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Jasin v. Kozlowski

November 3, 2010


The opinion of the court was delivered by: Yvette Kane, Chief Judge United States District Court Middle District of Pennsylvania

(Chief Judge Kane)


Pending before the Court are cross motions for summary judgment. (Doc. Nos. 154, 127.) Plaintiff seeks summary judgment only on his section 11 claim. (Doc. No. 154.) Defendants argue that summary judgment in their favor is warranted on all claims. (Doc. No. 127.) Defendants contend that Plaintiff has failed to prove loss causation, a necessary element of his section 10(b), 14(a), and 20(a) claims, that he lacks standing to pursue his section 11 claim, and that Plaintiff was never in a contractual relationship sufficient to support his claim for breach of contract or implied covenant of fair dealing claims, and finally, that Plaintiff's remaining state law claims are barred by the statute of limitations. (Id.) For the reasons that follow, Plaintiff's motion for partial summary judgment will be denied. Defendants' motion for summary judgment will be granted in part and denied in part.


Procedural Background

Plaintiff Thomas Jasin, pro se, filed a writ of summons in the Court of Common Pleas of Dauphin County against Defendants Tyco International, Dennis Kozlowski, Mark Swartz, and Juergen Gromer on July 23, 2004. (Doc. No. 1-9.) The complaint was filed September 2, 2004.

(Id.) Shortly after Defendants removed the case to federal court, the case was transferred to the District of New Hampshire to be adjudicated with other similar cases as part of Multi-District Litigation ("MDL"). (Doc. No. 9.) After nearly four years of litigation, including disposition of motions to dismiss, completion of discovery, and a class-wide settlement of which Plaintiff Jasin opted out, the case was remanded to this Court. (Doc. No. 13.) After remand, Plaintiff settled all claims except those against Defendants Kowzlowski and Swartz, the former Chief Executive Officer and Chief Financial Officer of Tyco, respectively. (Doc. No. 129 ¶ 56.)

The complaint raises various state and federal claims arising from Kozlowski and Swartz's misrepresentations as to the value of Tyco securities and the financial position of the company. (Doc. No. 1-9.) Plaintiff argues that Defendants Swartz and Kozlowski violated sections 10(b)-5, 14(a), and 20(a) of the Securities Exchange Act of 1934; sections 11, 12(a)(2), and 15 of the 1933 Act; section 1-402 of the Pennsylvania Securities Act of 1972; and Pennsylvania's Unfair Trade Practice and Consumer Protection Law ("CPL"). Plaintiff also argues that Defendants committed the common law torts of fraud, negligent misrepresentation, breach of contract, and breach of duty of good faith and fair dealing.

Factual Background

Plaintiff has been an active trader in the stock market for over thirty years. (Doc. No. 153 at 9-10.) Beginning in September 2000 and continuing through April 2002, Plaintiff invested in Tyco stocks by selling significant amounts of put options of Tyco stock to options purchasers. (Doc. No. 1-9 ¶ 18; Doc. No. 129 ¶ 1.) Plaintiff was paid an "option premium" for obligating himself to purchase Tyco stock at a predesignated "strike price," without respect to the actual trading price of the stock, should the options purchaser exercise her "put option" within a certain period of time. As a result of his options contracts, Plaintiff purchased 67,900 shares of Tyco stock between September 11, 2000, and April 22, 2002. (Doc. No. 129 ¶ 49.) Plaintiff bought and sold the bulk of those shares -- 55,700 of them -- prior to January 2002. (Doc. No. 131-2.)

During the same period that Plaintiff was purchasing Tyco stock, Defendants had been using company funds for significant personal loans and purchases without disclosing those matters to the public or including them in the company accounting records. (Id. ¶ 23; Doc. No. 154 at 11-12.) Defendants also failed to disclose over $8 billion in acquisition expenditures in Tyco's financial statements. (Id. ¶ 19.) Even while these misrepresentations were occurring, Kozlowski, Swartz, and other Tyco representatives continued to assert that all accounting practices were fair and proper. (Doc. No. 153 at 16.)

The falsity of Defendants' representations first began to leak to the media in 2002. On January 2, 2002, a research firm announced that Tyco was the subject of an SEC investigation into its accounting. (Doc. No. 153 at 17.) On January 28, 2002, Tyco released a Proxy Statement that made the first corrective disclosure regarding irregularities in its accounting and prior misrepresentations. (Doc. No. 153 at 18.) Following the disclosure, the price of Tyco shares fell from $42 to $33.65 a share. (Id. ¶ 33.)

After these first major revelations, Plaintiff sold additional put options, resulting in the purchase of 12,200 shares of Tyco stock between February and March of 2002. (Doc. No. 131-2 at 3.) Plaintiff sold all but 2,200 of these shares before the end of March 2002. (Id.)

In early June, news of misconduct by Defendants resurfaced. On June 3, 2002, Kozlowski resigned as Tyco CEO amid rumors that he was the target of an ongoing state criminal investigation. (Doc. No. 1-9 ¶ 33, Doc. No. 153-6 ¶ 99.) The price of Tyco stock continued to decline, eventually reaching $16.05 a share, as questions arose regarding the integrity of the company. (Doc. No. 1-9 ¶ 33.) On June 7, 2002, Tyco confirmed the criminal investigation into Kozlowski and announced its own investigation into the executives' misuse of company funds for personal use. (Id.) Defendant Swartz also resigned from Tyco in 2002. (Doc. No. 129 ¶ 58.) Both Defendants were eventually convicted of multiple counts of larceny and enterprise corruption in 2005. (Id. ¶¶ 57-59.)


Federal Rule of Civil Procedure 56(c) provides that summary judgment is appropriate "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(c). A factual dispute is material if it might affect the outcome of the suit under the applicable law, and it is genuine only if there is a sufficient evidentiary basis that would allow a reasonable fact finder to return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986). At summary judgment, the inquiry is whether the evidence presents a sufficient disagreement to require submission to the jury or whether it is so one-sided that one party must prevail as a matter of law. Id. at 251-52. In making this determination, the Court must "consider all evidence in the light most favorable to the party opposing the motion." A.W. v. Jersey City Pub. Schs., 486 F.3d 791, 794 (3d Cir. 2007).

The moving party has the initial burden of identifying evidence that it believes shows an absence of a genuine issue of material fact. Conoshenti v. Pub. Serv. Elec. & Gas Co., 364 F.3d 135, 145-46 (3d Cir. 2004). Once the moving party has shown that there is an absence of evidence to support the nonmoving party's claims, "the nonmoving party must rebut the motion with facts in the record and cannot rest solely on assertions made in the pleadings, legal memoranda, or oral argument." Berckeley Inv. Group. Ltd. v. Colkitt, 455 F.3d 195, 201 (3d Cir. 2006); accord Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). If the nonmoving party "fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden at trial," summary judgment is appropriate. Celotex, 477 U.S. at 322.

With respect to the sufficiency of the evidence that the nonmoving party must provide, a court should grant summary judgment where the non-movant's evidence is merely colorable, conclusory, or speculative. Anderson, 477 U.S. at 249-50. There must be more than a scintilla of evidence supporting the nonmoving party and more than some metaphysical doubt as to the material facts. ...

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