The opinion of the court was delivered by: Oliver W. Wanger United States District Judge
MEMORANDUM DECISION RE DEFENDANTS DOWNEY BRAND LLP‟S AND GENSKE, MULDER & COMPANY‟S MOTIONS FOR SUMMARY JUDGMENT AGAINST JOSEPH LOPES AS TRUSTEE OF THE ESTATE OF RAYMOND LOPES; MANUEL AND MARIANA LOPES; JOSEPH AND MICHAEL LOPES; AND VALLEY GOLD (DOCS. 139, 145, 150, 151, 273, 277, 341, 342)
Defendant Downey Brand LLP ("Downey Brand"), a law firm, moves for summary judgment against Plaintiff Joseph Lopes as trustee of the Estate of Raymond Lopes (Doc. 277); Plaintiffs Manuel and Mariana Lopes (Doc. 139); Plaintiffs Joseph and Michael Lopes dba Westside Holsteins (Doc. 151); and Plaintiff Valley Gold (Doc. 341). Joseph Lopes as trustee of the Estate of Raymond Lopes filed an opposition (Doc. 284), to which Downey Brand replied (Doc. 288). Manuel and Mariana Lopes and Joseph and Michael Lopes filed an opposition (Doc. 155), to which Downey Brand replied (Docs. 185, 188). Downey Brand filed a combined supplemental reply to the individual Plaintiffs on February 15, 2011 (Doc. 344), the individual Plaintiffs filed a supplemental opposition on March 15, 2011 (Doc. 363), and Downey Brand filed a second supplemental reply on March 25, 2011 (Doc. 367). Plaintiffs filed an opposition on behalf of Valley Gold (Doc. 349), to which Downey Brand replied (Doc. 351).
Defendant Genske Mulder and Company ("Genske Mulder"), a certified public accounting firm, moves for summary judgment against Joseph Lopes as trustee of the Estate of Raymond Lopes (Doc. 273); Manuel and Mariana Lopes (Doc. 145); Joseph and Michael Lopes (Doc. 150); and Plaintiff Valley Gold (Doc. 342). Joseph Lopes as trustee of the Estate of Raymond Lopes filed an opposition (Doc. 284), to which Genske Mulder replied (Doc. 285). Manuel and Mariana Lopes and Joseph and Michael Lopes filed an opposition (Doc. 155), to which Genske Mulder replied (Docs. 179, 193). Genske Mulder filed a combined supplemental reply against the individual Plaintiffs on February 14, 2011 (Doc. 343), the individual Plaintiffs filed a supplemental opposition on March 15, 2011 (Doc. 364), and Genske Mulder filed a second supplemental reply on March 25, 2011 (Doc. 366). Plaintiffs filed an opposition derivatively on behalf of Valley Gold (Doc. 346), to which Genske Mulder replied (Doc. 350).
Plaintiffs‟ Complaint was filed September 11, 2006 (Doc. 1), a First Amended Complaint was filed June 22, 2007 (Doc. 30), and a Second Amended Complaint ("SAC") was filed April 2, 2008 (Doc. 71). The SAC asserts the following Cause of Actions against Downey Brand and Genske Mulder: (1) Fourth Cause of Action for securities fraud: Securities Exchange Act of 1934; (2) Fifth Cause of Action for violation of California securities law; (3) Sixth Cause of Action for negligence; (4) Seventh Cause of Action for intentional misrepresentation; and (5) Eighth Cause of Action for negligent misrepresentation. All allegations asserted derivatively on behalf of Central Valley Dairymen ("CVM") were dismissed. Doc. 340, ¶ 3.
Downey Brand and Genske Mulder filed motions for summary judgment against Plaintiffs in late 2009, which were heard on December 21, 2009. Summary judgment was granted against Plaintiff Antonio Estevam (Doc. 297) and Plaintiff Maria Machado as trustee of the Machado Family Trust (Doc. 298). By memorandum decision and order dated September 30, 2010, summary judgment was granted in part, denied in part, and deferred in part against Joseph Lopes as trustee for the Estate of Raymond Lopes. Doc. 301. The memorandum decision granted Downey Brand‟s and Genske Mulder‟s motions for summary judgment on (1) the Fifth Cause of Action against Joseph Lopes as trustee for the Estate of Raymond Lopes and (2) claims for consequential damages under the Fourth and Fifth Cause of Actions for failure to receive payment for milk shipped to Central Valley Dairymen, Inc. ("CVD"). Doc. 301, 48, 53.
