# Ledford v. Peeples

> Court of Appeals for the Eleventh Circuit · May 22, 2009 · 630 F.3d 1345

URL: https://www.frixlaw.com/law-library/cases/78359

## Case

- **Court:** Court of Appeals for the Eleventh Circuit
- **Decided:** May 22, 2009
- **Citations:** 630 F.3d 1345; 2011 WL 149890
- **Precedential status:** Published
- **Opinion:** Opinion
- **Judges:** Edmondson, Chief Judge, and Tjoflat and Gibson
- **Cited by:** 2 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/78359

## Opinion text

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
MAY 22, 2009
No. 06-10715
THOMAS K. KAHN
________________________ CLERK

D. C. Docket No. 04-00005-CV-HLM-4

JIMMY LEDFORD,
LARRY O'DELL,
BRYAN WALKER,
DYNAVISION GROUP LLC,
SIGNATURE LEASING, LLC,

Plaintiffs-Appellants
Cross-Appellees,

versus

SHELBY PEEPLES, JR.,
PFLC, LLC,
INTERNAL MANAGEMENT, INC.,

Defendants-Appellees
Cross-Appellants.

________________________

Appeals from the United States District Court
for the Northern District of Georgia
_________________________

(May 22, 2009)
Before EDMONDSON, Chief Judge, TJOFLAT and GIBSON,* Circuit Judges.

TJOFLAT, Circuit Judge:

In this case, two parties, X and Y, each owned a fifty percent interest in a

limited liability company that manufactured and sold carpets. X provided the

financing; Y ran the company and marketed its product. The parties had a buy-sell

agreement that enabled either party to buy out the other at any time by offering to

purchase the other’s interest in the company at a set price. After receiving an

offer, the offeree would have thirty days in which to accept the offer or elect to

purchase the offeror’s interest at the same set price.

Y offered to purchase X’s interest for $3.5 million. X demanded to know

whether Y would be borrowing the funds from Z, who earlier had expressed an

interest in purchasing the company. Y said that neither Z nor anyone else would

be providing the money. X asked Z if he was financing Y; Z said no.

X, unable to operate the factory and market its product without Y or

someone with Y’s expertise, had to sell and therefore accepted Y’s offer. Prior to

the date set for the closing, however, X told Y that it would not go forward with

the closing unless Y represented that no third party was providing the funds to pay

*
Honorable John R. Gibson, United States Circuit Judge for the Eighth Circuit, sitting by
designation.

2
X. Y responded that it had no obligation to disclose the source of its funds and

that X was bound by contract to transfer its interest to Y unconditionally. X tacitly

agreed by appearing at the closing and transferring its interest to Y.

X subsequently learned that Z had provided the purchase price and,

following the closing, had acquired the factory’s assets and hired Y to run the

business. After discovering Z’s involvement, X took Y to court. In a complaint

filed in state court, X alleged that Y breached a fiduciary duty to tell it that Z had

financed the purchase of its interest, and moreover, that Y’s failure to disclose Z’s

involvement fraudulently induced X to sell its interest to Y.1 X also brought suit

against Z in federal district court, the case now before us, claiming that Z violated

federal securities law, state securities law, and state common law by denying

involvement in the transaction and causing X to sell its interest to Y.

X lost both cases on summary judgment.2 Both courts concluded that Y’s

alleged misrepresentation about Z’s involvement in the buy-out did not cause X to

sell its interest. Rather, X sold because it was in X’s economic self-interest to do

so. X needed Y’s skills; had X purchased Y’s interest, it would have had no one

1
Invoking the same fiduciary duty and fraudulent inducement theories, X also claimed
that Y had wrongfully obtained the parcel of real estate on which the carpet factory was located.
2
X lost its state case with the exception of a claim against Y involving the real estate
referred to supra note 1. That claim is still pending in state court.

3
to run the carpet factory or to market its product. X therefore had no economically

viable option but to sell.

After the district court granted Z summary judgment, Z moved the court to

sanction X and its counsel under the Private Securities Litigation Reform Act

(“PSLRA”), Rule 11 of the Federal Rules of Civil Procedure, 28 U.S.C. § 1927,

and the court’s inherent power on the grounds that X neither produced, nor at any

time had available, any evidence to support its allegation that Z’s conduct caused

it to sell its interest rather than buy Y’s interest. The court denied Z’s motion.

X now appeals the district court’s decision rejecting its claims. Z cross-

appeals the court’s denial of sanctions under the PSLRA. On X’s appeal, we

dismiss part of X’s claims for lack of subject matter jurisdiction and affirm the

district court’s judgment as to the remainder. On Z’s cross appeal, we conclude

that Z is entitled to sanctions and therefore remand the case for their imposition.

This opinion is organized as follows. Part I identifies X, Y, and Z and sets

out the events that have given rise to this controversy.3 Part II canvasses the

litigation as it evolved in state court and spread to federal court; describes the state

3
In doing so, we are mindful that we are reviewing a summary judgment. Thus, the facts
we recite in portraying the relevant events are those established by the evidence, taken in the light
most favorable to the non-movant, X, and the inferences reasonably drawn therefrom. Harris v.
Coweta County,406 F.3d 1307, 1312 (11th Cir. 2005), rev’d on other grounds, Scott v. Harris,
127 S. Ct. 1769 (2007).

4
trial and appellate courts’ disposition of X’s claims against Y and the district

court’s disposition of X’s claims against Z; and, after that, delineates the issues

that X’s appeal to this court presents. Part III addresses sua sponte whether the

district court had jurisdiction to hear some of the federal securities law claims X

brought against Z and concludes that it did not. Part IV assesses the merits of X’s

appeal as to the remaining securities law claims. Part V examines X’s claim that Z

aided and abetted Y’s breaches of fiduciary duty towards X. Part VI explains why

the district court should have sanctioned X’s counsel, and part VII concludes.

I.

A.

X is DynaVision Group, LLC (“DynaVision”)4 and its principal owners,

Jimmy Ledford, Larry O’Dell, and Bryan Walker.5 Y is Brenda Smith, Robert

Thomas, and Bryan Owenby. Z is Shelby Peeples.

4
DynaVision and the other LLCs involved in this case were organized under the Georgia
Limited Liability Company Act, O.C.G.A. §§ 14-11-100, et seq.
5
Ledford, O’Dell, and Walker each owned 29% of DynaVision. Lamar Dixon and Dan
Bowen owned the remaining 13% but had no active participation in the events that gave rise to
the litigation at hand. Under Georgia law, ownership rights in a limited liability company are
referred to as interests, rather than shares, which indicate ownership rights in a corporation. See
O.C.G.A. § 14-11-101 (defining “[l]imited liability company interest” as “a member’s share of
the profits and losses of a limited liability company and a member's right to receive
distributions”); O.C.G.A. § 14-2-140 (defining “shares” as the “units into which the proprietary
interests in a corporation are divided”).

5
In July 1998, Paul Walker, Bryan Walker’s father, approached Smith,

Thomas, and Owenby, experienced managers in the carpet manufacturing industry

in Dalton, Georgia, with the idea of forming a company to manufacture and sell

carpets to hotels, motels, restaurants, and others engaged in the hospitality

business. Soon thereafter, Smith, Thomas, Owenby, and Paul Walker formed

Signature Hospitality Carpets, LLC (“Signature”), dividing the company’s

interests equally between DynaVision on one hand and Smith, Thomas, and

Owenby on the other.6

Under Signature’s operating agreement, Smith, Thomas, and Owenby

managed the company, and DynaVision provided the capital.7 Signature sold

carpet to hospitality customers—mainly through contacts that Smith, who was

well respected in the industry, had previously established—and arranged for

manufacturers in the Dalton area to fill the orders. DynaVision provided the funds

6
Smith, Thomas, and Owenby decided to share equal ownership of their one-half interest
in Signature; thus, each owned one sixth of Signature.
7
The Georgia Limited Liability Company Act defines an “Operating Agreement” as “any
agreement, written or oral, as to the conduct of the business and affairs of a limited liability
company that is binding upon all of the members.” O.C.G.A. § 14-11-101. Signature,
DynaVision, Smith, Thomas, and Owenby entered into the operating agreement under which
Smith, Thomas, and Owenby commenced running the company on July 9, 1998. This initial
agreement is not part of the record.

6
that Signature needed to pay the manufacturers by establishing a $200,000 line of

credit at a bank near Dalton, the First National Bank of Chatworth (“FNBC”).8

Signature initially operated out of rented office space; once the company

established itself as a going concern, however, its owners decided to find their

own manufacturing plant. Anticipating that they would be able to acquire a

suitable site in the Dalton area, DynaVision, Smith, Thomas, and Owenby entered

into a new operating agreement (“Operating Agreement” or “Agreement”), on

May 6, 1999. The Agreement referred to Smith, Thomas, Owenby, and

DynaVision as Signature’s “Members,” and Smith, Thomas, and Owenby as the

“Active Members.”9 It created a six-member Board of Directors, with three

directors appointed by DynaVision and three by the Active Members. The Active

Members appointed themselves; DynaVision appointed its accountant, Edward

Staten, and left two of its seats vacant. The Operating Agreement required the

Board to unanimously authorize all of Signature’s actions. This meant that

8
Ledford and O’Dell, who managed DynaVision’s affairs, arranged for the line of credit.
Paul Walker, who had formed DynaVision, played a limited role in its affairs. He looked after
his son Bryan’s interest in the company, and frequently spoke for Ledford and O’Dell as well as
Bryan.
9
The district court, in its order granting summary judgment, used the term “Active
Members” to refer to Smith, Thomas, and Owenby in the aggregate, and both sides have
continued the use of this term in briefing the case to this court. We adopt this use of this term for
the remainder of this opinion.

7
DynaVision, through Staten, could have blocked any action the Active Members

wanted to take. The Board rarely met, however, face to face or otherwise, so the

Active Members ran Signature’s operations without objection.

Under the Agreement, Smith was the company’s president and the person in

charge of marketing, Thomas was the vice-president of sales, and Owenby was the

vice-president of manufacturing.10 A non-solicitation clause provided that if a

Member sold his or her interest, that member could not for one year thereafter

“call, solicit, or fulfill orders” from “customers or prospects” of Signature.11 In

10
Smith, Thomas, and Owenby worked for Signature in these capacities as full-time
employees, terminable at will on the vote of four Board members. Since the Board had but four
members, there was no likelihood that the employment of an Active Member would be
terminated unless DynaVision completely filled the three Board positions it controlled.
11
The no-solicitation clause appears in Article Ten of the Agreement, “Employment of
Active Member; Restrictive Covenant; Non-Solicitation; No Publication of Confidential
Information,” as Section 10.4. It reads, in pertinent part, as follows:

No Solicitation of Company Employees or Customers. In the event a Member
sells his Interest in the Company, the Member . . . for a period of one (1) year after
the sale of the Interest, shall not . . . call, solicit or fulfill orders from customers or
prospects who have been contacted by the Company within twenty-four (24)
months prior to the sale of the Interest . . . for the purpose of inducing those
customers or prospects to cease doing business with the Company or to induce
those customers to do business with another in competition with the business of
the Company. . . .

On its face, section 10.4 appears to apply to DynaVision as well as the Active Members. In
reality, it applied only to the Active Members. DynaVision had no contact with Signature’s
customers and, if it sold its interest, lacked the nohow to compete with Signature. In this
opinion, we therefore treat section 10.4 as applying only to the Active Members.

8
reality, the clause applied only to the Active Members, since they were the ones

who possessed Signature’s customer contacts.12

The Agreement also contained a buy-sell provision, which is at the center of

the present controversy. This provision is contained in Article Nine of the

Agreement, entitled “Transfer and Assignment of Member Interests.” Section 9.5,

“Mandatory Put and Call,” reads as follows:

At any time Dyna-Vision or the Active Members by majority vote
within that group, may set a price per percentage Interest and give
written notice of that price to the other group, (the “Notice of Offer to
Sell or Purchase”). The Members receiving the Notice of Offer to Sell
or Purchase shall have thirty (30) calendar days to decide whether to
sell all their Interest at that price or to purchase all the Interest of the
group giving Notice of Offer to Sell or Purchase at the Price set forth
in the Notice of Offer to Sell or Purchase. If the Members receiving
the Notice of Offer to Sell or Purchase fail to make an election . . . ,
the Members receiving the Notice of Offer to Sell or Purchase shall
have to sell their Interest at the price set forth in the Notice of Offer to
Sell or Purchase.

Following the execution of the Operating Agreement, the parties located a

site for Signature’s manufacturing plant and offices on Green Road in Chatsworth,

Georgia, a short distance from Dalton. To purchase the site, which included a

building that could be converted to accommodate Signature’s requirements, the

12
DynaVision needed the non-solicitation clause to protect its investment. Without the
clause, the Active Members, especially Smith, who had most if not all of the customer contacts,
could leave the company and immediately compete with Signature, thereby substantially
depreciating the value of DynaVision’s interest in Signature.

