Porter v. Shearson Lehman Bros. Inc.

• Citation: 802 F. Supp. 41
• Decision Date: 03 August 1992
• Docket Number: Civ. A. No. H-90-3251.
• Parties: Zigmund C. PORTER, et al., Plaintiffs, v. SHEARSON LEHMAN BROTHERS INC., et al., Defendant.
• Court: U.S. District Court — Southern District of Texas

802 F. Supp. 41

Zigmund C. PORTER, et al., Plaintiffs, v. SHEARSON LEHMAN BROTHERS INC., et al., Defendant.

Civ. A. No. H-90-3251.

United States District Court, S.D. Texas, Houston Division.

August 3, 1992.

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Roger B. Greenberg, Houston, Tex., for plaintiffs.

Philip J. John, Houston, Tex., for defendant Shearson Lehman Bros., Inc.

Gerard G. Pecht, Houston, Tex., for defendants Energy Assets Intern. Corp., Hutton Completion Services Inc. and Energy Assets Capital Corp.

MEMORANDUM AND ORDER

WERLEIN, District Judge.

Pending is a Motion to Dismiss and, in the Alternative, for Summary Judgment or Partial Summary Judgment (Document No. 4) filed by Defendants Energy Assets International Corporation ("EAIC"), Energy Assets Capital Corporation ("EACC"), and Shearson Lehman Brothers, Inc. ("Shearson"). The motion was filed December 14, 1990. Plaintiffs Zigmund C. Porter, et al., filed their Memorandum in Opposition to Defendants' Motions to Dismiss and Motions for Summary Judgment (Document No. 9) on February 4, 1991.¹

On August 28, 1991, the Honorable John D. Rainey, United States District Judge, referred the motion to United States Magistrate Judge Frances H. Stacy for a Memorandum and Recommendation. From the start, matters outside the pleading had been presented to and were not excluded by the Court and both Plaintiffs and Defendants recognized the motion would be treated as one for summary judgment and disposed of as provided in Rule 56. Fed. R.Civ.P. Rule 12(b).² On March 18, 1992, the Memorandum and Recommendation of the Magistrate Judge was filed recommending that Defendants' Motion for Summary Judgment be granted. (Document No. 55). Subsequently, Defendants filed an Objection (Document No. 58) to the Magistrate Judge's Memorandum and Recommendation with respect to one sentence, in which the Memorandum stated in effect that, although the investment programs at issue have returned a portion of the original invested principal, they have failed to produce any real profits. Defendants contend the summary judgment evidence shows that the four programs at issue have now returned all of the original investment principal and additional profits. No citation is given to any such summary judgment evidence, and the objection is OVERRULED.

On April 1, 1992, Plaintiffs filed Objections to the Magistrate Judge's Memorandum and Recommendation (Document No. 61). Plaintiffs allege that the Memorandum and Recommendation of the Magistrate Judge is flawed by procedural errors, the assumption of facts not in evidence, and erroneous conclusions of law. After having reviewed the summary judgment record, the Court is of the opinion that the Memorandum and Recommendation of the Magistrate Judge fairly describes the summary judgment proof and correctly recommends the entry of summary judgment for Defendants. The memorandum of the Magistrate Judge is adopted by the Court, as supplemented by the additional reasons and analysis set forth herein.

First, decision in this matter hinges upon a proper understanding of Fed. R.Civ.P. Rule 56, and Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). While a party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, there is no "express or implied requirement in Rule 56 that the moving party support its motion with affidavits or other similar materials negating the opponent's claim." 477 U.S. at 323, 106 S.Ct. at 2553. Thus, even without supporting affidavits from the movant, summary judgment should be granted "so long as whatever is before the district court demonstrates that the standard for the entry of summary judgment, as set forth in Rule 56(c), is satisfied." Id.

Where the non-moving party will bear the burden of proof at trial on a dispositive issue, as in both Celotex and the case at bar, Rule 56(e) "requires the non-moving party to go beyond the pleadings and by her own affidavits, or by the `depositions, answers to interrogatories, and admissions on file' designate `specific facts showing that there is a genuine issue for trial.'" Id. at 324.

In this case Plaintiffs' primary allegations are that Defendants violated Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 of the Securities and Exchange Commission, 17 C.F.R. § 240.10b-5, promulgated thereunder, in the offering and sale to Plaintiffs of limited partnership units in oil and gas completion programs from 1982 through 1985.

In her Memorandum and Recommendation, the Magistrate Judge has correctly set forth the six elements which must be proved by Plaintiffs to establish such a claim.³ Moreover, as the Magistrate Judge correctly observes, every element of an offense under Section 10(b) must be met. The Fifth Circuit has emphasized: "We stress the importance of recognizing, of course, that every element of an offense under Section 10(b) must be met." Chemetron Corp. v. Business Funds, Inc., 718 F.2d 725, 728 (5th Cir.1983).

