Securities and Exchange Commission v. BankAtlantic Bancorp, Inc.

Case: 15-14629 Date Filed: 09/28/2016 Page: 1 of 21
[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 15-14629
________________________
D.C. Docket No. 0:12-cv-60082-DPG
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff - Appellee,
versus
BANKATLANTIC BANCORP, INC.,
ALAN B. LEVAN,
Defendants - Appellants.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(September 28, 2016)
Before WILSON, JULIE CARNES, Circuit Judges, and WOOD ∗, District Judge.
WILSON, Circuit Judge:
∗
Honorable Lisa Godbey Wood, United States District Chief Judge for the Southern
District of Georgia, sitting by designation.
Case: 15-14629 Date Filed: 09/28/2016 Page: 2 of 21
The Securities and Exchange Commission (SEC) brought this action against
BBX Capital Corporation, formerly BankAtlantic Bancorp Inc. (BankAtlantic),
and its Chairman of the Board and Chief Executive Officer Alan B. Levan
(collectively, Defendants), alleging various securities law violations under the
Securities and Exchange Act of 1934 and regulations promulgated thereunder.
Following a six-week trial, a jury found Defendants liable for violating the
antifraud provisions of the federal securities laws. Defendants appealed.
Defendants argue, inter alia, that the district court erroneously granted
partial summary judgment on the SEC’s disclosure and accounting fraud claims by
finding that (i) Levan made false statements in a July 25 earnings call with
shareholders (Earnings Call) and (ii) Defendants could not raise a reliance-on-
professional-advice defense at trial.1 In addition, Levan challenges the two-year
director ban the district court imposed, which enjoins him from serving as a
1
Partial summary judgment is a disposition of less than the whole action and serves as a
useful tool to streamline litigation by establishing certain issues before trial where there is no
genuine issue of material fact. See Fed. R. Civ. P. 56(d) advisory committee’s note to 1946
amendment. In this case, rather than granting summary judgment on entire claims, the district
court granted summary judgment on one element of the Rule 10b-5 test for false or misleading
statements, namely the falsity of Levan’s statements. See Meyer v. Greene, 710 F.3d 1189, 1194
(11th Cir. 2013). It preserved for trial the additional requirements of materiality and scienter.
The district court also granted summary judgment on Defendants’ affirmative defense, without
addressing the merits of the accounting fraud claim.
2
Case: 15-14629 Date Filed: 09/28/2016 Page: 3 of 21
director or officer of any public company for two years. Finally, Defendants raise
additional claims which we find unconvincing. 2
After consideration of the parties’ briefs and with the benefit of oral
argument, we conclude that the district court erred in granting partial summary
judgment in favor of the SEC on both findings. Thus, we vacate and remand for a
new trial in light of these errors.
I.
A. Background
The SEC’s claims stem from Defendants’ actions during 2007 in the face of
the looming Great Recession. See generally Ben S. Bernanke, The Courage to
Act: A Memoir of a Crisis and its Aftermath (2015) (detailing the economic events
of the 2007 financial crisis). At that time, BankAtlantic was one of the largest
banks in Florida, holding $1.5 billion worth of loans in its real estate loan portfolio.
The bank held approximately $533 million of that value in its commercial
residential real estate land acquisition and development portfolio (Commercial
Residential Portfolio). The loans within the Commercial Residential Portfolio
2
Defendants challenge the district court’s denial of their motion for judgment as a matter
of law on the accounting fraud claims, but we decline to substitute our judgment for that of the
jury at this stage. See Yellow Pages Photos, Inc. v. Ziplocal, LP, 795 F.3d 1255, 1268 (11th Cir.
2015). Additionally, Defendants appeal two pre-trial evidentiary rulings made by the district
court: the admission of testimony by the SEC’s expert, Lynn Turner, and the exclusion of a 2012
report created by Defendants’ accountants. However, we find no abuse of discretion or
substantial prejudice in those rulings. See Maiz v. Virani, 253 F.3d 641, 662, 666–67 (11th Cir.
2001).
