Syverson v. Firepond, Inc.

• Decision Date: 09 September 2004
• Docket Number: No. 03-2415.,No. 03-2410.,03-2410.,03-2415.
• Citation: 383 F.3d 745
• Parties: Jay SYVERSON, Plaintiff—Appellant, v. FIREPOND, INC., a Delaware Corporation; Robertson Stephens, Inc., a Massachusetts Corporation, Defendants — Appellees. George Flora, Plaintiff — Appellant, v. FirePond, Inc., a Delaware Corporation; Robertson Stephens, Inc., a Massachusetts Corporation, Defendants — Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

383 F.3d 745

Jay SYVERSON, Plaintiff—Appellant, v. FIREPOND, INC., a Delaware Corporation; Robertson Stephens, Inc., a Massachusetts Corporation, Defendants — Appellees.

George Flora, Plaintiff — Appellant, v. FirePond, Inc., a Delaware Corporation; Robertson Stephens, Inc., a Massachusetts Corporation, Defendants — Appellees.

No. 03-2410.

No. 03-2415.

United States Court of Appeals, Eighth Circuit.

Submitted: March 11, 2004.

Filed: September 9, 2004.

Rehearing and Rehearing En Banc Denied October 21, 2004.

Appeal from the United States District Court for the District of Minnesota, David S. Doty, J Kenneth R. White, argued, Mankato, MN (Kevin O'C. Green of Mankato, MN, on the brief), for appellant.

Todd A. Noteboom, argued, Minneapolis, MN (Monica L. Davies, on the brief), for appellee FirePond.

Kerry L. Bundy, argued, Minneapolis, MN (Karen E. Wilson and Lianne Knych, on the brief), for appellee Robertson Stephens, Inc.

Before MURPHY, SMITH, and COLLOTON, Circuit Judges.

SMITH, Circuit Judge.

George Flora and Jay Syverson filed civil actions-seeking damages for fraud negligent misrepresentation, and breach of contract-against FirePond, Inc. ("FirePond") and Robertson Stephens, Inc. ("Robertson"). Flora and Syverson appeal¹ the district court's² order dismissing their claims pursuant to Federal Rule of Civil Procedure 12(c). We affirm.

I. Background

A. Flora

Based on the procedural stage of the dismissal, we presume the facts alleged in the complaint to be true. In 1997, Flora orally agreed to supply personnel-placement services to FirePond³ in exchange for stock options on FirePond securities. Flora agreed to accept stock options on 150,000 shares of FirePond stock in return for his first year of placement services. Per the agreement, Flora's options were to vest immediately and no limitations were placed on his right to exercise the options.

After performing approximately sixty percent of the placements, in May 1998, FirePond asked Flora to sign a document memorializing the stock-option agreement. Although he disagreed with some of its terms, Flora signed the document. In October of 1998, Flora signed a second stock-option agreement form that contained essentially the same terms as the first agreement. At this point Flora held options on 150,000 shares-with a value of $2.63 per share-of FirePond stock.

In November 1999, FirePond officials informed Flora that FirePond was to become a publically-traded company. Flora was also informed that-as a condition of going forward with the initial public offering ("IPO")-the underwriter required all existing shareholders and option holders to execute a "lock-up"⁴ agreement. Robertson was the primary underwriter for the IPO. On November 11, 1999, Flora executed a lock-up agreement that prevented him from exercising his options for a period of 180 days after February 4, 2000, the date of the IPO. Based on FirePond's representations, Flora and all other stockholders faced the same conditions.

After skyrocketing to $100 per share, the value of FirePond stock fluctuated dramatically. By the end of the lock-up period the price of FirePond stock had fallen to $17.75 per share-and the stock's value continued to fall. Flora did not exercise his options at the end of the lock-up period. Instead, he waited until more than one year after the lock-up agreement had expired. By this time the stock's value was less than $1 per share. Flora later learned, contrary to the representation of FirePond, that not all shareholders and option holders had executed lock-up agreements. He also learned that some shareholders sold stock or exercised options at more favorable prices than the stock's initial post lock-up value of $17.75 per share.

B. Syverson

Syverson was employed by FirePond and its predecessor Clear With Computers ("CWC"). Syverson received CWC and FirePond stock in exchange for his employment services before the IPO. Like Flora, Syverson was informed that-as a part of the IPO-all shareholders were required to execute lock-up agreements. When Syverson objected to the terms of the lock-up agreement, Christian Misvaer, a staff attorney at FirePond, told him that the agreement was mandatory and that "time was of the essence." Misvaer also stated that without executed lock-up agreements from every shareholder and option holder, the IPO might not go forward. Misvaer also told Syverson that if he did not sign the lock-up agreement he might have difficulty exchanging his CWC shares for FirePond shares.

