Petition for Writ of Certiorari — Christopher Hall, Petitioner v. Securities and Exchange Commission

Supreme Court briefMay 20, 2019

Ask Donna

What actually matters in this document.

Text

No. _________

================================================================

In The

Supreme Court of the United States

-----------------------------------------------------------------CHRISTOPHER HALL,

Petitioner,

U.S. SECURITIES AND EXCHANGE COMMISSION,

Respondent.

-----------------------------------------------------------------On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Eleventh Circuit

-----------------------------------------------------------------PETITION FOR A WRIT OF CERTIORARI

-----------------------------------------------------------------BURTON W. WIAND

Counsel of Record

JARED J. PEREZ

ERIC R. FELD

WIAND GUERRA KING PA

5505 West Gray Street

Tampa, FL 33609

Telephone: (813) 347-5100

E-Mail: bwiand@wiandlaw.com

Counsel for Petitioner

================================================================

COCKLE LEGAL BRIEFS (800) 225-6964

WWW.COCKLELEGALBRIEFS.COM

QUESTIONS PRESENTED FOR REVIEW

Whether an appellate court has authority to consider challenges to issues of law raised in a pre-verdict

Federal Rule of Civil Procedure 50(a) motion for judgment as a matter of law if the same challenges are not

subsequently renewed in a post-verdict Rule 50(b) motion in the district court.

And if so, whether purported misrepresentations,

which do not involve or affect the value or underlying

substance of the securities transacted, can support a

finding of a violation of the anti-fraud provisions of the

securities laws, Section 10(b) of the Securities Exchange Act of 1934 or Section 17(a) of the Securities

Act of 1933.

PARTIES TO THE PROCEEDINGS BELOW

This case arises from a civil enforcement action in

the United States District Court for the Southern District of Florida (“district court”) and the denial of Petitioner’s appeal in the United States Court of Appeals

for the Eleventh Circuit (“Eleventh Circuit”).

Petitioner Christopher Hall (“Hall”) is an individual residing in San Antonio, Texas. Hall was the appellant in the appeal before the Eleventh Circuit and was

the defendant in the district court action.

Respondent United States Securities and Exchange Commission (the “Commission”) initiated the

civil enforcement action in the district court and was

the appellee before the Eleventh Circuit.

RULE 29.6 STATEMENT

The Petitioner is not a nongovernmental corporation.

iii

TABLE OF CONTENTS

Page

Questions Presented for Review ..........................

Parties to the Proceedings Below ........................

Rule 29.6 Statement ............................................

Table of Authorities .............................................

Petition for a Writ of Certiorari...........................

Opinions and Orders Below .................................

Basis for Jurisdiction ...........................................

Relevant Statutes ................................................

Statement of the Case .........................................

Argument and Reasons for Granting the Petition ....

The courts of appeals are divided over

whether they have authority to hear arguments raised in pre-verdict Fed. R. Civ. P.

50(a) motions when the arguments are not

thereafter revived in a post-verdict Rule

50(b) motion ............................................... 11

A. This Court’s prior opinion in Unitherm

Food Systems, Inc. v. Swift-Eckrich, Inc. ... 11

B. The Eleventh Circuit’s opinion in Hi

Ltd. Partnership v. Winghouse of Florida, Inc. ................................................ 13

C. The Fourth, Sixth, Seventh, and Eighth

Circuits................................................. 15

TABLE OF CONTENTS—Continued

Page

II.

There is ambiguity in the courts over the

extent to which misrepresentations must

affect or relate to the value or substance

of the securities transacted in order to be

made “in connection with” the purchase or

sale of a security as to support a violation

of the anti-fraud provisions of the securities laws ..................................................... 17

A. The Second Circuit’s decision in Chemical Bank v. Arthur Answer & Co. ......... 17

B. This Court’s opinion in SEC v. Zandford.... 20

C. This Court’s opinion in Chadbourne &

Parke LLP v. Troice .............................. 23

D. The Eleventh Circuit’s opinion in Securities and Exchange Commission v.

Radius Capital Corp. ........................... 25

III.

This Court should grant certiorari and hold

that challenges to issues of law raised in a

pre-verdict Fed. R. Civ. P. 50(a) motion for

judgment as a matter of law can be reviewed in the appellate courts, notwithstanding a party’s failure to renew those

arguments on a post-verdict Rule 50(b) motion ............................................................. 27

TABLE OF CONTENTS—Continued

Page

IV.