3
Case: 15-14629 Date Filed: 09/28/2016 Page: 4 of 21
consisted of three types: Builder Land Bank (BLB) loans, (ii) Land Acquisition
and Development (LAD) loans; and (iii) Land Acquisition, Development and
Construction (together with LAD loans, Non-BLB) loans. The BLB loans
contained an option contract whereby a borrower could contract with a builder who
would purchase a minimum number of property lots by a certain date. The Non-
BLB loans did not contain an option contract, leaving the borrowers to develop the
land or sell to a third party.
BankAtlantic maintained numerous internal procedures to monitor and track
the performance of the BLB and Non-BLB loans. Oversight included approval
committees such as the Major Loan Committee (MLC), loan grades, and a monthly
Loan Watch List. Levan was an active participant on the MLC, which reviewed
and voted to approve or deny proposed loans and modifications to loans. Once a
loan was approved, BankAtlantic assigned a credit-worthiness score to each on a
scale between 1 and 13—the lower the number assigned, the safer the loan. If a
loan at any point was assigned a substandard grade (10 to 11, and much more
rarely 12 to 13),3 it was placed on the Loan Watch List. Circulated to senior
management on a monthly basis, the Loan Watch List served as a warning
mechanism when “definite[] potential problems” in loans arose. Loans on the
Loan Watch List received heightened scrutiny from management.
3
BankAtlantic generally wrote off, or removed from the books, loans deteriorating to the
point of a 12 or 13, eliminating the need to place them on the Loan Watch List.
4
Case: 15-14629 Date Filed: 09/28/2016 Page: 5 of 21
During the first half of 2007, a softening Florida real estate market began to
expose BankAtlantic’s Commercial Residential Portfolio to increased and
significant credit risk. Levan acknowledged the deteriorating market in a March
14 email to the MLC, observing that “[i]t’s pretty obvious the music has stopped . .
. . I believe we are in for a long sustained problem in this sector.” Slowing
property sales and a growing oversupply of available lot inventory sent a ripple
effect through the industry. Builders faced difficulty selling lots or homes in their
developments, which in turn threatened their ability to make timely loan payments
to lenders such as BankAtlantic.
1. Disclosure Fraud
In the first half of 2007, BankAtlantic management became acutely aware of
the threat of credit risk looming over the Commercial Residential Portfolio. The
record is replete with emails and disclosure reflecting such awareness and careful
observation. During this period, numerous borrowers requested extensions on the
length of term of their loans, and nineteen loans were downgraded and placed on
the Loan Watch List.
BankAtlantic released its first quarter earnings report in May 2007. The
report described a deteriorating Florida real estate market and acknowledged a
potential for significant credit losses, specifically highlighting the high degree of
credit risk in the BLB loans due to the trending cancellations and modifications of
5
Case: 15-14629 Date Filed: 09/28/2016 Page: 6 of 21
option contracts. These warnings continued on July 25, 2007 when BankAtlantic
held its second quarter Earnings Call with shareholders. The call spanned 41 pages
of transcript and involved, among other things, a question and answer session
between investors and Levan. During that session, one analyst referenced
BankAtlantic’s July 24, 2007 press release disclosing that some of BankAtlantic’s
$135 million in BLB loans had been cancelled or modified due to the slowing
Florida housing market. The following exchange then took place:
Analyst: Basically what I’m trying to—ask you is the
$135 million in the . . . [BLB] loans that you guys are
concerned about, are there other portfolios
(unintelligible) focus you on the construction portfolio
that you feel there might be some risk down the road as
well.
Levan: There are no asset classes that we are concerned
about in the portfolio as an asset class. You know,
we’ve reported all of the delinquencies that we have,
which actually I don’t think there are any other than the
ones that we’ve, you know, that we’ve just reported to
you.
So the portfolio has always performed extremely well,
continues to perform extremely well. And that’s not to
say that, you know, from time to time there aren’t some
issues as there always have, even though we’ve never
taken losses in that —we’ve not taken—I won’t say ever
taken any losses, because that’s probably never going to
be a correct statement, but that portfolio has performed
extremely well.
The one category that we just are focused on is this . . .
