooke retained defendants to defend them in a dispute involving the 890 Patent.
The parties refer to this dispute as the “IPM arbitration.” CWC entered into a
security agreement and conditional assignment of the 890 Patent (“security
3
Only John, Kent, and Scott Kockos remain as plaintiffs after the others settled
and dismissed their claims following the district court’s first summary judgment order.
Only Pinney and Graydon, Head & Ritchey remain as defendants after the others either
settled, filed for bankruptcy, or allowed the entry of a default judgment against them.
4
Prior to 1992, Medvial, Inc. was known as Med Safe, Inc. For the sake of
clarity, and consistent with the parties’ briefs, all references in this order and judgment to
Medvial include the time the corporation was called Med Safe, Inc.
5
Although plaintiffs’ operative complaint lists the patent as No. 4,736,890, it is
clear from the record the correct designation is No. 4,739,890.
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agreement”) with Graydon, Head & Ritchey in order to ensure payment of
defendants’ legal bills arising from the IPM arbitration. According to the
operative complaint, CWC then granted to Medvial an exclusive worldwide
license to manufacture and sell 890 Patent products, subject to the results of the
IPM arbitration. John, Kent, and Scott Kockos later purchased Medvial
securities, after which CWC remained the majority owner of Medvial.
Subsequently, defendants sought and received from John Kockos and David
Kimmel 6 a “Payment Guarantee” for CWC’s legal bills arising from the IPM
arbitration. 7
Plaintiffs’ operative complaint alleged defendants perpetrated securities
frauds in joint venture and conspiracy with the dismissed defendants, which
amounted to a Racketeer Influenced and Corrupt Organizations scheme. Plaintiffs
focus on two sets of events: (1) their initial investments in Medvial, and (2)
offers made to them to repurchase their shares in Medvial. 8
They claim the
6
Apparently, David Kimmel was the first investor in Medvial.
7
According to the operative complaint, David Kimmel and John Kockos were
both minority shareholders and directors of Medvial when they provided the Payment
Guarantee to defendants.
8
It is undisputed defendants communicated the repurchase offers to plaintiffs via
letters. Plaintiffs state the issue is whether defendants presented the offers on their own
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existence of the security agreement made defendants primary participants in the
alleged securities fraud, and the Payment Guarantee created in defendants a duty
to disclose the existence of the security agreement to plaintiffs.
Plaintiffs’ appellate brief is very unclear, because they commingle
arguments and offer few subject headings to bring any semblance of order to the
brief. Having done our best to decipher plaintiffs’ argument, we conclude they
make nine distinct claims. The first two address the security agreement for the
890 Patent without reference to a particular legal theory: (1) defendants’ alleged
failure to disclose the existence of the security agreement in and of itself created
a genuine issue of material fact for trial; and (2) the security agreement somehow
transformed defendants into owners of the 890 Patent. 9
In their next six
behalf, as plaintiffs claim, or on behalf of CWC, as defendants claim. We note all but one
of the letters expressing the repurchase offer unambiguously identify CWC as the offeror,
while the exception appears to be an incomplete copy which nonetheless can be fairly
interpreted to state the same thing. We need not discuss this alleged dispute further,
because it is immaterial under the causes of action on appeal dealing with the repurchase
offer letters. See infra Part III.D, G.
9
With regard to these two arguments, plaintiffs assert “the exact legal theory does
not control the erroneous [summary judgment] ruling of the District Court.” This is not
the law. As discussed below, an appellate court cannot reverse a summary judgment
ruling based on alleged factual disputes without reference to the elements of a particular
cause of action. See Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670-71 (10th Cir.
1998) (describing summary judgment standard). Only genuine issues of material fact
preclude a district court from granting a party summary judgment. See Fed. R. Civ. P.
56(c).