9
Active Members formed another limited liability company, Signature Leasing,

LLC (“Leasing”), with Ledford, O’Dell, and Bryan Walker.13 On October 19,

1999, Leasing purchased the property (“Green Road Property”) with the proceeds

of a $630,000 loan from Dalton Whitfield Bank. Bank employee Cynthia

Trammel managed the paperwork for the loan.14 Once the building was equipped

to manufacture carpets, Signature moved in.15

Signature then looked to FNBC for working capital. Over a period of

several months following its occupancy of the Green Road Property, Signature

received several unsecured loans from the bank.16 In October 2001, Signature

asked FNBC for a loan that would pay off its FNBC loans and the balance due on

13
Smith, Thomas, and Owenby owned 50% of Leasing in equal shares; Ledford, O’Dell,
and Walker owned 50%, presumably in equal shares.
14
According to Trammel on deposition in the state court case, Smith, Thomas, Owenby,
Ledford, and O’Dell, whom the bank considered to be Leasing’s principal owners, signed the
note and thereby guaranteed Leasing’s loan. Bryan Walker owned the same interest in Leasing as
Ledford and O’Dell. Why he was not required to sign the note and guarantee the loan is not clear
from the record. There is an inference, however, that Paul Walker had a significant relationship
with the bank and that the bank, acceding to his wishes, was willing to make the loan without
Bryan Walker’s participation.
15
Leasing did not give Signature a formal lease for the property. According to Ledford
on deposition in the state court case, Signature paid Leasing each month for use of the property,
but he did not indicate the amount of the payments.
16
Although the notes Signature gave the bank were neither made part of the record nor
published via witness testimony, we infer that they were unsecured. We draw this inference
because the bank significantly lowered the interest rate it was charging Signature when it
refinanced Signature’s debt with a loan secured by a deed to secure debt on the Green Road
Property.

10
the Dalton Whitfield Bank loan, and provide Signature with additional working

capital. In total, Signature needed $911,000.

At Signature’s request, Trammel, who had moved from Dalton Whitfield

Bank to FNBC the year before, handled the transaction. Trammel informed

Signature that, subject to the approval of the FNBC’s board of directors, the bank

would make the loan on the following conditions: Signature would give the bank a

deed to secure debt on the Green Road Property and Signature’s carpet-

manufacturing machines; Smith, Thomas, Owenby, Ledford, and O’Dell (the

“Guarantors”) would sign the note and thus guarantee its payment.17 Signature

and the Guarantors agreed to these conditions, the bank’s board approved the loan,

and Trammel proceeded to prepare for the closing.

Trammel’s first task was to have FNBC’s counsel, Todd McCain,18 examine

the title to the Green Road Property. After examining the title, McCain sent

Trammel an opinion indicating that Leasing, not Signature, owned the Green Road

Property. Signature therefore could not give the bank a deed to secure the debt

with the property unless and until Leasing conveyed the property to Signature.

17
Trammel apparently agreed to leave Bryan Walker out of the transaction for the same
reason he was not required to sign the note for the $630,000 loan the Dalton Whitfield Bank
made to Leasing so it could purchase the Green Road Property. See supra note 14.
18
McCain was the principal attorney in the McCain Law Firm, located in Dalton.

11
Trammel overlooked the need for the conveyance, and the loan closed on

October 24, 2001 without Leasing having conveyed the property to Signature.

Therefore, as part of this transaction, Signature gave FNBC a deed to secure debt

for real property it did not own.19 A month or so later, Trammel happened to read

McCain’s opinion, noted that Leasing, not Signature, owned the Green Road

Property, and realized that Signature’s deed to secure debt was worthless.

Something had to be done, so Trammel called McCain.20 In mid-January 2002,

McCain sent Trammel the document needed to solve the problem, a warranty deed

conveying the Green Road Property from Leasing to Signature.

Trammel then contacted Smith, informing her that she and the other

Guarantors would have to return to the bank and sign a “document” that had been

neglected at the closing. The document was the warranty deed, although Trammel

did not explain the document’s significance to Smith at that time. Trammel asked

that Smith pass along this message to the others Guarantors, and Smith did.

19
The note and deed to secure debt were not made part of the record before the district
court and thus are not before us.
20
Trammel spoke to McCain’s secretary in his absence. Trammel’s testimony on
deposition in the state court case is muddled as to precisely what Trammel said to the secretary.
What is clear is that, in response to Trammel’s call, McCain’s office sent Trammel a warranty
deed, which would convey the property from Leasing to Signature, for Leasing’s execution.

12
Smith, Thomas, and Owenby promptly went to the bank and signed the

document before a notary public, Angela Garland, and in the presence of a

witness, Trammel. Smith read the document, which bore the heading “Warranty

Deed,” and recognized its significance—that Leasing was conveying the Green

Road Property to Signature to satisfy one of the conditions on which the bank had

made the loan.

Ledford and O’Dell did not appear to sign the document, so Trammel asked

Smith to remind them to do so. Smith thereupon called Ledford and asked him to

go to the bank and sign what she described as “a document that had been left out

of the closing.” She did not inform Ledford of the document’s legal significance.21

Smith also asked Ledford to contact O’Dell and remind him to sign the document.

Ledford did so, and, in early February, he and O’Dell separately went to the bank

and signed the warranty deed, also before Garland and Trammel. Trammel

forwarded the executed warranty deed to the McCain firm, which filed it with the

Clerk of the Murray County Superior Court on February 7, 2002.

21
Ledford, apparently curious about why he needed to sign a document at the bank,
called Trammel after his conversation with Smith. Trammel told him that there was some
“paperwork” that needed to be signed. She did not inform Ledford of the paperwork’s legal
significance, and Leford made no further inquiry on this point.

13
Ledford and O’Dell insist that they did not know that they were signing a

warranty deed; moreover, they claim that they had no understanding of the legal

significance of a warranty deed and would not have signed the instrument had they

known that it transferred the Green Road Property to Signature.22

B.

In December 2001, Shelby Peeples, a Dalton businessman with interests in

the carpet-manufacturing industry, contacted Paul Walker and Ledford and

expressed an interest in purchasing Signature. Paul Walker, Ledford, and Peeples

had been involved in several business ventures and were on friendly terms.23 The

three men met at least once during December to discuss the possible sale of

Signature.24 At some point, Walker informed the Active Members that Peeples

had shown an interest in purchasing Signature.

On January 9, 2002, Paul Walker, Ledford, O’Dell and the Active Members

met and agreed to offer Signature and the Green Road Property to Peeples for

22
Both men testified to this effect on deposition in the state court case and in the district
court proceeding now under review.
23
The Peeples and Walker families had strong personal ties. Bryan Walker, on
deposition in the state court case, testified that “the Peeples are like family to me, and Shelby’s
son is my best friend and has been forever.”
24
In these and subsequent meetings involving the disposition of Signature or the Green
Road Property, Paul Walker acted for his son Bryan. He also appeared to speak for O’Dell in his
absence. See supra note 8.

14
between $10-12 million.25 They designated Paul Walker to represent them in

negotiations with Peeples. Later that day, Paul Walker, Thomas, and Owenby met

with Peeples and some of his associates. Walker informed Peeples that the Green

Road Property was owned by a separate company but offered to sell both

Signature and the property for $12 million. Peeples rejected the offer. Walker

countered with an offer of $10 million. Peeples rejected that offer as well.

Peeples then asked Walker if he could meet separately with him and, after that,

with the Active Members. Walker said yes but that Peeples could meet with the

Active Members only once. Walker, having made that point clear, met with

Peeples to discuss the matter. Peeples offered him $2 million for DynaVision’s

interest. Walker apparently felt insulted, so Peeples increased the offer to $2.5

million. Walker rejected it out of hand, and the discussion ended.

As January wore on, Walker met with Peeples once or twice a week to

discuss some business ventures in which they were involved. During some of

their meetings, Walker asked Peeples whether he had been negotiating with the

Active Members. Peeples said no, but his denial was false. Peeples and the

Active Members had been meeting all along to discuss ways that Peeples could

25
The $10-12 million figure was based on the Active Members’, Walker’s, and O’Dell’s
off-hand evaluation of the worth of the company absent a formal appraisal. Ledford believed the
company was worth more and opposed selling the company.

15
acquire DynaVision’s interest in Signature without dealing directly with

DynaVision. Moreover, with the assistance of his lawyer, Peeples had

memorialized the substance of his discussions with the Active Members in a letter,

which he faxed to the Active Members on January 21.

The letter mapped out the steps that Peeples and the Active Members would

take. First, the Active Members would acquire DynaVision’s interest in Signature

using the Mandatory Put and Call provision of the Operating Agreement.

According to the letter, “on terms and conditions to be set forth in a definitive,

legally binding, written agreement, . . . a company owned or controlled by . . .

Peeples” would loan $3.5 million to the Active Members “for the purpose of

enabling the Active Members to complete the acquisition of the DynaVision

Interest.” This loan would be made after the Active Members acquired

DynaVision’s interest.26 Next, Peeples would purchase all of Signature’s assets

from the Active Members, forgive the $3.5 million loan, and pay the Active

Members $3 million.27 The Active Members would remain as managers of

Signature under five-year employment contracts, with annual salaries starting at

26
The loan would be secured by “a first priority security interest in . . . all of the issued
and outstanding interests in Signature [and] a security interest in and to all assets of Signature.”
27
The Active Members arrived at the $3 million price for their interest and the $3.5
million price for DynaVision’s interest based on their unappraised evaluation of Signature’s
worth.

16
$160,000 and increasing each year and possible bonuses based on Signature’s

performance.28

The letter contained sections entitled “Confidentiality” and “No Discussions

with Others.” The “Confidentiality” section provided, in pertinent part:

[N]one of the parties hereto will . . . (1) disclose or publicize in any
manner (except as may be required by applicable law) that
discussions relating to matters covered [in this letter] or the Loan or
the Acquisition are taking place between or among the Active
Members, the Peeples Group, Signature and/or Buyer, or (2) reveal
the terms or

proposed terms of either this Letter or the Loan . . . to any person or
entity other than [representatives of Peeples who would be
conducting a due diligence investigation into Signature after the
Active Members purchased DynaVision’s interest].

The “No Discussion” section stated, again in pertinent part:

[N]one of the Active Members . . . will, directly or indirectly (i)
negotiate or discuss with any other person or entity any transaction
involving any business combination involving Signature, or (ii)
solicit . . . negotiate . . . or accept any offer, bid or proposal from any
other person or entity respecting any transactions involving a sale of
assets of Signature (except for sales of property in the ordinary course
of business) or any other business combination involving Signature,
or (iii) disclose or reveal . . . [information related to Signature’s

28
The bonus, to be shared equally amongst the Active Members, would “equal . . . twenty
percent (20%) of the amount by which the net pre-tax profits of [Signature] exceeded One
Million Five Hundred Thousand Dollars ($1,500,000) on an annual basis.” In 2001, Signature
paid the Active Members around $130,000 per year. Under the Operating Agreement, they were
eligible for collective bonuses of 20% of all of Signature’s yearly profits, if between $500,000-
$1,000,000, and 25%, if between $1,000,000-$2,000,000.

17
financial condition or methods and plans of operations], other than in
the ordinary course of business, to any person or entity not a party to
this Letter in connection with the type of transactions described in
clauses (i) and (ii) above . . . In addition, the Active Members will
immediately cease and cause to be terminated any previously
undertaken or ongoing . . . negotiations with any other person or
entity with respect to any transaction of the type described in the
preceding clauses (i) and (ii) above.

The letter stated additionally that, “to the extent of any conflict in the

provisions of this Letter and the provisions of the Signature Operating Agreement,

the provisions of the Signature Operating Agreement shall prevail and the

conflicting provision(s) of this Letter shall be void and of no effect whatsoever.”

After the Active Members received the letter, they continued their

negotiations with Peeples, which, toward the end of January or early February, led

to a verbal understanding. As indicated in the January 21 letter, Peeples would

loan the Active Members $3.5 million to purchase DynaVision’s interests. If the

purchase materialized, the Active Members would cause Signature to sell its assets

to Peeples.

