UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA
February 23, 2007
IN RE ALLIANCE EQUIPMENT LEASE PROGRAM SECURITIES LITIGATION
The opinion of the court was delivered by: Hon. Napoleon A. Jones, Jr. United States District Judge
SECOND SUPPLEMENTAL ORDER
This Document Relates To: GRANTING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT All Actions AGAINST ADDITIONAL MEMBERS OF THE DEFENDANT CLASS [Doc. No. 1218]
Before the Court is Plaintiff's Second Supplemental Motion for Summary Judgment Against Additional Members of the Defendant Class. [Doc. No. 1218]. On July 1, 2004, this Court granted Lead Plaintiffs' Motion for Summary Judgment and awarded damages based on Plaintiff Class members' supplemental declarations. [Doc. No. 1038.] However, during the pendency of the Motion for Summary Judgment, Plaintiffs advised the Court that six members of the Defendant Class had not been served notice. [Doc. No. 973]. This Court excluded these brokers from the Order, and Magistrate Judge Stormes subsequently granted leave to serve these members of the Defendant class. [Doc. No. 1117.] To date, no oppositions have been filed. Lead Plaintiffs have indicated that this will be the final motion for summary judgment. The Court has determined that the issues presented herein are appropriate for decision without oral argument. See S.D. Cal. Civ. R. 7.1(d)(1). For the reasons discussed herein, the Court GRANTS Plaintiff's Motion for Summary Judgment against these additional members of the Defendant class.
The facts of this case are recited in the Court's February 5, 2003, Order granting Plain-tiff's Motion for Partial Summary Adjudication. (See Order Granting Pls.' Mot. for Partial Summ. J. at 1-3.) In short, this case arises out of the sale of Alliance Equipment Lease Program contracts to Plaintiff Class members between the dates of November 1, 1997, and November 25, 1998. (See July 1, 2004, Order Granting Pls.' Mot. for Summ J. at 1.) According to Plaintiffs, the leases did not exist, and the invested money was allegedly misappropriated by Alliance principals and their cohorts. (See id.) The present case is a nationwide class action brought by investors against various persons and entities involved in selling and marketing the Alliance Lease Program allegedly in violation of Section 12 of the Securities Act of 1933, 15 U.S.C. § 771.
On February 5, 2003, this Court held that collateral estoppel prohibited Defendants from relitigating whether the investment constituted a "security" under federal law. (See Order Granting Pls.' Mot. for Partial Summ. J. at 6.) On July 1, 2004, this Court granted Lead Plaintiffs' Motion for Summary Judgment and awarded damages based on Plaintiff Class members' supplemental declarations. (See July 1, 2004, Order Granting Pls.' Mot. for Summ. J. at 1.) However, on August 4, 2004, Lead Plaintiff's filed an ex parte Application for Leave to File Additional Supplemental Declarations and Briefing on behalf of eight Plaintiff Class members who, due to late notice, had not timely submitted proof of their damages. [Doc. No. 961.] This Court issued a supplemental order granting summary judgment and awarding damages to the additional class members. (See Sept. 23, 2004, Supplemental Order Granting Pls.' Mot. for Summ. J. at 2.)
However, during the pendency of the Motion for Summary Judgment, Plaintiffs withdrew the Motion with respect to six members of the Defendant Class who were never served with notice of the establishment of a Defendant Class. In the July 1, 2001, Order, this Court indicated that these unserved Defendants were still parties to this case, but were no longer involved in the Motion. (See July 1, 2004, Order Granting Pls.' Mot. for Summ. J. at 3.) On January 19, 2005, Magistrate Judge Stormes granted Lead Plaintiffs leave to serve the unserved Defendant Class members with supplemental notice of Defendant Class certification. (See Order Granting Ex Parte Application for Leave to Serve Supplemental Notice at 6.)
