Justia U.S. 11th Circuit Court of Appeals Opinion Summaries
Articles Posted in Securities Law
Federal Trade Commission v. Steven J. Dorfman
The Federal Trade Commission (the “Commission”) alleges that Defendant and his six companies engaged in unfair or deceptive business practices in violation of Section 5(a) of the Federal Trade Commission Act and the Telemarketing Sales Rule. Relying on its authority under Section 13(b) of the FTC Act, the Commission obtained a preliminary injunction that included an asset freeze and the imposition of a receiver. Defendant argued that the preliminary injunction must be dissolved because a recent Supreme Court decision undermines the Commission’s Section 13(b) authority.
The Eleventh Circuit affirmed the order denying Defendant’s emergency motion to dissolve the preliminary injunction. The court explained that Defendant urged the court to read AMG Capital as a signal to interpret the FTC Act with a view to “reigning in the FTC’s power.” But, the court wrote, that AMG Capital teaches the court to read the FTC Act to “mean what it says.” 141 S. Ct. at 1349. In AMG Capital, that meant limiting Section 13(b)’s provision for a “permanent injunction” to injunctive relief. Here, that means recognizing the broad scope of relief available under Section 19. When the Commission enforces a rule, Section 19 grants the district court jurisdiction to offer relief “necessary to redress injury to consumers.” To preserve funds for consumers, the Commission sought to freeze Defendant’s assets and impose a receivership over his companies. Section 19 allows such relief. View "Federal Trade Commission v. Steven J. Dorfman" on Justia Law
1944 Beach Boulevard, LLC v. Live Oak Banking Company
The case-at-hand returned to the Eleventh Circuit for disposition from the Florida Supreme Court, to which the court certified three questions of Florida law. In considering the court’s certified questions, the Florida Supreme Court found dispositive a threshold issue that the court did not expressly address: “Is the filing office’s use of a ‘standard search logic’ necessary to trigger the safe harbor protection of section 679.5061(3)?”
The Florida Supreme Court answered that question in the affirmative. And the court further determined that Florida does not employ a “standard search logic.” The Florida Supreme Court thus concluded that the statutory safe harbor for financing statements that fail to correctly name the debtor cannot apply, “which means that a financing statement that fails to correctly name the debtor as required by Florida law is ‘seriously misleading’ under Florida Statute Section 679.5061(2) and therefore ineffective.
The Eleventh Circuit reversed the district court’s order affirming the bankruptcy court’s grant of Live Oak Banking Company’s cross-motion for summary judgment and remand for further proceedings. The court held that Live Oak did not perfect its security interest in 1944 Beach Boulevard, LLC’s, assets because the two UCC-1 Financing Statements filed with the Florida Secured Transaction Registry (the “Registry”) were “seriously misleading” under Florida Statute Section 679.5061(2), as the Registry does not implement a “standard search logic” necessary to trigger the safe harbor exception set forth in Florida Statute Section 679.5061(3). View "1944 Beach Boulevard, LLC v. Live Oak Banking Company" on Justia Law
USA v. John J. Utsick
Following proceedings in district court, the trial court t entered a final judgment, finding Defendant liable, ordering him to disgorge over $4,000,000 in funds, and placing two of his entities under receivership in order to sell and reorganize assets to repay investors. Later, a federal grand jury sitting in Miami returned a superseding indictment that described consistent with the district court’s findings of fact.
After an extradition request was filed by the United States, the Supreme Court of Brazil allowed him to be extradited. He returned to the United States, and on the eve of trial, following over a year of pretrial proceedings, Defendant entered into a plea agreement, agreeing to plead guilty to one count of mail fraud. The district court later sentenced Defendant to 220 months’ imprisonment and ordered him to pay $169,177,338 in restitution.
On appeal, Defendant broadly argues: (1) that the custodial sentence imposed and the order of restitution violate the extradition treaty; and (2) that his guilty plea was not made freely and voluntarily. The Eleventh Circuit affirmed. The court explained that the district court fully satisfied the core concerns of Rule 11, and the court could discern no reason to conclude that the district court plainly erred in finding that Defendant’s guilty plea was entered knowingly and voluntarily. The court explained that in this case, the record fully reflects that Defendant agreed to be sentenced subject to a 20-year maximum term, and his 220-month sentence is near the low end of his agreed-upon 210-to-240-month range. View "USA v. John J. Utsick" on Justia Law
Police and Fire Retirement System of the City of Detroit v. Axogen, Inc., et al
The Police and Fire Retirement System of the City of Detroit lost money when a short seller’s report concluded that Axogen, Inc., had overstated the market for its products, resulting in a precipitous decline in Axogen’s stock price. Specifically, Axogen said that its human nerve repair products had potential because “each year” 1.4 million people in the United States suffer nerve damage, leading to over 700,000 nerve repair procedures. The Retirement System filed this lawsuit against Axogen and related entities, which presents the following question: Were Axogen’s public statements forward-looking? If so, as the district court held, the statements are eligible for a safe harbor from liability.
