657 F.3d 1222 (11th Cir. 2011), 06-10715, Ledford v. Peeples

Docket Nº:06-10715.
Citation:657 F.3d 1222
Opinion Judge:TJOFLAT, Circuit Judge:
Party Name:Jimmy LEDFORD, Larry O'Dell, Bryan Walker, DynaVision Group, LLC, Signature Leasing, LLC, Plaintiffs-Appellants Cross-Appellees, v. Shelby PEEPLES, Jr., PFLC, LLC, Internal Management, Inc., Defendants-Appellees Cross-Appellants.
Attorney:H. Lamar Mixson, David G.H. Brackett, Frank M. Lowrey, IV, Emmet J. Bondurant, Bondurant, Mixson & Elmore, LLP, Harold T. Daniel, Jr., Laurie Webb Daniel, Leland H. Kynes, Holland & Knight, LLP, Atlanta, GA, for Appellants. Richard H. Sinkfield, Catherine M. Bennett, Kristina M. Jones, Rogers & H...
Judge Panel:Before TJOFLAT, EDMONDSON and GIBSON,[*] Circuit Judges.
Case Date:September 23, 2011
Court:United States Courts of Appeals, Court of Appeals for the Eleventh Circuit
 
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657 F.3d 1222 (11th Cir. 2011)

Jimmy LEDFORD, Larry O'Dell, Bryan Walker, DynaVision Group, LLC, Signature Leasing, LLC, Plaintiffs-Appellants Cross-Appellees,

v.

Shelby PEEPLES, Jr., PFLC, LLC, Internal Management, Inc., Defendants-Appellees Cross-Appellants.

No. 06-10715.

United States Court of Appeals, Eleventh Circuit.

September 23, 2011

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[Copyrighted Material Omitted]

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H. Lamar Mixson, David G.H. Brackett, Frank M. Lowrey, IV, Emmet J. Bondurant, Bondurant, Mixson & Elmore, LLP, Harold T. Daniel, Jr., Laurie Webb Daniel, Leland H. Kynes, Holland & Knight, LLP, Atlanta, GA, for Appellants.

Richard H. Sinkfield, Catherine M. Bennett, Kristina M. Jones, Rogers & Hardin, LLP, Atlanta, GA, for Appellees.

Appeals from the United States District Court for the Northern District of Georgia.

Before TJOFLAT, EDMONDSON and GIBSON,[*] Circuit Judges.

TJOFLAT, Circuit Judge:

Upon the majority vote of the judges in this Court in active service, on January 19, 2011, the en banc Court vacated this panel's prior opinion and granted rehearing en banc. See Ledford v. Peeples, 630 F.3d 1345 (11th Cir.2011) (en banc); 605 F.3d 871 (11th Cir.2010), vacated and reh'g en banc granted, 630 F.3d 1345. The en banc Court has concluded that Appellees in their cross appeal have not shown that the district court abused its discretion in denying sanctions.

Because the en banc Court considered only the sanctions issue, we hereby reissue Parts I, II, IV, and V of the panel opinion of May 6, 2010, as set forth below as now Parts I, II, III, and IV. We affirm the district court's grant of summary judgment to Appellees.

In this case, two parties, X and Y, each owned a fifty percent interest in a limited liability company that manufactured and sold carpets. X provided the financing; Y ran the company and marketed its product. The parties had a buy-sell agreement that enabled either party to buy out the other at any time by offering to purchase the other's interest in the company at an offered price. After receiving an offer, the offeree would have thirty days in which to accept the offer or elect to purchase the offeror's interest at the offered price.

Y offered to purchase X's interest for $3.5 million. X demanded to know whether Y would be borrowing the funds from Z, who earlier had expressed an interest in purchasing the company. Y said that neither Z nor anyone else would be providing the money. X asked Z if it was financing Y; Z said no.

X, unable to operate the factory and market its product without Y or someone with Y's expertise, had to sell and therefore accepted Y's offer. Prior to the date set for the closing, however, X told Y that it would not go forward with the closing unless Y represented that no third party was providing the funds to pay X. Y responded that it had no obligation to disclose the source of its funds and that X was bound by contract to transfer its interest to Y unconditionally. X tacitly agreed

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by appearing at the closing and transferring its interest to Y.

X subsequently learned that Z had provided the purchase price and, following the closing, had acquired the factory's assets and hired Y to run the business. After discovering Z's involvement, X took Y to court. In a complaint filed in state court, X alleged that Y breached a fiduciary duty to tell it that Z had financed the purchase of its interest, and moreover, that Y's failure to disclose Z's involvement fraudulently induced X to sell its interest to Y.1 X also brought suit against Z in federal district court, the case now before us, claiming that Z violated federal securities law, state securities law, and state common law by denying involvement in the transaction and causing X to sell its interest to Y.

X lost both cases on summary judgment.2 Both courts concluded that Y's alleged misrepresentation about Z's involvement in the buy-out did not cause X to sell its interest. Rather, X sold because it was in X's economic self-interest to do so. X needed Y's skills; had X purchased Y's interest, it would have had no one to run the carpet factory or to market its product. X therefore had no economically viable option but to sell.