In opposing Defendants‟ summary judgment motions, Plaintiffs relied on claims that were not alleged in the SAC. Plaintiffs were granted leave to file a Third Amended Complaint ("TAC") (Doc. 329), which they filed November 1, 2010 (Doc. 330). The Fourth through Eighth Cause of Actions asserted against Downey Brand and Genske Mulder in the SAC remain in the TAC. Plaintiffs also assert the Sixth Cause of Action for Negligence derivatively on behalf of Valley Gold.
Plaintiffs were permitted to, but did not, file supplemental oppositions to the summary judgment motions before January 25, 2011 (Doc. 329, 36). Downey Brand filed a combined supplemental reply on February 15, 2011 (Doc. 344), and Genske Mulder filed a combined supplemental reply on February 14, 2011 (Doc. 343). Plaintiffs were permitted to file supplemental oppositions on or before March 15, 2011 (Doc. 352), and did so (Docs. 363, 364). Downey Brand and Genske Mulder filed second supplemental replies March 25, 2011 (Docs. 366, 367). The motions were heard April 1 and 6, 2011.
The individual Plaintiffs have never retained Downey Brand to represent them nor have they ever spoken to, or recall anything said by a Downey Brand attorney related to the Valley Gold offering, CVD, or their milk.
On March 25, 2003, Downey Brand led a meeting at its Stockton office to discuss the steps needed to secure capitalization for Valley Gold and to complete Valley Gold‟s acquisition of a cheese plant in Gustine, California. Genske Mulder accountants, Valley Gold counsel Anthony Cary, Valley Gold manager Curtis Colaw, George Vieira, and local CVD board members were present.
Paul Anema, a Genske Mulder partner, drafted Valley Gold‟s business plan; Downey Brand was not retained to prepare Valley Gold‟s business plan and played no role in preparing it. Downey Brand was not retained to give Valley Gold financial or business advice of any kind. Downey Brand took responsibility for preparing the Offering Memorandum. Downey Brand‟s lead attorney, Jeffrey Koewler, understood that the Offering Memorandum needed to "meaningfully convey pertinent information to potential investors."
On April 11, 2003, Mr. Koewler called James Cecchi, a New Jersey attorney who represented Mr. Vieira in the United States Attorney‟s Office and the Securities and Exchange Commission‟s New Jersey Suprema Specialties criminal investigation of Mr. Vieria. Mr. Koewler read a disclosure statement that had already been drafted concerning Mr. Vieira‟s involvement or potential involvement in the criminal investigation. Mr. Cecchi confirmed that the disclosure was accurate. The disclosure regarding Mr. Vieira was inserted in the final Offering Memorandum on April 22, 2003.
Mr. Cecchi did not disclose that Vieira was involved in plea negotiations. Mr. Cecchi had a confidential, attorney-client relationship with Mr. Vieria and there is no evidence that Mr. Cecchi either communicated the specific terms of the plea bargain to Genske Mulder or Downey Brand before April 23, 2003. Doc. 340, ¶ 5. The court made the undisputed factual finding that Genske Mulder and Downey Brand could not disclose before April 23, 2003, that Mr. Vieria was in plea negotiations in New Jersey in the Supreme Specialties investigation. Id.
On April 21, 2003, Downey Brand led a meeting of the Valley Gold Management Committee and reviewed the then-existing draft of the Offering Memorandum. The Valley Gold Management Committee voted to approve the April 21, 2003 version of the Offering Memorandum and to "authorize and direct the Designated Officers, acting individually or collectively, to take all steps necessary to complete the offering on behalf of the Company, including the acceptance of subscriptions for Membership interests ...." The draft Offering Memorandum and documents in the offering packet urged potential investors to consult their own attorneys and financial advisors before investing in Valley Gold.
On April 22, 2003, Tim Brasil, one of the designated officers of Valley Gold, distributed the April 21, 2003 version of the Offering Memorandum to Joseph Lopes, Raymond Lopes, Manuel Lopes, and Mariana Lopes. The April 21, 2003 version did not include any disclosure concerning the New Jersey United States Attorney‟s Office‟s criminal investigation of Mr. Vieira. Raymond Lopes, Manuel Lopes and Joseph Lopes did not read the Offering Memorandum before investing in Valley Gold.