The Eleventh Circuit concluded that the challenged statements are forward-looking and affirmed the judgment of the district court. The court explained that the Retirement System again does not argue that it meets the statutory “actual knowledge” standard. Instead, it contends that the Supreme Court’s decision in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 575 U.S. 175 (2015) relieves it of that burden. The Retirement System’s argument misunderstands the safe-harbor statute and Omnicare. The “actual knowledge” standard is a non-negotiable part of the statute. The safe-harbor provision expressly requires a plaintiff to prove that a forward-looking statement was made with “actual knowledge that the statement was false or misleading.” Omnicare, on the other hand, addressed whether an opinion may be an actionable misstatement of fact under 15 U.S.C. Section 77k(a). Thus, the Retirement System’s failure to plausibly allege—or even attempt to argue on appeal—Axogen’s actual knowledge dooms its ’33 Securities Act claims. View "Police and Fire Retirement System of the City of Detroit v. Axogen, Inc., et al" on Justia Law
Posted in:
Class Action, Securities Law
Jeffrey A. Cochran v. The Penn Mutual Life Insurance Company, et al
Plaintiff filed a putative class action lawsuit against brokerage firm Hornor, Townsend & Kent (“HTK”) and its parent company The Penn Mutual Life Insurance Company. The complaint alleged that HTK breached its fiduciary duties under Georgia law and that Penn Mutual aided and abetted that breach. The district court concluded that the Securities Litigation Uniform Standards Act (“SLUSA”) barred Plaintiff from using a class action to bring those state law claims.
The Eleventh Circuit affirmed the district court’s dismissal. The court explained that SLUSA’s bar applies when “(1) the suit is a ‘covered class action,’ (2) the plaintiffs’ claims are based on state law, (3) one or more ‘covered securities’ has been purchased or sold, and (4) the defendant [allegedly] misrepresented or omitted a material fact ‘in connection with the purchase or sale of such security.’”Here, the only disputed issue is whether Plaintiff’s complaint alleges a misrepresentation or omission. The court reasoned that the district court correctly dismissed the actions because the complaint alleges “an untrue statement or omission of material fact in connection with the purchase or sale of a covered security." View "Jeffrey A. Cochran v. The Penn Mutual Life Insurance Company, et al" on Justia Law
Parks v. BitConnect International PLC
An online promotions team posted thousands of videos to persuade people to buy BitConnect Coin, a new cryptocurrency. BitConnect coin was not a sound investment; it was a Ponzi scheme. BitConnect’s original investors received “returns” from the money paid by new investors. The promoters were siphoning off money. At one point, BitConnect was bringing in around $10 million per week in investments from the United States.Two victims of the BitConnect collapse filed a putative class action, alleging that the promoters were liable under section 12 of the Securities Act for selling unregistered securities through their BitConnect videos, 15 U.S.C. 77l(a)(1); 77e(a)(1). The district court dismissed because the plaintiffs based their case on interactions with the promoters’ “publicly available content,” the plaintiffs had never received a “personal solicitation” from the promoters. The Eleventh Circuit reversed. Neither the Securities Act nor precedent imposes that kind of limitation. Solicitation has long occurred through mass communications, and online videos are merely a new way of doing an old thing. The Securities Act provides no free pass for online solicitations. View "Parks v. BitConnect International PLC" on Justia Law
Rensel v. Centra Tech, Inc.