-5-
arguments, plaintiffs claim they presented sufficient evidence to create a genuine
issue of material fact as to whether: (3) defendants had a duty to disclose the
security agreement under the common law of fraudulent concealment; (4)
defendant Graydon, Head & Ritchey was a statutory seller under §§ 12(1) and
12(2) of the Securities Act of 1933, 15 U.S.C. § 77l(a), 10
when plaintiffs
purchased the Medvial securities, and defendants violated § 12(2) with the
repurchase offers; (5) defendants had a duty to disclose the security agreement
under either § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b),
or Rule 10b-5, 17 C.F.R. § 240.10b-5; (6) defendants were control persons under
§ 15 of the Securities Act of 1933, 15 U.S.C. § 77o, or § 20(a) of the Securities
Exchange Act of 1934, 15 U.S.C. § 78t(a); (7) defendants violated the Williams
Act, 15 U.S.C. § 78n, with the repurchase offers; and (8) defendants entered a
joint venture or conspiracy with CWC and Cooke. Finally, plaintiffs state: (9)
their third through sixth claims on appeal reveal error precluding summary
judgment on their Racketeer Influenced and Corrupt Organizations claims. We
exercise jurisdiction pursuant to 28 U.S.C. § 1291 and affirm.
10
In 1995, Congress added another subsection to § 12 of the Securities Act of
1933, which means § 12(1) and § 12(2) claims are now technically § 12(a)(1) and
§ 12(a)(2) claims. See Maher v. Durango Metals, Inc., 144 F.3d 1302, 1303 n.1 (10th
Cir. 1998). We will continue to use the terms “§ 12(1)” and “§ 12(2)” for the sake of
clarity in light of their use in the district court’s orders and the parties’ briefs.
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II. Standard of Review
We review the grant of summary judgment de novo utilizing the standard
described in Rule 56(c). See Adler v. Wal-Mart Stores, Inc. , 144 F.3d 664, 670
(10th Cir. 1998). Summary judgment is appropriate if there is no genuine issue
of material fact and the movant is entitled to judgment as a matter of law. See
Fed. R. Civ. P. 56(c). Under this standard, we view the evidence and draw
reasonable inferences in the light most favorable to the nonmovant. See Adler ,
144 F.3d at 670.
An issue is “genuine” if there is sufficient evidence on each side so
that a rational trier of fact could resolve the issue either way. An
issue of fact is “material” if under the substantive law it is essential
to the proper disposition of the claim. If a party that would bear the
burden of persuasion at trial does not come forward with sufficient
evidence on an essential element of its prima facie case, all issues
concerning all other elements of the claim and any defenses become
immaterial.
Id. (citations omitted). A movant who will not bear the burden of persuasion at
trial satisfies its initial burden on a motion for summary judgment by pointing out
to the court the lack of evidence for the nonmovant on an essential element of the
nonmovant’s claim. See id. at 670-71. The burden then shifts to the nonmovant,
who must “go beyond the pleadings and ‘set forth specific facts’ that would be
admissible in evidence in the event of trial from which a rational trier of fact
could find for the nonmovant.” Id. at 671 (quoting Fed. R. Civ. P. 56(e)).
-7-
Conclusory and self-serving affidavits are insufficient to meet this burden. See
Murray v. City of Sapulpa , 45 F.3d 1417, 1422 (10th Cir. 1995).
III. Discussion
A. Disclosure of the Security Agreement for the 890 Patent
Plaintiffs claim defendants’ failure to disclose the security agreement to
them in and of itself creates a genuine issue of material fact for trial. This
argument fails for two reasons. First, it is undisputed defendants filed the
security agreement with the U.S. Patent and Trademark Office, where it was
recorded. At oral argument, plaintiffs’ counsel conceded plaintiffs thereby had
constructive notice of defendants’ security interest in the 890 Patent before they
purchased the Medvial securities. Cf. 15 U.S.C. § 1072 (“Registration of a mark
on the principal register ... shall be constructive notice of the registrant’s claim of
ownership thereof.”); Willson v. Graphol Prod. Co. , 188 F.2d 498, 504 (C.C.P.A.
1951) (“[I]n the case of ... a patent assignment, ... any prospective purchaser is
constructively notified of what the pertinent public records contain and will not
be heard to complain that he acted in ignorance of the facts.” (citations omitted).)
Second, whether or not defendants affirmatively disclosed to plaintiffs the
existence of the security agreement is immaterial, because it has no bearing on
the essential elements – as to each cause of action on appeal – the district court
-8-
found deficient on summary judgment. See Adler , 144 F.3d at 670.