The final Offering Memorandum contains the following disclosure:
Mr. Vieria, one of the principal organizers of the Company and this transaction is currently the chief executive officer of CVD. George Vieria, was, for a short period of time, an officer of Suprema West, Inc. ("Suprema West"). Suprema West is a subsidiary of Suprema Specialties, Inc. ("Suprema"). Suprema and Suprema West are in bankruptcy. Suprema is also the subject of an investigation being conducted by the Securities and Exchange Commission and the U.S. Attorney‟s Office. Assertions have been made that financial data for Suprema was also misrepresented. Mr. Vieira has been contacted by the U.S. Attorney‟s Office and may be a subject of this investigation. No formal charges have been brought against Mr. Vieira. ("Vieira Disclosure") Doc. 330, Ex. B, 12.
Plaintiffs acknowledge that, had they read the disclosure about Mr. Vieira that was included in the final Offering Memorandum, they would not have invested in Valley Gold and that the Vieria Disclosure was sufficient to apprise a potential investor of possible problems involving Mr. Vieira.
No Downey Brand representative was present when the Offering Memorandum was given to potential investors. Downey Brand was not aware of, exercised no control over, and did not impose any limitations on the time given to potential investors to review the Offering. Downey Brand advised Valley Gold to urge potential investors to consult their own attorneys and financial advisors before investing. At a meeting attended by potential investors, Downey Brand attorneys said the same thing to potential investors.
Valley Gold‟s cheese plant opened for business in May 2003, and received substantial quantities of milk from CVD. By August or September of 2003, Valley Gold had not paid CVD for the milk it received from CVD. CVD could not pay milk producers on time, and eventually could not pay them at all.
Downey Brand did not prepare the "Milk for Equity" agreements in which the individual Plaintiffs agreed to forgo payment for their milk in return for a larger equity interest in Valley Gold. Downey Brand did not play any other role in suggesting that the individual Plaintiffs agree to enter into the "Milk for Equity" contracts or that Plaintiffs otherwise forgo milk payments.
On January 7, 2004, Mr. Vieira was indicted for securities fraud and entered a guilty plea in New Jersey pursuant to a plea agreement. On January 25, 2004, a story about the guilty plea appeared in a local paper, the Modesto Bee. Valley Gold‟s Management Committee learned of the plea and discussed it in late January 2004.
Downey Brand contends that it kept the Vieria Disclosure as a separate document for two reasons: (a) the paragraph was being circulated to persons who could verify its accuracy until the April 21, 2003 meeting to approve the final offering; and (b) Downey Brand wanted the Valley Gold Management Committee to focus specifically on it during the meeting. Plaintiffs argue that the disclosure was intentionally concealed.
Downey Brand contends that the Committee discussed the Vieira Disclosure at length and approved the specific language before it was inserted in the final Offering Memorandum. In his December 17, 2010 deposition, Joe Machado states that during the April 21, 2003 meeting, the disclosure paragraph was discussed:
Q. Okay. Do you recall this paragraph, and including this paragraph in the final version of the offering, being discussed at the April 21st, 2003 meeting?
A. Yes. And I believe we discussed that. They took George out of the room, you know, went to a different room, and we stayed with Tony Cary, Curtis Colaw and the Downey Brand attorneys, you know, and we talked all that out there. And George was taken out of the room and I believe that‟s when we discussed this stuff.
Doc. 343-13, 10. Pointing to the minutes of the April 21, 2003 Committee meeting, Plaintiffs contend that approval of the Offering Memorandum was not conditioned on the addition of the paragraph. The minutes, however, state: "The most recent draft of the Memorandum was distributed to the Committee for review." Doc. 358, Ex. M, 2 (emphasis added).
Downey Brand contends that, assuming Plaintiffs were given a draft, Downey Brand was not aware the Committee intended to distribute a draft or that a draft was given to potential investors. Downey Brand states that it advised the Committee not to share drafts with anyone beyond those persons assisting in preparing the Offering.
Downey Brand contends that Mariana Lopes and Michael Lopes did not read the Offering Memorandum before investing in Valley Gold. Mariana Lopes and Michael Lopes contend that they read the Offering Memorandum before investing in Valley Gold.
The parties dispute the reason for Valley Gold‟s ultimate failure. Downey Brand contends that Valley Gold ultimately failed for three interrelated reasons: when the plant first opened, CVD flooded it with four times as much milk as the Committee had anticipated, creating four times as much debt for excess milk; investors refused to give personal guarantees to obtain financing; and, without personal guarantees, Valley Gold could not obtain financing.