The Court should grant certiorari and hold

that in order to satisfy the “in connection

with” element of the anti-fraud provisions

of the securities laws, the fraud or misrepresentation at issue must relate to or affect

the value or substance of the securities

transacted .................................................. 29

Conclusion............................................................ 32

Appendix

U.S. Court of Appeals for the Eleventh Circuit’s

Order, dated January 4, 2019, affirming the

district court ......................................... Pet. App. 1-17

U.S. District Court for the Southern District of

Florida’s Order, dated June 27, 2017.... Pet. App. 18-27

U.S. District Court for the Southern District of

Florida’s Instructions to the Jury, dated February 23, 2017 .................................... Pet. App. 28-37

TABLE OF AUTHORITIES

Page

CASES

Badger v. S. Farm Bureau Life Ins. Co.,

612 F.3d 1334 (11th Cir. 2010) ................................29

Bryant v. Dollar Gen. Corp.,

538 F.3d 394 (6th Cir. 2008) .............................. 10, 16

Chadbourne & Parke LLP v. Troice,

571 U.S. 377 (2014) ............................... 23, 24, 31, 32

Chemical Bank v. Arthur Andersen & Co.,

726 F. 2d 930 (1984), cert. denied, 476 U.S.

1171, 106 S.Ct. 2894, 90 L.Ed.2d 981

(1986) ........................................................... 17, 18, 19

Cone v. West Virginia Pulp & Paper Co.,

330 U.S. 212 (1947) .................................................13

Fuesting v. Zimmer, Inc.,

448 F.3d 936 (7th Cir. 2006) .............................. 10, 16

Hi Ltd. P’Ship v. Winghouse of Fla., Inc.,

451 F.3d 1300 (11th Cir. 2006) ........................ passim

Linden v. CNH America, LLC,

673 F.3d 829 (8th Cir. 2012) ............................ passim

Marine Bank v. Weaver,

455 U.S. 551(1982) ..................................................30

Matrixx Initiatives, Inc. v. Siracusano,

563 U.S. 27 (2011) ...................................................24

Rudolph v. Arthur Andersen & Co.,

800 F.2d 1040 (11th Cir. 1986) ................................26

S.E.C. v. Radius Capital Corp.,

653 Fed. Appx. 744 (11th Cir. 2016).................... 25, 26

vii

TABLE OF AUTHORITIES—Continued

Page

S.E.C. v. Zandford,

535 U.S. 813 (2002) ......................................... passim

Superintendent of Insurance v. Bankers

Life & Casualty Co.,

404 U.S. 6 (1971) ......................................... 19, 22, 31

Unitherm Food Systems, Inc. v.

Swift–Eckrich, Inc.,

546 U.S. 394 (2006) ......................................... passim

Van Alstyne v. Elec. Scriptorium, Ltd.,

560 F.3d 199 (4th Cir. 2009) .............................. 10, 16

STATUTES & REGULATIONS

15 U.S.C.A. § 77q(a) ............................................ passim

15 U.S.C.A. § 78j(b) ............................................. passim

28 U.S.C.A. § 1254(1) ....................................................1

17 C.F.R. § 240.10b-5 .......................................... passim

RULES

Fed. R. Civ. P. 50 .................................................. passim

Fed. R. Civ. P. 59 ................................................ 8, 12, 15

OTHER AUTHORITIES

9B Fed. Prac. & Proc. § 2540 (3d ed.) .........................16

PETITION FOR A WRIT OF CERTIORARI

Hall respectfully petitions for a writ of certiorari

to the United States Court of Appeals for the Eleventh

Circuit.

------------------------------------------------------------------

OPINIONS AND ORDERS BELOW

The January 4, 2019 opinion of the Eleventh Circuit being appealed is unreported and is found at Appendix, Pet. App. 1-17.

The June 29, 2017 order of the United States District Court for the Southern District of Florida granting the Commission’s motion for reconsideration and

ordering the entering of final judgment against Petitioner is unreported, and is found at Appendix, Pet.

App. 18-27.

Relevant portions of the instructions to the jury by

the United States District Court for the Southern District of Florida are found at Appendix, Pet. App. 28-37.

------------------------------------------------------------------

BASIS FOR JURISDICTION

The opinion of the Eleventh Circuit was entered

on January 4, 2019. On March 29, 2019, Justice

Thomas granted an extension of time for filing a petition for a writ of certiorari until May 20, 2019. No.

18A988. This Court has jurisdiction pursuant to 28

U.S.C. § 1254(1).

------------------------------------------------------------------

RELEVANT STATUTES

This petition involves Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (“It shall

be unlawful for any person . . . to use or employ, in connection with the purchase or sale of a security . . . any

manipulative or deceptive device or contrivance. . . .”);

Exchange Act Rule 10b-5, 17 C.F.R. § 240.10b-5 (It

shall be unlawful for any person . . . 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);

Section 17(a) of the Securities Act of 1933, 15 U.S.C.

§ 77q(a) (“It shall be unlawful for any person in the offer or sale of any securities . . . to employ any device,

scheme, or artifice to defraud. . . .”); and Federal Rule

of Civil Procedure 50 (If a party has been fully heard

on an issue during a jury trial and the court finds that

a reasonable jury would not have a legally sufficient

evidentiary basis to find for the party on that issue, the

court may . . . grant a motion for judgment as a matter

of law. . . .”).