On February 8, Smith summoned Ledford and O’Dell to discuss tensions

between Ledford and O’Dell and the Active Members. Toward the end of this

meeting, Smith presented Ledford and O’Dell with the Mandatory Put and Call

pursuant to Section 9.5 of the Operating Agreement. The Put and Call informed

18
DynaVision that the Active Members would purchase its interest in Signature for

$3.5 million unless DynaVision opted to purchase the Active Members’ interests

for $3.5 million within thirty days. The Put and Call also stated that if DynaVision

elected to purchase the Active Members’ interests, it would release the Active

Members from their obligations under the Operating Agreement’s non-solicitation

clause. Ledford asked Smith whether Peeples or anyone else would be providing

the purchase price. Smith’s reply, according to Ledford, was that we “are doing

this on our own.”29

29
Ledford recalled his and O’Dell’s reaction to Smith’s presentation of the Put and Call
in testifying on deposition in the state court case:

HORST [Counsel for the Active Members]: So they [the Active Members] talked
to you about these Crescent Extrusions invoices, and then after that discussion,
they hand you the February 8th put-and-call letter?
LEDFORD: Well, it was – Larry [O’Dell] and I were sitting at the table, and
Brenda [Smith] said something to the effect, “we may as well do this now,” or
something. I don’t know. She was standing at that corner of her desk and she
handed the put-and-call to us. I don’t know if we had stopped discussing the
Crescent invoices. I don’t know if we had resolved any – I don’t know. I just
know that we discussed that and then we got the put-and-call.
HORST: What was your reaction when you got the put-and-call?
LEDFORD: I was shocked.
HORST: Why?
LEDFORD: I thought we had a good partnership.
HORST: What did you say to her when you got it?
LEDFORD: Well, after we read it, I asked if there was anybody else involved or a
third party funding it, and she said “No, this is us. We’re doing this on our own.”
I said, “Is there any chance that this could be undone?” And I think Larry
[O’Dell] made the comment that “This partnership is over with.” . . . .
HORST: What else did Mr. O’Dell say at that meeting other than “This
partnership is over with?”
LEDFORD: I don’t recall.

19
On February 22, DynaVision's lawyer, H. Greely Joiner, Jr.,30 wrote a letter

to the Active Members stating that because Section 9.5 of the Operating

Agreement precluded the imposition of conditions on a Put and Call, DynaVision

would not honor the Put and Call with the non-solicitation clause condition. The

Active Members tacitly agreed. On February 25, they presented DynaVision with

a new Put and Call at the same price, $3.5 million, but without the requirement

that DynaVision void the non-solicitation clause. Paul Walker and DynaVision

treated this Put and Call as valid.

DynaVision’s principals were not pleased. They wanted Signature to

continue on, under the Active Members’ management, because they believed that

in time the company would become increasingly profitable. Nonetheless, they

recognized that they had two options—buy or sell—and thirty days to decide.

They did not want to sell because, as the prices ($12 million and $10 million) Paul

Walker quoted to Peeples in January indicated, they believed their half-interest in

Signature was worth substantially more than $3.5 million. But they did not want

to buy either because they lacked the contacts in the hospitality industry necessary

HORST: Didn’t he say something to the effect that, “Oh, hell, Jim [Ledford], you
know who’s funding this and he’s going to screw us”?
LEDFORD: He could’ve said something about that. I’m sure we had a real good
idea who was funding it. . . .
30
Joiner is a sole practitioner and owner of H. Greely Joiner, LLC.

20
to enable them to market Signature’s products with any measure of success.

Without the Active Members—particularly Smith, with her extensive contacts in

the hospitality industry—DynaVision’s principals knew they could not operate

Signature at a profit.31

31
Ledford, O’Dell, and Paul Walker all made statements to this effect on deposition in
the state court case and, later, in the district court in this case. In his deposition in the state court
case, Ledford testified:

HORST: At any time did you say, “Hey, I'll kick in $1 million or $100,000 or
some other amount if we can get some other people to kick in some money to buy
out Bob [Thomas], Brenda [Smith] and Bryan [Owenby]”?
LEDFORD: We discussed -- we discussed that, but the first thing was marketing.
If we had marketing, we would have done -- if we could have secured people to
do the marketing, we would have been interested.
HORST: So you needed people who could run the business like Bob, Brenda and
Bryan had?
LEDFORD: We needed people that could run the business, yes, sir.
HORST: Because you within Dynavision didn't have the competency or the skill
set to run Signature Hospitality?
LEDFORD: I didn’t have the experience with the customer base, no sir.

In his deposition in the district court case, Ledford testified:

SINKFIELD [Counsel for Peeples]: . . . it was marketing help that was the key
factor in your decision to sell rather than buy. Is that a fair statement?
LEDFORD: Had we been able to retain Brenda, we would have purchased the
company.
SINKFIELD: Is it fair to say that marketing help was the key factor in your
decision to sell rather than buy?
LEDFORD: The lack of a marketing group forced us to sell the company.

In his deposition in the state court case, O’Dell testified:

HORST: Now, DynaVision had the money to pay three and a half million dollars
to the active members, didn't it?
O'DELL: I could have got the money
HORST: Why didn't you . . . .
O'DELL: Without an operating group, a managing group, that would be most

21
foolish on my part, in my decision or my opinion. . . . .
HORST: So you didn’t think that if Dynavision bought out Bob, Brenda, and
Bryan, you guys would have the ability to compete with them?
O’DELL: Not without qualified people in that field, no.
HORST: The Dynavision people were not qualified people in that field?
O’DELL: No, they weren't.

In his deposition in the district court case, O’Dell testified:

SINKFIELD: You are running out of time, correct?
O'DELL: Uh-huh.
SINKFIELD: Now, if you bought out the Active Members for 3.5 to give yourself
time to complete [a deal with a potential third-party buyer for $8 million], that's
what, about a million dollars differential . . . . that you could make just on turning
it over . . . did you ever consider doing that?
O'DELL: Well, that would have been a heck of a gamble to take. I mean, you
could have, obviously, looked at it that way and thought well, I'll maximize this in
another 30 days or 60 days but that would have been a gamble you were taking. I
could have been left with a company without any managers, without anyone that
knew anything about marketing. No, that was – that – I don't think that was an
option we could take. . . .
SINKFIELD: You thought about, but you did not want to take the risk of buying
the Active Members' interest on the potential that you could turn it and either
make a profit or find somebody who could run it in time to keep it from going
under. Is that a fair statement?
O'DELL: Correct.

In his deposition in the state court case, Walker testified:

HORST: Well, if you thought the company was worth more than the put-and-call
offer, were you interested in trying to find somebody to lend you the money or for
DynaVision to raise the money to buy out the company?
WALKER: We would have had to have found a marketing group to replace the
existing marketing group. So its more than just the money, its a matter of also
finding a group that can continue to grow the company.
HORST: You needed to find a marketing group because Dynavision did not have
anybody that was associated with it that had the skill set that Bob, Brenda, and
Bryan did; correct
WALKER: That is correct . . . .
HORST: So if you thought the offer that the active members made on February
8th of three and a half million dollars was too low, why didn't Dynavision buy the
active members out of Signature Hospitality?

22
Faced with this dilemma, DynaVision’s principals looked for an immediate

buyer who would be willing to pay $10 million for the company. If they could

find a buyer willing to pay as much as $8.5 million, they would opt to buy out the

Active Members for $3.5 million. The $5 million they would net was what they

thought their half of Signature was worth.

Ledford and O’Dell contacted three firms, Mohawk Carpets, Clay Miller

Carpets, and Matel Carpets, in their search for a buyer. They initially proposed a

$10 million price for Signature, eventually lowering the price to $8.5 million as

the thirty-day Put and Call period drew to a close. As part of his pitch to sell

Signature, Ledford told Jerry Thomas, Matel’s owner, that Thomas ought to buy

Signature to protect his company from Signature’s competition should Signature

WALKER: I don't think that a marketing group could be found in the short period
that they had to look for one.

In his deposition in the district court case, Walker testified:

SINKFIELD: So to your knowledge, one, you did not seek to borrow money, get a
core investor, or anyone to assist you in buying out the Active Members Group; is
that correct? You didn't personally do that?
WALKER: No.
SINKFIELD: Why not?
WALKER: There is no need to buy out the Active Members without a marketing
group. The ability to obtain a marketing group first was necessary, since none of
the Active -- none of the Dyna-Vision Group were a part of the everyday
management or marketing of Signature Hospitality.
SINKFIELD: Is there any other reason they you did not personally seek a financial
source to assist you in buying out the Active Members' interest?
WALKER: That would have been the only reason.

23
fall into Peeples’s hands.32 Ledford stressed “the dynamics of what might happen

should a . . . company like [Signature] fall into the hands of . . . the Peeples

family.”33 But Thomas was not persuaded, nor was anyone else.34 With time

running out, Ledford asked Smith if she would be willing to stay on and run the

company if he and the others bought the Active Members’ interests. Smith was

not interested.

Paul Walker and DynaVision’s principals discussed among themselves the

possibility that Peeples had financed the Active Members’ February 25 Put and

Call. Motivated by these suspicions, Walker confronted Peeples directly. Peeples

denied any involvement.35 At one point, Walker warned Peeples that if he was

involved, he would not be getting the Green Road Property, because Leasing

owned it, not Signature.

32
Ledford and O’Dell identified the persons they contacted and spoke to at these three
firms. The record does not disclose what was said during the conversations with Mohawk and
Clay Miller; all that the record reveals is what was said in conversation with Jerry Thomas at
Matel. We infer that in making their sales pitches to Mohawk and Clay Miller, Ledford and
O’Dell urged them to consider purchasing Signature in order to avoid competition from Peeples.
33
The quotation is taken from Ledford’s testimony on deposition in the state court case.
34
Thomas considered the possibility of buying Signature if the Active Members
remained with the company, so he met with them to explore that possibility. They were not
interested, so he abandoned the idea.
35
Paul Walker also had previously suspected that Peeples was behind the Active
Members’ February 8 Put and Call and confronted him. Peeples had denied any involvement.

24
C.

On March 27, the thirty-day election period provided by the Put and Call

expired. DynaVision had not exercised its option to purchase the Active

Members’ interests within the election period; consequently, it had to sell its

interest for the $3.5 million Put and Call price. On March 28, DynaVision and the

Active Members began to negotiate the finer terms of the sale.

A few days later, Joiner, presumably representing Ledford, O’Dell, and

Bryan Walker as one-half owners of Leasing, asked Smith if he could draw up a

lease for the Green Road Property between Leasing, as lessor, and Signature, as

lessee. Smith responded that Signature, not Leasing, owned the property. Joiner

checked the title and discovered the warranty deed from Leasing to Signature that

had been recorded on February 7. Paul Walker and Ledford then demanded that

the Active Members consent to a conveyance of the property back to Leasing. The

Active Members refused, explaining that it had been everyone’s intent to transfer

the property to Signature so that Signature could go forward with the FNBC loan

transaction; Signature had to have title to the property in order to give the bank a

valid deed to secure debt.

Meanwhile, at a meeting of DynaVision’s members, the members

unanimously adopted resolutions authorizing O’Dell and Ledford to “negotiate,

25
execute and convey the interests of Dyna-Vision in Signature . . . to Smith,

Thomas, and Owenby . . . .” The resolutions went on to allow O’Dell and Ledford

to set certain conditions on the conveyance including:

the repayment of all loans due any [DynaVision] member or any
affiliate of any member; the release of all [DynaVision] members
from any guarantees issued on behalf of Signature to any financial
institution or vendor; the repayment of any and all funds due Dyna-
Vision by Signature with respect to any distributions which had not
been authorized by the Board of Directors of Signature; and a long-
term Lease Agreement between Signature and Leasing, with a
minimum term of five (5) years at a rental rate of $11,000 per month
plus taxes, insurance, maintenance and repair.

The minutes of this meeting indicate that DynaVision’s members knew that the

transaction would close on April 30. They provided that because O’Dell,

DynaVision’s chairman, would be out of town that day, Ledford would act for

DynaVision in his place.36

After this meeting adjourned, Ledford and O’Dell met with Joiner and

spelled out several conditions the Active Members would have to meet before

closing. Joiner informed the Active Members of these conditions in an April 11

36
The minutes also reflect that Ledford, O’Dell, and Bryan Walker simultaneously held a
meeting of Leasing’s members to discuss the status of the Green Road Property. Smith, Thomas,
and Owenby, Leasing’s other members, who, collectively, owned 50% of Leasing, were not
present. Although Leasing’s Operating Agreement is not part of the record, we assume that the
terms of the agreement did not authorize Ledford, O’Dell, and Walker to call a meeting of
Leasing’s members without notifying Smith, Thomas, and Owenby.

26
letter to their attorney, Douglas Krevolin. One called for the Active Members and

DynaVision to execute an agreement Joiner had drafted and enclosed in his letter.

The agreement contained the following covenant, presumably designed to smoke

out the Active Members’ involvement with Peeples:

[e]ach Assignee [i.e., Active Member] does hereby represent and
warrant to the Assignor [i.e., DynaVision] that such Assignee has
acquired the Interest from the Assignor for investments solely for said
Assignee’s own account . . . without any intention of conveying . . .
any portion of such Assignee’s Interest, and without the financial
participation of any other Person in acquiring the Assignee’s Interest.

Another condition required the conveyance of the Green Road Property from

Signature to Leasing.

Krevolin responded to Joiner’s April 11 letter with a letter dated April 16.

He informed Joiner that the Active Members would not consent to either of the

two conditions. Responding to the threat implicit in Joiner’s letter—that

DynaVision would not close if the Active Members refused to represent that they

were acquiring DynaVision’s interest without the financial participation of a third

party—Krevolin said this: “If your client is not willing to proceed with the closing

in accordance with the terms of the Operating Agreement, the Active Members

may have no alternative but to seek a court order compelling it to close.”

