Berckeley Inv. Group, Ltd. v. Colkitt

Decision Date25 July 2006
Docket NumberNo. 04-3844.,04-3844.
PartiesBERCKELEY INVESTMENT GROUP, LTD. v. Douglas COLKITT; Shoreline Pacific Institutional Finance, The Institutional Division of Finance West Group; National Medical Financial Services Corporation Douglas R. Colkitt, Appellant.
CourtU.S. Court of Appeals — Third Circuit

Peter Konolige, Andrew J. Kennedy (Argued), Marcy L. Colkitt & Associates, Indiana, PA, Attorneys for Appellant.

Joel Magolnick (Argued), Moscowitz, Moscowitz & Magolnick, Miami, FL, Attorney for Appellee Berckeley Investment Group, Ltd.

Morgan, Lewis & Bockius, San Francisco, CA, Attorney for Appellee Shoreline Pacific Institutional Finance.

Before McKEE, FISHER and ROTH,* Circuit Judges.

OPINION OF THE COURT

FISHER, Circuit Judge.

In May 1996, Appellant Douglas Colkitt, M.D., entered into an "Offshore Convertible Securities Purchase Agreement" (the "Agreement") with Appellee Berckeley Investment Group, Ltd., an offshore financing entity based in the Bahamas. The Agreement provided that Colkitt would receive $2,000,000 from Berckeley in exchange for 40 convertible debentures, which Berckeley could convert after a specified time period into unregistered shares of stock held by Colkitt. The number of shares to be converted was controlled by a formula based on the current market value of the shares less a 17% discount for Berckeley.

The relationship between the parties quickly deteriorated, as Colkitt accused Berckeley of "short selling" in order to deflate the market price of the stock and thereby obtain more shares upon conversion. When the time came for Colkitt to convert the unregistered shares to repay his debt to Berckeley, he balked and ended up converting only a small percentage of the shares that Berckeley requested. Thereafter, each party filed suit against the other. There is no dispute that Colkitt breached his end of the bargain. Colkitt, however, asserts that he was justified in not complying with the Agreement because Berckeley made material misrepresentations in the Agreement that violated federal securities laws and constituted common law fraud.

Following seven years of protracted litigation, including a previous appeal to this Court, Berckeley Inv. Group, Ltd. v. Colkitt, 259 F.3d 135, 137 (3d Cir.2001) ("Berckeley I"), the District Court found in favor of Berckeley on the parties' cross-motions for summary judgment. The District Court awarded damages to Berckeley in the amount of $2,611,075.52. Colkitt appeals that decision on a number of grounds, primarily relating to the District Court's analysis of federal securities laws. For the reasons set forth herein, we will affirm in part, reverse in part, and remand the case to the District Court for further proceedings.

I. BACKGROUND

Douglas Colkitt, M.D., is the Chairman of the Board and principal shareholder of National Medical Financial Services Corporation ("NMFS"), a corporation whose shares were traded on the NASDAQ stock exchange. Looking to obtain financing for an unrelated business venture, Colkitt sought out lenders who would be willing to lend him money in exchange for the right to convert his unregistered shares of NMFS stock. See, e.g., GFL Advantage Fund, Ltd. v. Colkitt, 272 F.3d 189, 194-95 (3d Cir.2001).

In the spring of 1996, Colkitt entered into negotiations with Berckeley Investment Group, Ltd., a Bahamian corporation headquartered in Nassau, Bahamas. On May 30, 1996, the negotiations culminated in the Agreement between the parties.1 Under the Agreement, Berckeley purchased 40 convertible debentures from Colkitt at $50,000 per debenture, for a total of $2,000,000.2 Each debenture represented an unsecured loan for a one-year term, which also obligated Colkitt to pay to Berckeley six percent interest on a quarterly basis. In lieu of receiving repayment in cash per these terms, however, Berckeley was entitled under the Agreement to convert its debentures into NMFS shares. The Agreement provided that, upon demand by Berckeley, Colkitt would issue unregistered shares of NMFS at a 17% discount off the then-prevailing market price of the stock.3 Berckeley was entitled to convert up to one-half of the principal amount into unregistered NMFS shares one hundred (100) days after the closing of the Agreement, and the remaining principal amount one hundred twenty (120) days after the closing date.

Several of the contractual provisions in the Agreement are key to an understanding of the dispute between the parties. The parties acknowledged that the Agreement was entered into pursuant to Regulation S of the Securities Act of 1933, 17 C.F.R. §§ 230.901-.04, and that it would be "governed by and interpreted according to the law of the State of New York." In paragraph 2.5 of the Agreement, Berckeley warranted that all subsequent offers or sales of the debentures or shares would be undertaken in accordance with the registration requirements of the 1933 Securities Act:

All subsequent offers and sales of the Debentures or the Shares will be made (a) outside the United States in compliance with Rule 903 or 904 of Regulation S, (b) pursuant to registration of the Debentures or the Shares, respectively, under the Securities Act, or (c) pursuant to an exemption from such registration. Buyer understands the conditions of the exemption from registration afforded by Section 4(1) of the Securities Act and acknowledges that there can be no assurance that it will be able to rely on such exemption. In any case, Buyer will not resell the Debentures or the Shares to U.S. Persons or within the United States until after the end of the forty (40) day period commencing on the date of completion of the Offering (the "Restricted Period").

