United States District Court, E.D. Pennsylvania
Austin McHugh United States District Judge
case presents a tangled web of tort and contract claims
arising out of a complex commercial transaction gone awry.
Before me now are Motions for Summary Judgment on no fewer
than 35 claims, crossclaims, and counterclaims. Having taken
what appears to be a shotgun approach to litigating this
matter, the parties now support their conflicting versions of
events with contradictory evidence drawn from a massive
record. The briefing in this case, while voluminous, is
notable for its paucity of citation to controlling legal
authority, particularly with respect to choice-of-law issues.
In the absence of dispositive legal arguments, and confronted
with what appear to be genuine disputes of material fact, I
am hard-pressed to dispose of these claims on summary
judgment. Although the weight of evidence in this case seems
to favor the Plaintiff, a jury must resolve the bulk of the
hotly contested disputes. For the reasons set forth below, of
the 35 counts reviewed, 29 survive for trial.
there is no issue of public importance in this case, I write
solely for the benefit of the parties, and a recitation of
the underlying facts of this case is omitted.
Standard of Review
parties have moved for summary judgment on numerous claims.
Summary judgment is appropriate only where “there is no
genuine dispute as to any material fact.” Fed.R.Civ.P.
56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986). The vehement disagreement between the parties about
who said what to whom, and with what intent, makes this case
particularly unsuited to resolution by summary judgment.
Nonetheless, as to certain discrete issues, some parties have
advanced legal arguments sufficient to foreclose relief under
a claim or theory. In those places, summary judgment will be
confronted with cross-motions for summary judgment, I
“‘must rule on each party's motion on an
individual and separate basis, determining, for each side,
whether a judgment may be entered in accordance with the Rule
56 standard.'” Schlegel v. Life Ins. Co. of N.
Am., 269 F.Supp.2d 612, 615 n.1 (E.D. Pa. 2003) (quoting
Charles A. Wright et al., 10A Federal Practice and
Procedure § 2720 (3d ed. 1998)). Accordingly, I
will address each party's allegations against the other
Motions for Summary Judgment on the
has moved affirmatively for summary judgment on the seventeen
claims contained in its Complaint (ECF No. 1), contending
that the evidence is so overwhelming that there is nothing
for a jury to decide. Needless to say, it is a rare case
where a party with the burden of proof prevails with such a
motion, Shager v. Upjohn Co., 913 F.2d 398, 403 (7th
Cir. 1990), so it is difficult to fathom why NewSpring
considers such a motion a good use of judicial resources.
Defendants in turn have also moved for summary judgment on
thirteen of these seventeen claims (ECF 263, 266). Upon
consideration of NewSpring's Motion (ECF No. 269), the
Hayes Brothers' Motion (ECF No. 263), and the Baxter
Parties' Motion (ECF No. 266) and responses and replies
thereto (ECF Nos. 275, 277, 284 & 290), I conclude as
Counts I and II: Violations of the Securities Exchange
Act of 1934
claims hinge on disputed material facts. Plaintiff alleges
that Defendants made intentionally inaccurate representations
about the financial health of Utilipath, LLC, in the course
of their sale of a security-an ownership interest in
Utilipath-to Plaintiff. Defendants state that no such
misrepresentations were made. The parties have provided
extensive evidence, largely in the form of emails between
Plaintiff, Defendants, and various accountants and
consultants involved in the transaction. This evidence is
contradictory and unclear: some communications suggest that
Defendants intentionally withheld or misrepresented
information, while others suggest that Defendants were
transparent in sharing objective information, failing only to
share with Plaintiff their personal anxieties and family
disputes about the company's strength. The evidence may
favor NewSpring, but to the extent that Defendants can be
precluded from arguing their interpretation of the facts.
Hayes Brothers argue that this claim cannot succeed as a
matter of law, because the interest transferred to Newspring
was not a security. However, whether the interest is a
security depends upon the extent to which NewSpring intended
to manage Utilipath. This is also a contested factual issue
as to which each party has produced evidence, and therefore
summary judgment as to these claims must be DENIED.
Count III: Violation of Section 503 of the Pennsylvania
facts underlying this claim (and numerous others) echo the
facts underlying Counts I and II: Plaintiff alleges that
Defendants aided and abetted Old Utilipath (which they owned
and managed) in intentionally misrepresenting its financial
health in order to sell Utilipath to Plaintiff. Defendants
vehemently deny making any representations.
contest Newspring's standing to bring this claim. Citing
Penturelli v. Spector Cohen Gadon & Rosen, 640
F.Supp. 868, 871 (E.D. Pa. 1986), they claim that section 503
does not provide NewSpring a cause of action-that section
503's aiding and abetting claim is available only to a
party which has already been found liable of securities fraud
and which seeks indemnification from its aiders and abettors.
