Mill Bridge V Inc v. I. Benton

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 11-1184
_____________
MILL BRIDGE V, INC., as successor to VAN DER MOOLEN OPTIONS USA,
LLC c/o VAN DER MOOLEN SPECIALISTS, LLC,
Appellant
v.
I. ISABELLE BENTON; BENTON PARTNERS II, LLP; JAMES KENKELEN, a
transferee; EILEEN WHITE, a transferee
_____________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
District Court No. 2-08-cv-02806
District Judge: The Honorable Ronald L. Buckwalter
Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
September 10, 2012
Before: SMITH, CHAGARES, and ALDISERT, Circuit Judges
(Filed: September 13, 2012)
_____________________
OPINION
_____________________
SMITH, Circuit Judge.
Mill Bridge V, Inc. (“Mill Bridge”)1 filed suit against Defendants I. Isabelle
Benton, Benton Partners II, LLP, James Kenkelen, and Eileen White (collectively,
“Benton Partners”), for allegedly failing to disclose material non-public
information about Philadelphia Stock Exchange, Inc. (“PHLX”) before Benton
Partners purchased Mill Bridge’s shares in PHLX. Mill Bridge appeals from three
orders from the District Court: (1) denying Mill Bridge additional discovery; (2)
denying Mill Bridge a third opportunity to amend its complaint; and (3) granting
Benton Partners’ motion for summary judgment. For the following reasons, we
will affirm. 2
I.
In late 2004, Mill Bridge sought to liquidate its shares in PHLX. Mill
Bridge specifically sought to sell its shares by December 31, 2004, in order to
recognize a tax loss by the year’s end. Mill Bridge approached PHLX to inquire
about potential purchasers; PHLX informed Mill Bridge that Benton, a member of
PHLX’s Board of Directors, had recently expressed interest in purchasing
additional shares of PHLX stock.
1
Mill Bridge brings suit as the successor in interest to Van Der Moolen Options
USA, LLC, c/o Van Der Moolen Specialists, LLC.
2
Because Mill Bridge’s complaint raised a federal question, the District Court had
subject matter jurisdiction under 15 U.S.C. § 78aa and 28 U.S.C. § 1331. We have
subject matter jurisdiction over this appeal under 28 U.S.C. § 1291.
2
On December 6, 2004, Mill Bridge contacted Benton to determine whether
Benton Partners would be interested in immediately purchasing its shares in
PHLX. Between December 7, 2004 and December 9, 2004, Mill Bridge and
Benton Partners negotiated a price for the transaction. During these negotiations,
Benton Partners did not disclose that PHLX was involved in merger negotiations
with Archipelago Holdings, Inc. (“Arca”). On December 9, 2004, the parties
reached an agreement whereby Mill Bridge would sell its 600 shares in PHLX to
Benton Partners for $78,000, or $130 per share.
Unbeknownst to Mill Bridge, in November 2004, PHLX became aware that
Arca was potentially interested in a merger. Near the end of November 2004,
PHLX contacted Richard Breeden, a member of Arca’s Board of Directors, to
determine the extent of Arca’s interest. Breeden spoke with Arca management and
at some point between November 2004 and December 2004, Breeden informed
PHLX that Arca was willing to begin merger negotiations.
Arca and PHLX began preliminary merger discussions over the telephone,
focusing on general details about PHLX’s business. On December 3, 2004, Arca
and PHLX entered into a confidentiality agreement, whereby the parties agreed to
keep confidential all non-public information divulged by the other party. As of
December 9, 2004, when Mill Bridge sold its shares to Benton Partners, Arca had
not conducted its official due diligence session with PHLX, which occured “in the
3
middle of December.” App’x 8. On December 15, 2004, after the Mill Bridge-
Benton Partners transaction was already finalized, PHLX’s Board of Directors was
finally informed of the possibility of a merger with Arca.
The merger negotiations began in full in 2005. In February 2005, PHLX
formed a strategic committee to conduct negotiations. On April 18, 2005, Arca
offered to purchase all of PHLX’s stock for $50 million, at a price of
approximately $900 per share—significantly higher than the price paid by Benton
Partners for Mill Bridges’ shares. PHLX rejected this offer. No merger ever took
place.