------------------------------------------------------------------

STATEMENT OF THE CASE

This case involves what appellate remedies are

available to parties who seek review of challenges to

issues of law in the trial courts. In this case, the Eleventh Circuit—citing its own precedent—construed a

requirement that parties file both a Fed. R. Civ. P. 50(a)

motion for judgment as a matter of law prior to a

matter being submitted to a jury and then renew their

argument in a post-verdict Rule 50(b) motion, before

an appellate court has authority to consider the arguments raised on appeal. Pet. App. 8-9, n. 6 (citing Hi

Ltd. P’Ship v. Winghouse of Fla., Inc., 451 F.3d 1300,

1302 (11th Cir. 2006)).

Other circuits have held that the Hi Ltd. P’Ship,

Rule 50 analysis is too broadly cast, explaining that

the procedural requirement of both pre and postverdict motions only applies where challenges are

made to the sufficiency of the evidence. Where a party

presents arguments as to issues of law in their preverdict motion, post-verdict Rule 50(b) motions are not

necessary to vest authority of appellate courts to hear

challenges to issues of law on appeal. See, e.g., Linden

v. CNH America, LLC, 673 F.3d 829 (8th Cir. 2012).

Here, the Eleventh Circuit viewed certain of Hall’s

substantive arguments on appeal as falling under the

umbrella of its Hi Ltd. P’Ship decision dealing with

sufficiency of the evidence challenges. The Eleventh

Circuit therefore determined it lacked authority to

consider Hall’s arguments on appeal because he had

not filed a post-verdict Rule 50(b) motion in the district

court. As a result, the Eleventh Circuit dismissed

Hall’s arguments without discussion. Petitioner believes this was improper.

In fact, Hall’s appellate claims were challenges to

issues of law, and no such post-verdict Rule 50(b) motion should have been necessary. Hall’s substantive

securities laws arguments on appeal—that the

purported misrepresentations at issue were not made

“in connection with” the purchase or sale of a security—should therefore have been considered by the

Eleventh Circuit. And because the purported misrepresentations did not relate to or substantively affect

the value or substance of the securities transacted, the

Eleventh Circuit should have resolved those arguments in Hall’s favor.

The facts of this case are largely undisputed. Petitioner Hall—and a company he was the controlling

shareholder of, Call Now, Inc.—obtained millions of

dollars in loans from the brokerage firm (and its affiliate), Penson Financial Services, Inc. (“Penson”). Hall

obtained these loans in connection with a “margin” account at Penson, in which Penson agreed to loan Hall

funds, so long as Hall pledged sufficient collateral to

Penson to secure the loans (with the pledged collateral

generally being held in the margin account).1

By 2009, during the global financial recession,

both Hall’s and Call Now’s brokerage accounts had

substantially diminished in value, so Penson required

Hall and Call Now to deposit and/or pledge additional

“Margin” is money borrowed from a brokerage firm to purchase an investment. It is the difference between the total value

of securities held in an investor’s account and the loan amount

from the broker. Buying on margin is the act of borrowing money

to buy securities. The practice includes buying an asset where the

buyer pays only a percentage of the asset’s value and borrows the

rest from the bank or broker. The broker acts as a lender and

the securities in the investor’s account act as collateral. Alexandra Twin, Margin, Investopedia (Mar. 25, 2019), https://www.

investopedia.com/terms/m/margin.asp.

collateral into the accounts. In particular, Penson desired, as collateral, enough shares to constitute a controlling interest in Call Now, since Call Now had what

Penson believed to be valuable assets.

In response to Penson’s call for collateral, Hall declined to pledge shares of Call Now stock in the amount

requested by Penson unless Penson provided additional loans to Hall. Hall justified his request by telling

Penson the shares were already pledged to other parties. Penson agreed to loan Hall money to pay off the

supposed lien. Admittedly, the shares were not actually

encumbered by other lenders; and Hall’s representations about the shares being encumbered was a negotiating tactic to secure additional financing for the

pledge of his shares. Importantly, Hall made no misrepresentations about Call Now itself or the value of

its shares, and the Commission below made no such

allegations.

In 2010, Hall and Call Now again had shortfalls in

their margin accounts and required additional pledges

of collateral to avoid liquidation of the previously

pledged collateral. Hall pledged additional shares of

Call Now, which he again claimed were encumbered

and for which he would need an additional loan to pay

off the lien. While these shares were, in fact, subject to

a lien, it was in an amount that was less than what

Penson loaned Hall. Hall also pledged his interest in a

real estate limited partnership as additional collateral

for the margin loans. As he had with the Call Now

stock, Hall claimed that his interest in the limited

partnership was subject to an existing lien, but failed

to disclose that he himself was the holder of that lien

through his control of a separately-created entity. Once

again, this was not an alleged misrepresentation about

the underlying securities Hall pledged.