Additionally, Syverson received a letter from FirePond's general counsel, Thomas Carretta, announcing FirePond's plan to go public. Included with the letter was a copy of the lock-up agreement and a return envelope and airbill. The letter reiterated Robertson's requirement that all shareholders execute the lock-up agreement before the IPO would go forward. Syverson claims that he conditioned his execution of the agreement on Misvaer's assurance that Syverson would be informed if the lock-up agreements were not required of every shareholder or if they could be modified. Syverson contends that Misvaer agreed to that condition.

Like Flora, Syverson watched the value of his shares rise and then fall dramatically during the 180 day lock-up period. Like Flora's, the value of Syverson's shares had dropped to $17.75 per share by the end of the lock-up period and-because Syverson did not sell at the close of the lock-up period-his shares continued to drop in value to less than $2.00 per share. Also, like Flora, Syverson learned that-despite Misvaer's and Carretta's assurances to the contrary-not all shareholders and option holders had executed lock-up agreements prior to the IPO.

Syverson now asserts that some investors were allowed to sell their FirePond interests immediately after the IPO, when the price was at its highest, while others were subjected to shorter lock-up periods. He brought substantially the same claims against FirePond and Robertson as did Flora.

C. Procedural Summary

Flora filed suit in federal court. His complaint alleged negligent misrepresentation, common-law fraud, breach of contract, violation of the Minnesota Securities Act, the Minnesota Consumer Fraud Act and §§ 10(b) and 17 of the Securities Exchange Act against FirePond. With the exception of breach of contract, Flora alleged the same claims against Robertson. He also claimed that Robertson had violated § 20 of the Securities Exchange Act and tortiously interfered with his contract with FirePond. Essentially, Syverson's complaint against FirePond and Robertson mirrored Flora's.

FirePond filed a motion for judgment on the pleadings on January 2, 2002. Robertson did not join in that motion. On March 15 and March 27, 2002, Flora brought motions to amend the complaint. The district court granted FirePond's motion in part, dismissing Flora's claims of breach of contract, violation of § 10(b), and violation of § 17. The court denied FirePond's motion as to Flora's other claims, pending amendment of the complaint and further briefing by the parties. The court granted Flora's first motion to amend and denied the second motion to amend.

FirePond renewed its Rule 12(c) motion for judgment on the pleadings as to the remainder of Flora's claims and brought the same motion as to Syverson's claims. Robertson moved for dismissal of all claims, pursuant to Fed.R.Civ.P. 12(b)(6). The district court ruled that: (1) there was no negligent misrepresentation; (2) there was no common law fraud; (3) the Minnesota Securities Act was inapplicable; (4) the Minnesota Consumer Fraud Act was not violated; and (5) the statute of limitations barred the securities fraud claim under § 10(b). The court granted judgment for FirePond and Robertson under Rule 12(c). This timely appeal followed.

II. Discussion

"We review a motion for judgment on the pleadings de novo. We accept as true all facts pleaded by the non-moving party and grant all reasonable inferences from the pleadings in favor of the non-moving party." United States v. Any & All Radio Station Transmission Equip., 207 F.3d 458, 462 (8th Cir.2000). Judgment on the pleadings is appropriate where no material issue of fact remains to be resolved and the movant is entitled to judgment as a matter of law. Faibisch v. University of Minnesota, 304 F.3d 797, 803 (8th Cir.2002). We also review de novo the district court's application of state law. Lefler v. Gen. Cas. Co., 260 F.3d 942, 945 (8th Cir.2001).

A. Negligent Misrepresentation and Fraud

First, Syverson and Flora argue that the district court erred in its dismissal of their negligent misrepresentation claims. The court found that the claims failed as a matter of law. In order to establish a claim for negligent misrepresentation, they were required to allege (and ultimately prove): (1) a duty of reasonable care owed by the defendant in conveying information; (2) a breach of that duty by negligently supplying false information; (3) reasonable reliance on the alleged misrepresentations, which reliance is the proximate cause of plaintiff's injury; and (4) damages. Masepohl v. American Tobacco Co., 974 F.Supp. 1245, 1251 (D.Minn.1997). The district court found that the negligent misrepresentation claims failed because no duty of care existed, no duty of care was alleged, and that neither Flora nor Syverson could prove reasonable reliance. If the district court correctly found either absence of duty or absence of reliance its dismissal will be affirmed.

As noted by the district court, in order to prevail on a claim of negligent misrepresentation, a plaintiff must show that the defendant owed him a legal duty and breached that duty. M.H. v. Caritas Family Svcs., 488 N.W.2d 282, 287 (Minn.1992). In the case of negligent representation, the duty of care arises only when a person supplies information "for the guidance of others in the course of a transaction in which [he] has a pecuniary interest, or in the course of one's...