The district court granted Z summary judgment. X appealed the district court's decision rejecting its claim. This opinion is organized as follows. Part I identifies X, Y, and Z and sets out the events that have given rise to this controversy.3 Part II canvasses the litigation as it evolved in state court and spread to federal court; describes the state trial and appellate courts' disposition of X's claims against Y and the district court's disposition of X's claims against Z; and, after that, delineates the issues that X's appeal to this court presents. Part III assesses the merits of X's appeal as to the securities law claims. Part IV examines X's claim that Z aided and abetted Y's breaches of fiduciary duty towards X.

I.

A.

X is DynaVision Group, LLC (" DynaVision" )4 and its principal owners, Jimmy Ledford, Larry O'Dell, and Bryan Walker.5 Y is Brenda Smith, Robert Thomas, and Bryan Ownbey. Z is Shelby Peeples.

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In July 1998, Paul Walker, Bryan Walker's father, approached Smith, Thomas, and Ownbey, experienced managers in the carpet manufacturing industry in Dalton, Georgia, with the idea of forming a company to manufacture and sell carpets to hotels, motels, restaurants, and others engaged in the hospitality business. Soon thereafter, Smith, Thomas, Ownbey, and Paul Walker formed Signature Hospitality Carpets, LLC (" Signature" ), dividing the company's interests equally between DynaVision on one hand and Smith, Thomas, and Ownbey on the other.6

Under Signature's operating agreement, Smith, Thomas, and Ownbey managed the company, and DynaVision provided the capital.7 Signature sold carpet to hospitality customers— mainly through contacts that Smith, who was well respected in the industry, had previously established— and arranged for manufacturers in the Dalton area to fill the orders. DynaVision provided the funds that Signature needed to pay the manufacturers by establishing a $200,000 line of credit at a bank near Dalton, the First National Bank of Chatsworth (" FNBC" ).8

Signature initially operated out of rented office space; once the company established itself as a going concern, however, its owners decided to find their own manufacturing plant. Anticipating that they would be able to acquire a suitable site in the Dalton area, DynaVision, Smith, Thomas, and Ownbey entered into a new operating agreement (the " Operating Agreement" or " Agreement" ), on May 6, 1999. The Agreement referred to Smith, Thomas, Ownbey, and DynaVision as Signature's " Members," and Smith, Thomas, and Ownbey as the " Active Members." 9 It created a six-member Board of Directors, with three directors appointed by DynaVision and three by the Active Members. The Active Members appointed themselves; DynaVision appointed its accountant, Edward Staten, and left two of its seats vacant. The Operating Agreement required the Board to unanimously authorize all of Signature's actions. This meant that DynaVision, through Staten, could have blocked any action the Active Members wanted to take. The Board rarely met, however, face to face or otherwise, so the Active Members ran Signature's operations without objection.

Under the Agreement, Smith was the company's president and the person in charge of marketing, Thomas was the vice-president of sales, and Ownbey was the vice-president of manufacturing.10 A non-

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solicitation clause provided that if a Member sold his or her interest, that member could not for one year thereafter " call, solicit, or fulfill orders" from " customers or prospects" of Signature.11 In reality, the clause applied only to the Active Members, since they were the ones who possessed Signature's customer contacts.12

The Agreement also contained a buy-sell provision, which is at the center of the present controversy. This provision is contained in Article Nine of the Agreement, entitled " Transfer and Assignment of Member Interests." Section 9.5, " Mandatory Put and Call," reads as follows:

At any time Dyna-Vision or the Active Members by majority vote within that group, may set a price per percentage Interest and give written notice of that price to the other group, (the " Notice of Offer to Sell or Purchase" ). The Members receiving the Notice of Offer to Sell or Purchase shall have thirty (30) calendar days to decide whether to sell all their Interest at that price or to purchase all the Interest of the group giving Notice of Offer to Sell or Purchase at the Price set forth in the Notice of Offer to Sell or Purchase. If the Members receiving the Notice of Offer to Sell or Purchase fail to make an election ..., the Members receiving the Notice of Offer to Sell or Purchase shall have to sell their Interest at the price set forth in the Notice of Offer to Sell or Purchase.

Following the execution of the Operating Agreement, the parties located a site for Signature's manufacturing plant and offices on Green Road in Chatsworth, Georgia, a short distance from Dalton. To purchase the site, which included a building that could be converted to accommodate Signature's requirements, the Active Members formed another limited liability company, Signature Leasing, LLC (" Leasing" ), with Ledford, O'Dell, and Bryan Walker.13 On October 19, 1999, Leasing purchased the property (" Green Road Property" ) with the proceeds of a $630,000 loan from Dalton Whitfield Bank. Bank employee Cynthia Trammel managed the

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paperwork for the loan.14 Once the building was equipped to manufacture carpets, Signature moved in.15

Signature then looked to FNBC for working capital. Over a period of several months following its occupancy of the Green Road Property, Signature received several unsecured loans from the bank.16 In...

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