B. Security Agreement and Ownership of the 890 Patent
Plaintiffs claim the district court should have ruled the security agreement
somehow transformed defendants into owners of the 890 Patent. Plaintiffs cite
only to 37 C.F.R. § 3.56 as support for this proposition. This regulation simply
states the U.S. Patent and Trademark Office treats conditional assignments as
absolute assignments for its own purposes. See id. (“Assignments which are
made conditional on the performance of certain acts or events, such as the
payment of money or other condition subsequent, if recorded in the Office, are
regarded as absolute assignments for Office purposes .” (emphasis added)); 37
C.F.R. § 3.1 (“ Office means the [U.S.] Patent and Trademark Office.”). This
regulation in no way addresses patent ownership. Indeed, another regulation
clearly states the recording of a patent assignment by the U.S. Patent and
Trademark Office “is not a determination by the Office of the validity of the
document or the effect that document has on the title to ... a patent.” 37 C.F.R. §
3.54. Accordingly, plaintiffs’ claim has no merit and we will not consider it
further. See Fed. R. App. P. 28(a)(9); Phillips v. Calhoun , 956 F.2d 949, 953-54
(10th Cir. 1992) (“[W]e decline to consider the matter, because ... Plaintiff’s
appellate position has not been even minimally supported by legal argument or
-9-
authority.” (citation omitted).) We proceed to look at plaintiffs’ appeal of
specific legal theories.
C. Fraudulent Concealment
In order to establish a claim for fraudulent concealment, plaintiffs must
show as a matter of law that defendants had a duty to disclose the information at
issue. See Berger v. Security Pac. Info. Sys., Inc. , 795 P.2d 1380, 1383 (Colo.
Ct. App. 1990) (utilizing Restatement (Second) Torts 2d §551 (1965) to evaluate
the duty to disclose). This determination should precede any further analysis of
the other elements. See id. at 1383-85. The district court held plaintiffs failed to
offer evidence of a relationship that created a duty to disclose. See Restatement
(Second) Torts 2d § 551(2)(a) (1976) (“One party to a business transaction is
under a duty to exercise reasonable care to disclose to the other before the
transaction is consummated ... matters known to him that the other is entitled to
know because of a fiduciary or other similar relation of trust and confidence
between them”).
“Despite the crucial nature of the issue, plaintiffs do not cite a single
authority or even present a developed argument for ascribing the requisite” duty
to disclose on defendants. Brownlee v. Lear Siegler Mgmt. Serv. Corp. , 15 F.3d
-10-
976, 977 (10th Cir.), cert. denied , 512 U.S. 1237 (1994). Rather, we are
provided only the unsupported, conclusory assertions that “fraud is a factual issue
and the facts as shown above in this brief establish that the [d]istrict court should
have allowed this matter to go to trial.” This is not adequate appellate
argument. 11
Brownlee , 15 F.3d at 977-78.
Even if we assume plaintiffs are alleging the existence of a duty by way of
an attorney-client relationship between themselves and defendants, 12
plaintiffs
failed to come forward with sufficient evidence to allow a rational jury to find
such a relationship. In Colorado, “there must be a showing that a person sought
and received legal advice from the attorney concerning the legal consequences of
the person’s past or contemplated action” in order to establish an attorney-client
11
Plaintiffs cite two fraudulent concealment cases in their opening brief, which
are unhelpful. The duty to disclose element was not at issue in Teodonno v. Bachman,
404 P.2d 284, 285-86 (Colo. 1965), and the court in Wilbourn v. Mostek Corp., 537 F.
Supp. 302 (D. Colo. 1982), a case that preceded Berger, inappropriately concluded it did
not need to find a duty to disclose before engaging in an elements analysis. See id. at
305-06.
12
In Colorado, “[t]he formation of a relationship between an attorney and his or
her client is based upon contract, which may be either express or implied by the conduct
of the parties.” Turkey Creek, LLC v. Rosania, 953 P.2d 1306, 1311 (Colo. Ct. App.
1998). Plaintiffs do not claim an express contract existed between themselves and
defendants, but state the Payment Guarantee “shows the privity between Appellant John
Kockos and Respondent Attorneys.” Accordingly, plaintiffs appear to claim defendants’
conduct established an attorney-client relationship between them.
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relationship based on the conduct of the parties. Turkey Creek , 953 P.2d at 1311.
A nonclient’s payment of attorney fees on behalf of the client is insufficient. See
id. at 1312. Accordingly, the Payment Guaranty entered into by John Kockos
cannot create such a relationship, especially since it appears undisputed he never
made any payment pursuant to this guarantee. Further, the plain language of the
Payment Guarantee does not reflect any effort by John Kockos to obtain legal
advice concerning his past or contemplated action, nor does it contain any
representation by defendants regarding the initiation of an attorney-client
relationship with him. The guarantee of payment, standing alone, is insufficient
to show an attorney-client relationship.
