Data Controls North, Inc. v. Financial Corp. of America, Inc., 88-2866
| Decision Date | 03 May 1989 |
| Docket Number | No. 88-2866,88-2866 |
| Citation | 875 F.2d 314 |
| Parties | Unpublished Disposition NOTICE: Fourth Circuit I.O.P. 36.6 states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Fourth Circuit. DATA CONTROLS NORTH, INC., Descomp, Inc., Descomp Profit Sharing Plan, Thomas L. Ruger, Patricia A. Ruger, John D. Greenwell, Plaintiffs-Appellants, v. FINANCIAL CORPORATION OF AMERICA, INC., William J. Popejoy, Annelise Graebner Anderson, Robert M. Barton, Merrill Butler, Edward L. Johnson, Thomas P. Kemp, Charles S. Offer, Lawrence K. Roos, E. John Rosenwald, Jr., J. Ralph Stone, Charles E. Young, American Savings and Loan Association, Unknown Members of the Board of Directors of American Savings and Loan Association, John J. Borer, Jr., Donald E. Royer, Frank M. Rummonds, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Fourth Circuit |
Douglas Clark Hollmann (Richard I. Kovelant, Goldman, Kruger, Kovelant & Hollmann on brief) for appellants.
Larry Lee Simms (Wesley G. Howell, Jr., Roger W. Pincus, Gibson, Dunn & Crutcher on brief) for appellees.
Before ERVIN, Chief Judge, and MURNAGHAN and WILKINSON, Circuit Judges.
A group of disgruntled investors, disappointed in losses sustained as a result of trading in stock and stock options of Financial Corporation of America (FCA), have brought an action in the United States District Court for the District of Maryland against FCA and various of its corporate officers, alleging numerous federal and state law claims. The district court granted summary judgment to the defendants on all counts and an immediate appeal followed.
The plaintiffs 1 purchased and sold the common stock of FCA and call options on FCA stock between August 17, 1984 and February 22, 1985. On March 7, 1986, the plaintiffs filed suit in an attempt to recover losses sustained by that trading.
Named as defendants were FCA and several of its officers and directors. 2 The plaintiffs alleged numerous counts, including claims based on Sec. 10(b) of the Securities Exchange Act of 1934 ("1934 Act"), 15 U.S.C. Sec. 78j(b) (1982), Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission, 17 C.F.R. Sec. 240.10b-5 (1987), Sec. 20(a) of the 1934 Act, 15 U.S.C. Sec. 78(a) (1982), Sec. 17(a) of the Securities Act of 1933, 15 U.S.C. Sec. 77g(a) (1982), the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. Secs. 1961 et seq., and various state law and common law counts.
The essence of plaintiffs' complaint lies in the charge that the defendants failed to disclose publicly sufficiently precise information on FCA's economic condition for the fourth quarter of 1984 through March 1985. Plaintiffs allege that the defendants engaged in fraudulent conduct which included knowingly withholding information about the company in a manner that caused them to suffer losses in connection with their stock holdings and options holdings. The plaintiffs also accuse the defendants of feeding to them (and to the public at large) information that did not serve as an accurate indication of FCA's financial condition, which in turn caused them to incur further losses.
The defendants moved for summary judgment on all counts. A few weeks before the summary judgment hearing, the plaintiffs learned of an FCA document which related to past activities of FCA. The document was a Proof of Loss Statement submitted by FCA to its insurers on June 27, 1986. The Statement detailed schemes undertaken prior to the plaintiffs' trading, by FCA's previous management, to accelerate income and postpone losses. After several alleged difficulties in securing the document, the plaintiffs obtained it the night before the hearing. The document was entered into evidence and was extensively discussed at the hearing, but was not mentioned in the district court's eventual opinion.
The district court (Hargrove, J.) granted summary judgment in favor of the defendants on all claims.
The district court based its grant of summary judgment on several grounds. As we find the evidence insufficient to sustain the plaintiffs' claims, we limit consideration to that one ground. We do not address the other issues raised below. 3
The defendants, in moving for summary judgment, have the burden of showing that no genuine issue of material fact exists and that they are entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Barwick v. Celotex Corp., 736 F.2d 946, 958 (4th Cir.1984). Once the defendants have met that burden, the plaintiffs must go forward and produce sufficient evidence to support their contentions. "A mere scintilla of evidence is not enough to support a fact issue; there must be evidence on which a jury might rely." Barwick, 736 F.2d at 958-59 (quoting Seago v. North Carolina Theaters, Inc., 42 F.R.D. 627, 640 (E.D.N.C.1966), aff'd, 388 F.2d 987 (4th Cir.1967), cert. denied, 390 U.S. 959 (1968)). The standard for granting summary judgment is akin to that of granting a directed verdict:
[T]here is no issue for trial unless there is sufficient evidence favoring the non-moving party for a jury to return a verdict for that party. If the evidence is merely colorable or is not significantly probative, summary judgment may be granted.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986) (citations deleted).
In granting summary judgment, the district court found, inter alia, that the plaintiffs could produce no evidentiary support for their stockholder claims against the defendants. The plaintiffs now allege that the district court misunderstood their cause of action and contend that the evidence was more than sufficient to sustain their claims.
After a careful review of the record, including the Proof of Loss Statement, we must agree with the district court that the plaintiffs have failed to sustain the evidentiary burden necessary to resist summary judgment. Aside from the plaintiffs' conclusory allegations there is no evidence of any affirmative misrepresentation or nondisclosure on the part of the plaintiffs.
Specifically, we concur with the district court's finding that the plaintiffs have offered no evidence whatsoever of scienter, proof of which is essential to maintenance of the plaintiffs' federal and state statutory claims and the claims grounded in common law fraud. In Chris Craft Industries, Inc. v. Piper Aircraft Corp., 480 F.2d 341, 364 (2d Cir.), cert. denied, 414 U.S. 910 (1973), the court stated that, to show scienter, the plaintiff must establish that the defendant either (1) knew the material facts that were misstated or omitted, or (2) failed or refused to ascertain said facts when they were available to him or could have been discovered by him with reasonable effort. Plaintiffs can show neither. There is no evidence of any affirmative misrepresentation or nondisclosure by the defendants, nor of any false statements or misleading statements with knowledge they were false. The plaintiffs' bald contentions of concealment are insufficient to establish a prima facie case that would withstand a motion for directed verdict. Anderson v. Liberty Lobby, 477 U.S. at 250-51.
To compensate for the evidentiary deficiency identified by the district court, the plaintiffs have attempted on appeal to portray the Proof of Loss Statement as an evidentiary panacea on almost all counts. We believe that the Statement, while perhaps relevant, falls short of the evidentiary threshold needed to render summary judgment inappropriate.
Plaintiffs allege the Proof of Loss Statement demonstrates that the previous head of FCA, Charles Knapp, had engaged in a variety of unscrupulous and financially unsound practices, never disclosed to the public, which had left FCA in dire straits. The plaintiffs contend that they based their investment decisions on the overly optimistic picture of FCA's financial condition painted by the statements of William Popejoy, one of the defendants, who replaced Knapp and assumed control of FCA in August of 1984, shortly after the plaintiffs commenced trading. Popejoy, plaintiffs insist, was aware of Knapp's activities and the resulting detriment to FCA, yet continued to issue positive pronouncements as to FCA's financial future.
Plaintiffs have failed, however, to offer any evidence to demonstrate (1) that Popejoy's statements were, indeed, false or misleading, (2) that Popejoy was aware of Knapp's past activities at the time plaintiffs were trading, or, perhaps most importantly, (3) that in any practical sense the few optimistic statements of Popejoy, even if construed as affirmatively misleading financial prognostication, could possibly outweigh the large amount of negative information publicly disseminated by FCA's management.
Popejoy's statements, while hopeful, cannot be construed out of context as misrepresenting the financial condition of FCA. The isolated statements...
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