27
Joiner informed Ledford of what Krevolin had written and the position that

the Active Members would take if DynaVision refused to close, and Ledford

instructed Joiner to proceed with the closing on April 30.

D.

In late April, prior to the closing, the Active Members signed two

promissory notes and a collateral agreement. In the collateral agreement, entitled

“Collateral Assignment of Membership Interest,” they pledged, “as record and

beneficial” owner of Signature, all of their ownership interest in Signature as

collateral for a loan of $3.5 million from PFLC, LLC and a loan of $855,000 from

Internal Management, Inc., both companies owned by Peeples. The proceeds of

these loans were to be used, respectively, to pay for DynaVision’s interest in

Signature and to pay the balance due, $855,000, on the loan FNBC had made to

Signature the previous October.

At some point between the April 30 closing and May 7, the Active Members

and Peeples signed an Asset Purchase Agreement pursuant to which the Active

Members, as owners of all of Signature, caused the transfer of Signature’s assets

to Peeples for $5.75 million.37 Of that amount, $2.25 million went directly to the

37
None of the exhibits in the record evidence the disposition the Active Members made,
if any, of their interests in Signature after they acquired DynaVision’s interest. The testimony
taken as a whole, however, creates the inference that at some point following the acquisition,

28
Active Members, and $3.5 million served to cancel the loan Peeples had made to

enable them to buy out DynaVision. The agreement also contained Peeples’s

promise to indemnify the Active Members for any expenses, including those

arising from litigation, they might incur as a result of the transfer of the Green

Road Property from Leasing to Signature.

Contemporaneous with the execution of the Asset Purchase Agreement,

PFLC, LLC entered into six-year employment contracts with the Active Members,

their compensation to consist of $118,000 signing bonuses, initial salaries of

$160,000 per year, annual salary increases of $10,000, and bonuses if Signature

made over $1.5 million in pre-tax profits in a calendar year.

II.

A.

On November 15, 2002, DynaVision, Ledford, O’Dell, Bryan Walker, and

Leasing filed suit for equitable and legal relief against the Active Members and

Signature in the Superior Court of Murray County, Georgia. The plaintiffs all

retained Joiner as counsel, along with H. Lamar Mixon and David G. H. Brackett,

two partners in Bondurant, Mixon and Elmore, LLP. Their complaint38 was

they transferred Signature’s assets to PFLC, LLC.
38
DynaVision amended its complaint on December 27, 2002. Our references to the
complaint are to the amended complaint.

29
framed in four counts and asserted six claims, all on behalf of the plaintiffs both

individually and collectively.39 Four claims were based on Leasing’s conveyance

of the Green Road Property to Signature; two involved the transfer of

DynaVision’s interest in Signature to the Active Members. We begin with the

claims regarding the Green Road Property.

The first claim40 was that Leasing, and Ledford, O’Dell, Smith, Thomas, and

Owenby as owners of interests in Leasing, mistakenly executed the warranty deed

conveying the Green Road Property to Signature and thus were entitled to a

rescission of that transaction. The second claim41 was that Smith induced Ledford

and O’Dell to execute the warranty deed by falsely representing that FNBC needed

a corrective document without warning that the document was in fact a warranty

deed. The third claim42 was that Smith and the Active Members breached their

fiduciary duties to Leasing, causing Leasing to lose the value of the Green Road

39
Although the complaint is not clear on this point, we assume that each plaintiff
asserted each of the claims we describe, such that the complaint contained 30 causes of action in
all.
40
We place plaintiffs’ claims in an order different from the order in which they appear in
several of the counts of the complaint. The first claim appears in Count One.
41
This claim appeared in Count Two. The complaint implied, if not alleged, that
Thomas and Owenby were vicariously responsible Smith’s conduct, as described in claims two
and five. For relief on this and the remaining claims described infra, plaintiffs sought
compensatory and punitive damages.
42
This claim appeared in Count Four.

30
Property, on two occasions—when Smith induced Ledford and O’Dell to sign the

warranty deed under false pretenses and when the Active Members refused to

cause Signature to return the property to Leasing. The fourth claim43 was that

Signature, Smith, Thomas, and Owenby were unjustly enriched by the acquisition

of the Green Road Property.

The fifth and sixth claims involved the transfer of DynaVision’s interest in

Signature.44 The fifth claim,45 a fraud claim, alleged that upon presenting the

conditional Put and Call on February 8, 2002, Smith falsely stated that the Active

Members were “doing this on our own,” intentionally inducing DynaVision to sell

its interest. The sixth claim46 alleged that by failing to disclose their discussions

and final arrangements with Peeples, the Active Members breached fiduciary

43
This claim appeared in Count Three.
44
We describe these claims in the text as the Murray County Superior Court and the
Georgia Court of Appeals, in Ledford v. Smith, 618 S.E.2d 627 (Ga. Ct. App. 2005), framed the
claims in their final dispositions.
45
This claim appeared in Count Two.
46
This claim appeared in Count Four.

31
duties imposed by the Operating Agreement,47 the Georgia Limited Liability

47
Plaintiffs’ theory that the Active Members had a fiduciary duty under the Operating
Agreement to disclose their final arrangement with Peeples, and that they breached that duty, is
based on Section 9.2 of Article Nine of the Operating Agreement, entitled “Right of First
Refusal,” and two of its parts, Sections 9.2.1 and 9.2.3. These two sections state:

9.2.1 Notice of Intended Disposition. No Member in the Company
may sell less than all their Interest, and in the event a Member
receives a bona fide offer from any person in an arms length
transaction to purchase all of the Interest which they own in the
Company and if the person receiving the offer of purchase desires
to sell all the Interest that is the subject of the offer, notice of the
desire to sell the Interest shall be given in writing to the other
Members and the terms of the offer, which notice shall include the
price offered, the name of the offeror, and the payment terms (the
“Notice of Intended Disposition”).

9.2.3 Option to Purchase – Sale by Active Member other than Dyna-Vision.
Dyna-Vision shall have the right to purchase all of the . . .
Interest[s] to be sold at the same price and under the same terms
and conditions as described in the [Active Members’] Notice of
Intended Disposition. The election to purchase by Dyna-Vision
shall be exercised by giving written notice to [the Active] Members
within . . . thirty (30) calendar days after receipt of [the Notice of
Intended Disposition].

The Active Members did not consider their discussions with Peeples and his offer to loan
them the funds to acquire DynaVision’s interest as a “bona fide offer” to purchase their interests
in Signature so as to require them to notify DynaVision pursuant to Section 9.2.1; hence, they did
not notify DynaVision of the discussions. Accordingly, to prevail on their sixth claim based on
Sections 9.2.1 and 9.2.3, plaintiffs would have to prove that, prior to March 27 (when
DynaVision became obligated to sell its interest), Peeples made the Active Members a bona fide
offer to purchase their interests at a set price and on set terms, that they “desire[d] to sell” their
interests to Peeples, that Section 9.2.1 therefore obligated them to notify DynaVision of the offer,
that their failure to notify DynaVision breached that obligation, and that but for the breach,
DynaVision would have exercised its right of first refusal and bought the Active Members’
interests at the price and on the terms indicated in Peeples’s offer. Under this scenario, the
Active Members’ February 25 Put and Call would become a nullity, replaced by the triggering of
Section 9.2.3 of the Operating Agreement. That is, DynaVision would have purchased the
Active Members’ interests pursuant to Section 9.2.3 instead of selling its interest pursuant to the
Section 9.5 Put and Call provision.

32
Company Act,48 and Georgia common law.

On August 13, 2003, after the parties had joined the issues,49 plaintiffs

moved the state court for leave to amend their complaint to add Peeples and his

two companies, PFLC, LLC and Internal Management, Inc., as co-defendants.50

Plaintiffs represented that they had not learned of Peeples’s involvement until the

day before, August 12, when they took Owenby’s deposition and Owenby testified

that Peeples had provided the funds to enable the Active Members to trigger the

Put and Call.51

48
The Act imposes a general duty of loyalty on the members and managers of a limited
liability company but does not explicitly create a duty to disclose particular facts. O.C.G.A. §
14-11-305 describes this duty as follows:

In managing the business or affairs of a limited liability company:
(1) A member or manager shall act in a manner he or she believes in good faith to
be in the best interests of the limited liability company and with the care an
ordinarily prudent person in a like position would exercise under similar
circumstances. A member or manager is not liable to the limited liability
company, its members, or its managers for any action taken in managing the
business or affairs of the limited liability company if he or she performs the duties
of his or her office in compliance with this Code section.
49
Defendants’ answers are not in the record. We infer from what is in the record, and in
the Georgia Court of Appeals opinion in Ledford v. Smith, that the Active Members denied the
allegations underpinning plaintiffs’ several causes of action.
50
Neither plaintiffs’ motion for leave to amend nor the proposed amended complaint are
in the record. The record does include, though, the superior court’s October 29, 2003 order
denying plaintiffs’ motion, and that order addresses the argument plaintiffs made in support of
the motion.
51
Defendants deposed Ledford on the same day, August 12.

33
The state court heard oral argument on the motion on September 25, 2003,

after discovery had closed.52 It denied the motion on October 29, 2003,

concluding that DynaVision “knew or should have known” at the time it filed its

complaint that Peeples was “involved.” In its order, the court noted that plaintiffs,

in their complaint, had alleged that a third party had been involved in negotiations

with the Active Members and DynaVision in early January 2002 over a possible

purchase of Signature, but that these negotiations were unsuccessful. Further, they

had alleged, “upon information and belief,” that a third party had financed the

Active Members’ acquisition of DynaVision’s interest in Signature and, after the

Active Members had DynaVison’s interest in hand, had purchased Signature’s

assets. In addition, Ledford had deposed that he knew that Peeples was involved

in the January negotiations. It should have been obvious to DynaVision that since

Peeples was involved in the January negotiations, he was the party that likely

financed the Active Members and purchased Signature. In addition, the court

reasoned, adding Peeples as a party at that late stage of the litigation, after

discovery had closed, would cause Peeples undue prejudice.

52
Discovery closed on September 7, 2003. The discovery included the taking of the
depositions of Peeples, the Active Members, DynaVision’s principals, and Paul Walker.

34
Plaintiffs moved the court to reconsider its ruling. The court denied their

motion on March 8, 2004. In its order, the court was highly critical of plaintiffs’

delay in attempting to join Peeples as a party defendant:

[As a result of Ledford’s deposition testimony] the Court [in its
October 29 order] concluded that the Plaintiffs knew of the
involvement of the Peeples Group, at the time the original Complaint
was filed . . . . The Plaintiffs then waited nine months, until August
13, 2003, before filing for leave to amend. The Plaintiffs had
carefully waited until after the deposition of Shelby Peeples [on June
27, 2003] and until after the close of discovery to have their motion
heard [on September 25, 2003]. In making the October 2003 ruling,
this Court determined that the Plaintiffs engaged in a deliberate
scheme to delay joinder without excuse or justification. Therefore,
the Court finds that the [Plaintiff’s] failure to offer evidence of excuse
or justification is an independent reason that the Plaintiffs’ Motion
[for Reconsideration] should be denied.

B.

1.

On January 7, 2004, while their motion for reconsideration was pending in

state court, plaintiffs, still represented by Joiner, Mixon, and Brackett, brought the

instant lawsuit against Peeples, PFLC, LLC, and Internal Management, Inc. in the

United States District Court for the Northern District of Georgia.53 The complaint

53
We are unable to discern from the allegations of plaintiffs’ complaint the nature of the
claims asserted, if any, against PFLC, LLC and Internal Management, Inc. We assume that they
were made parties defendant solely for purposes of declaratory or equitable relief involving the
title to the Green Road Property or the status of DynaVision’s former interest in Signature.
Because such relief has not been forthcoming, and because plaintiffs do not contend on appeal
that the district court erred in denying relief against those two defendants, we omit further

35
was framed in 116 paragraphs and seven counts. Each count incorporated by

reference each preceding count, such that Count Seven amalgamated and asserted

all of the claims of the preceding counts.

Plaintiffs’ complaint is a “shotgun” pleading in that it lumps multiple claims

together in one count and, moreover, appears to support a specific, discrete claim

with allegations that are immaterial to that claim. See, e.g., Byrne v. Nezhat, 261

F.3d 1075, 1128-32 (11th Cir. 2001). When faced with a complaint like the one

here, in which the counts incorporate by reference all previous allegations and

counts, the district court must cull through the allegations, identify the claims, and,

as to each claim identified, select the allegations that appear to be germane to the

claim. This task can be avoided if the defendant moves the court for a more

definite statement or if the court, acting on its own initiative, orders a repleader.

In this case, Peeples did not move the court for a more definite statement,

nor did the court require one on its own initiative. Consequently, it is left to this

panel to identify in the first instance what plaintiffs were claiming. We do so by

proceeding allegation by allegation and count by count, weeding out and

disregarding as extraneous the allegations that have no bearing on a claim.

reference to them.