All told, Hall received approximately $3.7 million

as a result of the loans at issue, but he pledged approximately $15 million worth of collateral to Penson to

secure those loans. Importantly, Hall’s misrepresentations were as to the reasons why he needed the additional loans; the misrepresentations did not affect or

relate to the value or underlying substance of the

pledged securities—which were precisely what Penson

had bargained for and which far exceeded the value of

the loans provided. It was not alleged that Penson was

deceived about the value of the securities nor the

amount of money it loaned to Hall.

In September 2015, the Commission brought an

enforcement action against Hall alleging violations of

Section 17(a) of the Securities Act of 1933 (15 U.S.C.

§ 77q(a)), and Section 10(b) of the Securities Exchange

Act of 1934 (15 U.S.C. § 78j(b)) and Rule 10b-5 thereunder (17 C.F.R. § 240.10b-5). In November 2016, Hall

filed a motion for final summary judgment, arguing

that the alleged misrepresentations were neither “material” nor made “in connection with” the purchase or

sale of a security, as required by pertinent law. The

district court denied Hall’s motion, as well as the Commission’s own motion for summary judgment on liability.

The parties in the district court conducted a sevenday jury trial, beginning February 13, 2017. At the

close of the Commission’s presentation of evidence,

Hall moved for judgment as a matter of law, pursuant

to Fed. R. Civ. P. 50(a), arguing the Commission failed

to demonstrate that Hall’s misrepresentations were

“material” or that the misrepresentations were made

“in connection with” a securities transaction, as to support a violation of the securities laws. The district court

denied the motion.

Hall additionally objected to the district court’s

jury instructions, which, in relevant part, instructed

that “[t]he “in connection with” requirement is satisfied where fraud ‘touches the transaction in some

way.’ ” (Pet. App. 35-36) (emphasis by Petitioner).

The jury found Hall committed violations of the

anti-fraud provisions of the federal securities laws. After the verdict, Hall did not file a Fed. R. Civ. P. 50(b)

renewed motion for judgment as a matter of law or

move for a new trial.

In March 2017, the SEC filed a Motion for Final

Judgment seeking: (1) entry of a final judgment; (2) a

permanent injunction barring Hall from violating the

securities laws in the future; (3) disgorgement of over

$3.7 million; (4) pre-judgment interest of more than

$950,000; (5) a civil penalty of over $3.7 million; and

(6) a permanent officer-and-director bar. Hall opposed

the requested remedies.

On April 13, 2017, the district court entered its

first order and final judgment. The district court

granted the Commission’s request for a permanent injunction and imposed a ten-year officer-and-director

bar, but did not order the disgorgement requested because the court held that the Commission was required

to offset Hall’s purported ill-gotten gains by the value

of the collateral Hall had deposited/pledged in his margin account. The district court also imposed a $225,000

civil penalty against Hall.

On May 11, 2017, the Commission filed a motion

pursuant to Fed. R. Civ. P. 59(e), seeking partial reconsideration of the first order and final judgment. Hall

opposed. On June 29, 2017, the district court entered

its second order and adopted the Commission’s renewed argument as to disgorgement, ordering Hall to

disgorge approximately $3.7 million along with prejudgment interest in the amount of approximately

$955,000, for a total judgment of approximately $4.7

million. (Pet. App. 26-27). Hall timely appealed to the

Eleventh Circuit.

On appeal, Hall (1) argued that the district court

abused its discretion in assessing disgorgement and in

requiring him to pay prejudgment interest; (2) challenged the imposition of the injunction and officer-anddirector bar; and (3) argued that the transactions at

issue did not implicate the securities laws—namely, (a)

the misrepresentations by Hall were not made “in connection with” the purchase or sale of a security and (b)

the transactions did not involve material statements.

On January 4, 2019, the Eleventh Circuit issued

its opinion, denying Hall’s appeal and affirming the

district court. (Pet. App. 17). While the Eleventh Circuit substantively discussed Hall’s arguments as to

disgorgement, prejudgment interest and the permanent injunction and officer-and-director bar, it ignored

Hall’s arguments as to whether his conduct implicated

the securities laws.

In dismissing Hall’s securities laws arguments

out-of-hand, the Eleventh Circuit relied on its prior decision in Hi Ltd. P’Ship v. Winghouse of Fla., Inc., 451

F.3d 1300, 1302 (11th Cir. 2006) to hold that it lacked

“authority” to consider Hall’s “challenges to the sufficiency of the [Commission]’s evidence at trial” because

Hall had not filed a Fed. R. Civ. P. 50(b) post-verdict

motion for reconsideration or for a new trial in the district court. (Pet. App. 8-9, n. 6).

On March 26, 2019, Hall filed an application for

extension of time to file this Petition, which Justice

Thomas granted, extending the deadline to file to May

20, 2019. This Petition timely followed.