On June 16, 2008, Mill Bridge filed suit in the Eastern District of
Pennsylvania alleging, inter alia, that Benton Partners had violated § 10(b) of the
Securities Exchange Act (the “Exchange Act”), 15 U.S.C. § 78aa, et seq., had
violated Rule 10b-5, 17 C.F.R. § 240.10b-5, and had exercised control person
liability under § 20 of the Exchange Act, 15 U.S.C. § 78t. Specifically, they
argued that, even though no merger ever took place, the ongoing merger
negotiations between PHLX and Arca was material non-public information that
would have affected the market value of Mill Bridge’s shares in PHLX. That is,
Mill Bridge argued that it would have negotiated a higher price for its shares in
PHLX if it was aware of the negotiations.
4
After a lengthy procedural history during which Mill Bridge twice amended
its complaint, discovery was set to close on June 15, 2010. Mill Bridge
successfully petitioned the court to extend the close of discovery until July 15,
2010. On July 15, 2010, Mill Bridge again sought to extend the close of discovery.
On July 28, 2010, the District Court denied this request.
Meanwhile, on July 16, 2010, Benton Partners filed a motion for summary
judgment. The District Court granted Mill Bridge several extensions of time in
which to respond to the motion. On August 13, 2010, when its response was due,
Mill Bridge filed a motion to amend its complaint a third time, in order: (1) to add
state law claims; (2) to change the date of the stock sale between itself and Benton
Partners from December 1-2 to December 7-9, 2004; (3) to “sharpen the details”
about the negotiations between Arca and PHLX; and (4) to include more
allegations about Benton Partners’ knowledge. On August 23, 2010, the District
Court denied this request, concluding that Mill Bridge had not sufficiently justified
the need for such a late amendment in the face of the undue burden that Mill
Bridge’s delay would place on the court.
The same day that Mill Bridge moved to amend its complaint, it filed
another motion for an extension of time in which to respond to Benton Partners’
motion for summary judgment. The court granted this motion. Finally, on August
30, 2010, Mill Bridge filed its response to the pending summary judgment motion.
5
On December 21, 2010, the District Court granted Benton Partners’ motion
for summary judgment. The court concluded that Mill Bridge had failed to show
both that the alleged failure to disclose the potential merger was “material” within
the meaning of § 10(b) and Rule 10b-5, and that Benton Partners knew this
allegedly material information at the time of the purchase. Because the court
dismissed Mill Bridge’s claims under § 10(b) and Rule 10b-5, it also concluded
that Benton Partners could not be subject to control person liability under § 20.
Mill Bridge timely appealed.
II.
Mill Bridge appeals, in part, from the District Court’s orders denying it the
opportunity to conduct additional discovery, and to file a third amended
complaint.3 We review both of these orders for an abuse of discretion. See Mass.
3
Benton Partners has separately moved to limit the portion of Mill Bridge’s appeal
concerning the District Court’s July 28, 2010 order denying Mill Bridge’s request
to extend the discovery deadline. Benton Partners notes that Mill Bridge’s notice
of appeal only specified that it was appealing from (1) the court’s August 23, 2010
order denying Mill Bridge’s request to amend its complaint; and (2) the court’s
December 21, 2010 order granting Benton Partners’ motion for summary
judgment. As Mill Bridge notes, however, we may exercise jurisdiction over
orders not specifically identified in a notice of appeal where there is some
“connection between the specified and unspecified orders[.]” Sulima v. Tobyhanna
Army Depot, 602 F.3d 177, 184 (3d Cir. 2010). Here, Mill Bridge claims that the
same evidence disclosed at the close of discovery that motivated its attempt to
amend its complaint justified its request for additional discovery. Under these
particular facts, we will permit Mill Bridge to contest the District Court’s July 28,
2010 order, even though it did not identify that order in its notice of appeal. We
will therefore deny Benton Partners’ motion to dismiss and limit this appeal.
6
Sch. of Law at Andover, Inc. v. Am. Bar Assoc., 107 F.3d 1026, 1032 (3d Cir.
1997) (concerning a motion for additional discovery); Cureton v. NCAA, 252 F.3d
267, 273 (3d Cir. 2001) (concerning a motion for leave to file an amended
complaint). Mill Bridge also appeals from the District Court’s order granting
Benton Partners’ motion for summary judgment. We review de novo, applying the
same legal standard as the District Court. See Doe v. Luzerne Cnty., 660 F.3d 169,
174 (3d Cir. 2011).
First, the District Court did not abuse its discretion by denying Mill Bridge
the opportunity to conduct additional discovery. Mill Bridge had a long period of
time in which to conduct discovery. It chose, for its own reasons, to wait until the
end of the discovery period to begin to request documents and conduct depositions.
Moreover, the District Court previously did grant Mill Bridge additional time for
discovery. The District Court did not abuse its discretion, given Mill Bridge’s lack
of diligence during discovery, and given that Mill Bridge had access to discovery
and trial testimony from a related case arising out of the same incident.