36
We begin this process with Count One, which alleged three violations of the

federal securities laws.54 First, after the Put and Call offers of both February 8

and February 25, Peeples denied any involvement in the Active Members’ plan to

acquire DynaVision’s interest, thereby violating section 10(b) of the Securities

Exchange Act of 1934 (the “1934 Act”) and Rule 10b-5(b) promulgated

54
Count One incorporated by reference the first eighty-one paragraphs of the complaint.
Those paragraphs alleged, in substance and not in the order we indicate, that (1) on February 8,
2002, Smith falsely told Ledford and O’Dell that the Active Members, in issuing the Put and
Call, were “doing this on our own” and that no third party was involved; (2) on several occasions
between February 8 and March 27, 2002, Peeples falsely told Paul Walker and/or Ledford that he
was not involved in the Active Members’ issuance of the Put and Call; (3) the statements made
in (1) and (2) above were made with the intent to induce detrimental reliance; (4) plaintiffs did in
fact rely on these statements to their economic detriment; (5) Peeples and the Active Members
conspired to defraud DynaVision of its interest in Signature by making these statements and by
failing to disclose the terms of the January 21 letter and the Asset Purchase Agreement; (6)
Peeples is liable for the Active Members fraudulent conduct because he controlled such conduct
within the meaning of 15 U.S.C. § 78t under the terms of the January 21, 2002 letter and the
Asset Purchase Agreement; (7) Peeples is liable for the Active Members’ fraudulent conduct
under the doctrine of respondeat superior; (8) the Active Members breached their obligations to
DynaVision under Sections 9.1 and 9.2.1 of the Operating Agreement by not informing plaintiffs
that Peeples was funding the February 8 Put and Call and that he had offered to purchase
Signature’s assets from the Active Members; (9) Peeples is liable for this breach as the Active
Members’ co-conspirator and/or aider and abettor; (10) the Active Members breached their
fiduciary duty to plaintiffs by not revealing that Peeples was providing the funds for their
acquisition of DynaVision’s interest in Signature and had agreed to purchase Signature’s assets
following their acquisition; (11) Peeples is liable for this breach under the doctrine of respondeat
superior, as a co-conspirator, and as an aider and abettor; (12) the Active Members, acting under
Peeples’s control and direction or in conspiracy with him, fraudulently induced Ledford and
O’Dell to execute the warranty deed by which Leasing conveyed the Green Road Property to
Signature; (13) the Active Members, acting under Peeples’s control and direction or in
conspiracy with him, breached their fiduciary duty to plaintiffs by not informing Ledford and
O’Dell that the instrument they signed at FNBC was a warranty deed and of the legal
consequences that would adhere to their signing it.

37
thereunder.55 Second, Peeples “directly or indirectly control[led] the activities of

the Active Members” using the “Confidentiality” and “No Discussions with

Others” provisions of the January 21 letter, the “secret discussions” of January and

February 2002, and the Asset Purchase Agreement. As such, Peeples was

responsible for the Active Members’ conduct in violation of section 10(b) and

55
Section 10(b) of the 1934 Act, 15 U.S.C. § 78j(b), makes it unlawful:

To use or employ, in connection with the purchase or sale of any security
registered on a national securities exchange or any security not so registered, or
any securities-based swap agreement (as defined in section 206B of the
Gramm-Leach-Bliley Act [15 U.S.C.S. § 78c note]), any manipulative or
deceptive device or contrivance in contravention of such rules and regulations as
the Commission may prescribe as necessary or appropriate in the public interest or
for the protection of investors.

Rule 10b-5, 17 C.F.R. § 240.10b-5, was promulgated under section 10(b) and provides:

It shall be unlawful for any person, directly or indirectly, by the use of any means
or instrumentality of interstate commerce, or of the mails or of any facility of any
national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material
fact necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would
operate as a fraud or deceit upon any person, in connection with the purchase or
sale of any security.

“Rule 10b-5 encompasses only conduct already prohibited by section 10(b). Though the
text of the Securities Exchange Act does not provide for a private cause of action for section
10(b) violations, the [Supreme] Court has found a right of action implied in the words of the
statute and [Rule 10b-5].” Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., ___ U.S.
___, 128 S. Ct. 761, 768, 169 L. Ed. 2d 627 (2008) (citations omitted). In this opinion, we refer
to the section 10(b) and Rules 10b-5(a) and (b) claims in this case as claims under Rules 10b-5(a)
and/or (b).

38
Rule 10b-5(b) as a “controlling person” under section 20(a) of the 1934 Act.56

Specifically, Peeples was responsible for Smith’s statement that we are “doing this

on our own” and the Active Members’ breach of their fiduciary duty to

DynaVision. Third, Peeples and the Active Members engaged in a “scheme,

device, and artifice to defraud” DynaVision, in violation of section 10(b) and Rule

10b-5(a).

In support of their 10b-5(a) claim, plaintiffs, in their opposition to Peeples’s

motion for summary judgment, identified three components of the “scheme”: (1)

Peeples and the Active Members agreed not to disclose their negotiations, as

evidenced by the January 21 letter; (2) Peeples and the Active Members used the

Put and Call provision “to improperly exclude DynaVision from participating in

the sale of [Signature] to Peeples;” and (3) Peeples and the Active Members

collaborated to “deceive the individual Plaintiffs into signing [the] Warranty

Deed.”57

56
Section 20(a) of the 1934 Act, 15 U.S.C. § 78t(a), provides:

Every person who, directly or indirectly, controls any person liable under any
provision of this chapter or of any rule or regulation thereunder shall also be liable
jointly and severally with and to the same extent as such controlled person to any
person to whom such controlled person is liable, unless the controlling person
acted in good faith and did not directly or indirectly induce the act or acts
constituting the violation or cause of action.
57
The complaint, in contrast to what plaintiffs stated in their opposition to Peeples’s
motion for summary judgment, simply averred that “[t]hrough the activities described above, the

39
Finally, the plaintiffs alleged that the misrepresentations, omissions, and

scheme described in Count One caused DynaVision to sell its interests and suffer

injury.58 Paragraph 64 of the district court complaint stated:

Based upon the false and misleading information concerning
[Signature] and the source of funding for the buy/sell offers, which
had been provided by the Active Members and Defendants, and in
reliance on their misrepresentations that there was no offer to
purchase [Signature] outstanding, DynaVision chose to sell its
interest in [Signature], rather than purchase the interest of the [Active
Members]. As a result, in late March 2002, DynaVision became
contractually required to sell its interest in [Signature] to the Active
Members pursuant to the terms of the [Signature] Operating
Agreement.59

Counts Two through Five alleged causes of action under Georgia common

law and statutory provisions.60 Count Two, “Violation of the Georgia Securities

Act,” alleged that the same conduct that gave rise to the Count One claims for

Defendants employed a scheme, device, and artifice to defraud that, in fact, operated as a fraud
upon DynaVision.”
58
The plaintiffs described the Active Members’ misrepresentations, made by Smith, the
scheme to defraud, and the manner in which these wrongs caused injury in almost the same way
they had done so in state court.
59
Similarly, paragraph 90 of the district court complaint stated: “DynaVision relied on the
Active Members’ misrepresentations. DynaVision made its decision to sell under the put and
call based on the false representations that there were no outstanding offers to purchase
[Signature] and, in particular, no offers from a strategic purchaser such as the Defendants.”
Although paragraphs 64 and 90 refer to statements made by the Active Members, the only
conceivably actionable statement in the evidence is Smith’s February 8 statement to Ledford and
O’Dell that the Active Members were “doing this on our own.”
60
These counts, like Counts Six and Seven, incorporated by reference all antecedent
allegations of the complaint.

40
relief rendered Peeples liable to plaintiffs under the Georgia securities laws.61

Count Three, “Conspiracy to Defraud,” alleged that Peeples conspired with the

Active Members to (1) fraudulently induce DynaVision to sell its interest in

Signature and (2) fraudulently induce Leasing to convey the Green Road Property

to Signature. Count Four, “Aiding and Abetting Breach of Fiduciary Duties,”

alleged that the Active Members, aided and abetted by Peeples, breached the

following duties: (1) the fiduciary duty to DynaVision to inform it that Peeples

was supporting the February 25 Put and Call, and (2) the fiduciary duty to

Leasing, and Ledford and O’Dell as Leasing’s part owners, to inform them that the

document they signed at FNBC was a warranty deed, and (3) the fiduciary duty to

Leasing to cause Signature to convey the property back to Leasing. Count Five,

“Tortious Interference with Business Relations,” alleged that Peeples tortiously

interfered with the Active Members’ business relations with DynaVision. Count

Six, “Attorneys’ Fees,” sought plaintiffs’ expenses, including attorney’s fees,

incurred in prosecuting Counts One through Five. Count Seven, “Punitive

Damages,” sought punitive damages as to each of plaintiffs’ claims on the ground

61
Plaintiffs alleged a violation of the Georgia Securities Act, O.C.G.A. § 10-5-12(a)(2).
Section 10-5-12 is “Georgia's equivalent of Rule 10b-5. A plaintiff must prove essentially the
same elements under the state provision as he must prove under the federal provision.” Pelletier
v. Zweifel, 921 F.2d 1465, 1511 (11th Cir. 1991).

41
that the “[d]efendants have acted in bad faith and have been stubbornly litigious

and caused Plaintiffs unnecessary trouble or expense.”

On March 9, 2004, the day after the state court refused to reconsider its

October 29, 2003 order denying plaintiffs’ motion for leave to join Peeples as a

party defendant, Peeples moved the district court to dismiss plaintiffs’ complaint.

Alternatively, he requested that the district court stay further proceedings pending

the state court’s resolution of Ledford v. Smith. He requested a stay because the

Active Members had moved the state court for summary judgment, which, if

granted, could settle through issue preclusion some of the factual issues involved

in plaintiffs’ district court claims. The state court heard argument on the summary

judgment motions on April 1, 2004. On May 17, 2004, the district court denied

Peeples’s motion to dismiss and, alternatively, for a stay. On June 6, 2004,

Peeples answered plaintiffs’ complaint.62

62
Peeples’s answer responded to each of the complaint’s 116 paragraphs, admitting or
denying the allegations of the paragraph or stating that the defendant was without knowledge
sufficient to form a belief as to the truth of the allegations. The answer also contained twenty-
nine “defenses,” in three categories: (1) four were affirmative defenses either asserting or
implying that the complaint failed to state a claim for relief; (2) six were confession and
avoidance defenses; and (3) nineteen constituted general denials. The answer was a shotgun
pleading in the sense that many of the defenses in the first two categories failed to identify the
claim or claims for relief to which they were responding. This, coupled with the shotgun manner
in which plaintiffs chose to frame their complaint, may explain why the district court waited until
the case was submitted on motion for summary judgment to attempt to sort out the parties’
claims and defenses.

42
2.

On May 18, 2004, the state court ruled on the pending motions for summary

judgment. It granted defendants summary judgment on the fourth and fifth claims

and on the sixth claim in part. It denied summary judgment on the first, second

and third claims and on the sixth claim in part on the ground that material issues of

fact remained to be litigated. Regarding the sixth claim, the court found that the

Active Members had a fiduciary duty to inform DynaVision of Peeples’s

involvement under the Limited Liability Company Act and Georgia common law,

but not under the Operating Agreement.

Plaintiffs appealed the court’s dismissal of the fifth claim, that the Active

Members fraudulently induced DynaVision to part with its interest in Signature.

The Active Members cross-appealed the court’s disposition of the first claim, that

Leasing conveyed the Green Road Property due to mutual mistake; the second

claim, that Smith fraudulently induced the transfer of the Green Road Property to

Signature by misrepresenting the warranty deed; and part of the sixth claim, that

the Active Members breached a fiduciary duty to inform DynaVision of Peeples’s

participation. Plaintiffs did not appeal the court’s disposition of their fourth claim,

unjust enrichment through the transfer of the Green Road Property, and the Active

Members did not appeal the court’s denial of summary judgment on plaintiff’s

43
third claim, that the Active Members had breached a fiduciary duty to Leasing,

O’Dell, and Ledford with respect to the transfer of the Green Road Property.

While these appeals were pending in the Georgia Court of Appeals, the district

court set February 26, 2005 as the discovery deadline.

3.

On July 12, 2005, the Georgia Court of Appeals handed down its decision.

Ledford v. Smith, 618 S.E.2d 627 (Ga. Ct. App. 2005). The court affirmed the

summary judgment for the Active Members on plaintiffs’ fifth claim, reversed the

denial of summary judgment on plaintiff's second claim (effectively granting the

Active Members judgment on that claim), and reversed part of the sixth claim.

After the decision, only the plaintiffs’ first claim, which alleged that Leasing

conveyed the Green Road Property because of mutual mistake, survived.63

The court of appeals explained why it held for the Active Members on all

but plaintiffs’ first claim. It began with plaintiffs’ sixth claim, that the Active

Members had a fiduciary duty under the Limited Liability Company Act and

common law to disclose their negotiations with Peeples. After observing that

63
As to that aspect of the first claim, the court concluded that unresolved material issues
of fact precluded summary judgment.