Plaintiffs, thereafter, sent the supplemental notice to the unserved Defendant Class, identified as Edward Beauette, Robert Clark, Frank DeMaria, Greg Gregson, Ronald La Porta, Marcia Ratajczak, Steve Telesca, and Andrew P. Weis. (See Aug. 28, 2006, Decl. of Vincent Slavens ¶ 9.) Subsequently, Plaintiffs reached settlement agreements with Defendants Steve Telesca and Robert Clark. (See id.) Counsel for Lead Plaintiffs sent requests to Plaintiff Class members who were sold Alliance Leasing contracts in order to obtain additional claim forms. See id.) Counsel for Lead Plaintiffs received declarations from investors who claim to have purchased their contracts from Frank Demaria, Greg Gregson, and Andrew P. Weis. (See id.)
Summary judgment is appropriate under Rule 56 of the Federal Rules of Civil Procedure on "all or any part" of a claim where there is an absence of a genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56; see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). One of the principal purposes of Rule 56 is to dispose of factually unsupported claims or defenses. See Celetox, 477 U.S. at 323-24. A fact is material when, under the governing substantive law, the fact might affect the outcome of the
See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); see also Freeman v. Arpaio, 125 F.3d 732, 735 (9th Cir. 1997). A dispute about a material fact is genuine if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248. When making its determination, the Court must view all inferences drawn from the underlying facts in the light most favorable to the party opposing the motion. See Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
The party seeking summary judgment bears the initial burden of establishing the absence of a genuine issue of material fact. See Celotex, 477 U.S. at 323. The moving party can satisfy this burden in two ways: (1) by presenting evidence to negate an essential element of the nonmoving party's case; or (2) by demonstrating that the nonmoving party failed to make a showing sufficient to establish an element of his or her claim on which that party will bear the burden of proof at trial. See id. at 322-23. If the moving party fails to discharge this initial burden, summary judgment must be denied and the court need not consider the nonmoving party's evidence. See Adickes v. S. H. Kress & Co., 398 U.S. 144, 159-60 (1970).
If the moving party meets the initial burden, the burden shifts to the nonmoving party to "set forth specific facts showing there is a genuine issue for trial." Anderson, 477 U.S. at 256. "The mere existence of a scintilla of evidence in support of the nonmoving party's position is not sufficient." Triton Energy Corp. v. Square D. Co., 68 F.3d 1216, 1221 (9th Cir. 1995) (citing Anderson, 477 U.S. at 252); see also Matsushita, 475 U.S. at 586 (if the moving party meets this initial burden, the nonmoving party cannot defeat summary judgment by merely demonstrating "that there is some metaphysical doubt as to the material facts"). It is insufficient for the party opposing summary judgment to "rest upon the mere allegations or denials of [his or her] pleading." Fed. R. Civ. P. 56(e). Rather, the party opposing summary judgment must "by [his or her] own affidavits, or by the 'depositions, answers to interrogatories, and admissions on file,' designate 'specific facts showing that there is a genuine issue for trial.' " Celotex, 477 U.S. at 324 (quoting Fed. R. Civ. P 56(e)). "Disputes over irrelevant or unnecessary facts will not preclude a grant of summary judgment." See T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors, 809 F.2d 626, 630 (9th Cir. 1987). In addition, the Court is not obligated "to scour the records in search of a genuine issue of triable fact." Keenan v. Allan, 91 F.3d 1275, 1279 (9th Cir. 1996) (citing Richards v. Combined Ins. Co., 55 F.3d 247, 251 (7th Cir. 1995)). "[T]he district court may limit its review to the documents submitted for purposes of summary judgment and those parts of the record specifically referenced therein." Carmen v. San Francisco Unified Sch. Dist., 237 F.3d 1026, 1030 (9th Cir. 2001).
"Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no 'genuine issue for trial.' " Matsushita, 475 U.S. at 587 (citing First Nat'l Bank of Arizona v. Cities Service Co., 391 U.S. 253, 289 (1968)). Moreover, "[a] district court must enter summary judgment against a party who fails to make a showing sufficient to establish an essential element of a claim, even if genuine factual disputes exist regarding other elements of the claim." Cunningham v. City of Wenatchee, 214 F. Supp. 2d 1103, 1110 (E.D. Wash. 2002) (citing Celotex, 477 U.S. at 323-24.)