[BLB] portfolio because, you know, just from one day to
the next, the entire homebuilding industry, you know,
6
Case: 15-14629 Date Filed: 09/28/2016 Page: 7 of 21
went into a state of flux and turmoil and is impacting that
particular class. But to our knowledge and in—just in
thinking through, there are no particular asset classes
that we’re concerned about other than that one class.
Defs.’ Trial Ex. 10 at 20–21.
2. Accounting Fraud
In October 2007, with Florida’s real estate market continuing to decline,
Levan decided to engage investment bank JMP Securities (JMP) on behalf of
BankAtlantic to advise on the possible sale of select loans in the Commercial
Residential Portfolio. Upon learning of JMP’s engagement a month later, Chief
Financial Officer Valerie Toalson emailed Levan to raise concerns regarding the
accounting treatment of the selected loans. She informed Levan that accepting
bids for the sale of loans would require a change in their accounting classification
from their current status of “held-for-investment” to “held-for-sale.” Under the
standards set forth in the Generally Accepted Accounting Principles (GAAP), held-
for-sale loans would be recorded on the bank’s books at the lower of the original
purchase price or current fair market value. Due to the deteriorating market
conditions, the fair market value of the loans would have been significantly lower
than their original purchase price. Hence, the change in categorization would have
had a significant impact on BankAtlantic’s reported losses.
After her e-mail to Levan, Toalson contacted BankAtlantic’s auditors,
PricewaterhouseCoopers (PwC), to apprise them of JMP’s engagement. PwC
7
Case: 15-14629 Date Filed: 09/28/2016 Page: 8 of 21
informed them that the crux of the classification decision depended on
management’s intent. If management intended to sell the loans, then they should
have been classified as held-for-sale. If management instead planned to hold the
loans for the foreseeable future, then the loans could have been classified as held-
for-investment. Defendants later explained to PwC its engagement with the
investment bank, and consulted with PwC’s accountants to input language into
JMP’s promotional materials of the loans in order to avoid the need for
reclassification. In the end, JMP received bids for the loans selected, and
interested buyers negotiated primary contracts for purchase. However,
BankAtlantic decided not to sell the loans. Throughout this process, BankAtlantic
continued to categorize the loans as held-for-investment, which enabled the bank
to report the loan values at the higher original purchase price.
B. District Court Proceedings
The SEC brought securities fraud claims against Defendants in a civil action
in district court on January 18, 2012. See 15 U.S.C. § 78u(d)(3)(A), (d)(5).
In May 2013, after conducting discovery, both sides filed cross-motions for
summary judgment. Defendants moved for summary judgment on all of the SEC’s
claims, while the SEC moved for partial summary judgment on (i) the falsity of
certain statements Levan made during the Earnings Call and (ii) Defendants’
affirmative defense of reliance-on-professional-advice. The district court denied
8
Case: 15-14629 Date Filed: 09/28/2016 Page: 9 of 21
Defendants summary judgment, but granted both the SEC’s partial summary
judgment motions.
1. Disclosure Fraud
In its motion, the SEC alleged that the italicized portions of Levan’s Earning
Call statements constituted false or misleading statements in violation of § 10(b) of
the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and SEC Rule 10b-5, 17
C.F.R. § 240.10b-5. In those three sentences, Levan assured an investment analyst
that there were no other asset classes besides the BLB loans that BankAtlantic was
concerned with and that the Commercial Residential Portfolio continued to
perform extremely well. The SEC argued to the court that Defendants misled
investors in stating that there were no asset classes in the Commercial Residential
Portfolio that Defendants were concerned about besides the BLB loans. Contrary
to Levan’s statements, the SEC argued, Defendants were just as concerned about
Non-BLB loans, and the Non-BLB loan downgrades and increased number of loan
extensions reflected that concern. BankAtlantic also, according to the SEC, falsely
stated that the Commercial Residential Portfolio continued to perform “extremely
well,” when in reality it was mired in serious credit risk.
