Frank Musolino v. Yeshivat Beth Hillel of Krasna

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
June 29, 2005
No. 04-15735 THOMAS K. KAHN
Non-Argument Calendar CLERK
________________________
D. C. Docket No. 02-02126-CV-T-30-EAJ
FRANK MUSOLINO,
Plaintiff-Appellee,
versus
YESHIVA MACHZIKEI HADAS BELZ,
a New York educational organization,
Defendant-Appellant,
YESHIVAT BETH HILLEL OF KRASNA, INC.,
a New York Corporation,
CONSULTING ADMINISTRATIVE & PROFESSIONAL
SERVICES, N.C., a New York Corporation, et al.,
Defendants.
________________________
Appeal from the United States District Court
for the Middle District of Florida
_________________________
(June 29, 2005)
Before BIRCH, DUBINA and BARKETT, Circuit Judges.
PER CURIAM:
The defendant/appellant Yeshiva Machzikei Hadas Belz (“Machzikei
Hadas”) appeals the district court’s entry of judgment in favor of the
plaintiff/appellee Frank Musolino following a four-day bench trial. For the
reasons that follow, we affirm the district court’s judgment.
I.
Buzzeo, Inc. (“Buzzeo”), was a software company created to develop
comprehensive software for educational institutions. In 1998, in order to maintain
its operation Buzzeo reached a financial agreement with Yitz Grossman and his
company, Target Capital. As part of the agreement, Grossman placed three
directors on Buzzeo’s board: himself, Simcha Roth, and Simon Sinnreich. Roth
was also retained, upon Grossman’s insistence, as an outside consultant to perform
as the chief financial officer of Buzzeo.
In late 1998 or early 1999 Sinnreich approached Musolino about investing
in Buzzeo. Musolino, a sophisticated investor, was uninterested at first, but was
ultimately persuaded in the summer of 1999 by Sinnreich, who described Buzzeo
as a financial success with completed and marketed software products. Gene
Buzzeo, the president and founder of the company, also described it in glowing
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terms and stated that it was close to going public. The truth was that Buzzeo was
far from going public; in fact, it had no software that worked, no sales, no
completed products, and several lawsuits filed against it.
In August 1999, Buzzeo was again running out of money and needed to
raise $10,000,000. Musolino was prepared to make the investment by purchasing
shares of Buzzeo stock at $4.00 per share. But, because other investors had
recently purchased Buzzeo stock for as little as $2.00 per share, Musolino wanted
to buy additional stock at a lower price to average down his cost. Roth told
Musolino that he could help him purchase shares at $2.50 per share from two
clients who were willing to sell their shares, one of which was Machzikei Hadas.
The fact is that the clients did not own the shares at the time and, for the most part,
obtained the shares with Musolino’s money. As stated by the district court, the
stock transactions between Machzikei Hadas and Musolino unfolded as follows:
Between August 26, 1999, and September 9, 1999, Machzikei Hadas
purchased 200,000 shares of Buzzeo stock from Buzzeo at five cents per
share for a total of $10,000. This purchase was on the exercise of stock
warrants which had been previously donated to Machzikei Hadas by Roth in
late 1998. It appears from Buzzeo’s records that the stock warrants were
not actually valid–they were exercisable only if the holder had made a loan
of $300,000 or more to Buzzeo. There is no evidence of any $300,000 loan
made to Buzzeo by Roth or Machzikei Hadas. In a simultaneous
transaction, Machzikei Hadas sold the 200,000 shares to Musolino for
$500,000, a $490,000 profit.
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Within the next two weeks, Roth arranged for Machzikei Hadas to purchase
120,000 shares at $2.00 per share from two Buzzeo affilates: 20,000 shares
were purchased from Buzzeo’s in-house counsel, Jim Shook, and 100,000
shares were purchased from Pazona Technolgies, Inc., a company owned by
a vice-president of Buzzeo. The $240,000 purchase price was paid with
funds received from Musolino in the previous transaction. In simultaneous
transactions, these shares were immediately sold to Musolino for $2.50 per
share totaling $300,000, a $60,000 profit.