Plaintiffs claim that summary judgment is appropriate here because there is no genuine issue of material fact relating to Section 12(a)(1). (See Pls.' Mem. of P. & A. at 5.) Section 12 creates liability for the sale of unregistered securities. Section 12(a)(1) of the Securities Act of 1933, 15 U.S.C. § 77l (1997), states that
Any person who offers or sells a security in violation of section 77e of this title . . . shall be liable . . . to the person purchasing such security from him, who may sue either at law or in equity in any court of competent jurisdiction, to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if he no longer owns the security.
15 U.S.C. § 77l(a)(1) (1997). Section 77e, codifying Section 5 of the Securities Act of 1933, states that
It shall be unlawful for any person, directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to offer to sell or offer to buy through the use or medium of any prospectus or otherwise any security, unless a registration statement has been filed as to such security . . . .
15 U.S.C. § 77e(c) (2007).
It is well established that When a broker acting as agent of one of the principals to the transaction successfully solicits a purchase, he is a person from whom the buyer purchases within the meaning of § 12 and is therefore liable as a statutory seller . . . . The language and purpose of § 12(1) suggest that liability extends only to 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. If he had such a motivation, it is fair to say that the buyer 'purchased' the security from him and to align him with the owner in a rescission action.
Pinter v. Dahl, 486 U.S. 622, 646, 647 (1988). Such a seller is strictly liable for the unlawful See In re Towers Financial Corp. Noteholders Litigation, 1995 WL 571888, at *4 (S.D.N.Y. 1995); Riedel v. Acutote of Colorado, 773 F. Supp. 1055, 1067 (S.D. Ohio 1991).
In order to establish a violation of Section 5, Plaintiffs must prove: (1) lack of a registration statement as to the subject securities; (2) the offer or sale of the securities; and (3) the use of interstate transportation or communication or the mails in connection with the offer or sale.Europe and Overseas Commodity Traders, S.A. v. Banque Paribas London, 147 F.3d 118, 124 n.4 (2d Cir. 1998). Once a Section 5 violation has been established, sellers of the security may be held liable if they qualify as a "seller" under the standard established by the Supreme Court in, quoted above.
Here, the Court found, in a previous order, that the Lease Program investments at issue are securities for the purposes of federal securities law. (See Order Granting Pls.' Mot. for Partial Summ. J. at 6.) Also, Plaintiffs' claim that the securities were not registered is undisputed. The evidence that Plaintiffs have submitted to prove that the securities were unregistered is the declaration of Kathleen K. Bisaccia, an attorney with the Securities and Exchange Commission's Pacific Regional Office. (See Aug. 28, 2006, Pls.' Stmt. of Uncontested Facts, Ex. A.) As part of her investigation of the case against Alliance and the other defendants in the SEC action, she searched the [SEC's] computerized database which contains information about all securities, individuals, and entities registered with the Commission in any capacity. The database contained no registration statement for any securities of Alliance Leasing Corporation. The database further contained no registration for Prime Atlantic, Inc., as a broker-dealer or in any other capacity.
See id. ¶ 12.)
Additionally, Plaintiffs claim that the Selling Brokers directly offered and sold the Alliance Leasing securities to Plaintiff Class members through the use of the mails or facilities of interstate commerce. (See Pls.' Mem. of P. & A. at 6.) To support this assertion, Plaintiffs have submitted declarations, made under penalty of perjury, from members of the participating Plaintiff Class stating that members of the unserved Defendant Class sold them the Alliance securities through the use of the mails or facilities of interstate commerce. (See Plaintiffs' Exs. 10-18, submitted Aug. 28, 2006.) Additionally, the specific amount of each broker's sale to the individual Plaintiff Class members is provided in each declaration. (See id.) Plaintiffs have, thus, submitted undisputed evidence establishing that the identified unserved Defendant Class members sold Plaintiff Class members securities through the use of the mails or facilities of interstate commerce. (See July 1, 2004, Order Granting Pls.' Mot. for Summ. J. at 1.) Accordingly, Plaintiffs have shown that the sales of the Alliance Leasing Program made by the previously unserved Defendant Class members against whom this motion is brought violated Section 5. Defendant brokers will be liable for transactions that violated Section 5 if they qualify as "sellers" under Section 12. To establish that these Defendants were statutory sellers of Alliance securities, Plaintiffs have submitted the declarations discussed above. The Supreme Court has established that
When a broker acting as agent of one of the principals to the transaction successfully solicits a purchase, he is a person from whom the buyer purchases within the meaning of § 12 and is therefore liable as a statutory seller . . . .