We therefore affirm the district court’s decision to grant summary
judgment for defendants on plaintiffs’ fraudulent concealment claim.
D. Sections 12(1) and 12(2) of the Securities Act of 1933
In Pinter v. Dahl , 486 U.S. 622 (1988), the Supreme Court held liability
for the unlawful sale of unregistered securities under § 12(1) of the Securities
Act of 1933 extends to both the person who passes title to the securities and “the
person who successfully solicits the purchase, motivated at least in part by a
desire to serve his own financial interests or those of the securities owner.” Id. at
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647. However, “[b]eing merely a ‘substantial factor’ in causing the sale of
unregistered securities is not sufficient in itself to render a defendant liable under
§ 12(1).” Id. at 654. Therefore, § 12(1) liability does not attach to lawyers
“whose involvement is only the performance of their professional services.” Id.
at 651. Citing to John Pinney’s affidavit, 13
the district court held plaintiffs failed
to establish a genuine issue of material fact on the elements of passing title to or
soliciting the purchase of the Medvial securities. Specifically, it held “plaintiffs
failed to produce evidence sufficient to create a genuine issue of material fact
whether, in connection with plaintiffs’ acquisition of securities, [defendants]
13
The district court cited, in part, the following portions of John Pinney’s
affidavit:
At all times that [defendants] had any communications with
plaintiffs, [defendants] did so as attorneys for Cooke or CWC.
....
[Defendants] did not participate in or plan any of the discussions or
communications between Cooke/CWC and any of the plaintiffs in
connection with plaintiffs’ acquisition of stock in Medvial; any interest in
any of the Medvial license royalties; or any distribution rights from
Medvial.
[Defendants] did not furnish or supply any information to any of the
plaintiffs in connection with any of their alleged securities transactions.
[Defendants] did not furnish any written opinion to or for any
plaintiff in connection with any of the transactions or discussions that any
plaintiff had relating to stock in Medvial; distribution rights from Medvial;
or any Medvial license royalties.
With the possible exception of J. Kockos, [defendants] had no
communication whatsoever with any of the plaintiffs before they acquired
any stock in Medvial; any interest in the Medvial license royalties; or any
distribution rights from Medvial.
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acted in a capacity other than that of attorneys performing professional services
for their clients.”
On appeal, plaintiffs concede defendants did not pass title to the Medvial
securities, but claim their Supplemental Declarations presented sufficient
evidence to create a genuine issue of material fact as to whether defendants
solicited and encouraged their investments in Medvial. However, these
declarations do not set forth specific facts about any contact or information
exchanged between plaintiffs and defendants with regard to the acquisition of the
Medvial securities. Rather, they are full of conclusory and self-serving
statements that do not create a genuine issue of material fact. See Fed. R. Civ. P.
56 (e); Murray , 45 F.3d at 1422. For example, all three declarations contain the
following identical language:
[Defendants] communicated directly with Kimmel, Kockos and
Kimmel’s attorney Mallette, to plan Medvial’s formation with the
Kimmel Agreement, which Pinney revised and approved in final
form .... [Defendants] revised and approved the Medvial License
which misrepresented CWC’s exclusive ownership of the 890 Patent
and failed to disclose the [Graydon, Head & Ritchey] interest in the
890 Patent, a material document given to minority investors to
induce their investment contracts (exclusive rights to exploit 890
Patent products), upon which I relied in making my investment
decision. This affirmative misrepresentation of CWC’s exclusive
ownership and rights to the 890 Patent was passed on by
[defendants] to underwriters, knowing the false information would
be communicated to me, either orally, or by submission to me of the
Medvial License document, which I received and reviewed, and
-14-
relied upon, prior to my investment decision.
First, it is unclear which “Kockos” was allegedly involved in direct
communications with defendants. Second, plaintiffs do not provide record
citations for either the “Kimmel Agreement” or “Medvial License.” Third,
plaintiffs appear to concede the “Medvial License” was not directly
communicated to them by defendants, but rather it went from defendants to
“underwriters” to them. Finally, plaintiffs do not provide any citation to
evidence supporting their assertion defendants “revised and approved” the
“Kimmel Agreement” and “Medvial License.”
