Next Century Communications Corp. v. Ellis, 02-14743 Non-Argument Calendar.

• Decision Date: 14 January 2003
• Docket Number: No. 02-14743 Non-Argument Calendar.,02-14743 Non-Argument Calendar.
• Citation: 318 F.3d 1023
• Parties: NEXT CENTURY COMMUNICATIONS CORP., a Delaware Corporation, Plaintiff-Appellant, v. U. Bertram ELLIS, Jr., Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

318 F.3d 1023

NEXT CENTURY COMMUNICATIONS CORP., a Delaware Corporation, Plaintiff-Appellant, v. U. Bertram ELLIS, Jr., Defendant-Appellee.

No. 02-14743 Non-Argument Calendar.

United States Court of Appeals, Eleventh Circuit.

January 14, 2003.

COPYRIGHT MATERIAL OMITTED

Kevin S. King, Rickman P. Brown, Dietrick, Evans, Scholz & Williams, Atlanta, GA, for Plaintiff-Appellant.

Jessica Perry Corley, Todd R. David, Caroline B. Keller, Alston & Bird, LLP, Atlanta, GA, for Defendant-Appellee.

Appeal from the United States District Court for the Northern District of Georgia.

Before CARNES, MARCUS and WILSON, Circuit Judges.

PER CURIAM:

Plaintiff Next Century Communications Corp. ("Next Century") appeals the district court's judgment of dismissal in favor of defendant U. Bertram Ellis, Jr. ("Ellis") on its Georgia state law claims sounding in fraud and negligent misrepresentation. On appeal, Next Century contends that viewed in the light most favorable to it, its complaint states claims on which relief can be granted.

We review de novo the dismissal of a complaint pursuant to Fed.R.Civ.P. 12(b)(6). See Harris v. Ivax Corp., 182 F.3d 799, 802 (11th Cir.1999). The plaintiff's factual allegations are accepted as true. South Florida Water Mgm't Dist. v. Montalvo, 84 F.3d 402, 406 (11th Cir.1996). Dismissal is not appropriate unless it is plain that the plaintiff can prove no set of facts that would support the claims in the complaint. See id. However, conclusory allegations, unwarranted factual deductions or legal conclusions masquerading as facts will not prevent dismissal. See id.

Upon thorough review of the record and careful consideration of the parties' briefs, we find no reversible error and affirm.

This case arises from the precipitous decline in the value of the common stock of iXL Enterprises, Inc. and the resultant pecuniary loss to Next Century. iXL was a publicly traded corporation engaged in the business of providing strategic consulting, including Internet-based solutions, to corporate users of information technology. Net Response, LLC ("Net Response"), which was wholly owned by appellant, developed Internet sites and provided Internet-related services, such as website design and maintenance. On September 22, 1998, Net Response was merged into iXLDC, a wholly owned subsidiary of iXL. As a consequence of this merger, Next Century received 701,375 shares of Class B common stock in iXL.

On November 19, 1999, seven million shares of iXL stock were offered for sale to the public. In connection with this offering a "lock up" agreement was executed, pursuant to which numerous existing iXL shareholders, including Next Century, consented not to sell their shares during the ensuing 90 days, or until February 17, 2000. On February 13, 2000, as this deadline approached, Ellis, the chairman and CEO of iXL, sent to the shareholders who were parties to the lock up agreement a memorandum that may fairly be characterized as a plea that its recipients not sell their shares immediately upon the expiration of the 90 day period. In this correspondence Ellis expressed his concern that in the event of a massive selloff "our stock could plummet." In an effort to induce shareholders to retain their stake in iXL, he continued: "I think our share price will start to stabilize and then rise as our Company's strong performance continues." Ellis also indicated that he personally did not intend to sell any shares on or soon after February 17, 2000, and that he hoped the memorandum's recipients would follow suit. Despite these pleas, appellee clarified that "I am not telling you cannot sell any of your shares. [sic.] Instead, I am telling you that I personally think that you would be mistaken to sell any of your shares now.... If we all wait at least one more month, we could turn this downdraft around." Ellis also provided instructions for those who wished to sell despite his contrary pleas, and concluded by reiterating that "I can only ask for your individual cooperation. I cannot dictate what you can or cannot do." Next Century avers that Ellis repeated his representation regarding iXL's "strong performance" during a subsequent telephone conversation with Jon Rubin, one of appellant's officers and directors.

Next Century says that based on these representations it decided not to sell its iXL shares on or around February 17, 2000, when those shares each were valued at $40. Instead, it waited to sell until November 7, 2000, when iXL merged with Scient Corporation, at which time the same shares were each valued at $.29, representing a loss of $39.71 per share, or a total loss of $27,851,601.25.