------------------------------------------------------------------

ARGUMENT AND REASONS FOR

GRANTING THE PETITION

This case presents the important question of

whether courts of appeals have authority to hear challenges to issues of law raised in the trial court in a preverdict Fed. R. Civ. P. 50(a) motion for directed verdict

where the issue of law is not subsequently renewed in

a post-verdict Rule 50(b) motion. This is a question

over which the courts of appeals conflict. This case also

presents the Court with the opportunity to clearly articulate the “in connection with” standard of the antifraud provisions of the federal securities laws.

The Eleventh Circuit—citing this Court’s opinion

in Unitherm Food Systems, Inc. v. Swift–Eckrich, Inc.,

546 U.S. 394 (2006)—has previously held that where a

party files a Rule 50(a) motion for judgment as a matter of law, the party’s failure to file a post-verdict Rule

50(b) motion renewing its argument precludes an appellate court from considering matters on appeal that

were before the district court in the pre-verdict motion.

See Hi Ltd. P’Ship v. Winghouse of Fla., Inc., 451 F.3d

1300, 1302 (11th Cir. 2006).

The Fourth, Sixth, Seventh, and Eighth Circuits,

however, have read this Court’s opinion in Unitherm

more narrowly, as precluding appellate authority to review arguments where no post-verdict Rule 50(b) motion is made, but where the arguments relate to the

sufficiency of the evidence. In other words, those courts

have read Unitherm to be inapplicable where other

challenges, such as to issues of law or evidentiary rulings, are made. See Linden v. CNH America, LLC, 673

F.3d 829, 833-34 (8th Circuit 2012); Van Alstyne v. Elec.

Scriptorium, Ltd., 560 F.3d 199, 203-04 n. 3 (4th Cir.

2009); Bryant v. Dollar Gen. Corp., 538 F.3d 394, 39798 n. 2 (6th Cir. 2008); Fuesting v. Zimmer, Inc., 448

F.3d 936, 939 (7th Cir. 2006).

As discussed below, this case would allow the

Court to clarify a circuit conflict on an important and

recurring question of federal law involving appellate

jurisdiction. Indeed, this conflict can have—and has

had—prejudicial consequences to Petitioners such as

Mr. Hall, whose appellate rights are dismissed outright, simply because a court misconstrues its ability

to consider those arguments. Courts have not applied

a uniform standard of review to such appeals. This case

would also allow this Court to resolve an ambiguity

with respect to the application of standards under the

anti-fraud provisions of the federal securities laws.

As such, this Court should accept jurisdiction to

review the circuit split to ensure that petitioners have

consistent access to appellate process and that the securities laws can be clearly applied.

Petitioner respectfully requests this Court grant

certiorari.

The courts of appeals are divided over

whether they have authority to hear arguments raised in pre-verdict Fed. R. Civ. P.

50(a) motions when the arguments are not

thereafter revived in a post-verdict Rule

50(b) motion.

A. This Court’s opinion in Unitherm Food

Systems, Inc. v. Swift–Eckrich, Inc.

In Unitherm, prior to the court’s submission of

the case to the jury, the defendant moved for a directed

verdict based on insufficiency of the evidence pursuant

to Fed. R. Civ. P. 50(a). 546 U.S. 394, 398 (2006). The

district court denied that motion. Id. The jury thereafter returned a verdict against the defendant, which

neither renewed its motion for judgment as a matter

of law pursuant to Rule 50(b), nor moved for a new trial

pursuant to Rule 59. Id.

On appeal to the Federal Circuit, the defendant

maintained there was insufficient evidence to support

the jury’s verdict. Id. The Federal Circuit, agreeing

with defendant, vacated the jury’s judgment on appeal

and remanded for a new trial. Id. at 399. This Court

granted certiorari. Id.

In its Unitherm opinion, this Court began its discussion by explaining:

Federal Rule of Civil Procedure 50 sets forth

the procedural requirements for challenging

the sufficiency of the evidence in a civil jury

trial and establishes two stages for such challenges—prior to submission of the case to the

jury, and after the verdict and entry of judgment. Rule 50(a) allows a party to challenge

the sufficiency of the evidence prior to submission of the case to the jury, and authorizes the

district court to grant such motions at the

court’s discretion.

Rule 50(b), by contrast, sets forth the procedural requirements for renewing a sufficiency

of the evidence challenge after the jury verdict

and entry of judgment.

546 U.S. at 399-400. After reviewing several prior holdings involving Rule 50, this Court explained that a

post-verdict Rule 50(b) motion was necessary to appeal

an argument as to the sufficiency of the evidence because, “ ‘[d]etermination of whether a new trial should

be granted or a judgment entered under Rule 50(b)

calls for the judgment in the first instance of the judge

who saw and heard the witnesses and has the feel of

the case which no appellate printed transcript can impart.’ ” Id. at 401 (quoting Cone v. West Virginia Pulp &

Paper Co., 330 U.S. 212, 218 (1947)).