The district court agreed with the SEC, concluding that Levan’s statements
during the Earnings Call constituted false statements as a matter of law. According
to the court, these statements were false because BankAtlantic was concerned
9
Case: 15-14629 Date Filed: 09/28/2016 Page: 10 of 21
about the entire Commercial Residential Portfolio, not just the BLB loans, and the
portfolio was not performing extremely well. Digging into the record, the court
gave many examples indicating BankAtlantic’s concern over Non-BLB loans. It
also pointed to the fact that, at the time of the Earnings Call, the vast majority of
loans that had been extended were Non-BLB loans, not BLB loans. Levan’s
statement that no other asset classes were of concern could not be true, the court
reasoned, if the managers of BankAtlantic were raising grave concerns about the
entire portfolio during the same time period. Moreover, the Loan Watch List listed
a number of weakening Non-BLB loans during that time. These statistics, along
with a more general assessment of the entire Commercial Residential Portfolio,
indicated to the court that the portfolio was not performing extremely well as
Levan stated on the call.
To prove a securities fraud violation under §10(b) of the Exchange Act and
Rule 10b–5, the SEC must show: (1) a material misrepresentation or omission; (2)
scienter; (3) a connection between the misrepresentation and sale of a security; (4)
reliance; (5) economic loss; and (6) loss causation. See Meyer, 710 F.3d at 1194.
In granting partial summary judgment, the district court only determined that
Levan’s Earnings Call statements constituted a misrepresentation; it left the
materiality and scienter determinations required under the Rule 10b-5 claim to the
jury. See id.
10
Case: 15-14629 Date Filed: 09/28/2016 Page: 11 of 21
2. Accounting Fraud
The SEC further alleged that it was improper for BankAtlantic to classify the
loans marketed through JMP as held-for-investment and that, had it classified the
loans as held-for-sale at the time of JMP’s engagement, the loans would have been
valued at approximately 50% of their original book value—an amount much lower
than the amount BankAtlantic reported under the held-for-investment
classification. As a result, BankAtlantic understated its loss in its 2007 Form 10-K
disclosure by approximately $53 million.
Before trial, Defendants asserted an affirmative defense of reliance-on-
professional-advice. They claimed that, because they consulted with PwC
regarding JMP’s engagement and sale activities and relied in good faith on PwC’s
advice regarding the proper classification, they were protected from liability. In its
motion for partial summary judgment, the SEC argued that Defendants failed to
provide PwC with all the relevant information PwC needed to offer proper advice
and, therefore, Defendants could not succeed on a reliance-on-professional-advice
defense.
The district court again agreed with the SEC, concluding that Defendants
failed to establish their affirmative defense of reliance-on-professional-advice as a
matter of law. It concluded that Defendants failed to fully disclose the nature of
the issue to PwC because even if it informed PwC of JMP’s engagement, they did
11
Case: 15-14629 Date Filed: 09/28/2016 Page: 12 of 21
not provide PwC with the actual JMP engagement letter, marketing materials, and
specific emails and representations made to third-party interested buyers.
Accordingly, Defendants did not satisfy all the elements of the affirmative defense
and could not present evidence supporting good faith reliance on PwC’s advice at
trial.
C. Trial
After a six-week trial, the jury returned a verdict finding Defendants violated
the antifraud provisions of the federal securities laws. See 15 U.S.C. §§ 78j, 78m,
78l. More specifically, the jury found Defendants liable for, inter alia, (i) making
material misrepresentations during the Earnings Call regarding the level of concern
for the Commercial Residential Portfolio and (ii) filing materially false financial
statements by improperly classifying various loans under GAAP. However, the
jury did not find Defendants liable on a number of other fraud counts in connection
with BankAtlantic’s first and second quarter disclosures.
After denying Defendants’ post-trial motions for a new trial and renewed
judgment as a matter of law, the district court entered judgment against Defendants
and ordered injunctions and civil penalties as remedies. The court enjoined Levan
and BankAtlantic from violating the securities law provisions deemed violated by
the jury, and levied $4,550,000 and $1,300,000 penalties against BankAtlantic and
Levan, respectively. The court also enjoined Levan from serving as a director or
12
Case: 15-14629 Date Filed: 09/28/2016 Page: 13 of 21
officer of any public company for a period of two years, effective 90 days after
judgment. Defendants then filed this appeal.