C.GENSKE, MULDER & COMPANY, LLP
Joseph and Michael Lopes are brothers, nephews of Manuel and Mariana Lopes, sons of Raymond Lopes, and nephews of Tim Brasil. Mariana Lopes, who is married to Manuel Lopes, is Raymond Lopes‟ sister-in-law.
Tim Brasil was a member of the Valley Gold Management Committee from the date Valley Gold was formed in 2003 until 2005. Jose "Joe" G. Machado was on the Valley Gold Management Committee from 2002 to May 2005. Joe Machado was the chairman of the Valley Gold Management Committee when it was initially formed. Joseph Lopes was a member of the Valley Gold Management Committee soon after it was formed in 2003 through 2005 or 2006. The Valley Gold Management Committee knew about Mr. Vieira‟s criminal investigation both before the sale of Valley Gold Securities and on April 21, 2003.
Valley Gold engaged Genske Mulder to provide limited professional services: (1) to decide which accounting software Valley Gold should use; (2) to provide monthly bookkeeping; (3) to prepare Valley Gold‟s 2003 tax return; (4) to compile financial forecasts; (5) to compile the business plan; and (6) to compile risk information for the operating agreement. Genske Mulder provided a list of dairy industry "Risk Factors" for the business plan. Valley Gold did not engage Genske Mulder to: (a) investigate Mr. Vieria; (b) advise it about the Milk Producer‟s Fund; (c) investigate the viability and reputation of the New Jersey Distributor, Mr. Profaci; (d) advise it about the sales price of cheese; or (e) obtain financing for Valley Gold.
Before April 22, 2003, Genske Mulder disclosed its financial forecasts to members of the Valley Gold Management Committee. The financial forecasts projected Valley Gold could be profitable.
In the weeks before April 22, 2003, Tim Brasil and other Management Committee members regularly discussed with the individual Plaintiffs how the Valley Gold venture was progressing. After one meeting, the Management Committee members also met with the rest of the investors at Mallard‟s Restaurant in Modesto and discussed the proposed investment with them. These discussions included the disclosure that Genske Mulder had investigated the proposed venture and concluded it could make a profit.
The Management Committee members believed that the financial forecasts were based upon a plan to initially process five loads of milk daily and gradually increase production thereafter. This was discussed in meetings that Genske Mulder attended.
Genske Mulder prepared tax returns for Raymond Lopes. Other than tax return preparation, Genske Mulder was not engaged to perform any other professional services for Raymond Lopes. Raymond Lopes does not know any Genske Mulder accountant. Raymond Lopes did not discuss with anyone at Genske Mulder (1) his investment in Valley Gold, (2) whether he should continue to sell his milk to CVD even though it was paying late, or (3) the "Milk for Equity" transaction. Genske Mulder did not provide any professional services to Manuel and Mariana Lopes. Mariana Lopes is not aware of any intentional act by Genske Mulder to harm her. Genske Mulder served as accountant for Joseph and Michael Lopes and their dairy, Westside Holsteins. Genske Mulder prepared these Lopes‟ tax returns and helped them with financial statements. Genske Mulder did not give Joseph Lopes advice about the "Milk for Equity" transaction.
On April 21, 2003, Tim Brasil gave Mariana Lopes, Raymond Lopes, Michael Lopes and Joseph Lopes a draft Offering Memorandum. Mr. Brasil told Michael Lopes to review the draft and take it to "whoever you need to feel comfortable."
Before investing in Valley Gold, Raymond Lopes did not read the Valley Gold Offering Memorandum or any other documents and did not discuss the Valley Gold offering with anyone at Genske Mulder. Before he invested, Raymond Lopes discussed the Valley Gold offering with Mariana Lopes, who said the Valley Gold investment was a "good thing" and that it was a place to "put the milk," i.e., there was no other customer for his milk other than the to-be-formed Valley Gold, and so the Valley Gold investment was a "good thing." Before he invested, Raymond Lopes also discussed the Valley Gold offering with Joseph and Michael Lopes. Michael Lopes told his father that he read the documents and everything looked good. Raymond Lopes would not have invested in Valley Gold had he read the Vieira Disclosure.