This Court ultimately held that because the respondent failed to renew its Rule 50(a) pre-verdict motion as specified in Rule 50(b), there was no basis for

review of respondent’s sufficiency of the evidence challenge in the court of appeals. Id. at 407. This Court

therefore reversed the judgment of the Federal Circuit.

Id.

B. The Eleventh Circuit’s opinion in Hi

Ltd. Partnership v. Winghouse of Florida, Inc.

In Hi Ltd. Partnership v. Winghouse of Florida,

Inc., the plaintiffs/counter-respondents brought an action against a competitor alleging trade dress infringement, trade dress dilution, and unjust enrichment. 451

F. 3d at 1301. The district court entered judgment as a

matter of law against plaintiffs on their claims of trade

dress infringement, and unjust enrichment. Plaintiffs

moved for a directed verdict on defendants’ counterclaim, which the district court denied and submitted

the question to the jury. Id.

The jury entered an award of $1.2 million in attorney’s fees against the plaintiffs on the defendants/

counter-claimants’ claim that a previous settlement

agreement barred the plaintiffs from bringing the suit.

Id.

On de novo review, the Eleventh Circuit affirmed

the district court’s holding that plaintiffs’ trade dress

infringement, dilution and unjust enrichment claims

failed as a matter of law. Id. However, with regard to

the plaintiffs’ argument that the settlement agreement at issue violated the Statute of Frauds, the Eleventh Circuit held is was “precluded” from considering

plaintiffs’ argument because the district court had previously denied plaintiffs’ motion for a directed verdict

on this issue and submitted the question to the jury—

which entered a verdict against plaintiffs—and where

plaintiffs did not renew their argument in a post-verdict Rule 50(b) motion. Id. at 1301-02.

The Eleventh Circuit based its opinion on this

Court’s ruling in Unitherm, concluding that where a

party fails to raise a post-verdict Rule 50(b) motion after the denial of a pre-verdict Rule 50(a) motion,

“ ‘cases addressing the requirements of Rule 50’ do not

permit any relief under such circumstances.” Hi Ltd.

Partnership, at 1302 (quoting Unitherm, 546 U.S. at

396) (emphasis by the Eleventh Circuit).

As a result, the Eleventh Circuit held it lacked authority to consider plaintiffs’ appeal from the jury verdict below because “[f ]iling a pre-verdict, Rule 50(a)

motion for judgment as a matter of law cannot excuse

a party’s [Rule 50(b)] post-verdict failure to move for

either a JNOV or a new trial pursuant to Rule 59(b).”

451 F. 3d at 1302.

C. The Fourth, Sixth, Seventh, and Eighth

Circuits

In Linden v. CNH America, LLC, the plaintiff filed

a products liability action against the defendant, based

on injuries the plaintiff sustained while operating a defendant-manufactured bulldozer. 673 F.3d 829, 831

(8th Cir. 2012). After the plaintiff ’s case in chief, the

district court granted defendant’s motion for a directed

verdict under Rule 50(a) and dismissed plaintiff ’s

manufacturing defect claim. Id. at 832. At the conclusion of trial, the jury returned a verdict in favor of the

defendant on plaintiff ’s remaining two claims. Id.

On appeal, the plaintiff raised three separate

claims of error by the district court, with the relevant

claim for discussion here being that the district court

erred when it granted defendant’s motion for a directed verdict on plaintiff ’s manufacturing defect

claim. Id.

The defendant argued that plaintiff ’s entire appeal was forfeited because the plaintiff failed to file a

post-trial motion in the district court, and was thus

precluded from seeking on a new trial on appeal, citing

Unitherm. Id. The Eighth Circuit disagreed.

The Eighth Circuit opined that the defendant had

read the Unitherm opinion out of context in suggesting

that an appeal could never be taken unless a post-verdict motion is filed. Instead, the Eighth Circuit noted

that courts had limited Unitherm’s holding to sufficiency of the evidence challenges where parties failed

to file a post-verdict motion under Rule 50(b) after the

denial of a Rule 50(a) pre-verdict motion. Id. at 833 n.

2 (citing Van Alstyne v. Elec. Scriptorium, Ltd., 560 F.3d

199, 203-04 n. 3 (4th Cir. 2009) (finding Unitherm inapplicable where party appealing does not challenge

sufficiency of the evidence); Bryant v. Dollar Gen.

Corp., 538 F.3d 394, 397-98 n. 2 (6th Cir. 2008) (concluding defendant’s objection to jury instructions preserved claim for appeal and noting ample support

exists for the interpretation that Unitherm only addresses Rule 50 motions based on the sufficiency of the

evidence); Fuesting v. Zimmer, Inc., 448 F.3d 936, 939

(7th Cir. 2006) (concluding “in Unitherm, the Court

was specifically addressing the situation of a litigant

seeking a new trial on the basis of the insufficiency of

the evidence” and “[t]he Court did not hold that a court

of appeals may not award a new trial on the basis of an

erroneous evidentiary decision” in the absence of a

post-verdict motion).