Defendants' motion is based in part upon Plaintiffs' failure "to demonstrate any misstatement or omission by any of the defendants which raises a legally viable claim," to plead anything "which would indicate the required scienter or intent to defraud on the part of the defendants," and the failure of plaintiffs "to prove the necessary elements of a claim for violation of Section 10(b) and Rule 10b-5." Defendants' Motion, at 2. Defendants specifically set forth in their supporting memorandum the six elements given above which Plaintiffs are required to prove. Defendants' Memorandum, at 22. Moreover, Defendants asserted in their supporting memorandum that

Plaintiffs in this case cannot meet the burden of proving a 10(b) offense because they cannot specify material misstatements or omissions indicating intent to deceive or defraud (scienter) in connection with the sale or purchase of any security upon which plaintiff reasonably relied to their detriment. Plaintiffs' 10(b) claims, therefore, are inadequate as a matter of law.

Defendants' Memorandum, at 23.

The Defendants having properly raised by their motion Plaintiffs' inability to show fact issues on essential elements upon which Plaintiffs carry the burden of proof, under Celotex it was essential that Plaintiffs "go beyond the pleadings" and "demonstrate facts showing that there is a genuine issue for trial." Celotex, 477 U.S. at 324, 106 S.Ct. at 2553. Fed.R.Civ.P. Rule 56. This Plaintiffs failed to do.

Plaintiffs' failure to demonstrate a genuine issue for trial is all the more remarkable because in a case such as the one pleaded here, the essential elements required to prove a Rule 10b-5 violation should largely be within the personal knowledge of claimants alleging that they are the victims of claimed misrepresentation. Nonetheless, there is no affidavit from even one of the "89 Plaintiffs"⁴ that sets forth any material facts that Defendants allegedly misrepresented, or that on oath states that Plaintiffs relied upon any such claimed misrepresentation, or that states that any claimed misrepresentation or omission was material, or which states that any asserted fraudulent device employed by Defendants resulted in a compensable injury to any one or more of the Plaintiffs. In fact, none of the Plaintiffs filed an affidavit at all.⁵ Moreover, no affidavit of any other person with personal knowledge of the facts was submitted by Plaintiffs to demonstrate a genuine issue for trial on the Section 10(b) and Rule 10b-5 claims. Because Plaintiffs' cause of action requires proof of the essential elements listed above, upon which Plaintiffs bear the burden of proof, their unsupported pleadings and the arguments of their counsel are insufficient to defeat Defendants' motion for summary judgment.

As noted above, Plaintiffs' counsel did file a Fed.R.Civ.P. Rule 56(f) affidavit in which he contended that additional facts could be obtained through discovery. This affidavit sought two specific depositions, one of Defendants' employee John Walker, from whom he expected to establish what net profits were obtained by Defendants from their alleged fraud, and the other of J.P. Bryan, another of Defendants' employees, from whom he hoped to establish the degree to which Bryan or his agents impeded inquiries from investors and how Defendants dealt with investor inquiries. Plaintiffs' attorney indicated further that various documents could be identified by taking discovery of Defendants and that the documents would provide additional information about Defendants' conduct.

Although Rule 56(f) is given liberal application in the Fifth Circuit and in this Court, "because the burden on a party resisting summary judgment is not a heavy one," the nonmovant must present specific facts explaining his inability to make a substantive response as required by Rule 56(e) and "conclusively justify his entitlement to the shelter of rule 56(f)." Securities and Exchange Comm'n v. Spence & Green Chemical Co., 612 F.2d 896, 901 (5th Cir. 1980) cert. denied, 449 U.S. 1082, 101 S.Ct. 866, 66 L.Ed.2d 806 (1981). The nonmovant is required to show "how postponement of a ruling on the motion will enable him, by discovery or other means, to rebut the movant's showing of the absence of a genuine issue of fact." Id. (quoting Willmar Poultry Co. v. Morton-Norwich Products, Inc., 520 F.2d 289, 297 (8th Cir.1975), cert. denied, 424 U.S. 915, 96 S.Ct. 1116, 47 L.Ed.2d 320 (1976)). See also Washington v. Allstate Ins. Co., 901 F.2d 1281, 1285 (5th Cir.1990); United States v. Little, 712 F.2d 133, 135 (5th Cir.1983). In this instance, there is no showing in the Rule 56(f) affidavit of specific facts explaining why a continuance was needed to gather from any of the Plaintiffs even the simplest of affidavits sufficient to raise fact issues on those matters presumably best known to Plainti...