44
default fiduciary duties are trumped by an operating agreement,64 Ledford, 618

S.E.2d at 636,65 the court explained that Signature’s Operating Agreement allowed

the Active Members to obtain Peeples’s assistance in funding the Put and Call.

Citing Section 7.3 of the Operating Agreement, which authorized the Active

64
O.C.G.A. § 14-11-305(1), which imposes a general duty of loyalty on the managers of
a limited liability company, see supra note 48, is subject to modification as follows:

(4) To the extent that, pursuant to paragraph (1) of this Code section or otherwise
at law or in equity, a member or manager has duties (including fiduciary duties)
and liabilities relating thereto to a limited liability company or to another member
or manager:
(A) The member’s or manager’s duties and liabilities may be expanded,
restricted, or eliminated by provisions in . . . a written operating agreement;
provided, however, that no such provision shall eliminate or limit the liability of a
member or manager:
(i) For intentional misconduct or a knowing violation of law; or
(ii) For any transaction for which the person received a personal benefit in
violation or breach or any provision of a written operating agreement; and
(B) The member or manager shall have no liability to the limited liability
company or to any other member or manager for his or her good faith reliance on
the provisions of a written operating agreement, including, without limitation,
provisions thereof that relate to the scope of duties (including fiduciary duties) of
members and managers.

O.C.G.A. § 14-11-305(4) (emphasis added).
65
The Ledford court explained the basis for this policy:

[t]he contractual flexibility provided in [O.C.G.A. § 14-11-305] is consistent with
O.C.G.A. § 14-11-1107(b) of the [Limited Liability Company] Act which
provides that: “It is the policy of this state with respect to limited liability
companies to give maximum effect to the principle of freedom of contract and to
the enforceability of operating agreements.”

Ledford, 618 S.E.2d at 636 (quotation omitted).

45
Members to “engage in all . . . other business ventures . . . but no Active Member

shall engage in businesses similar to the business of the [Signature] by competing

with the business of the Company,” the court reasoned that:

This provision gave the Active Members wide latitude to engage in
all other business activities except those “similar to the business of”
[Signature], that is, a “competing” carpet company. The provision
was broad enough to allow the Active Members to negotiate with
Peeples for the purpose of obtaining financing to fund their buy-out
of Dyna-Vision's interest in [Signature]. This activity did not
“compete” with [Signature]; thus, it did not fall within the exception.
Any fiduciary duty of disclosure that the Active Members’ may have
owed Dyna-Vision with respect to such a business arrangement was
eliminated by the terms of an operating agreement that allowed the
business activity which occurred. See Stoker v. Bellemeade, 272
Ga.App. at 824, 615 S.E.2d 1 (members of an LLC did not breach
fiduciary duties by participating in other allegedly competing real
estate developments because operating agreement allowed them to do
so).

Ledford, 618 S.E.2d at 636.

The court also rejected plaintiffs’ argument that the Operating Agreement’s

Right of First Refusal provision, in Section 9.2.1, created a fiduciary duty that

required the Active Members to disclose their intention to sell Signature's assets to

Peeples. The court explained:

As the superior court correctly concluded, this provision was plainly
“intended to prevent outsiders from buying into [Signature]. In this
way, the Members maintained control over who their business
‘partners’ were to be.” Because the Active Members' proposed
buy-out of Dyna-Vision's interest would not allow a third party to buy

46
into [Signature] and become Dyna-Vision's business partner, the
purpose of the right of first refusal was not implicated. Therefore,
[Section] 9.2.1 did not require the Active Members to disclose to
Dyna-Vision how it intended to finance its buy-out offer.

Id. at 634.

Turning to plaintiffs’ fifth claim, that the Active Members fraudulently

induced DynaVision to sell its interest, the court held that summary judgment was

appropriate because the Active Members’ failure to inform DynaVision of their

deal with Peeples did not cause DynaVision’s decision to sell. Once the Active

Members invoked the Operating Agreement’s Put and Call provision,

DynaVision, by its principals’ own deposition testimony, had no feasible option

but to sell its interests. As the court observed:

Moreover, both Ledford and O’Dell deposed that, even if they could
have raised the money to buy out the Active Members, owning
[Signature] without the Active Members would have been “foolish”
and “made no sense” because the Active Members were the heart of
[Signature’s] value. As O’Dell admitted “we didn't really have a
choice . . . . We didn’t have a management group . . . . The day the put
and call came in, I wouldn’t give two cents for finding a group to
replace them.” Because Peeples’s involvement did not affect the
value of the Active Members’ interest, it was immaterial. Or, stated
differently, [plaintiffs] cannot show that they suffered any damage as
a result of their alleged reliance on the Active Members’ affirmative
misrepresentation that Peeples was not involved in the buy-out. . . .
Consequently, they could not prove causation or damages, which
were essential to their fraud claims.

Id. at 634-35.

47
The court then addressed the plaintiffs’ second claim, that Smith, and thus

the Active Members, fraudulently induced Leasing to sign the warranty deed at

FNBC by asking Ledford and O’Dell to sign the deed without disclosing the

nature of the document. Because it found no evidence of misrepresentation, the

court concluded that on this claim, the Active Members were entitled to summary

judgment. It held:

In this case, the evidence shows that FNBC, on its own initiative,
drafted the warranty deed and asked all the parties to the loan closing
to sign this “corrective paper.” Although Ledford and O'Dell contend
they signed the document because Smith asked them to do so, the
evidence only shows that Smith was relaying the bank's request.
There is no evidence in the record that Smith caused the deed to be
drafted, acted in concert with the bank, or misrepresented or
concealed the document's nature. In fact, it appears from the record
that Smith was as ignorant of the document’s significance as Ledford
and O’Dell. Under these circumstances, we see no evidence of a
fraudulent statement or the concealment of a material fact that Smith
was under a duty to disclose.

Id. at 636-37.

4.

On July 15, 2005, shortly after the Georgia Court of Appeals’s opinion

issued, Peeples’s counsel sent a letter to plaintiffs’ counsel, requesting that

plaintiffs dismiss all claims against Peeples. On July 25, plaintiffs’ counsel

responded, stating that nothing in the court’s opinion warranted dismissal and that

48
they had moved the court of appeals for reconsideration. On July 28, 2005, the

motion for reconsideration was denied. On August 1, Peeples’s counsel again

wrote plaintiffs’ counsel, asking that plaintiffs agree to a stay of proceedings in the

district court. Plaintiffs’ counsel rejected that request the next day; they planned

to petition the Supreme Court of Georgia for a writ of certiorari.

On September 22, Peeples moved the district court for summary judgment

on all of plaintiffs’ claims. In the brief accompanying the motion, Peeples cited

the court of appeals’s Ledford decision and stated:

Should the Georgia Supreme Court deny Plaintiffs’ petition for
certiorari or affirm the Georgia Court of Appeals' order, then
Plaintiffs’ derivative liability claims in the federal action are
collaterally estopped. In the absence of affirmance or denial, the
reasoning of the Georgia Court of Appeals, the applicable Georgia
law as cited, and the conclusions reached on the undisputed facts as
present in this case are instructive and may be considered by this
Court.

On October 31, plaintiffs’ counsel responded to this statement in their brief

in opposition to Peeples’ motion for summary judgment:

As an initial matter, throughout their brief, the Defendants refer to an
Opinion of the Georgia Court of Appeals in a state court proceeding
between the Plaintiffs and the Active Members . . . . The state court
case has no effect on the central securities fraud claims in this action;
the opinion is not binding on this Court. Furthermore, a petition for
certiorari has been filed with the Georgia Supreme Court seeking to

49
correct the multitude of legal and factual errors contained in that
opinion.66

On November 18, the Georgia Supreme Court denied plaintiffs’ petition for

certiorari review in the state court case. Ten days later, plaintiffs moved the Court

to reconsider its decision.67 The court denied plaintiffs’ motion on December 16.

The denial operated to make the court of appeals’s Ledford decision binding

authority on matters of Georgia law. See Lexington Developers, Inc. v. O’Neal

Const. Co., Inc., 238 S.E.2d 770, 770–771 (Ga. Ct. App. 1977).

On December 22, the district court, in a comprehensive sixty-eight page

order, granted Peeples’s motion for summary judgment on all of plaintiffs’

claims.68 Using the doctrine of collateral estoppel, the court disposed of Count

Three, that Peeples conspired with the Active Members to defraud DynaVision

into selling its interest in Signature,69 and Count Five, that Peeples tortiously

66
Peeples’s counsel responded to this position on November 30, adhering to what they
had stated in People’s September 22 brief and informing the district court that the Georgia
Supreme Court had denied certiorari review.
67
On December 2, the district court ordered counsel to inform it instanter of the supreme
court’s disposition of the motion.
68
The court entered a final judgment for Peeples the same day.
69
The court granted Peeples summary judgment on the Count Three claims that he had
conspired with the Active Members fraudulently to induce Leasing to convey the Green Road
Property to Signature on the ground that plaintiffs abandoned that claim by failing to support it in
their brief in opposition to Peeples’s motion for summary judgment.

50
interfered with the Active Members’ business relationship with DynaVision. The

court rejected plaintiffs’ Count Four claims, that Peeples aided and abetted the

Active Members’ breach of fiduciary duties, on the ground that Georgia law did

not recognize such claims. The court disposed of Counts One and Two, charging

Peeples with securities fraud, on the grounds that plaintiffs failed to demonstrate a

genuine issue of material fact as to the several elements of those claims.70

5.

On January 9, 2006, Peeples moved the district court pursuant to Rule 59(e)

of the Federal Rules of Civil Procedure to alter and amend its judgment. He

argued that, with respect to plaintiffs’ federal securities law claims in Count One,

the court had failed to issue the findings required under the PSLRA. The PSLRA

requires a district court, upon final adjudication of a federal securities law claim,

to “include in the record specific findings regarding compliance by each party and

each attorney representing any party with each requirement of Rule 11(b) of the

Federal Rules of Civil Procedure as to any complaint, responsive pleading, or

dispositive motion.” 15 U.S.C. § 78u-4(c)(1). Peeples urged the court to sanction

70
Although the district court’s December 22 order made no explicit reference to Counts
Six and Seven, the court’s disposition of Counts One, Two, and Four and its invocation of the
doctrine of collateral estoppel to dispose of Counts Three and Five implicitly disposed of those
two counts, which sought, respectively, attorney’s fees and punitive damages.

51
plaintiffs and their counsel for failing to comply with Rule 11. He also requested

sanctions for the Count One claims pursuant to 28 U.S.C. § 1927 and the district

court’s inherent power.71

Plaintiffs and their attorneys filed separate responses to Peeples’s request

for attorney’s fees and expenses under the PSLRA. Plaintiffs, represented in the

matter of sanctions by new attorneys, claimed that they did not misrepresent the

historical facts to counsel, did not advise counsel regarding the law, and were not

responsible for the manner in which counsel litigated the case. Relying on our

decision in Byrne v. Nezhat, 261 F.3d 1075 (11th Cir. 2001), plaintiffs averred

that sanctions against them would not be appropriate. In their separate response,

plaintiffs’ attorneys asserted, in essence, that a reasonably competent attorney

would have recognized that the claims set out in Count One of the complaint were

cognizable under the federal securities laws.

On March 21, 2006, the district court granted Peeples’s motion to the

extent that it sought PSLRA findings, but refused to sanction plaintiffs or their

counsel, finding that they had acted in compliance with Rule 11 in pleading and

prosecuting their case.

71
Peeples did not move the court to imposes sanctions under Rule 11(b), § 1927, or the
court’s inherent power with respect to plaintiffs’ prosecution of Counts Two through Seven of
the complaint.

52
6.

All five plaintiffs now appeal the district court’s disposition of each of their

claims. Their brief, however, presents no argument as to Counts Three and Five

through Seven. We therefore treat as abandoned their appeal of the district court’s

disposition of those counts. We also treat as abandoned the appeal of the court’s

disposition of plaintiffs’ claims under two of the federal securities laws. As noted,

Count One contained claims under section 20(a) of the 1934 Act and Rules 10b-

5(a) and (b). Plaintiffs’ brief presents no argument in support of their section

20(a) and Rule 10b-5(a) claims,72 and, as in the case of Counts Three and Five

through Seven, we deem the appeal of the court’s disposition of those claims to

have been abandoned.73 Accordingly, what remains are plaintiffs’ Count One

claims under Rule 10b-5(b); their Count Two claims under the comparable

Georgia securities law provision; and part of their Count Four claim, that Peeples

aided and abetted the Active Members’ breach of their fiduciary duty regarding

72
The district court did not address explicitly DynaVision’s Rule 10b-5(a) claim.
Plaintiffs’ initial brief in this appeal contains no argument in support of the Rule 10b-5(a) claim
qua claim. Instead, the brief refers to a “scheme,” which forms the basis of a Rule 10b-5(a)
claim, in arguing that there was a genuine issue of material fact as to the “reliance” element of
Count One’s Rule 10b-5(b) claim. We therefore treat plaintiffs’ Rule 10b-5(a) claim itself as
having been abandoned.
73
We likewise deem abandoned plaintiffs’ Georgia securities law claims that mirror the
section 20(a) and Rule 10b-5(a) claims. See O.C.G.A. § 10-5-12(a)(2)(A)-(C).

