In re Infocure Securities Litigation, Civil Action No. 1:00-CV-3123-TWT.
| Decision Date | 17 July 2002 |
| Docket Number | Civil Action No. 1:01-CV-840-TWT.,Civil Action No. 1:00-CV-0001-TWT.,Civil Action No. 1:00-CV-3440-TWT.,Civil Action No. 1:00-CV-3441-TWT.,Civil Action No. 1:00-CV-3123-TWT.,Civil Action No. 1:00-CV-3442-TWT.,Civil Action No. 1:00-CV-3247-TWT. |
| Parties | In re INFOCURE SECURITIES LITIGATION. Joseph V. Hafner, Plaintiff, v. Infocure Corporation, a Delaware General Corporation, et al., Defendants. Hans Habermeier, M.D., Plaintiff, v. Infocure Corporation, a Delaware General Corporation, et al., Defendants. Joseph Memminger, Plaintiff, v. Infocure Corporation, a Delaware General Corporation, et al., Defendants. Robert Runde, Plaintiff, v. Infocure Corporation, a Delaware General Corporation, et al., Defendants. Richard Weintraub, M.D., Plaintiff, v. Infocure Corporation, a Delaware General Corporation, et al., Defendants. Gary Weiner, et al., Plaintiffs, v. Infocure Corporation and Morris, Manning & Martin, LLP, Defendants. |
| Court | U.S. District Court — Northern District of Georgia |
C. Michael Evert, Jr., Evert & Weathersby, Atlanta, GA, David F. Conn, phv, Frank & Rosen, Philadelphia, PA, Alan L. Frank, phv, Frank & Rosen, Philadelphia, PA, for plaintiffs.
Michael R. Smith, David Lawrence Green, Andrea Ortbals Patton, King & Spalding, David N. Schaeffer, Woodrow W. Vaughn, Jr., Kidd & Vaughn, Henry Lane Young, II, Christine L. Mast, Emory L. Palmer, Hawkins & Parnell, Atlanta, GA, Pollack & Kaminsky by Martin I. Kaminsky and Edward T. McDermott, New York City, for defendants.
These are six related actions for breach of contract and securities fraud. They were consolidated for discovery but not for trial. The actions arise out of a series of transactions in 1999 in which the Defendant Infocure acquired companies owned by Plaintiffs in exchange for Infocure stock. The Plaintiffs suffered large losses when the Infocure stock price collapsed in early 2000. After settling with Infocure, Plaintiffs seek to recover damages from the law firm that represented Infocure in the acquisitions. The Plaintiffs move for partial summary judgment on their securities fraud claims. The Defendant Morris, Manning & Martin moves for summary judgment as to all claims. In my opinion, the securities fraud claims against Morris, Manning & Martin are barred by recent Supreme Court and Eleventh Circuit precedent restricting the liability of law firms participating in securities transactions, and the breach of contract claims fail due to the absence of an attorney client relationship. Therefore, I am granting the Defendant's motions and denying the Plaintiffs' motion. In the complicated securities transactions involved in these cases, culpability on the part of the client does not translate into liability on the part of the attorneys.
These actions arise out of four transactions whereby Infocure Corporation acquired the companies previously owned by the Plaintiffs. In the four transactions at issue, the owners of the acquired companies received stock in Infocure in exchange for relinquishing their ownership of the companies. Infocure, a publicly traded corporation headquartered in Atlanta, was a leading national provider of information technology and services targeted to healthcare providers. The transactions at issue made the Plaintiffs "purchasers" of Infocure stock, giving rise to obligations under the federal and state securities laws.
Plaintiff Joseph Hafner was the President and sole shareholder of Ardsley M.I.S., Inc., d/b/a Glentec Business Computers, Inc. ("Glentec"). Glentec was a Pennsylvania corporation in the business of developing, marketing and supporting a product known as "orthoware." This product is a PC-based practice management software package for orthodontic professionals. On July 3, 1999, a Letter of Intent was executed between Richard Perlman, Chairman of Infocure, and Hafner, by which Infocure agreed to purchase all of Hafner's interest in GlenTec for a number of unregistered shares of Infocure Common Stock. (Pla.'s Motion, Ex. G, Letter from Infocure Corp. to Hafner of 7/2/99.)1 Hafner and Infocure anticipated registration of the shares after the closing of the transaction. On August 18, 1999, during the closing of the GlenTec transaction in Atlanta, it was specifically negotiated between Hafner and Infocure that Hafner's Registration Rights Agreement ("RRA")would contain the following language:
The Company [Infocure] will file with the SEC a registration under the Securities Act on Form S-3 covering the Registrable Securities, on or before October 31, 1999, at its expense.