Indeed, the Eighth Circuit in Linden stated,

“[r]eading Unitherm more broadly would dramatically

alter the well-accepted rule that an objection at trial

generally preserves an issue for review on appeal.” Id.

at 833; see also 9B Charles Alan Wright & Arthur R.

Miller, Federal Practice and Procedure § 2540 (3d ed.)

(West 2011) (“If there have been errors at the trial,

duly objected to, dealing with matters other than the

sufficiency of the evidence, they may be raised on appeal from the judgment even though there has not

been either a renewed motion for judgment as a matter

of law or a motion for a new trial. . . .”).

Holding, then, that plaintiff ’s argument was not a

sufficiency of the evidence challenge, but instead

sought review of legal determinations made by the district court, the Eighth Circuit concluded that it had authority to consider the merits of plaintiff ’s appeal. Id.

at 833-34.

II.

There is ambiguity in the courts over the

extent to which misrepresentations must

affect or relate to the value or substance of

the securities transacted in order to be

made “in connection with” the purchase or

sale of a security as to support a violation

of the anti-fraud provisions of the securities laws.

A. The Second Circuit’s decision in Chemical Bank v. Arthur Answer & Co.

In Chemical Bank, a publicly held manufacturer

financed its operations by obtaining various secured

and unsecured credit lines from several institutions.

726 F.2d 930, 932 (1984).2 After requiring more operating capital, the manufacturer entered into additional

loan obligations with various financial institutions

(“banks”), restructured some of these obligations, and

Cert. denied, 476 U.S. 1171, 106 S.Ct. 2894, 90 L.Ed.2d 981

(1986).

finally, pledged 100% of the shares of its subsidiary as

security for certain loans to the subsidiary. Id. at 93233. The manufacturer and subsidiary thereafter filed

for bankruptcy and ceased operation, with much of the

debt unpaid. Id. at 933.

In the resulting civil action, the banks filed a federal securities fraud claim (as well as state claims)

against the manufacturer’s accountants (and three

principal officers of the company), arguing the banks

entered into the transactions with the manufacturer

and its subsidiary in reliance on the manufacturer’s financial statements which were audited and certified

by the accountants. Id.

The banks alleged the accountants knew the

manufacturer’s financial statements were false and

misleading in numerous respects—effectively making

the company appear more profitable and financially

stable than it actually was. Id. The first claim in the

banks’ complaints alleged that in making such certifications, the accountant violated or aided and abetted

in the violation of § 17(a) of the Securities Act of 1933,

§ 10(b) of the Securities Exchange Act of 1934, and

Rule 10b-5 issued thereunder.3

The banks moved for summary judgment on the

federal securities laws claim, which the court denied.

Id. at 934. On appeal (certified for interlocutory appeal

by the district court), the accountant argued that previous cases imposing liability for § 17(a) of the 1933

Which are the same sections charged by the Commission

against Hall.

Act or § 10(b) of the 1934 Act or Rule 10b-5, in respect

of pledges, are cases where the defendant committed a

proscribed act with respect to the pledged securities. See id. at 941 (citations omitted) (emphasis by Petitioner).

The Second Circuit discussed language from this

Court’s opinion in Superintendent of Insurance v.

Bankers Life & Casualty Co., 404 U.S. 6, 12-13 (1971),

in which this Court stated that a party sufficiently

pleads a claim under § 10(b) of the 1934 Act where the

deceptive practices were “touching” the sale of securities.4 The Second Circuit, however, viewed this Court’s

choice of the word “touching” as merely a literary variation of the “in connection with” requirement. Chemical Bank 726 F.2d at 942.

Ultimately, the Second Circuit concluded where

the misrepresentations or omissions involve a securities transaction but do not pertain to the securities

themselves, this will not support a cause of action with

respect to § 10(b) and Rule 10b-5 as well as § 17(a). Id.

at 933-94. Notably, the Second Circuit rejected the

banks “but-for” causation argument, stating:

[Accountant] is not alleged to have deceived

the Banks with respect to the pledge of the

[subsidiary] stock; the Banks got exactly what

they expected. Their showing is simply that

but for [accountant]’s description of [manufacturer] they would not have renewed the

Bankers Life & Casualty Co. involved the sufficiency of

claims made in the complaint at the motion to dismiss stage.

[manufacturer] loans or made the [subsidiary] loan which [manufacturer] guaranteed,

and that if they had not done this, there would

have been no pledge of [subsidiary]’s stock.

Such “but-for” causation is not enough. The

[1934 Securities Exchange] Act and Rule

[10b-5] impose liability for a proscribed act in

connection with the purchase or sale of a security; it is not sufficient to allege that a defendant has committed a proscribed act in a

transaction of which the pledge of a security

is a part.

Id. at 934.