On March 23, 2001, based on this pattern of dealing, Next Century filed a lawsuit in the United States District Court for the Northern District of Georgia, in which it asserted claims sounding in fraud, negligent misrepresentation and breach of fiduciary duty. Appellant argued that despite Ellis's representation regarding iXL's "strong performance," appellee knew that the company actually had been plagued by an inability to complete projects, numerous resultant customer disputes and overstated accounts receivable, revenues, assets and earnings. Moreover, Next Century alleged that Ellis was aware that iXL's share price of $40 had been intentionally and artificially inflated.

However, on October 17, 2001 the district court dismissed each of appellant's claims pursuant to Fed.R.Civ.P. 12(b)(6). Subsequently, on November 14, 2001 Next Century filed an amended complaint in which it asserted only fraud and negligent misrepresentation claims. Ellis responded by again moving for dismissal under Rule 12(b)(6), and on July 30, 2002 the district court granted this second motion to dismiss. The court reasoned that appellant had failed to plead facts constituting justifiable reliance, which is an indispensable element of both fraud and negligent misrepresentation under Georgia law. It is from this latter order that Next Century presently appeals.

On appeal, Next Century contends that contrary to the district court's conclusions, its complaint does state claims for fraud and negligent misrepresentation. It argues specifically that under Georgia law expressions of opinion can be actionable if the speaker possesses "special knowledge" of their veracity, and that its reliance on Ellis's representations was reasonable because of the close personal relationship between appellant and Ellis, appellee's position within iXL and the confirmation of the substance of Ellis's February 13, 2001 memorandum by iXL press releases and SEC filings. Next Century also emphasizes that reasonableness of its reliance on appellee's statements is a factual question properly resolved by a jury.

Ellis argues in response that (1) appellant's complaint fails to satisfy the heightened pleading standard for fraud set forth in Fed.R.Civ.P. 9(b); (2) appellant has failed to state viable fraud and negligent misrepresentation claims under Georgia law because (a) Ellis merely expressed his opinion as to the likelihood of a future event — viz., that iXL would perform strongly in the future — as opposed to a past or present fact, and (b) as a matter of law appellant could not have justifiably relied on his statements; and (3) appellant failed to raise before the district court — and therefore has waived — its arguments that (a) Ellis's representations fall within a "special knowledge" exception to the nonactionability of statements of opinion, and (b) the reasonableness of Next Century's reliance on appellee's representations is established by the close personal relationship that Ellis enjoyed with Next Century personnel.

Under Georgia law, which applies in this diversity action, the tort of fraud consists of five elements: "(1) false representation by defendant; (2) scienter; (3) intent to induce the plaintiff to act or refrain from acting; (4) justifiable reliance by the plaintiff; and (5) damage to the plaintiff." Ades v. Werther, 256 Ga.App. 8, 567 S.E.2d 340, 343 (2002) (citation omitted). However, as the Georgia Court of Appeals has explained, "[i]t is axiomatic that a false representation made by a defendant, to be actionable, must relate to an existing fact or a past event. Fraud cannot consist of mere broken promises, unfilled predictions or erroneous conjecture as to future events." Fuller v. Perry, 223 Ga.App. 129, 476 S.E.2d 793, 796 (1996) (citations omitted).

In its brief, appellant points to — and, indeed, repeatedly draws our attention to — only one specific¹ statement made by Ellis that falls within this definition.² That is his representation in his February 13, 2000 memorandum that: "I think our share price will start to stabilize and then rise as our Company's strong performance continues." Notably, the first half of this sentence plainly is not actionable under a fraud theory, as it is framed as a mere opinion as to future events. See GCA Strategic Inv. Fund, Ltd. v. Joseph Charles & Assocs., Inc., 245 Ga.App. 460, 537 S.E.2d 677, 682 (2000) ("Misrepresentations are not actionable unless the complaining party was justified in relying thereon in the exercise of common prudence and diligence. Moreover, a party is not justified in relying on and assuming to be true representations consisting of mere expressions of opinion, hope, expectation, puffing, and the like; rather, representations of this nature must be inquired into and examined to ascertain the truth."). Accordingly, the only portion of Ellis's statement that could possibly constitute actionable fraud is his declaration regarding iXL's "strong performance."

However, we believe that the sounder interpretation of these words is that they constitute mere "puffing," and that as such appellant Next Century cannot demonstrate the satisfaction of either the first or fourth element of fraud under Georgia law.³ There are two primary bases for this conclusion. First, Ellis's characterization of iXL's...