II.
We review the grant of partial summary judgment de novo. Sunbeam
Television Corp. v. Nielsen Media Research, Inc., 711 F.3d 1264, 1270 (11th Cir.
2013). Summary judgment is proper if the record demonstrates that there is no
genuine issue as to any material fact and the moving party is entitled to judgment
as a matter of law, see Fed. R. Civ. P. 56(a), but only if “a case is so one-sided that
one party must prevail,” see Quigg v. Thomas Cty. Sch. Dist., 814 F.3d 1227, 1235
(11th Cir. 2016) (internal quotation mark omitted). A court considering summary
judgment must view all evidence, including “all inferences drawn therefrom, in the
light most favorable to the non-moving party.” SEC v. Calvo, 378 F.3d 1211, 1214
(11th Cir. 2004) (per curiam). Importantly:
[T]he issue of material fact required by Rule 56(c) to be
present to entitle a party to proceed to trial is not required
to be resolved conclusively in favor of the party asserting
its existence; rather, all that is required is that sufficient
evidence supporting the claimed factual dispute be shown
to require a jury or judge to resolve the parties’ differing
versions of the truth at trial.
13
Case: 15-14629 Date Filed: 09/28/2016 Page: 14 of 21
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248–49, 106 S. Ct. 2505, 2510
(1986) (quoting First Nat’l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 288–89,
88 S. Ct. 1575, 1592 (1968)).
III.
A. Disclosure Fraud: False Statements 4
Defendants argue that the district court improperly entered partial summary
judgment in favor of the SEC regarding the alleged disclosure fraud because the
evidence they presented established Levan’s Earnings Call statements were true or,
in the alternative, created a genuine issue of material fact that should be
determined at trial. In support, Defendants cite both Levan and Toalson’s
testimony and other record evidence contradicting the district court’s findings.5
After careful review, we find the cited evidence sufficient to create a genuine issue
of material fact as to whether Levan’s statements were false or misleading under
Rule 10b-5. See Fed. R. Civ. P. 56(c); Tolan v. Cotton, 572 U.S. ___, ___, 134 S.
Ct. 1861, 1863 (2014) (per curiam) (“The evidence of the nonmovant is to be
4
Defendants also challenge the disclosure fraud jury instructions given at trial, on
grounds that they were misleading and violative of the Seventh Amendment. Because we
reverse the district court’s grant of partial summary judgment, we need not evaluate the jury
instructions that allegedly contained errors involving accommodation of the partial summary
judgment.
5
Defendants had previously defended against similar claims in a separate civil suit
brought by BankAtlantic shareholders in 2007 (shareholder suit). Levan and Toalson both
testified at that trial as to the truth of the Earnings Call statements, and Defendants used this
testimony in challenging summary judgment in the instant case.
14
Case: 15-14629 Date Filed: 09/28/2016 Page: 15 of 21
believed, and all justifiable inferences are to be drawn in his favor.” (alteration and
internal quotation marks omitted)); Meyer, 710 F.3d at 1194.
Levan and Toalson testified previously at the shareholder suit trial that they
believed at the time and still believe the Earnings Call statements to be true. It is
true that we will not accept self-serving testimony when “offered in a wholly
conclusory manner, based on [an individual’s] own subjective belief.” See Cooper
v. Southern Co., 390 F.3d 695, 745 (11th Cir. 2004), overruled on other grounds
by Ash v. Tyson Foods, Inc., 546 U.S. 454, 457, 126 S. Ct. 1195, 1197 (2006) (per
curiam). Here, however, Levan and Toalson provided a level of specificity to
support their conclusory remarks. Defendants also presented “supporting facts” to
buttress Levan and Toalson’s statements which, together with the personal
testimony, rise above the level of a bare assertion. See Leigh v. Warner Bros., Inc.,
212 F.3d 1210, 1217 (11th Cir. 2000). In his Earnings Call statements, Levan
stated that the loans other than BLB loans were performing extremely well and that
he was not concerned about any other asset classes. Levan testified that he
“absolutely” believed his statements were true at the time of the Earnings Call. He
claimed that the loans that BankAtlantic had concerns about were spread out over
multiple portfolios and were not concentrated into any specific asset class other
than the BLB loans. Levan testified that the BankAtlantic did not classify loans
together outside of the BLB loan context, which explains why he stated there were
15
Case: 15-14629 Date Filed: 09/28/2016 Page: 16 of 21
no other specific asset classes of concern besides the BLB loans. Toalson similarly
testified as to the truth of the statements. She stated unequivocally that she
believed Levan’s statements were true at the time he made them. Toalson also
testified, and Defendants presented additional evidence to demonstrate that, in
banking industry parlance a loan that is “performing” simply means it is current on
principal and interest and security is adequate to effect repayment. Lynn Turner,
the SEC’s expert, confirmed this definition. And record evidence demonstrates
that Non-BLB loans generally were performing. At the time of the Earnings Call,
the Loan Watch List listed just two Non-BLB loans under “nonaccrual” (i.e. not
performing), which represented only 1% of the Non-BLB loans ($2.7 million of
the $381.1 million total value of Non-BLB loans).