The Eleventh Circuit vacated the district court's order denying plaintiffs' motion for class certification and remanded for further proceedings. Plaintiffs' action alleged that Centra Tech and some of its principals violated the Securities Act of 1933 in their efforts related to the initial coin offering of Centra Tokens.The court concluded that, under the circumstances of this case, including the near omnipresence of an automatic discovery stay imposed by the Private Securities Litigation Reform Act (PSLRA) whenever a motion to dismiss is pending -- in effect for just under fifteen of the eighteen months between the initial complaint and plaintiffs' certification motion -- the district court's timeliness holding was an abuse of discretion. The court also concluded that the district court erred when it denied certification on the alternative ground that plaintiffs had not established an administratively feasible method for identifying class members. The court explained that Federal Rule of Civil Procedure 23 implicitly requires that a proposed class be ascertainable. However, the court's recent decision in Cherry v. Dometic Corp., 986 F.3d 1296, 1304 (11th Cir. 2021), clarified that to meet this ascertainability requirement, the party seeking certification need not establish its ability to identify class members in a convenient or administratively feasible manner. The court noted that considerations of administrative feasibility may still be relevant to Rule 23(b)(3)(D) manageability analysis. View "Rensel v. Centra Tech, Inc." on Justia Law
Posted in:
Class Action, Securities Law
Fedance v. Harris
In mid-2017, Felton created an “offshore entity,” FLiK, for “developing [an] online viewing platform that [would] allow[] creatives to sell/rent their projects.” To raise funds, FLiK created cryptographic “FLiK Tokens” and represented that investors could redeem the tokens on its platform after it launched. FLiK never registered FLiK Tokens with the SEC but promoted FLik on social media and published a whitepaper with details about the company. FLiK announced that “T.I.,” an Atlanta-based rapper and actor (Harris), had joined Felton. The actor Kevin Hart tweeted a photograph of himself with Harris and wrote, “I’m Super Excited for [T.I.] and his new venture with @TheFlikIO! FLiK sold the tokens for about six cents each. The value of FLiK tokens soared and then crashed down. Felton largely ignored messages from token purchasers. None of FLiK’s services or projects came to fruition.Fedance, who had purchased $3,000 worth of FLiK Tokens, brought a putative class action under the Securities Act of 1933, 15 U.S.C. 77l(a)(1), 77o(a), alleging that Felton and Harris sold unregistered securities, that Harris acted as a “statutory seller” of unregistered securities, and that Felton and Harris were liable as controlling persons of an entity, The district court dismissed the complaint as untimely under a one-year statute of limitations. The Eleventh Circuit affirmed. The complaint does not plausibly allege that Felton or Harris fraudulently concealed the facts necessary to assert claims under sections 12(a)(1) or 15(a) against them. View "Fedance v. Harris" on Justia Law
Posted in:
Civil Procedure, Securities Law
SuVicMon Development, Inc. v. Morrison
Plaintiffs sued Morrison in Alabama state court in 2006, alleging common-law fraud and Alabama Securities Act violations, later adding claims under the Alabama Uniform Fraudulent Transfer Act, alleging that Morrison had given property to his sons to defraud his creditors. Morrison filed for Chapter 7 bankruptcy. The bankruptcy court allowed the Alabama case to proceed but stayed the execution of any judgment. Plaintiffs initiated a bankruptcy court adversary proceeding, seeking a ruling that their state-court claims were not dischargeable. The bankruptcy court entered Morrison’s discharge order with the adversary proceeding still pending. In 2019, the Alabama trial court entered judgment ($1,185,176) against Morrison on the common-law fraud and Securities Act claims but rejected the fraudulent transfer claims.In the adversary proceeding, the bankruptcy court held that the state-court judgment was excepted from discharge, 11 U.S.C. 523(a)(19), as a debt for the violation of state securities laws, and later ruled that the discharge injunction barred appeals against Morrison on the fraudulent transfer claims. The court found the "Jet Florida" doctrine inapplicable because Morrison would be burdened with the expense of defending the state-court suit. The district court and Eleventh Circuit affirmed, rejecting arguments that the fraudulent transfer suit is an action to collect a non-dischargeable debt (securities-fraud judgment) or that Plaintiffs should be allowed to proceed against Morrison as a nominal defendant, to seek recovery from the fraudulent transferees. The bankruptcy court has discretion in deciding whether to allow a suit against a discharged debtor under Jet Florida. View "SuVicMon Development, Inc. v. Morrison" on Justia Law
Posted in:
Bankruptcy, Securities Law
Securities and Exchange Commission v. Marin
The Eleventh Circuit affirmed separate district court orders directing defendant and MinTrade to comply with SEC subpoenas for the production of documentary evidence and testimony. The court held that the district court properly exercised personal jurisdiction over defendant in the Southern District of Florida. As to MinTrade, the court held that the district court did not abuse its discretion in not holding an evidentiary hearing. On the merits, the court held that neither district court abused its considerable discretion in concluding that the subpoenas were relevant to a legitimate investigation into possible violations of the Securities Exchange Act of 1934. View "Securities and Exchange Commission v. Marin" on Justia Law
Posted in:
Civil Procedure, Securities Law