I am persuaded by my colleague Judge DuBois that
Penturelli cannot be reconciled with the plain
language of the statute and is further called into question
by the Third Circuit's decision in McCarter v.
Michigan, 883 F.2d 196 (3d Cir. 1989). Fox Int'l
Relations v. Fiserv Sec., Inc., 490 F.Supp.2d 590 (E.D.
Pa. 2007). I therefore hold that a plaintiff other than
someone already adjudged liable of securities fraud
can bring an action against the aiders and abettors
of the principal who committed the fraud.
further argue that Plaintiff cannot bring an aiding and
abetting claim without also bringing an underlying direct
claim against the entity that Defendants allegedly aided and
abetted. This argument contradicts the basic theory of aiding
and abetting, which creates independent liability for those
who materially help tortfeasors and criminals achieve their
ends. Although Defendants claim that the statute “on
its face” limits liability to those cases where suit is
brought against the alleged principal, the statute appears to
say nothing of the sort-indeed, it makes clear that aiders
and abettors are “also liable jointly and severally
with and to the same extent as such person.” 70 Pa.
Stat. and Cons. Stat. Ann. § 1-503. Accordingly,
Plaintiff may sue Defendants under section 503 of the
Pennsylvania Securities Act. Nonetheless, whether Plaintiff
can succeed on this claim is a question for the jury. Summary
judgment as to this Count will be DENIED.
Count IV: Violation of the Delaware Securities Act
contend that the Delaware Securities Act does not govern the
relationship between the parties. Plaintiff has offered
nothing to the contrary. Summary judgment will be GRANTED and
this claim will be dismissed.
Counts V and VI: Unjust Enrichment Claims
alleges that it unjustly enriched Defendants in two ways: (1)
that it overpaid Defendants for Utilipath because Defendants
misrepresented Utilipath's worth; and (2) that on the
evening before closing, Individual Defendants arranged for
$229, 445.73 to be transferred from Utilipath's accounts
into three accounts of their own. Whether Defendants'
enrichment was unjust is a question for the jury, to be
determined by the evidence presented about each party's
knowledge and intent.
Hayes Brothers claim that unjust enrichment is unavailable to
Plaintiff as a remedy because the parties' relationship
is governed by a contract. NewSpring correctly points out
that this equitable theory is pleaded only in the alternative
should the contract claim fail. The Hayes Brothers further
argue that the claim is barred by an exclusive remedy clause.
See Redemption Agreement § 5.7 (ECF 263, Ex.
9). Having reviewed the contract, I construe it as limited to
Article V, and claims for indemnification, which this is not.
In addition, even if this clause were applicable, as
NewSpring points out, the contract contains a
“carve-out” from that clause for “case[s]
of fraud.” Id. The parties disagree-here and
elsewhere-about whether the carve-out pertains to only fraud
claims, or whether it pertains to claims, like this
one, based upon alleged fraudulent behavior. I find the
purported distinction between fraud claims and claims based
on fraudulent conduct meaningless, and would therefore not
dismiss this claim even if I were persuaded the exclusive
remedy clause applied..
Baxter Parties claim that NewSpring's unjust enrichment
claim must fail because NewSpring did not actually pay the
Baxter Parties-New Utilipath paid them with NewSpring's
money. Unjust enrichment is an equitable doctrine and I am
aware of no requirement that the enrichment be direct, rather
than indirect. NewSpring clearly did in some respect
“enrich” Defendants in this case, even though its
money moved briefly through New Utilipath in the course of
the transaction. Consequently, the Baxter Parties'
argument does not foreclose a jury determination on this
claim. Summary judgment will be DENIED.
Counts VII and VIII: Violation of the Uniform Fraudulent
alleges that Defendants, in selling Old Utilipath to
NewSpring and remitting payments to themselves on the day
before closing, made securities transfers with the intent to
defraud NewSpring and in furtherance of a fraudulent scheme.
This claim rests on the same contested factual issues as
NewSpring's other claims.
argue that NewSpring has not stated these counts as proper
claims, because it has not specified the jurisdiction
governing the counts. I denied Defendant's Motion to
Dismiss after concluding there was “no material
difference between the potentially applicable laws.”
(ECF No. 74, p.2). Defendants still have not established that
the potentially governing statutes differ, and therefore this
argument is insufficient to merit dismissal of
NewSpring's claims. Summary judgment will be DENIED. If,
however, NewSpring pursues this claim at trial, it must, no
later than the Final Pretrial Conference, fully brief the
Count IX: ...