Additionally, Defendants provided evidence disputing or contradicting
evidence cited by the district court in granting summary judgment. In its decision,
the district court relied on the grant of loan extensions and downgrades in loans as
evidence that both the BLB and Non-BLB loans in the Commercial Residential
Portfolio were deteriorating. But Defendants presented evidence that loan
extensions and downgrades did not necessarily mean the loans were in trouble.
For example, Levan rejected the notion that Non-BLB loans on the Loan Watch
List meant those loans were in serious trouble, explaining that he encouraged staff
to elevate loans to the Loan Watch List quickly as a means to better scrutinize any
16
Case: 15-14629 Date Filed: 09/28/2016 Page: 17 of 21
developments. Defendants also presented testimony to show that loan extensions
were granted to good borrowers about whom BankAtlantic was less concerned,
and that an extension represented a chance to negotiate for more collateral or other
more favorable terms. To defend his positive characterization of the portfolio in
general, Levan explained that he truthfully believed that the Commercial
Residential Portfolio would continue to perform well because BankAtlantic “had
the two levels of cushions–that was the builder profit, then it was the hard equity–
before . . . tak[ing] any risk” on the loans.
Although the district court did not find Defendants’ evidence compelling, a
court nevertheless must credit information that contradicts its “key factual
conclusions”—otherwise it risks partaking in a weighing of the evidence, which is
prohibited at summary judgment. See Tolan, 134 S. Ct. at 1866; Kragor v. Takeda
Pharm. Am., Inc., 702 F.3d 1304, 1311 (11th Cir. 2012). The district court should
have credited the testimony and other plausible evidence presented by Defendants,
which was sufficient to defeat a finding of summary judgment.
Our rejection of summary judgment by no means serves as an endorsement
of Levan’s statements as true. See Feliciano v. City of Miami Beach, 707 F.3d
1244, 1247 (11th Cir. 2013) (acknowledging that the facts a court must accept for
purposes of summary judgment “may not be the actual facts of the case”).
Compelling evidence in the record suggests that at the time of the Earnings Call,
17
Case: 15-14629 Date Filed: 09/28/2016 Page: 18 of 21
serious problems existed with the BLB and Non-BLB loans alike. Hence, a fair-
minded individual could conclude that the Earnings Call statements were false and
misleading under Rule 10b-5. See 17 C.F.R. § 240.10b-5. But our duty at the
summary judgment stage is not to weigh the evidence. We merely evaluate
whether the facts presented in the record, viewed in the light most favorable to
Defendants, creates a question of fact. See Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 248, 106 S. Ct. 2505, 2510 (1986); Feliciano, 707 F.3d at 1247–48.
Here, Defendants have presented enough evidence beyond conclusory statements
to demonstrate such a factual dispute exists, and the court has an obligation to
allow “a jury or judge to resolve the parties’ differing versions of the truth at
trial.”6 See Anderson, 477 U.S. at 248, 106 S. Ct. at 2510 (internal quotation
marks omitted).
B. Accounting Fraud: Reliance-on-professional-advice Defense
Before trial, the district court granted partial summary judgment in favor of
the SEC finding that, as a matter of law, Defendants failed to meet all the elements
of their reliance-on-professional-advice affirmative defense. The court prohibited
6
It bears noting that while partial summary judgment serves as a valuable tool of judicial
management that prunes the issues for trial, courts should not overlook possible negative
consequences of unfair prejudice and jury confusion. The risk of these potential consequences is
especially prevalent when partial summary judgment is granted on a single portion of one claim,
as in the instant case.
18
Case: 15-14629 Date Filed: 09/28/2016 Page: 19 of 21
Defendants from presenting evidence to establish a reliance defense at trial.
Defendants appeal this determination.
The affirmative defense for reliance-on-professional-advice requires that
Defendants establish that “(1) they fully disclosed all relevant facts to the expert
and (2) that [they] relied in good faith on the expert’s advice.” See United States v.
Johnson, 730 F.2d 683, 686 (11th Cir. 1984). Whether a defendant properly
disclosed all relevant facts to the expert, concealed information, or relied in good
faith on his advisor are determinations that the jury must make under proper
instruction. United States v. Vernon, 723 F.3d 1234, 1269 (11th Cir. 2013). The
burden to demonstrate good faith reliance-on-professional-advice lies with the
defendant. Id.
In granting summary judgment, the district court concluded that
BankAtlantic’s failure to share with PwC the engagement letter, marketing
materials, and representations made to third parties necessarily prevented the bank
from providing “all relevant facts” to its advisor. See Johnson, 730 F.2d at 686.
But both Defendants and PwC aver that PwC received all the information
necessary to render accounting advice, and Defendants provide evidence
supporting that contention. During the litigation, the PwC partner stated that
“[a]nything we asked for, we were provided.” Defendants also introduced
testimony and emails from PwC demonstrating that the accountants understood the
19
Case: 15-14629 Date Filed: 09/28/2016 Page: 20 of 21
crucial issue of the held-for-sale classification at the time. Toalson echoed these
statements through her own emails and testimony, confirming that she had advised
PwC of the classification issue, sought its professional advice, and relied on it.
Defendants argue this evidence is sufficient to create a genuine issue of material
fact as to whether Defendants provided all relevant facts to PwC, and we agree.
By brushing aside this evidence in order to reach its conclusion, the district
court inappropriately weighed the evidence at the summary judgment stage. See
Tolan, 134 S. Ct. at 1866 (“By failing to credit evidence that contradicted some of
its key factual conclusions, the court improperly weighed the evidence and
resolved disputed issues in favor of the moving party.” (internal quotation marks
omitted)). At the very least, Defendants’ and the SEC’s contradicting evidence
presents “sufficient disagreement to require submission to a jury.” See Anderson,
477 U.S. at 251–52, 106 S. Ct. at 2512. Whether Defendants may avoid liability
based on this affirmative defense is not a threshold question, but rather one that
must be left to the jury to weigh and decide. See Vernon, 723 F.3d at 1269.
C. Director Ban
Levan challenges the two-year ban the district court imposed, preventing
him from serving as an officer or director of a publicly-traded company. He argues
that he had no prior violations in his 43 years as an officer or director of public
companies and that the court failed to articulate the risk of recurring violations.
20
Case: 15-14629 Date Filed: 09/28/2016 Page: 21 of 21
Because we reverse and remand the district court’s grant of partial summary
judgment, we need not reach the question of whether a two-year ban would be
lawful.
IV.
Accordingly, we reverse the district court’s grant of summary judgment with
respect to the falsity finding of Levan’s Earnings Call statements and the
affirmative defense of reliance-on-professional-advice. We affirm the district
court’s rejection of judgment as a matter of law with respect to the accounting
fraud and its pre-trial evidentiary rulings regarding the testimony of the SEC’s
expert, Lynn Turner, and PwC’s 2012 look back report. Because the reversal of
partial summary judgment creates genuine issues of material fact that require
resolution, we decline to enter judgment in favor of Defendants.
REVERSED IN PART, AFFIRMED IN PART, AND REMANDED FOR
NEW TRIAL.
21