Pinter v. Dahl, 486 U.S. 622, 646, 647 (1988). The undisputed evidence presented by Plaintiffs establishes that Defendant brokers solicited the sales of the securities on behalf of Alliance. Given that the brokers solicited investors on behalf of Alliance, Plaintiffs have established that, as a matter of law, Defendants may be held liable for these sales pursuant to Section 12(a)(1) of the Securities Act of 1933. For transactions that violated Section 5, Plaintiffs are entitled to summary judgment because they have established that there is no genuine issue of material fact regarding Defendants' liability under Section 12 and that they are entitled to judgment as a matter of law.
A party who establishes liability pursuant to Section 12(a)(1) is entitled "to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if he no longer owns the security." 15 U.S.C. § 77l(a). Currently before the Court are declarations from each participating Plaintiff Class member that (1) state the amount of interest and applicable offsets, if any, received by the member from the Alliance security, and (2) address the tender requirement, indicating if the security is being tendered, was tendered in the past, or was lost or sold. (See Plaintiffs' Exs. 10-18, submitted Aug. 28, 2006.) The Court FINDS that the evidence before it is sufficient to authorize damages in favor of the participating Plaintiff Class members.
Plaintiffs have accounted for their securities, either tendering them now or indicating when they were tendered in the past. Some class members have lost the security, however, the Court finds sworn declarations to this effect sufficient to satisfy the tender requirement. The securities have no value, hence, the fraud that the tender requirement is aimed at preventing is not possible in this case.
Plaintiffs have presented evidence that establishes Defendants' liability under Section 12 of the Securities Act of 1933 for the sale of unregistered securities. In addition, they have provided sufficient evidence of their losses and have accounted for the securities, which are additional requirements necessary for recovery under Section 12. There are no remaining material factual disputes, and Plaintiffs are entitled to judgment as a matter of law. Plaintiffs' Motion for Summary Judgment is GRANTED. Furthermore, the Court has sufficient evidence before it to award damages at this time. In accordance with the formula previously employed,*fn1 Lead Plaintiffs have calculated each participating Plaintiff Class member's net remaining damages and pre-judgment interest thereon. (See Aug. 28, 2006, Decl. of Vincent Slavens at 3-see also Aug. 28, 2006, Proposed Order, Ex. A.) The chart attached as a Supplemental Appendix to this Order is an accurate statement of the amount invested set forth in Column 3, as well as the net remaining damages set forth in Column 4, plus interest thereon, stated in Column 5, to which participating Plaintiff Class members are entitled to recover from each Defendant Class member.
IT IS HEREBY ADJUDGED, ORDERED, and DECREED that judgment shall be entered against each Defendant Class member listed in Column 1 and in favor of the corresponding Investor/Plaintiff Class member in Column 2 to whom each Defendant Class member sold an interest in the Alliance Lease Program, for the total net remaining damages, set forth in Column 4, plus interest thereon, stated in Column 5 of the Supplemental Appendix, for violation of Section 12(a)(1) of the Securities Act of 1933.
IT IS SO ORDERED.
In Re Alliance Equipment Lease Program Securities Litigation
Column 1Column 2Column 3Column 4Column 5
Defendant Class MemberInvestorsAmount InvestedNet Remaining DamagesInterest
Andrew P. WeisMarcus A. Monaghan$14,000.00$3,488.00$942.00
Andrew P. WeisElizabeth A. Walbring$75,000.00$18,136.00$4,897.00
Andrew P. WeisMatthew DeMarco$10,000.00$2,492.00$673.00
Andrew P. WeisJeffrey L. Pederson$10,000.00$2,492.00$673.00
Andrew P. WeisE. Rowena Horton$29,000.00$7,226.00$1,951.00
Andrew P. WeisHenry F. Peck$10,000.00$2,492.00$673.00
Andrew P. WeisBetty Gonzales$17,500.00$14,024.00$3,786.00
Frank DeMariaMildred Lebron$10,000.00$3,700$999.00
Greg GregsonJoyce Gardiner$20,333.00$5,067.00$1,368.00