(Pla.'s Motion, Ex. R, Registration Rights Agreement § 2 at 2.) Until the shares were subject to an effective registration statement with the SEC, they were not tradeable on national securities markets. GlenTec and Plaintiff Hafner were represented in this transaction by the Philadelphia law firm of Frank & Rosen. Defendant Morris, Manning & Martin ("MM & M") represented Infocure during the course of the transaction. Richard Haury led the team from MM & M, accompanied by associates Bradley Pruitt and Duncan Spears.
A few days prior to the closing, Infocure declared a two-for-one stock split. In mid-August, 1999, Plaintiff Hafner received stock certificates totaling the post-split amount of 209,016 shares. Because the stock was unregistered, these certificates contained a legend restricting the marketability of the shares. On or about September 17, 1999, Duncan Spears of MM & M sent a "Notice of Intent to File Registration Statement" to Plaintiff Hafner in Pennsylvania. This First Notice, by its terms, offered Hafner the opportunity to register all 209,016 shares of his unregistered Infocure stock. Hafner consulted with Duncan Spears on several occasions as to the proper manner in which to complete the application in the First Notice. Spears advised and instructed Hafner as to the appropriate completion of the application, with which Hafner complied. Plaintiff Hafner timely completed and returned the First Notice to MM & M, care of Spears, requesting registration of all 209,016 shares of his Infocure stock. On this date, the share price closed at $21.56 on the NASDAQ market (reflecting the two-for-one split). Despite Plaintiff Haffner's request to register all of his stock, MM & M failed to register half of the total amount. Upon realizing that only 104,508 of his shares had been registered, Plaintiff Hafner immediately contacted Spears to inquire as to the registration of the remainder of the stock. Spears indicated he would investigate the matter.
Because of Plaintiff Hafner's need for liquidity, he sold 94,057 shares of his registered stock on the NASDAQ following the publication of Infocure's Third Quarter 1999 financials. The sale was accomplished in small blocks over a four day period from November 16 to 19, 1999, at between $17.00 and $20.00 per share. The October 31, 1999, deadline for the registration of Hafner's remaining stock came and went without full registration. Plaintiff Hafner alleges that MM & M filed another, unrelated registration statement in mid-October on behalf of Infocure, but which did not contain his shares. Both Infocure and the attorneys at MM & M responded to Hafner's inquiries by telling him that a registration statement would be filed shortly, and that it was delayed because of accounting difficulties at Infocure. MM & M sent Hafner a subsequent "Notice of Intent to File Registration Statement" on or about November 11, 1999. Plaintiff Hafner again promptly completed and returned the second notice to Spears, requesting the registration of his remaining unregistered shares. Despite this second request, it is undisputed that no S-3 or registration statement which included his shares was filed in November, 1999. No registration statement for Hafner's unregistered shares was filed until April, 2000. By then the price for Infocure stock had fallen to $6.00 per share. Plaintiff Hafner asserts no securities claims. His only claim is for breach of contract. Jurisdiction is based upon diversity of citizenship.
Plaintiffs Habermeier, Runde, and Weintraub were shareholders of Medfax Corporation, a South Carolina corporation in the business of providing computer hardware and software to healthcare providers in the field of radiology. As part of its acquisition strategy, Infocure also approached Medfax Corporation in the late Spring of 1999. On August 2, 1999, a Letter of Intent was executed between Perlman, of Infocure, and Runde for the Medfax Plaintiffs, by which Infocure agreed to purchase Medfax in exchange for unregistered Infocure stock. The Letter of Intent for the Medfax Plaintiffs called for registration of their stock by Infocure in three equal blocks, on September, 10, 1999; December 10, 1999; and February 10, 2000. (Pla.'s Motion, Ex. H, Letter from Infocure Corp. to Runde, Habermeier and Weintraub of 8/2/99.)
Consistent with this understanding, and in conjunction with the Medfax closing, Infocure and the Medfax Plaintiffs entered into a Registration Rights Agreement stating that:
The Company will file, at its expense, with the SEC a registration statement (which may be on Form S-3 if the Company is eligible to use such forms) covering one-third (1/3) of the Registrable Securities on September 7, 1999 (the "First Registration"). The Company shall use its best efforts to cause the First Registration to be effective by the SEC at the earliest date possible following September 7, 1999. The Company will file, at its expense with the SEC under the Securities Act, a second registration statement (which may be on Form S-3 if the Company is eligible to use such form) covering one-third (1/3) of the Registrable Securities on December 10, 1999 (the "Second Registration"). The Company shall use...
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