Manuel Lopes did not read the draft Offering Memorandum nor did anyone read the documents to him. Mariana Lopes, Manuel Lopes‟ wife, read the entire draft Offering Memorandum, but did not understand the entire document. Mariana Lopes told her husband that everything looked good. Mariana Lopes did not read the final Offering Memorandum.
Manuel and Mariana Lopes sought advice about the Valley Gold investment from only one person: their accountant Susan Miguel. Manuel and Mariana Lopes gave Ms. Miguel the draft Offering Memorandum. Ms. Miguel advised Manuel and Mariana Lopes to "be careful," which Manuel Lopes understood to mean that Manuel and Mariana Lopes might lose their entire investment. Ms. Miguel also advised Manuel and Mariana Lopes that "it was a lot of money to invest." Ms. Miguel called Downey Brand to ask questions about the draft Offering Memorandum, but no one was available. Ms. Miguel called Genske Mulder and spoke with someone (possibly Peter Hoekstra), who said they would call Downey Brand with Ms. Miguel's questions. Manuel and Mariana Lopes left Ms. Miguel's office before Genske Mulder returned her call. Mariana Lopes does not know what questions Ms. Miguel was going to ask Downey Brand and Genske Mulder and does not recall what Ms. Miguel said Genske Mulder told her. Ms. Miguel did not advise Manuel and Mariana Lopes to review the final Offering Memorandum before investing in Valley Gold. Mariana Lopes did not receive a call from Ms. Miguel and assumed Ms. Miguel's questions were answered. Mariana Lopes did not have any additional communication with Ms. Miguel before they decided to invest in Valley Gold.
Joseph Lopes skimmed the April 21, 2003 version of the Offering Memorandum before he invested in Valley Gold. Michael Lopes read the April 21, 2003 version of the Offering Memorandum and decided with Joseph Lopes to invest in Valley Gold. Neither Joseph Lopes nor Michael Lopes read the final Offering Memorandum.
Joe Machado, Mr. Brasil, and the Boards of CVD and Valley Gold stated that the draft Offering Memorandum was substantively the same version as the final Offering Memorandum. Manuel and Mariana Lopes gave Valley Gold the draft and final Offering Memorandums when they subscribed to the Valley Gold investment.
Mariana Lopes acknowledged the signatures of Manuel and Mariana Lopes on the Subscription Package.
The CVD directors told Plaintiffs that everyone was going to make a lot of money. Mr. Brasil, Joe Machado, Mr. Vieira and Mr. Cary told Joseph Lopes that the Valley Gold investment would be a home for their milk. Mr. Vieira, Alvaro Machado, and Paul Anema of Genske Mulder told Michael Lopes that investing in Valley Gold was a "good deal". Mr. Vieira, Joe Machado, the CVD Board, Peter Hoekstra, Mr. Cary, and Genske Mulder told Mariana Lopes that Valley Gold would be a "good investment."
Michael Lopes did not review any financial forecasts. Michael Lopes did not attend the April 21, 2003 meeting and did not know what was discussed at that meeting. Mariana Lopes never saw the financial forecasts before investing in Valley Gold. She did not understand them and was not able to interpret them. Susan Miguel, Mariana Lopes‟ accountant, received the financial forecasts from another client. Joe Nunes understood that a financial forecast was based on assumptions actually occurring, and told Mariana Lopes that "everything looks fine." Manuel Lopes never discussed financial performance of the Gustine Plant while it was owned by Land O‟Lakes or how much cheese from the plant Land O‟Lakes might sell.
At a March 2003 meeting regarding the formation of Valley Gold, Mr. Hoekstra emphasized the need for a line of credit for Valley Gold, without which Valley Gold would run out of money. The compiled financial forecast dated May 15, 2003 was a representation by Valley Gold Management. The financial forecast assumed that Valley Gold would get an operating line of credit of $4,000,000 and $650,000 in equipment financing. Valley Gold was not able to obtain an operating line of credit because all Valley Gold investors were not able, or were unwilling, to personally guarantee the debt.
CVD first began paying late for milk during the summer of 2003, because Valley Gold did not pay CVD for its milk. The Valley Gold Management Committee knew in September 2003 that it could not pay its bills. Raymond Lopes contacted Mr. Brasil when he was not paid timely for his milk, and Mr. Brasil gave various excuses for the late payments. Manuel and Mariana Lopes sold milk to CVD until July 2005, when they left CVD. Mariana Lopes did not contact Genske Mulder about the August 2003 milk payment. In September 2004, Valley Gold owed Manuel and Mariana Lopes $500,000 for unpaid milk.
In January 2004, Valley Gold‟s Management Committee knew that George Vieria had pled guilty to Federal criminal charges in New Jersey.
The Valley Gold Management Committee met with the New Jersey distributor, Mr. Profaci, and discussed selling cheese to him. The Valley Gold Management Committee was aware that Mr. Profaci was engaging in sharp practices and successfully sued him to recover the price of cheese sold to him.
The Valley Gold Management Committee did not consider suing Genske Mulder for professional negligence. No demand was ever made on the Valley Gold Management Committee by the Individual Plaintiffs that Valley Gold sue Genske Mulder for professional negligence.
Plaintiffs contend that Genske Mulder‟s accountants had no prior experience with cheese manufacturing. Mr. Hoekstra states in his deposition that he previously had experience with one cheese plant. Doc. 358-18, 73.
Genske Mulder contends that Valley Gold investors were present at the April 21, 2003 meeting. Pointing to the minutes of the April 21, 2003 meeting, Plaintiffs contend that only advisers and the Management Committee were present:
Frank Borba Jeffrey Koewler Christopher Delfino Tony Carey
Plaintiffs contend that in preparing the financial forecasts, Genske Mulder did not make any effort to compare the forecasted figures with the historical plant operations, plant capacity or industry standards.
Plaintiffs assert that Land O‟ Lakes only sold $76.9 million of cheese from the Gustine plant in 2001. It sold $25.9 million in the last five months of 2000, after purchasing the plant from Beatrice Cheese in July, 2000. The $103 million figure in the Offering Memorandum was the combined total for both years (rounded up).
Plaintiffs contend that Genske Mulder‟s financial projections and the Offering Memorandum stated that the Gustine plant would need $700,000 in mechanical upgrades, including $500,000 for Ricotta cheese manufacturing equipment. Plaintiffs further contend that Mr. Vieira had concluded that the plant needed $2.5 million to $3 million in equipment repairs not including any Ricotta cheese equipment.
Genske Mulder contends that the financial forecast dated May 15, 2003 assumed that Valley Gold would receive 5 loads of milk per day from CVD. Plaintiffs contend that Genske Mulder‟s financial forecasts were based upon the Valley Gold Gustine plant processing 16.5 loads of milk per day in July 2003, and 21 loads of milk per day by October 2003, and 27 loads of milk per day starting in January 2004. Plaintiffs assert that the Gustine plant‟s maximum capacity was only 15 to 20 loads of milk per day, and Mr. Vieira never planned to run the plant at full capacity to avoid overtime expense.
Genske Mulder contends that Valley Gold did not operate as assumed in the financial forecast because it received 20 loads of milk per day from CVD soon after it began operations. It is undisputed that CVD made the decision to ship 20 loads of milk per day to Valley Gold; however the effect of this larger quantity of milk is disputed. Genske Mulder contends that this larger quantity of milk caused operational and financial stress on Valley Gold. Plaintiffs contend that the larger quantity of milk was within Genske Mulder‟s financial projections.
It is disputed whether Plaintiffs relied upon the financial forecasts prepared by Genske Mulder in investing in Valley Gold. Genske Mulder contends that Mariana Lopes never discussed the financial forecasts with anyone. Pointing to Mariana Lopes‟ deposition and Susan Miguel‟s declaration, Plaintiffs contend that Ms. Miguel reviewed the financial forecasts on Mariana Lopes‟ behalf.
Genske Mulder rejoins that it terminated its professional relationship with Valley Gold in July 2003 (except for the preparation of the 2003 tax return) because Valley Gold was no longer able to pay Genske Mulder‟s billings. Plaintiffs contend that Genske Mulder prepared: (1) Valley Gold‟s 2003 yearend financial statements, dated March 17, 2004; (2) an analysis of the cheese sale prices for Valley Gold dated December 15, 2003; (3) an ownership structure report for Valley Gold dated March 10, 2005; and (4) a letter regarding inventory controls for Valley Gold with a facsimile transmission dated June 14, 2004.
Genske Mulder argues, without supporting evidence, that in December 2003 Valley Gold‟s Management Committee and its manager Katien Mehta knew that it was selling cheese at a discount. Genske Mulder contends that Valley Gold failed due to lack of financing. Genske Mulder states that Valley Gold needed investor guarantees to get financing, which not all of the investors could or would give. Valley Gold investors would not guarantee a line of credit, so none was obtained. Plaintiffs contend that the members of Valley Gold provided their own financing by foregoing payment for their milk in a sum of nearly $20 million, which was greater than the operating line of credit Genske Mulder projected would be needed.
Genske Mulder asserts that it was not the proximate cause of Valley Gold‟s purchase of more milk (from CVD) than it could process or finance. Plaintiffs contend that Valley Gold never purchased or processed more milk than Genske Mulder had projected they would need to purchase and process as part of the financial forecasts.
Genske Mulder contends that it was not the proximate cause of Valley Gold‟s termination of operations in approximately June 2005. Genske Mulder asserts that Valley Gold has not produced any evidence that it has suffered any damage proximately caused by Genske Mulder‟s alleged negligence, nor did the accountants cause Valley Gold‟s inability to obtain financing after it commenced operating or the proximate cause of Valley Gold selling its cheese at a discount.
Plaintiffs rejoin that if Genske Mulder prepared competent financial forecasts that included and correctly analyzed the information available to it (regarding milk purchase prices, cheese sale prices, manufacturing volume, plant equipment costs and overhead), Genske Mulder would have disclosed that Valley Gold could never turn a profit -- a disclosure that in turn would have from the inception prevented the Valley Gold venture from going forward. Plaintiffs argue that these errors and omissions were a proximate cause for the formation of Valley Gold, which predestined its failure; even if the precise timing of the failure was not attributable to Genske Mulder, it was necessarily linked to the members‟ willingness to forego payment for their milk.
Summary judgment is proper if "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56.
The moving party bears the initial burden of "informing the district court of the basis for its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548 (1986) (internal quotation marks omitted). A fact is material if it could affect the outcome of the suit under the governing substantive law; "irrelevant" or "unnecessary" factual disputes will not be counted. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505 (1986).
If the moving party would bear the burden of proof on an issue at trial, it must "affirmatively demonstrate that no reasonable trier of fact could find other than for the moving party." Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir. 2007). In contrast, if the non-moving party bears the burden of proof on an issue, the moving party can prevail by "merely pointing out that there is an absence of evidence" to support the non-moving party‟s case. Id.
When the moving party meets its burden, the "adverse party may not rest upon the mere allegations or denials of the adverse party's pleadings, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e).
In ruling on a motion for summary judgment, a court does not make credibility determinations or weigh evidence. See Anderson, 477 U.S. at 255. Rather, "[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Id. Only admissible evidence may be considered in deciding a motion for summary judgment. Soremekun, 509 F.3d at 984. "Conclusory, speculative testimony in affidavits and moving papers is insufficient to raise genuine issues of fact and defeat summary judgment." Id.
A.PLAINTIFFS‟ REQUESTS TO CLARIFY PREVIOUS RULINGS
In their supplemental opposition to Genske Mulder‟s motions for summary judgment, Plaintiffs request clarification of two previous rulings. Doc. 364, 2. Genske Mulder objects to Plaintiffs‟ request to clarify the court‟s prior ruling as an improper motion to reconsider without a motion under Rule 54(b) or a motion addressed to the court‟s inherent power to correct manifest error.
[A]ny order or other decision, however designated, that adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties does not end the action as to any of the claims or parties and may be revised at any time before the entry of a judgment adjudicating all the claims and all the parties' rights and liabilities.
Fed. R. Civ. P. 54(b). A district court may reconsider its prior rulings, so long as it has jurisdiction over a case. United States v. Smith, 389 F.3d 944, 948 (9th Cir. 2004).
Plaintiffs assert that the court‟s conclusion that it could not determine as a matter of law that the "Milk for Equity" agreements did not involve securities is incongruous with the ruling that Plaintiffs are not entitled to recover for their milk losses.
Summary judgment was granted to Downey Brand and Genske Mulder as to Plaintiffs‟ claims for damages for unpaid milk due to Plaintiffs‟ lack of standing. Because the derivative claims against CVD were dismissed, the court held that the individual Plaintiffs did not have standing to recover CVD damages from Downey Brand and Genske Mulder resulting from Valley Gold‟s failure to pay for milk delivered by CVD to Valley Gold. Doc. 301, 49-50. Plaintiffs‟ lack of standing remains unchanged.
