Justia U.S. 10th Circuit Court of Appeals Opinion Summaries

Lead Plaintiff William Poppo filed a class action complaint on behalf of all persons who purchased Level 3 securities between October 2006 and October 2007. Plaintiff brought suit under the under Section 10(b) of the Securities Exchange Act of 1934 and under state securities law. Plaintiff also asserted claims against individual defendants as "control persons" pursuant to Section 20(a) of the Act. The district court dismissed the complaint with prejudice pursuant to Federal Rule of Civil Procedure 12(b)(6), and Plaintiff appealed. "The fundamental weakness in plaintiff’s complaint is that he [gave the Tenth Circuit] a great volume of puzzle pieces that, despite [the Court's] best efforts, [the Court could not] fit together." The Tenth Circuit affirmed the dismissal of Plaintiff's complaint. View "In re: Level 3 Communication" on Justia Law

Plaintiff Commonwealth Property Advocates, LLC, acquired title to three pieces of real property in Utah from three defaulting borrowers. Plaintiff then filed three suits in diversity against various Defendants which held interests in the property, seeking to prevent foreclosure. Plaintiff argued Defendants had no authority to foreclose because the notes in each case had been securitized and sold on the open market. Because the security followed the debt, Plaintiff argued once Defendants sold the security they could not foreclose absent authorization from every investor who had purchased an interest in the securitized note. Defendants in all three cases filed motions to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), and the district court granted those motions. Upon review, the Tenth Circuit found that Plaintiff's diversity jurisdiction claims had no legal basis under Utah law, and as such, the district court properly dismissed all three complaints.

The United States Commodity Futures Trading Commission (CTFC) and the Oklahoma Department of Securities brought suit against multiple corporate defendants (including Prestige Ventures Corporation) and several individuals, Kenneth Lee and his wife and two sons, Simon Yang. The Lees and Mr. Yang appealed pro se a district court's order entered in favor of CTFC. In their complaint, the CTFC alleged that defendants operated a Ponzi scheme that bilked at least 140 investors out of millions of dollars, in violation of a number of provisions of the Commodity Exchange Act and the Oklahoma Uniform Securities Act of 2004. Plaintiffs also alleged that millions of dollars were funneled to Defendants from Prestige by Mr. Lee, in cash and in the form of houses, cars, and boats. The court authorized a receiver to take possession of and sell the houses and boats. further, the court entered a broad array of permanent injunctive orders prohibiting defendants from further dealings in commodity futures and transacting investment-related business in Oklahoma. The court further ordered Defendants to pay over $5 million in restitution and a number of penalties, and ordered Defendants to disgorge large sums of cash. Each of the Lees filed a substantively identical motion for reconsideration of the Order. Having considered these issues and having reviewed the briefs, the record,and the applicable law in light of the applicable review standards, the Tenth Circuit affirmed the judgment of the district court for substantially the reasons stated in the district court’s order of summary judgment and its Order.

In 2003, the Securities and Exchange Commission (SEC) sought a preliminary injunction against ClearOne Communications, Inc. based on suspicions of irregular accounting practices and securities law violations. During a hearing on the preliminary injunction, Defendant and former CEO Susie Strohm was asked if she was involved in a particular sale by ClearOne that was the focus of the SEC’s case. She said she was not and approximated that she learned of the sale either before or after the end of ClearOne’s fiscal year. Based on this testimony, Defendant was later convicted of one count of perjury. She argued on appeal to the Tenth Circuit that her conviction should be reversed because (1) the questioning at issue was ambiguous, (2) her testimony was literally true, and (3) even if false, her testimony was not material to the court’s decision to grant the preliminary injunction. The Tenth Circuit disagreed on all three points. The Court found the questions were not ambiguous and there was sufficient evidence to demonstrate Defendant knowingly made false statements. Also, Defendant's testimony was material to the preliminary injunction hearing because it related to a transaction the SEC believed demonstrated ClearOne’s accounting irregularities. The Court therefore affirmed Defendant's conviction.

Jack Katz and Infinity Clark Street Operating were minority shareholders in a real estate investment trust (REIT) owned by Archstone Smith Trust, a public company. Archstone entered into a merger agreement in which two investors acquired all of Archstone’s outstanding public shares. As part of the merger, Katz and Infinity were squeezed out of the REIT and had the option of receiving either cash or stock in the newly formed entity in exchange for their shares. Katz opted for cash; Infinity chose stock. Claiming the offering documents associated with the merger contained false and misleading statements or omissions, Katz and Infinity separately sued. In Colorado, Infinity filed a federal class action lawsuit alleging breaches of contract and fiduciary duty relating to the merger and would later be sent to arbitration. Meanwhile, Katz filed a class action lawsuit in Illinois state court asserting securities law claims arising from the merger. The Illinois case was removed to federal court and eventually transferred to Colorado. Katz then filed an amended complaint joining Infinity as a party plaintiff, even though Infinity’s case was still waiting the outcome of arbitration. The district court dismissed Katz’s complaint, ruling that by joining the case, Infinity was improperly splitting claims that should have been alleged in its earlier action. The court also found Katz lacked standing to bring his securities law claims since he was not a purchaser when he opted to sell his shares. Katz and Infinity challenged the district court’s decision on appeal. The issue before the Tenth Circuit was whether a plaintiff can split potential legal claims against a defendant by bringing them in two different lawsuits. The Court concluded that related claims must be brought in a single cause of action, and the district court properly dismissed the claim-splitting plaintiffs.

Avalon Correctional Services, Inc., a Nevada corporation with its principal place of business in Oklahoma, operates for-profit correctional facilities. Ravenswood Investment Company (RIC) and Ravenswood Investments III (RIII), shareholders of Avalon, are both New York limited partnerships. In 2005, RIC and RIIII alleged that Avalon deregistered with the Securities and Exchange Commission and ceased filing financial reports. In 2008, RIC and RIII demanded inspection of Avalon's books and records, asserting a right provided to shareholders under Oklahoma law. Rather than supply the requested information, Avalon sued RIC and RIII in federal court to seek a declaration that Avalon was not subject to Oklahoma law with respect to the records. Avalon alleged diversity of citizenship as basis for jurisdiction. After the district court entered interim orders dismissing many claims, entering summary judgment on another, and resolving various discovery disputes, the parties discovered that complete diversity never existed and the court lacked subject matter jurisdiction. Rather than dismiss the case in its entirety, the court severed some previously decided claims between diverse parties and made their final dispositions. The court then dismissed the remainder of the claims. Upon review, the Tenth Circuit found that although dismissing a nondiverse party is an available procedure for curing a lack of complete diversity in some circumstances, the district court's order in this case failed to create complete diversity. Therefore, the court lacked subject matter jurisdiction over the case. The Court reversed the district court's decision and remanded the case to be dismissed in its entirety.

The defendant was convicted of counts relating to securities fraud in connection with an improper revenue recognition scheme. The Tenth Circuit affirmed denial of a post-trial motion based on the statute of limitations because the defendant had signed a waiver. The waiver was valid, despite not being executed in open court and not mentioning specific constitutional rights being waived; the limitations period is statutory, not constitutional. The court remanded a claim of ineffective assistance of counsel; the district court should not have ruled on the merits because the record was not sufficiently developed for determination of whether the claim could be raised on direct appeal.