After these transactions were complete, on September 27, 1999, Musolino agreed
to make the $10,000,000 investment that Buzzeo needed: Musolino and Buzzeo
entered into a stock purchase agreement whereby Musolino purchased
$10,000,000 of Buzzeo stock at $4.00 per share.
In July 2000, Musolino learned about the truth of Buzzeo’s financial and
production affairs. Musolino then filed this action seeking to rescind his
purchases of the unregistered Buzzeo stock from Machzikei Hadas and claimed
that: (1) the securities were unregistered and not exempt from registration pursuant
to Fla. Stat. § 517.07, and (2) Machzikei Hadas, through its agents, made untrue
statements or omitted material facts in connection with the purchases, or both, in
violation of Fla. Stat. § 517.301. After conducting a bench trial, the district court
agreed and entered judgment in favor of Musolino. Machzikei Hadas perfected
this appeal arguing that: Musolino’s claims under Fla. Stat. § 517.07 are barred by
the statute of limitations; the stocks were exempt transactions under Fla. Stat. §
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517.07; and the district court erred by not concluding that reliance is an element of
a claim under Fla. Stat. § 517.301.
II.
The facts, as found by the district court after a four day bench trial, are not
in dispute. We review the district court’s conclusions of law de novo. Ogden v.
Blue Bell Creameries U.S.A., Inc., 348 F.3d 1284, 1286 (11th Cir. 2003).
During the bench trial Machzikei Hadas did not raise the statute of
limitations theory that it now advances on appeal. Generally, this court does not
consider an issue or theory on appeal that was not raised in the district court.
Access Now, Inc. v. Southwest Airlines Co., 385 F.3d 1324, 1331 (11th Cir. 2004).
This case is no exception to that practice; thus, we decline to consider this issue.1
III.
With some exceptions, Fla. Stat. § 517.07 requires every security sold in
Florida to be registered with the Florida Department of Banking and Finance, now
known as the Office of Financial Regulation. The stocks sold by Machzikei Hadas
1
Even if Machzikei Hadas had preserved this argument, it fails on the merits. The sale of
unregistered stock is lawful only if the stock was exempt from registration. Florida’s two-year
statute of limitations for Chapter 517 claims is a discovery statute. Because the undisputed
record establishes that Musolino did not and could not have known that the stock he purchased
from Machzikei Hadas was not exempt from registration more than two years before he brought
this action, this action was timely.
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to Musolino were not registered. Failure to register results in strict liability for the
recision of the transactions. Fla. Stat. § 517.211(1). Machzikei Hadas asserts that
the stocks were exempt from registration because it is entitled to the “Isolated
Sale” exemption under Fla. Stat. § 517.061(3). To be entitled to this exemption,
however, the sale of the securities cannot be made “directly or indirectly for the
benefit of the issuer . . . of such securities.” Fla. Stat. § 517.061(3). Here, the
district court correctly found that Machzikei Hadas’s sale does not fall within the
exemption because the sales were made for the direct and indirect benefit of the
issuer, Buzzeo. All of the sales were arranged by Roth, the outside consulting
chief financial officer of Buzzeo who referred to Machzikei Hadas as his “client.”
In arranging the transactions, Roth was acting on behalf of Buzzeo and Machzikei
Hadas. The sales benefitted Buzzeo because it encouraged Musolino to move
forward with the September 27, 1999, purchase from Buzzeo, which resulted in
the $10,000,000 investment Buzzeo sought from Musolino. In the end, Machzikei
Hadas served simply as a straw man in the transactions for Buzzeo. And, Buzzeo
paid a commission to Roth for arranging Musolino’s purchases.
After concluding that Machzikei Hadas violated Fla. Stat. § 517.07, the
district court concluded that Machzikei Hadas was liable under Fla. Stat. §
517.301 as well. However, because Musolino prevails under Fla. Stat. § 517.07,
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and because the remedy for a violation of Fla. Stat. § 517.07 and Fla. Stat. §
517.301 is the same–namely, recision–we need not address Machzikei Hadas’s
grievance with Fla. Stat. § 517.301. Compare Fla. Stat. § 517.211(1) with Fla.
Stat. § 517.211(2).
Because we conclude from the record that there is no merit to any of the
arguments Machzikei Hadas makes on appeal, we affirm the district court’s
judgment.
AFFIRMED.
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