2.Sellers under California Securities Act
The court previously ruled that Downey Brand and Genske Mulder were not "sellers" within the meaning of California Securities Act § 25400(d). Plaintiffs contend that the court did not address authorities submitted in Plaintiffs‟ brief of September 29, 2010 (submitted without prior leave from the court following the September 21, 2010 hearing), showing that those who materially assist in the sale of securities with material misstatements or omissions are jointly and severally liable with the actual sellers of securities under California Corporations Code Sections 25403(b), 25504, 25504.1 and 25504.2.
Even if Plaintiffs‟ late-provided legal authorities are considered, the prior ruling remains unchanged. No private right of action exists under Section 25403. Appollo Capital Fund, LLC v. Roth Capital Partners, LLC, 158 Cal.App.4th 226, 255, 70 Cal.Rptr.3d 199 (2007). With respect to Sections 25504, 25504.1 and 25504.2, the Fifth Cause of Action in the TAC is asserted for violation of California Corporations Code Section 25400(d). Section 25500 creates a private right of action for violations of Section 25400. See Cal. Corp. Code § 25500; Kamen v. Lindly, 94 Cal.App.4th 197, 206 (2001) ("Section 25500 creates the private right to action and establishes the circumstances under which a person who has engaged in the conduct proscribed by section 25400 may be held liable for damages."). The previous ruling quoted Kamen:
In light of the vast majority of federal cases that have construed section 9 of the Securities Exchange Act of 1934 and Corporations Code sections 25400 and 25500, we conclude that civil liability pursuant to Corporations Code section 25500 applies only to a defendant who is either a person selling or offering to sell or buying or offering to buy a security.
Id. The Kamen holding specifically states:
Corporations Code sections 25504 and 25504.1 . . . specifically impose liability not only on the buyer or seller of a security but on controlling persons, associates and agents as well as aiders and abettors. These statutes indicate that the Legislature knows how to establish secondary liability when it wants to do so, yet failed to do so with respect to Corporations Code section 25400.
Id. at 204. Under Kamen, there is no liability for aiding and abetting under Section 25400. Id. Plaintiffs‟ supplemental authority does not provide authority to impose joint and several liability on Downey Brand and Genske Mulder or alter the previous ruling that Downey Brand and Genske Mulder are not sellers within the meaning of Section 25400(d).
Plaintiffs‟ request for clarification is DENIED.
B.PLAINTIFFS‟ OFFER OF PROOF
Plaintiffs filed an offer of proof describing their "anticipated expert testimony." Doc. 362. In the offer of proof, Plaintiffs do not identify any experts nor describe any specific evidence, including any expert reports or specific opinions. Rather, Plaintiffs state that their expert will testify that Downey Brand failed to meet the applicable standard of care in drafting the Valley Gold Offering Memorandum and that Genske Mulder failed to meet the applicable standard of care in preparing financial forecasts for Valley Gold. Genske Mulder objects that Plaintiffs‟ offer of proof is not evidence and should be disregarded.
Only admissible evidence may be considered in deciding a motion for summary judgment. Soremekun, 509 F.3d at 984 (citing Fed. R. Civ. P. 56(e)). "Conclusory, speculative testimony in affidavits and moving papers is insufficient to raise genuine issues of fact and defeat summary judgment." Id.
Plaintiffs‟ offer of proof is not admissible evidence. "Proof of professional negligence requires testimony of experts as to the standard of care in the relevant community." U.S. Fidelity & Guar. Co. v. Lee Investments LLC, ---F.3d---, 2011 WL 1458793, *9 (9th Cir. 2011) (quoting Huang v. Garner, 157 Cal.App.3d 404, 413, 203 Cal.Rptr. 800 (1984), disapproved on other grounds by Aas v. Superior Court, 24 Cal.4th 627, 101 Cal.Rptr.2d 718 (2000)). Plaintiffs‟ offer of proof does not provide such standard of care testimony from identified experts in the legal and accounting communities. Instead, Plaintiffs have offered only conclusions of law without the necessary foundation.
Plaintiffs‟ offer of proof is insufficient and REJECTED.
C.DOWNEY BRAND‟S MOTIONS FOR SUMMARY JUDGMENT - INDIVIDUAL PLAINTIFFS
Downey Brand moves for summary judgment against the individual Plaintiffs on the remaining Cause of Actions asserted against it, i.e., the Fourth, Sixth, Seventh, and Eighth Causes of Action. Summary judgment has been granted in favor of Downey Brand on the ...