Berckeley further represented that it was aware that Colkitt was relying upon the accuracy of its representations regarding federal and state securities laws, and that its "purchase of the Debenture or the Shares pursuant to this Agreement is not part of a plan or scheme to evade the registration provisions of the Securities Act." For his part, Colkitt represented that he would "take no action, including but not limited to the further sale of securities pursuant to Regulation S of [NMFS] that are held by [Colkitt], that will affect in any way the running of the Restricted Period or the ability of Buyer to freely resell the debentures or the Shares in accordance with applicable securities laws and this Agreement." In addition, Colkitt agreed to place 300,000 shares of NMFS stock in escrow to cover the $2,000,000 aggregate amount of the debentures. He further agreed that "[i]f the price has decreased so that the shares in escrow are insufficient for the conversion of all outstanding Debentures, [Colkitt] agrees to place in escrow additional shares representing that number of shares necessary for the conversion of all outstanding Debentures plus an additional 100,000 shares."

Berckeley upheld its end of the Agreement when it wired $2 million via Shoreline to Colkitt. Colkitt, however, did not. Following the expiration of the one hundred day period, Berckeley began making demands on Colkitt to convert the debentures into NMFS stock. Berckeley made five such demands on Colkitt during September 1996 to convert $300,000 worth of the debentures into 40,133 shares of stock.4 On each occasion, Colkitt failed to comply with the conversion demands. Following repeated requests for conversion, Colkitt finally converted 18,230 shares on November 5, 1996.5 Colkitt, however, refused to convert any additional shares, including $160,000 worth of the debentures demanded by Berckeley on November 6, 1996.6 Colkitt further refused to make required quarterly interest payments that were due on the debentures under the Agreement, and to repay the balance due on the Debentures at the end of the term.

II. PROCEDURAL HISTORY

Berckeley filed suit in the District Court on August 13, 1997, alleging that Colkitt breached the Agreement by failing to convert the debentures.7 After the District Court made several procedural rulings,8 Colkitt filed a second amended counterclaim complaint containing five counts against Berckeley for violations of federal securities laws and the Pennsylvania Securities Act, common law fraud, and breach of contract. Following discovery, both parties filed cross-motions for summary judgment. In a decision dated December 7, 1999, the District Court granted Berckeley's motion and denied Colkitt's motion. The District Court recognized in the order that there were three remaining issues for its consideration: (1) the amount of damages to which Berckeley was entitled on its breach of contract claim against Colkitt; (2) Berckeley's breach of contract and breach of fiduciary claims against Shoreline; and (3) Shoreline's cross-claims against Colkitt for breach of contract and contractual indemnity. The District Court stated that it would defer the entry of a final judgment pending disposition of the remaining claims, and it requested the parties to file a statement "suggesting how the court shall proceed with the remaining claims/issues."

Berckeley and Shoreline suggested that Berckeley be permitted to file a motion for entry of final judgment against Colkitt, thus staying proceedings involving Shoreline for one year, because satisfaction of Berckeley's judgment against Colkitt would dispose of any remaining claims by or against Shoreline. In contrast, Colkitt stated his intention to seek leave for immediate appeal of the District Court's summary judgment decision pursuant to Fed. R.Civ.P. 54(b) and/or 28 U.S.C. § 1292(b). The District Court sided with Berckeley, which subsequently filed a motion for entry of final judgment against Colkitt. Berckeley and Shoreline then moved to stay Berckeley's claims against Shoreline and Shoreline's claims against Colkitt. On March 30, 2000, the District Court granted Berckeley's and Shoreline's motions and entered...

To continue reading

Request your trial
1077 cases
  • Bamont v. Pa. Soc'y for the Prevention of Cruelty to Animals
    • United States
    • U.S. District Court — Eastern District of Pennsylvania
    • February 16, 2016
    ...at 611–14, 119 S.Ct. 1692.66 Id. at 617–18, 119 S.Ct. 1692.67 Wilson, 526 U.S. at 614, 119 S.Ct. 1692.68 See Berckeley Inv. Grp., Ltd. v. Colkitt, 455 F.3d 195, 201 (3d Cir.2006) (“[S]ummary judgment is essentially put up or shut up time ....”) ; Allen, 488 F.Supp.2d at 465.69 The inquiry a......
  • Nat'l Ass'n for the Advancement of Colored People v. City of Phila.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
    • August 23, 2016
    ...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) (internal citation omitted).III. DiscussionOur analysis proceeds in five parts. We begin with a discussion of ......
  • Pichler v. Unite
    • United States
    • United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
    • September 9, 2008
    ...i.e., an ultimate disposition on a cognizable claim for relief; and (2) there is `no just reason for delay.'" Berckeley Inv. Group, Ltd. v. Colkitt, 455 F.3d 195, 202 (3d Cir.2006) (quoting Curtiss-Wright Corp. v. Gen. Elec. Co., 446 U.S. 1, 7-8, 100 S.Ct. 1460, 64 L.Ed.2d 1 In this case, b......
  • Van Doren v. Coe Press Equipment Corp.
    • United States
    • U.S. District Court — Eastern District of Pennsylvania
    • December 30, 2008
    ...to identify unresolved genuine issues of material fact. Fed.R.Civ.P. 56(e)(1); SEPTA, 479 F.3d at 238 (citing Berckeley Inv. Group, Ltd. v. Colkitt, 455 F.3d 195, 201 (3d Cir.2006)). However, a non-moving party's affidavit is enough to present a genuine issue of fact if it clearly asserts a......
  • Request a trial to view additional results
1 firm's commentaries
  • Expert Witness Cannot Opine on Legal Terms of Art
    • United States
    • LexBlog United States
    • April 19, 2022
    ...Id. Rather, “‘an expert witness is prohibited from rendering a legal opinion.’” Id. (quoting Berckeley Investment Group, Ltd. v. Colkitt, 455 F.3d 195, 217 (3d Cir. 2006)). Thus, “courts commonly exclude ‘legal terms of art’ from expert testimony.” Id. at *10 (citation omitted). In the Thir......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT