Elipas v. Jedynak
| Decision Date | 05 May 2011 |
| Docket Number | No. 07 C 3026,07 C 3026 |
| Parties | DR. JAMES ELIPAS, et al., Plaintiffs, v. JAMES K. JEDYNAK, B. GAIL HOWARD, SCOTT H. CUMMINGS, et al., Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
Before the court are: (1) the Elipas Plaintiffs' motion for partial summary judgment against defendant Betty Gail Howard; and (2) the Elipas Plaintiffs' and the King Plaintiffs' renewed motions for partial summary judgment against defendant Scott H. Cummings.1For the reasons explained below we grant the Elipas Plaintiffs' motion against Howard and grant in part, and deny in part, the plaintiffs' renewed motions for partial summary judgment against Cummings.
BACKGROUND
On March 26, 2010 we denied the plaintiffs' motions for summary judgment on their Illinois Securities Law claims against Cummings. Elipas v. Jedynak, No. 07 C 3026, 2010 WL 1286795, *7 (N.D. Ill. Mar. 26, 2010) (hereinafter, "Elipas I"). We will assume that the reader is familiar with that opinion, as well as our opinion granting in part the King Plaintiffs' motion for partial summary judgment against Cummings' co-defendant, Betty Gail Howard. See Elipas v. Jedynak, No. 07 C 3026, 2010 WL 1611024 (N.D. Ill. Apr. 20, 2010) (hereinafter, "Elipas II"). At a status hearing on April 14, 2010 we granted plaintiffs' oral request to "supplement" the summary judgment record, and we later gave the Elipas Plaintiffs leave to file a motion for summary judgment against Howard. These matters are now fully briefed. But before addressing the plaintiffs' motions, it will be helpful to briefly revisit our previous rulings.
Plaintiffs' complaints allege that Unified Worldwide Transport, LLC's ("UWT") offering materials were "riddled with false statements concerning the company's performance." Elipas I, 2010 WL 1286795, *5. But in their original summary judgment motions against Cummings plaintiffs did not seek to prove those false statements. Id. Instead, they relied on two alternative theories. First, plaintiffs sought to hold Cummings liable as a "controlling person" for the scheme perpetrated by Cummings' co-defendants, James Jedynak and Howard, whereby certain plaintiffs were induced to pay Jedynak's company (KKJ Holdings) for UWT interests based upon Howard's misrepresentation that KKJ Holdings would remit the proceeds to UWT. Id. at *3, *5; see also Elipas II, 2010 WL 1611024, *2-4. Those plaintiffs were misled to believe that they were investing directly in UWT when, in fact, Howard and Jedynak were reselling their own UWT interests and using the proceeds for personal expenses and unrelated investments. Elipas I, 2010 WL 1286795, *3; Elipas II, 2010 WL 1611024, *2. We rejected plaintiffs' theory, as applied to Cummings, on two grounds. First, the plaintiffs failed to establish that they had complied with Illinois Securities Law's notice provision, a necessary element of their rescission claims. Elipas I, 2010 WL 1286795, *4; see also 815 ILCS 5/13(B). Second, we concluded that the parties genuinely disputed whether Cummings "acted in concert" with Howard and Jedynak to make the fraudulent sales. Elipas I, 2010 WL 1286795, *5. Although Cummings generally supported and encouraged Jedynak's and Howard's fund-raising efforts, we concluded that the after-market sales were different. Id. at *5 ().
Plaintiffs also attempted to prove that Cummings violated the Illinois Securities Law by failing to disclose information concerning UWT's predecessor entities. Id. at *6. We concluded that those omissions were not "so obviously important to an investor that reasonable minds [could not] differ on the question of materiality." Id. (quoting TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 450 (1976)). We based our decision in large part on the plaintiffs' failure to cite relevant authority and to address the omissions in context. Id. ().
In Elipas II we partially granted the King Plaintiffs' unopposed motion for summary judgment against Howard, who has invoked her Fifth Amendment privilege against self-incrimination. That motion largely mirrored the theories that the plaintiffs relied on in their motion against Cummings, except that Howard played a direct role in the alleged fraud. We held that the five plaintiffs who paid KKJ Holdings for their UWT interests at Howard's direction were entitled to summary judgment on their Rule 10b-5 claims against her. Elipas II, 2010 WL 1611024, *6.2 Thesame evidence supported those plaintiffs' Illinois Securities Law claims, except that the plaintiffs failed to establish that they had provided the required notice to rescind the sales. Id. at *5.3The remaining plaintiffs paid UWT directly for their interests. Id. The King Plaintiffs also sought to show that Howard was liable for omitting information about UWT's predecessor entities. We denied plaintiffs' motion insofar as it was predicated on those omissions for the same reasons we rejected the same argument with respect to Cummings. Id. at *5.
DISCUSSION
"The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). In considering such a motion, the court construes the evidence and all inferences that reasonably can be drawn therefrom in the light most favorable to the nonmoving party. See Pitasi v. Gartner Group, Inc., 184 F.3d 709, 714 (7th Cir. 1999). "Summary judgment should be denied if the dispute is 'genuine': 'if theevidence is such that a reasonable jury could return a verdict for the nonmoving party.'" Talanda v. KFC Nat'l Mgmt. Co., 140 F.3d 1090, 1095 (7th Cir. 1998) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). The court will enter summary judgment against a party who does not "come forward with evidence that would reasonably permit the finder of fact to find in [its] favor on a material question." McGrath v. Gillis, 44 F.3d 567, 569 (7th Cir. 1995).
The "Elipas Plaintiffs" consist of eleven individuals, but evidently only five of those plaintiffs have obtained relief from the stay imposed by Howard's bankruptcy to pursue their claims in this court. 4 Nevertheless, a § 12(G) violation by Howard is relevant to Cummings' liability as a "controlling person" under the Illinois Securities Law. See 815 ILCS 5/12(G) (); id.at 5/13(A) (making "controlling persons," among others, liable for sales violating the Illinois Securities Law). Therefore, we will address each plaintiffs' claims below, even though fewer than all the plaintiffs are seeking (or are permitted to seek in this case) relief from Howard.
Securities and Exchange Commission Rule 10b-5 makes it unlawful: "(a) To employ any device, scheme, or artifice to defraud, (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security." 17 CFR § 240.10b-5. To prevail on their claim against Howard the plaintiffs "must prove (1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation." Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 552 U.S. 148, 157 (2008).
Before discussing plaintiffs' evidence in detail, we note that some plaintiffs rely on documents that they received from Jedynak (not Howard) to support their motion for summary judgment. Whether or not Howard kept Jedynak in the dark about the company's actual performance, as he claimed, 5 the undisputed evidence supports the conclusion that Howard was the primary source for the information he conveyed to investors about UWT. Howard was UWT's President and CEO, a member of its two-person executive committee, and by all accounts the individual closest to the company's day-today operations. UWT's "voice-over-internet-protocol" ("VoIP") business, described in various materials provided to investors, was her brainchild. (Cummings Dep. at 20-22.) Jedynak evidently played no role in the company's operations, and was retained solely to sell securities. (See, e.g., Cummings Dep. at 46-47.) Insofar as the materials he provided to investors were materially false, the evidence supports the conclusion that Howard was responsible for their falsity. Our conclusion is bolstered by the "'inference (permissible in a civil case) of guilt' from her refusal to participate in this litigation on Fifth Amendment grounds." Elipas II, 2010 WL 1611024, *2 (quoting SEC v. Lyttle, 538 F.3d 601, 604 (7th Cir.2008)).
Even if Howard was not primarily liable for the contents of the materials Jedynak distributed to...
To continue reading
Request your trial