We note defendants produced a copy of an “Agreement” between David
Kimmel and CWC as well as a “License Agreement” between CWC and Med
Safe, Inc. Even assuming these are the documents to which plaintiffs were
referring, plaintiffs have not provided any specific facts to dispute that: (1) the
only relationship between defendants and Cooke/CWC at this point in time was
attorney-client, in light of the IPM arbitration; (2) Cooke requested defendants
review these two documents only for the purpose of suggesting revisions to
conform them to the anticipated litigation positions of CWC and Cooke in the
IPM arbitration; (3) defendants are not parties or signatories on the documents;
(4) the documents do not contain any warranty, representation, or guaranty of
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defendants; and (5) defendants did not provide a written opinion to anyone
regarding the accuracy or sufficiency of any of the provisions of the two
documents. We therefore affirm the district court’s decision to grant summary
judgment for defendants on plaintiffs’ § 12(1) claims, because such liability does
not attach to lawyers whose only involvement is the performance of their
professional services. See Pinter , 486 U.S. at 651, 654.
“Under § 12(2) of the Securities Act of 1933, buyers have an express cause
of action for rescission against sellers who make material misstatements or
omissions ‘by means of a prospectus.’” Gustafson v. Alloyd Co., Inc. , 513 U.S.
561, 564 (1995) (quoting 15 U.S.C. § 77l(a)(2)). The existence of a prospectus
is an essential element of the cause of action. See id. at 567-68. In this case, the
district court granted defendants’ summary judgment motion because plaintiffs
failed to create a genuine issue of material fact as to whether: (1) they had
received a prospectus in connection with their purchase of the Med Vial
securities, and (2) defendants were a statutory seller of the Med Vial securities.
Plaintiffs challenge only the statutory seller holding. Because, regardless of
whether defendants are statutory sellers, plaintiffs must present evidence of a
prospectus, we affirm the district court’s decision to grant summary judgment for
defendants based on its uncontested ruling regarding plaintiffs’ failure to create a
-16-
genuine issue of material fact that they had received a prospectus. See Griffin v.
Davies , 929 F.2d 550, 554 (10th Cir.) (“We will not undertake to decide issues
that do not affect the outcome of a dispute.”), cert, denied , 502 U.S. 878; Snell v.
Tunnell , 920 F.2d 673, 676 (10th Cir. 1990) (citing case law supporting the
court’s refusal to decide an issue “when the party adversely affected had not
appealed the adverse order”), cert. denied , 499 U.S. 976 (1991). 14
E. Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
There is no liability under § 10(b) of the Securities Exchange Act of 1934
or Rule 10b-5 for failure to disclose information absent a duty to do so. See
Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A. , 511 U.S.
164, 174 (1994) (section 10(b)); Arst v. Stifel, Nicolaus & Co., Inc. , 86 F.3d 973,
981 (10th Cir. 1996) (Rule 10b-5). “‘[T]he duty to disclose arises when one
14
Plaintiffs’ appellate brief focuses heavily on the repurchase offers
communicated to them by defendants. Language contained in their discussion of § 12(2)
appears to reference this portion of their brief and could be construed as an appeal of the
district court’s ruling “the express language of § 12(2) applies only to offers to sell or
distribute securities, not to offers to purchase.” We agree with the district court. See 15
U.S.C. § 77l(a)(2) (“Any person who ... offers or sells a security [with material
misstatements or omissions] ... shall be liable ... to the person purchasing such security
from him.”). Therefore, the alleged dispute whether CWC or defendants were the offeror
is immaterial. See Adler, 144 F.3d at 670. Accordingly, we affirm the district court’s
decision to grant defendants’ motion for summary judgment for failure to demonstrate a
genuine issue of material fact whether the repurchase offers involved any offering or sale
of a security.
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party has information that the other party is entitled to know because of a
fiduciary or other similar relation of trust and confidence between them.’” Arst ,
86 F.3d at 981 (citing Windon Third Oil & Gas Drilling P’ship v. Federal
Deposit Ins. Corp. , 805 F.2d 342, 347 (10th Cir. 1986)). The district court held
plaintiffs failed to present sufficient evidence to create a genuine issue of
material fact as to whether a relationship of trust and confidence existed between
them and defendants.
On appeal, plaintiffs claim there was a relationship of trust and confidence
between themselves and defendants, but do not provide any citations to the
record for evidence of such a relationship. Instead, they merely state:
[Defendants’] status at the time of [plaintiffs’] investments
was: (1) counsel for Cooke, the controlling shareholder of offeror
CWC; (2) counsel for CWC, an offeror; (3) counsel for Medvial[;]
(4) counsel in the IPM litigation representing an identity of
[Graydon, Head & Ritchey], Cooke, CWC, Medvial, and Medvial
minority investors’ interests to defeat IPM 890 Patent claims and
collect the IPM Note; (5) [Graydon, Head & Ritchey], as assignee of
90 [sic] Patent interests, was itself a statutory seller; and[] (6) by
solicitous behavior [defendants] were statutory underwriters.
[Defendants’] status in relationship to the offerings imposes a duty
to disclose under § 10(b) and Rule 10b-5.
...
In addition, [defendants]: (1) obtained individual personal
guarantees from Medvial directors Kimmel and John Kockos of
[defendants’] attorney fees; (2) had ongoing communications with
Medvial RSD investors regarding interruption in product and other
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disputes; (3) negotiated with investors to repurchase their interests.
All [plaintiffs] relied on [defendants] in a relationship of trust and
confidence, as Medvial’s counsel to fully disclose and accurately
communicate the particulars of the offers.
These unsupported, conclusory assertions do not create a genuine issue of
material fact as to a relationship of trust and confidence between plaintiffs and
defendants, see Fed. R. Civ. P. 56(e); Murray , 45 F.3d at 1422, and we decline to
sift through the record in search of evidentiary support for plaintiffs’ assertions.
See Securities & Exch. Comm’n v. Thomas , 965 F.2d 825, 827 (10th Cir. 1992). 15
We therefore affirm the district court’s decision to grant summary judgment for
defendants on plaintiffs’ § 10(b) and Rule 10b-5 claims for fraud by omission. 16
F. Control Person Liability
15
The two cases cited by plaintiffs in support of their control person claims are
inapposite. The duty to disclose element was neither discussed nor at issue in Shumate v.
McNiff, No. 88 CIV 6820 (JFK), 1990 WL 6549, at *1, 3-5 (S.D. N.Y. Jan. 23, 1990), and
Odesser v. Continental Bank, 676 F. Supp. 1305 (E.D. Pa. 1987) does not address § 10(b)
or Rule 10b-5.
16
Finally, we will not address plaintiffs’ reply brief argument that summary
judgment was inappropriate on its affirmative misrepresentation claim under § 10(b) of
the Securities Exchange Act of 1934, because they did not raise it in their opening brief, it
does not go to jurisdiction, and defendants’ discussion of this claim in its brief does not
provide an alternative basis for its arguments on any of the claims raised by plaintiffs in
their opening brief. See Sadeghi v. INS, 40 F.3d 1139, 1143 (10th Cir. 1994) (refusing to
consider issues raised for the first time in a reply brief “except when those issues relate to
jurisdictional requirements” or when appellant is responding to an argument raised in
appellee’s brief that addresses an issue raised in appellant’s opening brief).
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Under § 15 of the Securities Act of 1933 and § 20(a) of the Securities
Exchange Act of 1934, “a person who controls a party that commits a violation of
the securities laws may be held jointly and severally liable with the primary
violator.” Maher , 144 F.3d at 1304-05. To state a prima facie case of control
person liability, plaintiffs “must establish (1) a primary violation of the securities
laws and (2) ‘control’ over the primary violator by the alleged controlling
person.” Id. at 1305. In this case, the district court held plaintiffs failed to
produce evidence sufficient to create a genuine issue of material fact whether
defendants had “control” – defined as “the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
person, whether through the ownership of voting securities, by contract, or
otherwise.” 17 C.F.R. § 230.405; see Maher , 144 F.3d at 1305 (citing with
approval the SEC’s “broad definition of ‘control’” in 17 C.F.R. § 230.405). On
appeal, plaintiffs claim to “have introduced evidence to satisfy that two prong
test” in the regulation, but do not explain how they have done so or provide any
citations to the record. This unsupported, conclusory assertion does not create a
genuine issue of material fact. See Fed. R. Civ. P. 56(e); Murray , 45 F.3d at
1422. Moreover, none of the factual evidence we have reviewed establishes this
element. We therefore affirm the district court’s decision to grant summary
judgment for defendants on plaintiffs’ control person liability claims.
