Lewis v. Fresne

Decision Date14 May 2001
Docket NumberNo. 99-20389,99-20389
Citation252 F.3d 352
Parties(5th Cir. 2001) MICHAEL P. LEWIS, Plaintiff-Appellant, v. DAVID M. FRESNE; ET AL Defendants, LOWELL FARKAS; ROBERT A. YOUNG; ROSENFELD, BERNSTEIN & TANNENHAUSER LLP; ERIC P. ROSENFELD Defendants-Appellees
CourtU.S. Court of Appeals — Fifth Circuit

Appeal from the United States District Court for the Southern District of Texas.

Before GARWOOD, HALL,1 and BARKSDALE, Circuit Judges.

CYNTHIA HOLCOMB HALL, Circuit Judge:

This case requires us to determine whether the Securities Act of 1933 ("the 1933 Act") applies to a 90-day "bridge" loan and whether a single phone call and the mailing of allegedly fraudulent information can be sufficient to establish personal jurisdiction over non-resident defendants. Plaintiff alleges violations of the 1933 Act and Texas state law. The district court granted defendants' motion to dismiss, holding that the plaintiff failed to state a claim under the 1933 Act and that the evidence was insufficient to establish personal jurisdiction over the defendants. We agree with the district court as to the reach of the 1933 Act, but we find that sufficient minimum contacts exist as to all but one of the appellees and reverse the district court's dismissal as to the state law claims.

I. Facts and Proceedings Below

Appellant Michael Lewis was a customer of the Bear Stearns brokerage house from April 1992 to April 1996. David Fresne was his stockbroker. In 1995, Fresne tried to convince Lewis to buy stock through a private placement in Mad Martha's Ice Cream, Inc. ("Mad Martha's"), a Delaware corporation with business locations in Massachusetts. Fresne sent Lewis a private placement memorandum on a Mad Martha's stock offering, but Lewis refused to buy.

Lewis did agree to Fresne's second suggestion: making a 90-day "bridge loan" to Mad Martha's pending the closing of a private placement of the company's stock. In June 1995, Lewis loaned $650,000 to Mad Martha's. In return, Lewis received a promissory note for $650,000 (the "Note"), which was never repaid, and a pledge of 615,675 shares of Mad Martha's stock, which became worthless when Mad Martha's filed for bankruptcy eight months later. The Note was supposedly secured by, among other things, a first lien on the assets of a Mad Martha's store in Nantucket, Massachusetts. It was to bear interest at a rate of 15 percent per annum, or $97,500, and that amount was not tied to the performance of Mad Martha's stock.

Lewis claims that the defendants misrepresented the facts surrounding the Nantucket store when he agreed to loan the $650,000. Apparently, the former president of Mad Martha's, Thomas Quinn, entered into the lease for Mad Martha's Nantucket store in his own name instead of Mad Martha's. Even after he was removed by the board of directors, Quinn continued to retain possession of the Nantucket store and operate it as if it were his own store and not Mad Martha's. Mad Martha's unsuccessfully filed suit in an effort to regain control of the Nantucket store. Lewis alleges that the defendants sent him letters and documents falsely stating that Mad Martha's was providing him with a first lien on the Nantucket store when they knew that Quinn was the store's true owner.

The efforts to sell Mad Martha's stock in a private placement failed. On February 27, 1996, Mad Martha's filed for bankruptcy. Lewis filed a complaint in Texas state court alleging breach of fiduciary duty (by Fresne), securities fraud under the Texas Securities Act, violations of the Securities Act of 1933, common law fraud, and civil conspiracy. The case was then removed to the United States district court for the Southern District of Texas. In an August 14, 1996 order, the district court denied Lewis's motion to remand the case to state court and dismissed several defendants from the case on the basis that personal jurisdiction was lacking. This appeal only concerns those defendants: Eric Rosenfeld; Lowell Farkas; Eric Young; and Rosenfeld, Bernstein & Tannenhauser, LLP.2

In an October 6, 1997 opinion, the district court reaffirmed that: 1) Lewis failed to state a claim under the 1933 Act; and 2) the evidence was insufficient to establish personal jurisdiction over the defendants in this appeal. The district court denied Lewis's request to file an amended complaint alleging violations of the Securities Act of 1934. Meanwhile, Lewis eventually settled with the defendants that had not been dismissed in the August 14 order, including Fresne. Following his settlement with Fresne (the last remaining non-dismissed defendant), Lewis submitted an agreed final judgment that was approved by the court on April 19, 1999. Lewis then filed a motion for a new trial as to the defendants dismissed in the August 14, 1996 order. He attached to this motion a statement from Fresne who claimed that he had been acting as an intermediary between Lewis and Rosenfeld. The district court denied the motion citing the prejudice to the defendants (who had been out of the case for three years) and the lack of probative value in Fresne's statement.

II. Standard of Review

This court reviews both the district court's denial of Lewis's motion to remand the case back to state court and its dismissal for want of personal jurisdiction de novo. See Frank v. Bear Stearns & Co., 128 F.3d 919, 921 (5th Cir. 1997) (motion to remand); Jobe v. ATR Mktg., Inc., 87 F.3d 751, 753 (5th Cir. 1996) (dismissal for want of personal jurisdiction). When a trial court rules on a motion to dismiss for lack of personal jurisdiction without holding an evidentiary hearing, as the trial court did in this case, it must resolve any factual conflicts in favor of the plaintiff. See Stripling v. Jordan Production Co., 234 F.3d 863, 869 (5th Cir. 2000).

The district court's denial of leave to amend the complaint is reviewed for abuse of discretion. See Patterson v. P.H.P. Healthcare Corp., 90 F.3d 927 (5th Cir. 1996).