Second, the District Court did not abuse its discretion by denying Mill
Bridge the opportunity to amend its complaint for the third time. Delay in seeking
to amend a complaint “may become undue when a movant has had previous
opportunities to amend a complaint.” Cureton, 252 F.3d at 273 (citation omitted).
The District Court did not err when it concluded that the delay here was undue.
7
Mill Bridge had already amended its complaint twice, and did not persuasively
explain why it could not have sought to amend its complaint any earlier.4
Finally, we agree with the District Court that the record before the District
Court demonstrated as a matter of law that the merger negotiations between Arca
and PHLX had not yet become material under the Supreme Court’s test set forth in
Basic Inc. v. Levinson, 485 U.S. 224, 239 (1988). 5 On December 9, 2004, when
Mill Bridge and Benton Partners agreed to the stock sale, the negotiations between
4
Although Mill Bridge now offers several reasons purportedly justifying its
motion to amend, it presented the District Court with fewer and less convincing
reasons, and included no details about the evidence it allegedly discovered. As
Benton notes, this court will not reverse a district court’s decision to deny leave to
amend on a ground never presented to the district court. See Lloyd v. HOVENSA,
LLC, 369 F.3d 263, 272-73 (3d Cir. 2004).
5
Benton Partners has moved to strike certain documents from the appendix on the
basis that those documents were never filed before the District Court. Federal Rule
of Appellate Procedure 10(a) defines the documents that are part of the record, and
Rule 30(b) governs what documents can be included in an appendix. We agree
with Benton Partners that the documents highlighted in its motion, spanning App’x
301-09, 314-15, 317, 319-22, 324-26, 330-34, 336-45, 347-63, 368-69, and 371-73
are not part of the record under Rule 10(a), and thus should not have been included
in the appendix for our consideration.
We have recognized that in limited circumstances, we may have the
equitable power under Federal Rule of Appellate Procedure 10(e) to allow a party
to supplement the record with documents that were not presented to the District
Court. See In re Capital Cities/ABC, Inc.’s Application for Access to Sealed
Transcripts, 913 F.2d 89, 97 (3d Cir. 1990). Even if such a power did exist, equity
would not permit supplementing the record in this instance, where Mill Bridge has
failed to justify its failure to place these documents into the record before the
District Court. Consequently, we will grant Benton Partners’ motion to strike
documents from the appendix. We nonetheless note that even if we considered
these additional documents, we would reach the same result.
8
Arca and PHLX were only in their infancy. No reasonable juror could conclude
otherwise. The evidence raised by Mill Bridge is insufficient to create a genuine
issue of fact on this issue. The fact that a confidentiality agreement had been
signed does not necessarily imply that the negotiations had progressed to the point
where they were necessarily material—as the District Court noted, such
agreements are “often entered into at the outset of the [merger] process before any
material terms are negotiated.” App’x 35 (emphasis in original). 6 Because the
merger negotiations were still in their infancy, the fact of the negotiations does not
constitute material information that Benton Partners was required to disclose prior
to their transaction with Mill Bridge.
Further, we agree with the District Court that Mill Bridge has failed to show
that Benton Partners knew of the ongoing merger negotiations at the time of the
stock sale. The record suggests that the negotiations were announced to the Board
of Directors on December 15, 2004, after Mill Bridge had agreed to the sale. We
agree with the District Court that Mill Bridge’s evidence, which consists primarily
of some scattered inconsistencies and ambiguities in deposition transcripts, is
insufficient to raise a genuine issue of fact as to Benton Partners’ knowledge.
6
Mill Bridge argues that various portions of deposition testimony are sufficient to
raise a genuine issue of fact on the materiality of the merger negotiations. For the
reasons outlined in the District Court’s opinion, we agree that these efforts are
unavailing. See App’x 27-35.
9
Because we conclude that Mill Bridge has failed to raise a genuine issue of
fact as to whether Benton Partners failed to disclose material non-public
information, or whether it knew of such information, we agree with the District
Court that Mill Bridge’s claims under § 10(b) and Rule 10b-5 fail as a matter of
law. Further, because Mill Bridge has failed to assert “an independent violation of
the federal securities laws,” it cannot succeed on a claim for control person liability
under § 20(a). See In re Rockefeller Ctr. Props., Inc. Secs. Litig., 311 F.3d 198,
211 (3d Cir. 2002). Consequently, we will affirm the District Court’s order
granting Benton Partners’ motion for summary judgment.
III.
For the foregoing reasons, we will affirm the judgment of the District Court.
10