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G. Williams Act
In the portion of their appellate brief addressing § 10(b), Rule 10b-5, and
control person liability, plaintiffs appear to challenge the district court’s
conclusion defendants did not violate the disclosure requirements and anti-fraud
provisions of §§ 14(d) and (e) of the Williams Act in connection with the
repurchase offers. See 15 U.S.C. §§ 78n(d), (e). The district court held plaintiffs
failed to produce sufficient evidence to create a genuine issue of material fact as
to whether the repurchase offers were tender offers covered by the Williams Act.
Sections 14(d) and (e) apply to a “tender offer.” 15 U.S.C. §§ 78n(d)(1),
(e). The district court held a tender offer is defined as “a general, publicized bid
by an individual or group to buy shares of a publicly[] owned company, the
shares of which were traded on a national securities exchange, at a price
substantially above the current market price.” Hanson Trust PLC v. SCM Corp. ,
774 F.2d 47, 54-55 (2d Cir. 1985) (citing legislative history of the Williams Act).
Plaintiffs do not challenge this legal ruling. Assuming, without deciding, this is
a correct statement of the law, we note plaintiffs have not cited any evidence the
repurchase offer letters were a “general, publicized bid,” Medvial is a publicly-
owned company, or Medvial securities were traded on a national securities
exchange. Moreover, none of the factual evidence we have reviewed establishes
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any of these criteria. We therefore affirm the district court’s decision to grant
summary judgment for defendants on plaintiffs’ Williams Act claims.
H. Joint Venture or Conspiracy
In Colorado, an essential element of joint venture liability is the existence
of “an express or implied agreement [between the alleged joint venturers] to
share in profits or losses of the venture.” Hancock Constr. Co. v. Cummins , 791
P.2d 1208, 1209 (Colo. Ct. App. 1990). The district court concluded plaintiffs
failed to produce sufficient evidence to create a genuine issue of material fact as
to whether defendants entered into such an agreement with CWC or Cooke. On
appeal, plaintiffs claim there exist “issues of material fact for trial concerning
profit-sharing arising from [defendants’] deferral of fees and the active
participation in ... the ongoing CWC enterprise,” but again provide no citations
to the record. Such unsupported, conclusory assertions do not create a genuine
issue of material fact. See Fed. R. Civ. P. 56(e); Murray , 45 F.3d at 1422.
In the alternative, plaintiffs claim a written agreement is unnecessary to
create a joint venture and the security agreement fulfills the element of joint
venture liability requiring a joint interest in property. However, on summary
judgment, issues concerning all other elements of the claim become immaterial if
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the plaintiffs do not come forward with sufficient evidence on any essential
element of the cause of action. See Adler , 144 F.3d at 670. Accordingly, we
affirm the district court’s decision to grant summary judgment for defendants in
light of plaintiffs’ failure to produce sufficient evidence on the element of a
profit sharing agreement.
Regarding plaintiffs’ conspiracy claim, the district court held as a matter of
law an attorney acting within the scope of the attorney-client relationship cannot
conspire with his client, as long as the attorney does not actively participate in a
fraud. See Astarte, Inc. v. Pacific Indus. Sys., Inc. , 865 F. Supp. 693, 708 (D.
Colo. 1994) (applying Colorado law in a diversity case). Plaintiffs do not
challenge this legal ruling. Rather, they appear to focus on the fraud exception to
this rule, implying the alleged error by the district court on the fraudulent
concealment claim infects its decision on this issue. 17
In light of our ruling above
that no such error occurred on the fraudulent concealment claim, we affirm the
district court’s decision to grant defendants’ summary judgment motion on
plaintiffs’ conspiracy claim.
17
We decline to address plaintiffs’ argument that an attorney for a corporation has
the same fiduciary duties as a director, because we fail to see how it has anything to do
with their conspiracy claim.
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I. Racketeer Influenced and Corrupt Organizations Act
Plaintiffs appear to base their appeal of the district court’s ruling under the
Racketeer Influenced and Corrupt Organizations Act on their claims the district
court erred in granting summary judgment for defendants on the fraudulent
concealment and federal securities law claims. In light of our above rulings that
no such errors exist, we affirm the district court’s grant of summary judgment to
defendants here as well.
IV. Conclusion
The judgment of the United States District Court for the District of
Colorado is AFFIRMED .
Entered by the Court:
WADE BRORBY
United States Circuit Judge
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