53
the handling of the Green Road Property.74 Peeples cross-appeals the district

court’s refusal to sanction plaintiffs and their counsel as required by the PSLRA

for prosecuting Count One of the complaint.

Our review proceeds as follows. We first consider our jurisdiction over

plaintiffs’ Count One 10b-5(b) claims.75 Next, we move to plaintiffs’ Count Four

aiding and abetting claims. After that, we take up the PSLRA sanctions issues.

III.

Before we assess the merits of plaintiffs’ Rule 10b-5(b) claims, we address a

threshold question: whether we have subject matter jurisdiction, under 28 U.S.C. §

133176 and 15 U.S.C. § 78aa,77 to entertain the claims. Hernandez v. Att’y Gen.,

74
Plaintiffs did not brief, and therefore abandoned, the issue of whether the district court
erred in dismissing the claim that Peeples aided and abetted the Active Members’ breach of a
fiduciary duty to inform DynaVision’s principals that Peeples was providing the $3.5 million the
Active Members needed to close the purchase of DynaVision’s interest.
75
What we say about the merits of the Count One claims applies to plaintiffs’ Count Two
Georgia securities law claims. See GCA Strategic Inv. Fund, Ltd. v. Joseph Charles & Assocs.,
Inc., 537 S.E.2d 677, 682 (Ga. Ct. App. 2000) (“To evaluate a claim of securities fraud under
OCGA § 10-5-12(a), we look to the similar elements a plaintiff must allege under section 10(b)
of the Securities Act of 1934. . . .”).
76
Section 1331 states: “The district courts shall have original jurisdiction of all civil
actions arising under the Constitution, laws, or treaties of the United States.”
77
Section 78aa states, in pertinent part: “The district courts . . . shall have exclusive
jurisdiction of violations of this chapter or the rules and regulations thereunder, and of all suits in
equity and actions at law brought to enforce any liability or duty created by this chapter or the
rules and regulations thereunder.”

54
513 F.3d 1336, 1339 (11th Cir. 2008) (“[W]e must inquire into subject matter

jurisdiction sua sponte whenever it may be lacking.”).

We find the answer to that question in two Supreme Court decisions, Blue

Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 95 S. Ct. 1917, 44 L. Ed. 2d

539 (1975), and Bell v. Hood, 327 U.S. 678, 66 S. Ct. 773, 90 L. Ed. 939 (1946).

Under Blue Chip Stamps, a plaintiff must be a purchaser or seller of a security to

have a private cause of action under Rule 10b-5. Here, one seller, DynaVision,

sold, at most, one security, a fifty-percent interest in Signature. Accordingly,

DynaVision, as the seller of a security, had standing to sue Peeples under Rule

10b-5. Ledford, O’Dell, Walker, and Leasing (“co-plaintiffs”) did not.78

The district court should have recognized this at the time it considered and

ruled on Peeples’s motion to dismiss the complaint.79 After concluding that co-

78
Ledford, O’Dell, and Walker alleged, albeit by implication, that the loss DynaVision
sustained as a result of Peeples’s securities fraud violations was passed on to them through their
ownership interests in DynaVision, in that the loss diminished the value of their interests. In
other words, they are like the shareholders of a corporation that sold securities it owned in
reliance on a third party misrepresentation made in violation Rule 10b-5(b) and who, as a result,
incurred a loss. Under Blue Chip Stamps, however, such derivative injury to shareholders is not
directly compensable under Rule 10b-5.
79
See Fed. R. Civ. P. 12(b)(6). Peeples’s motion was addressed to plaintiffs’ entire
complaint. As for the Count One claims, the memorandum of law accompanying the motion
argued that DynaVision’s sale of its interest to the Active Members was not a “securities
transaction” and, therefore, Peeples’s alleged misrepresentations were not made “in connection
with” the purchase or sale of a security as required by Rule 10b-5. The memorandum did not
argue that co-plaintiffs were barred from suing under Rule 10b-5 because they were not sellers of
a security.

55
plaintiffs failed to state a claim under Rule 10b-5, the court should have moved to

the question of whether to dismiss their claims for want of subject matter

jurisdiction under Rule 12(b)(1) of the Federal Rules of Civil Procedure.80 Bell v.

Hood holds that “a suit may sometimes be dismissed for want of jurisdiction

where the alleged claim under the Constitution or federal statutes clearly appears

to be immaterial and made solely for the purpose of obtaining jurisdiction or

where such a claim is wholly insubstantial and frivolous.” 372 U.S. at 682-83, 66

S. Ct. at 776. (emphasis added.). The word “may” implies that the dismissal of a

claim for want of jurisdiction is committed to the sound discretion of the district

court. But, just as in any instance where a district court has discretion, that

discretion can be abused. Here, co-plaintiffs’ federal securities fraud claims were

plainly and indisputably frivolous. They were, in the Supreme Court’s words, “so

patently without merit as to justify . . . the court’s dismissal for want of

jurisdiction.” Id. Moreover, no amendment of the complaint could possibly have

cured its patent, and fatal, deficiency, that co-plaintiffs lacked standing to sue. In

80
Prior to considering the question of whether to dismiss the claims for want of
jurisdiction, the court had to “assume jurisdiction to decide whether the allegations state a cause
of action on which the court could grant relief.” Bell v. Hood, 327 U.S. at 682, 66 S. Ct. at 682.
The district court did so here. Its determination that co-plaintiffs had stated a case for Rule 10b-5
relief eliminated the necessity of considering whether jurisdiction under 28 U.S.C. § 1331 and 15
U.S.C. § 78aa was lacking.

56
such an extreme case, the district court abused its discretion in failing to dismiss

co-plaintiffs’ Count One claims for want of jurisdiction.

Co-plaintiffs’ inability to invoke the district court’s jurisdiction under 28

U.S.C. § 1331 and 15 U.S.C. § 78aa for Count One did not foreclose their right to

litigate the claims asserted in Counts Two through Seven. Despite the fact that

Counts Two through Seven do not implicate a federal question, they are joined in

the case by a series of jurisdictional steps. First, because DynaVision sold a

security, the district court had jurisdiction under 28 U.S.C. § 1331 and 15 U.S.C. §

78aa to adjudicate DynaVision’s Count One securities fraud claims. Second, the

court therefore had supplemental jurisdiction under 28 U.S.C. § 136781 to

adjudicate any other claims DynaVision had against Peeples that were “so related

to” the Count One claims that they formed part of “the same case or

controversy.”82 DynaVision’s claims in Counts Two through Seven, given the

81
The complaint alleged that the district court had jurisdiction over all non-federal
claims plaintiffs were asserting under “the principles of pendent and ancillary jurisdiction” and
contained no reference to 28 U.S.C. § 1367, the provisions of which had superceded pendent and
ancillary jurisdiction.
82
Section 1367 states, in pertinent part:

(a) . . . in any civil action of which the district courts have original jurisdiction, the
district courts shall have supplemental jurisdiction over all other claims that are so
related to claims in the action within such original jurisdiction that they form part
of the same case or controversy under Article III of the United States Constitution.

Counts Two through Seven incorporated by reference the federal securities fraud claims

57
manner in which the complaint presented them,83 appear to have been so related to

DynaVision’s Count One’s allegations, that they formed part of the same case or

controversy described in Count One.84 Finally, Rule 20 of the Federal Rules of

Civil Procedure authorized co-plaintiffs to join DynaVision as plaintiffs in Counts

Two through Seven since their claims arose out of “the same transaction,

occurrence, or series of transactions or occurrences” forming the predicate for

asserted in Count One, and Counts Three through Seven incorporated the claims of all
antecedent counts. See supra part II.B.1. The Count One claims were not culled out of Counts
Two through Seven by the court on its own initiative or via a motion by Peeples for a more
definite statement. Our discussion in the text proceeds under the assumption that the district
court struck the Count One claims from Counts Two through Seven, and, moreover, struck from
Counts Three through Seven all claims incorporated by reference.
83
See supra part II.B.1.
84
As indicated supra part II.B.1, Count Three contained two “Conspiracy to Defraud”
claims, one brought by DynaVision and the other by Leasing. The Leasing claim appears to fall
without the court’s section 1367 supplemental jurisdiction. Count Four also contained two
“Aiding and Abetting” claims, one brought by DynaVision and the other by Leasing, Ledford,
and O’Dell. The Leasing, Ledford, and O’Dell claim, like Leasing’s Count Three claim, appears
to fall without the court’s section 1367 jurisdiction. Peeples did not object to the court’s
entertainment of these non-supplemental jurisdiction claims. Due to this and the shotgun nature
of the complaint’s allegations, we decline to explore the matter further.

58
DynaVision’s claims.85 Except as to Count One, therefore, we have jurisdiction to

consider co-plaintiffs’ claims.86

IV.

With jurisdiction established, we now turn to plaintiffs’ remaining securities

fraud and aiding and abetting claims. We address these claims in turn, affirming

the district court’s grant of summary judgment for Peeples.

A.

In a typical section 10(b) civil action for a violation of Rule 10b-5(b), a

plaintiff must prove (1) a material misrepresentation or omission by the defendant,

(2) scienter, (3) a connection between the misrepresentation or omission and the

purchase or sale of a security, (4) reliance upon the misrepresentation or omission,

85
Rule 20, as it existed at the time plaintiffs filed their complaint, stated, in pertinent
part:

(a) Permissive Joinder. All persons may join in one action as plaintiffs if they
assert any right to relief jointly, severally, or in the alternative in respect of or
arising out of the same transaction, occurrence, or series of transactions or
occurrences and if any question of law or fact common to all these persons will
arise in the action.
86
The Georgia securities law cases have adopted Blue Chip Stamps’s holding that only a
buyer or seller of a security has standing to sue under Georgia’s version of Rule 10b-5. Bell v.
Sasser, 520 S.E.2d 287, 292 (Ga. Ct. App. 1999). Co-plaintiffs’ Count Two claims fail under
Fed. R. Civ. P. 12(b)(6) because co-plaintiffs were not involved in the sale of a security.

59
(5) economic loss, and (6) loss causation. Stoneridge Inv. Partners, LLC v.

Scientific-Atlanta, __ U.S. __, 128 S. Ct. 761, 768, 169 L. Ed. 2d 627 (2008).87

To establish a genuine issue of material fact as to the reliance element,88

plaintiffs89 had to present evidence that, in conversations with Paul Walker,

Peeples stated that he was not involved in the Active Members’ attempt to acquire

DynaVision’s interest in Signature, that his statements were false, that

87
The literal definition of a security under the 1934 Securities and Exchange Act, as
codified in 15 U.S.C. §78c(a)(10), does not include an interest in a limited liability company.
See Nelson v. Stahl, 173 F. Supp. 2d 153, 164 (S.D.N.Y. 2001) ("The Exchange Act's definition
of security does not refer to membership interests in limited liability companies."). Nonetheless,
plaintiffs asserted in their complaint and in briefing to the district court that DynaVision's interest
in Signature was a security. Peeples did not question this assertion, nor did the district court
analyze this issue sua sponte.
Our independent research of this issue indicates that whether DynaVision's interest could
be considered a security is problematic. We are satisfied, however, that plaintiffs’ allegation that
DynaVision’s interest was a security passes the threshold test set forth in Bell v. Hood. See
Williamson v. Tucker, 645 F.2d 404, 416 (5th Cir. May 1981) (holding that the plaintiff’s
allegation that joint venture interests were securities was not so obviously frivolous as to fail the
low jurisdictional bar in Bell v. Hood). In the absence of any briefing on this issue by the parties
and in light of our resolution of plaintiffs' Rule 10b-5(b) claims in favor of Peeples, we see no
need to decide whether DynaVision’s interest was a security.
88
The district court used the term “transaction causation” in referring to the reliance
element. That terminology is irrelevant, as “[t]ransaction causation” is no more than “another
way of describing reliance.” Robbins v. Koger Properties, Inc., 116 F.3d 1441, 1447 (11th Cir.
1997); see also Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 341-342, 125 S. Ct. 1627,
1631 (2005) (explaining that reliance is one of the elements of a Rule 10b-5 claim and is “often
referred to in cases involving public securities markets (fraud-on-the-market cases) as
‘transaction causation’”).
89
We refer to all five plaintiffs. Our Bell v. Hood jurisdictional ruling that struck co-
plaintiffs’ claims from Count One has no effect on their Count Two claims under the Georgia
Securities Act.