III. Failure to State a Claim Under the 1933 Securities Act

The 1933 Act states: "No case arising under this title and brought in any State court of competent jurisdiction shall be removed to any court of the United States." 15 U.S.C. § 77v. The district court acknowledged this language, but explained that in limited circumstances the defendant may pierce the pleadings to show that claims otherwise not removable have been pled solely to prevent removal. In its August 14 order, the district court held that the Note was not a "security," and, therefore, Lewis did not have a valid claim under the 1933 Act. In its subsequent opinion, the district court explained that Lewis also failed to state a claim because Lewis only sued under § 12 of the 1933 Act and that portion of the 1933 Act does not apply to non-public transactions.

The burden is on the defendants to show that Lewis's federal Securities Act claim is baseless. This is a heavy burden. Defendants "must show that there is no possibility that plaintiff would be able to establish a cause of action." Lackey v. Atlantic Richfield Co., 990 F.2d 202, 207 (5th Cir. 1993). All questions of fact and any ambiguities in the current controlling substantive law must be resolved in the plaintiff's favor. See Burchett v. Cargill, Inc., 48 F.3d 173, 176 (5th Cir. 1995).

We decline to address the issue of whether the Note was a "security" under the 1933 Act because we agree with the district court that this was a private transaction. For his 1933 Act claims, Lewis alleged only violations of § 12(1), § 12(2), and derivative liability under § 15.3 (These correspond to 15 U.S.C. §§ 77l(1), 77l(2), and 77o in the U.S. Code.) Section 12(1) provides liability or recission for the offer or sale of a security without a registration statement. Section 12(2) imposes liability on any person who "offers or sells a security . . . by means of a prospectus or oral communication, which includes an untrue statement of a material fact or omits to state a material fact." Section 12 of the 1933 Act does not apply to private transactions. See Gustafson v. Alloyd Co., 513 U.S. 561, 584 (1995). In Gustafson, the Supreme Court analyzed the legislative history of the 1933 Act to determine that Congress meant for § 12 to apply only to public offerings.4

The evidence shows that this was a private transaction. Lewis only agreed to make the loan after receiving and rejecting a private placement memorandum. He entered the deal through his own private broker. The $650,000 was designed to keep Mad Martha's running until a private placement sale of stock could be completed. See Whirlpool Financial Corp. v. GN Holdings, Inc., 67 F.3d 605, 609 n.2 (7th Cir. 1995) (holding that § 12 did not apply to a transaction involving a private placement memorandum); Vannest & Sage, Rutty & Co., 960 F. Supp. 651, 654-55 (W.D.N.Y. 1997) (same).

Lewis contends that the district court ignored the "public" aspects of his transaction. He cites to a decision from the Southern District of New York that allowed a plaintiff to sue under § 12 even though his purchase of stock was made pursuant to a private placement memorandum. See Fisk v. Superannuities, Inc., 927 F. Supp. 718 (S.D.N.Y. 1996). The plaintiff in Fisk, however, alleged in his complaint that he had purchased 50,000 shares out of an offering of up to 4 million shares of common stock. Id. at 722. In contrast, Lewis's complaint contends that his 615,676 shares were represented to be 29% of the outstanding shares of stock. Thus, Lewis's purchase involved a major stake in Mad Martha's while the plaintiff in Fisk only bought himself a relatively small stake in the company. Two of the criteria for determining if a transaction is public are the size of the offering and the number of offerees. See Koehler v. Pulvers, 614 F. Supp. 829, 842 (S.D. Cal. 1985). Accordingly, Lewis fails to state a claim under the 1933 Act because the transaction at issue was a...

To continue reading

Request your trial
382 cases
  • TMJ Grp. LLC v. IMCMV Holdings Inc.
    • United States
    • U.S. District Court — Eastern District of Louisiana
    • 18 Abril 2018
    ...Schaden , 843 F.3d 876, 882 (10th Cir. 2016) ).38 Id. at 10–11.39 Id. at 11.40 Id.41 Id. at 11–16.42 Id. at 12 (citing Lewis v. Fresne , 252 F.3d 352, 357 (5th Cir. 2001) ).43 Id. at 12–16 (citing SEC v. Ralston Purina Co ., 346 U.S. 119, 125, 73 S.Ct. 981, 97 L.Ed. 1494 (1953) ; ABA Sec. o......
  • Mylonakis v. Georgios M.
    • United States
    • U.S. District Court — Southern District of Texas
    • 3 Diciembre 2012
    ...those that give rise to specific personal jurisdiction and those that give rise to general personal jurisdiction." Lewis v. Fresne, 252 F.3d 352, 358 (5th Cir. 2001). Defendants argue that this action should be dismissed pursuant to Rule 12(b)(2) for lack of personal jurisdiction because pl......
  • Z-Tel Communications v. Sbc Communications
    • United States
    • U.S. District Court — Eastern District of Texas
    • 6 Agosto 2004
    ...of fact and any ambiguities in the current controlling substantive law must be resolved in the plaintiff's favor." Lewis v. Fresne, 252 F.3d 352, 357 (5th Cir.2001). "Given the Federal Rules' simplified standard for pleading, [a] court may dismiss a complaint only if it is clear that no rel......
  • In re Sterling Foster & Co., Inc. Securities Lit.
    • United States
    • U.S. District Court — Eastern District of New York
    • 27 Junio 2002
    ...into court there." See International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945); Lewis v. Fresne, 252 F.3d 352, 358 (5th Cir.2001); Wien Air Alaska, Inc. v. Brandt, 195 F.3d 208, 211 (5th Cir.1999). Second, the exercise of personal jurisdiction over the......
  • Request a trial to view additional results

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