60
DynaVision’s principals reasonably relied on the statements,90 and that because of

that reliance, the principals caused DynaVision “to engage in the transaction in

question.” Robbins v. Koger Properties, Inc., 116 F.3d 1441, 1447 (11th Cir.

1997) (quotation omitted). Put another way, plaintiffs had to demonstrate that but

for Peeples’s statements, DynaVision would not have sold its interest but, instead,

would have bought the Active Members’ interests. Huddleston v. Herman &

MacLean, 640 F.2d 534, 549 (5th Cir. Mar. 1981), rev’d on other grounds, 459

U.S. 375 (1983) (“Reliance is a causa sine qua non, a type of ‘but for’

requirement: had the investor known the truth he would not have acted.”).

After carefully considering the evidence before it, the district court

concluded that no genuine issue of material fact existed as to this element:

Peeples’s denial of any involvement in the Active Members’ plan did not cause

DynaVision to sell its interest. The court explained:

The evidence in the record, viewed in the light most favorable to
Plaintiffs, shows that Plaintiffs themselves did not have the necessary
experience, marketing skills, and expertise to run [Signature] in the
absence of the Active Members, and that Plaintiffs’ attempts to obtain
a management group and necessary personnel to work with

90
In an action for damages under Rule 10b-5(b) based on the defendant’s
misrepresentation, the plaintiff must show that he “reasonably relied on and was injured by the
misstatement.” Pelletier v. Zweifel, 921 F. 2d 1465, 1510 (11th Cir. 1991). In the Rule 10b-5
context, we have used the words “justifiably relied” as the equivalent of “reasonably relied.”
E.g., Bruschi v. Brown, 876 F.2d 1526, 1528 (11th Cir. 1989). Thus, “reasonably” and
“justifiably,” for Rule 10b-5 purposes, express the same element.

61
[Signature] were unsuccessful. Plaintiffs themselves testified that it
would be foolish or risky to purchase the Active Members’ interests
in [Signature] without having a management group or marketing
group in place to replace the Active Members. Although Plaintiffs
summarily contend that they would have acted differently if they had
known of Defendant Peeples’ involvement, that summary and
conclusory contention is not sufficient to allow Plaintiffs to avoid
summary judgment. Indeed, knowledge of Defendant Peeples’s
involvement would not have changed the fact that Plaintiffs did not
have the necessary experience, marketing skills, and expertise to run
[Signature], and that Plaintiffs’ attempts to obtain a management
group and necessary personnel to work with [Signature] were
unsuccessful. The failure to disclose Defendant Peeples’ involvement
thus did not cause Plaintiffs’ decision to sell Plaintiff DynaVision’s
interest under the February 25, 2002, Put and Call . . . .91

B.

To obtain a reversal of the district court’s resolution of the reliance issue,

plaintiffs must satisfy us that the evidence in the record creates a jury issue as to

whether DynaVision would have purchased the Active Members’ interests, rather

91
This is essentially verbatim what the Georgia Court of Appeals said in Ledford, that
DynaVision would have sold its interest notwithstanding Peeples’s involvement. Ledford, 618
S.E.2d at 634-35; see also supra part II.B.2. The court of appeals, after considering the evidence
in the light most favorable to plaintiffs, inferred this ultimate fact because the evidence pointed to
the fact as a matter of law. The question for the district court was whether it should invoke the
doctrine of collateral estoppel and conclusively rely on the court of appeals’statement of ultimate
fact in determining whether, in resolving plaintiffs’ Rule 10b-5(b) claim (and the comparable
Georgia securities law claim), DynaVision’s principals would have sold DynaVision’s interest
notwithstanding Peeples’s denial of involvement. The district court invoked the doctrine in
deciding plaintiffs’ claims in Counts Three and Five, but not in deciding any of the factual issues
involved in plaintiffs’ federal and state securities laws claims. We decline to consider the
doctrine’s application to those claims as a matter of efficiency since the parties have not briefed
the issue.

62
than sell its interest, had Peeples told Paul Walker and Ledford that he was

providing the Active Members the $3.5 million they needed to close the

transaction. There is no direct evidence that DynaVision would have elected to

buy the Active Members’ interests had Peeples admitted that he was providing the

money. Because there is no direct evidence that DynaVision would have elected

to buy, we ask whether such election can be inferred from the record. Specifically,

we ask whether it can be inferred as an ultimate fact from the subsidiary,

circumstantial facts shown by the evidence, viewed in the light most favorable to

plaintiffs.

Plaintiffs argue that circumstantial facts sufficient to create the inference are

present. Peeples argues that they are not, that the circumstantial facts create the

contrary inference: DynaVision sold because doing so was in the economic self-

interest of its principals, and it would not have elected to buy even if it had known

of Peeples’s involvement.

In assessing these opposing positions, our first task is to identify the

circumstantial facts that the evidence establishes as a matter of law. Once that is

done, we determine whether it would have been permissible for a jury to draw the

inference that DynaVision would have elected to purchase the Active Members’s

63
interests had it known that Peeples was providing the $3.5 million that enabled the

Active Members to close.

The evidence discloses three sets of circumstantial facts, with inferences

flowing from each set. We summarize each set in the headings of the following

subparts and conclude that, as a matter of law, DynaVision’s principals would

have sold even if they had known about Peeples’s involvement.

1.

DynaVision lacked the expertise necessary to operate Signature’s factory and
market Signature’s product. Consequently, if the Active Members left, there
would be no one to run the company, and Signature’s value would rapidly decline.

There is no dispute regarding the roles that DynaVision’s principals and the

Active Members performed for Signature. The principals functioned as

Signature’s financiers. By establishing the $200,000 line of credit, they were able

to provide Signature with the funds required to start the business and pay the bills

until carpet sales generated enough income to cover the company’s operating

expenses. The Active Members were the managers of the enterprise. Owenby and

Thomas handled the manufacturing and sales. Smith, the company’s president,

was in charge of marketing, since she was well and favorably known in the

hospitality industry and thus capable of attracting a considerable volume of

business.

64
By their own admission in depositions taken in the state court case and in

this case,92 DynaVision’s principals could not, themselves, replace the Active

Members, most notably Smith, for the principals had no experience in

manufacturing carpet and were virtually incapable of marketing Signature’s

products. Ledford testified that the principals had no “experience with [the]

customer base” and therefore could not run the company. He emphasized Smith’s

key role in marketing Signature’s products, stating that “had we been able to retain

Brenda, we would have purchased the company.”93 Paul Walker said that “none of

the DynaVision Group were a part of the everyday management or marketing of

Signature” and that this “was [the] only reason” why DynaVision did not elect to

purchase the Active Members’ interest after the Put and Call issued. O’Dell

admitted that DynaVision’s principals were not qualified to run the company.

In addition to this testimony, DynaVision’s principals’ conduct towards the

Active Members spoke volumes about how important the principals felt it was to

92
This testimony appears in the question and answer format appearing supra note 31.
93
The expert opinion testimony DynaVision proffered to the district court concerning
Signature’s value buttressed the fact that Signature’s value was tied to the Active Members’
management, marketing skills, and good will. DynaVision’s expert, in estimating that Signature
was worth $14 million, assumed not only that the Active Members would remain with the
company but also that Smith would increase her ownership interest in Signature to the point that
the firm would qualify as minority owned, and therefore receive additional revenue – presumably
from sales set aside for minority-owned entities. The expert provided no estimation as to
Signature’s value without the Active Members’ presence.

65
keep the Active Members in the company, at least until the principals themselves

decided to sell.94 The principals included in the Operating Agreement a provision

that made it highly unlikely that the Active Members would leave Signature before

the principals were ready to sell. If an Active Member sold his or her interest in

the company, Section 10.4 of the Agreement would preclude that Member from

competing with Signature for a period of one year.95 Because they were not

financially independent, the Active Members would presumably need to find other

employment in the carpet business upon leaving the company. Lying idle for a

year would be burdensome, and an Active Member would therefore think twice

before leaving Signature.

The principals also included a provision to make it hard for the Active

Members to buy out DynaVision before DynaVision was ready to sell. Section 9.1

of the Operating Agreement addressed the possibility that the Active Members

might attempt to buy DynaVision’s interest pursuant to the Section 9.5 Put and

94
Under the “Right of First Refusal” provision of the Operating Agreement, if
DynaVision’s principals obtained a bona fide offer to sell DynaVision’s interest in Signature, and
they desired to sell the interest, they would have to notify the Active Members who, in turn,
would have the right to purchase DynaVision’s interest at the price set in the bona fide offer. See
supra note 47. Oddly enough, this right of first refusal would not be triggered if DynaVision’s
principals received a bona fide offer to sell their interests in DynaVision and decided to accept it.
In other words, DynaVision’s principals could sell their interests in Signature in two ways: (1)
causing DynaVision to sell its interest in Signature, which would trigger the Active Members
Right of First Refusal; or (2) selling their interests in DynaVision, which would not.
95
See supra note 11.

66
Call provision. DynaVision’s principals knew the Active Members lacked the

personal resources sufficient to make an offer that DynaVision’ principals would

be tempted to accept;96 consequently, the Active Members would have to borrow

the money to fund any buy-out.97 Obtaining a conventional loan from a bank or

96
In Ledford’s state court deposition, he testified as follows:

HORST: Did it make any difference to you whether there was a third party
involved in funding Bob, Brenda, and Bryan’s offer to purchase Dynavision . . . .
LEDFORD: Yes, it would make a difference to me.
HORST: Why?
LEDFORD: Because if Bob, Brenda, and Bryan didn’t have financial backing
from them, I don’t think they could have bought our interest and I don’t think this
whole thing would have come up.
97
In Ledford’s district court deposition, he testified as follows:

SINKFIELD: Do you know whether collectively and without help from a third
person in some form or the other they had the resources to pay three-and-a-half
million dollars for the Dyna-Vision interest?
LEDFORD: No, sir, I don’t know.
SINKFIELD: You don’t know one way or the other . . . . Did you have any
opinion on the subject at the time?
LEDFORD: At the time we received the Put and Call . . . I had an opinion, yes,
sir.
SINKFIELD: And what was that opinion?
LEDFORD: That they probably could not.
SINKFIELD: And based on that opinion, how did you think they would pay for
the Dyna-Vision interest if y’all decided not to buy them out?
LEDFORD: I didn’t know.
SINKFIELD: Did you have an opinion as to what they would have to do?
LEDFORD: Well, I assumed if they bought us out . . . they would . . . have to
borrow the money. If they couldn’t do that, they would have to get the money
from someone else.

In Walker’s district court deposition, he testified as follows:

SINKFIELD: So you knew [the Active Members] had to have funding from [an
outside] source, is that correct?

67
other lending institution would require collateral, and the only collateral they had

of significant value was their individual interests in Signature. Section 9.1,

however, barred the Active Members from pledging their interests to a lending

institution.98 As a practical matter, then, the only way the Active Members could

attempt a buy out DynaVision’s interest would be to find someone like

Peeples—someone willing to advance the purchase price on the condition that,

WALKER: If they closed the deal, yes.
SINKFIELD: And you knew, to the best of your knowledge, that they did not have
sufficient resources among themselves to do it without outside funding; is that
correct?
WALKER: I would say with suspicion, they didn’t have. But to my initial
knowledge, no.
SINKFIELD: But to the best information you had told you they couldn’t fund it
without outside help. Is that correct?
WALKER: To the best information I had, yes.
98
Section 9.1 of Article 9 of the Operating Agreement, “Restrictions on Transfers and
Encumbrances,” states, in pertinent part:

The Members have . . . agreed that, without the express written consent of the
Company and all other Members in the Company, they will not transfer, assign,
sell, pledge, encumber, hypothecate . . . any of their Interests . . . except strictly in
accordance with the terms and requirements of the this Agreement, the same being
exhaustive of all methods and means by which such [Interests] may be
transferred. Any purported transfer in violation of any provision herein shall be
void and of no effect, and shall not operate to transfer any title or interest to the
purported transferee.

Like the Right of First Refusal Provision, supra note 47, this restriction had an uneven effect.
Although the Active Members would have to obtain DynaVision’s consent in order to pledge
their interests in Signature as collateral for a loan, DynaVision’s principals, namely Ledford,
O’Dell, and Walker, would not have to obtain the Active Members’ consent in order to pledge
their interests in DynaVision—and, indirectly, their interests in Signature—as collateral for a
loan. The Active Members’ consent would be necessary only if DynaVision, itself, wanted to
pledge its interest in Signature as collateral for a loan it was obtaining.

68
after acquiring DynaVision’s interest, the Active Members would sell him all or

part of the business and agree to stay on and run the company.

Joiner revealed how indispensable the Active Members were to Signature’s

value in the letter he wrote to Krevolin on April 11, 2002, nineteen days before the

closing was to take place. In the letter, Joiner informed Krevolin that DynaVision

would refuse to close unless the Active Members signed a new agreement with

DynaVision and, as required by that new agreement, represented in writing that

they were acquiring DynaVision’s interest “solely for [their] own account

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/78359. Public record. Not legal advice.