B. This Court’s

Zandford

opinion

SEC

In Zandford, a stockbroker sold a customer’s securities and used the proceeds for his own benefit without the customer’s knowledge or consent. 535 U.S. 813,

815 (2002). The SEC filed a civil complaint, alleging violations of § 10(b) of the Securities Exchange Act of

1934 and Rule 10b-5. Id. The question before this

Court—similarly as it is here—was whether the alleged fraudulent conduct was undertaken “in connection with the purchase or sale of any security” within

the meaning of the statute and rule. Id.

The facts revealed that on over 25 separate occasions, the broker had transferred money from his client’s account to accounts he controlled.5 Id. at 815.

The broker did this in a number of ways, including selling

assets in the client’s account and then using the proceeds

Respondent was convicted on 13 counts of wire fraud

in the U.S. District Court for the District of Maryland.

Id. at 816. After he was indicted, the SEC filed a civil

complaint in the same district court, alleging the advisor violated § 10(b) and Rule 10b-5 by misappropriating approximately $343,000 of the client’s securities

without their knowledge or consent. Id.

The SEC moved for partial summary judgment,

arguing the criminal conviction estopped the advisor

from contesting facts establishing a violation of § 10(b).

The district court granted partial summary judgment

in the SEC’s favor. Id.

On appeal, the Fourth Circuit reversed, not only

holding that the wire fraud claims upon which the defendant was criminally convicted did not contain the

same elements necessary to support a cause of action

under § 10(b)—namely, the lack of the “in connection

with” the sale of a security element6—but the SEC’s

civil complaint did not sufficiently allege the necessary

connection because the sales of the customer’s securities were merely incidental to a fraud that was the

theft of proceeds from sales that were conducted in a

“routine and customary fashion.” Id. at 817 (citation

omitted).

personally as well as writing checks to himself from a mutual

fund account held by the clients, which then required liquidating

securities to redeem the checks. Id. at 815-16.

Recognizing wire fraud only required the findings that: (1)

respondent engaged in a scheme to defraud; and (2) that he used

interstate wire communications in executing the scheme. Id. at

817.

After granting certiorari, this Court considered

whether the SEC had met its burden of alleging that

the fraud alleged by the SEC had occurred “in connect

with” the purchase or sale of a security. Id. at 818. This

Court began its discussion by reviewing the congressional objectives behind the statute and rule, and explained the statute should be construed “flexibly to

effectuate its remedial purpose.” Id. at 819 (citations

omitted). The Court also noted its deference to the

SEC’s broad reading of the phrase “in connection with

the purchase or sale of any security.” Id. at 819-20.

This Court compared the Zandford facts as being

similar to those of Superintendent of Ins. of N.Y. v.

Bankers Life & Casualty Co., where the Manhattan

Casualty Company authorized the sale of the company’s portfolio of treasury bonds because they had

been “duped” into believing the company would receive

the proceeds of the sale. Zandford, at 821 (citing Bankers Life, 404 U.S. at 9 (1971)).

As in Bankers Life, the Zandford Court concluded

that the SEC had properly alleged violations of the securities laws because the fraud by the broker was directed at the securities themselves and it was enough

that the scheme to defraud and the sale of the securities “coincide[d]”:

The securities sales and respondent’s fraudulent practices were not independent events.

This is not a case in which, after a lawful

transaction had been consummated, a broker

decided to steal the proceeds and did so. Nor

is it a case in which a thief simply invested

the proceeds of a routine conversion in the

stock market. Rather, respondent’s fraud coincided with the sales themselves.

Zandford, 535 U.S. at 820.

C. This Court’s opinion in Chadbourne &

Parke LLP v. Troice

In Chadbourne & Parke, plaintiffs sued firms and

attorneys who they allege facilitated the sale of certificates of deposit in a bank which the investors were

told would use the funds to buy highly lucrative assets.

Instead, the certificates of deposit being sold ended up

being part of a massive Ponzi scheme. 571 U.S. 377, 384

(2014). The complaints by the plaintiffs alleged that

the fraud included misrepresentations that the bank

maintained significant holdings in “highly marketable

securities issued by stable governments [and] strong

multinational companies,” and that the bank’s ownership of these securities made the investments in the

certificates of deposit more secure. Id. at 385-86.

At issue was whether the Securities Litigation

Uniform Standards Act (“SLUSA”) would bar the actions because the SLUSA forbids class actions based

on State statutory or common law where allegations

involve a misrepresentation or omission of a material

fact in connection with the purchase or sale of a “covered security.” Id. at 380-82.

This Court held that with respect to the SLUSA’s

“in connection with” requirement, a fraudulent misrepresentation or omission was not made “in connection

with” the purchase or sale of a “covered security” “unless it is material to a decision by one or more individuals (other than the fraudster) to buy or to sell a

‘covered security.’ ” 571 U.S. 377, 387 (2014). Because

the securities at issue (certificates of deposit) were not

“covered securities” under the SLUSA’s narrow definition, and the complaints merely alleged that the certificates were supposedly backed by covered securities

(the fraudulent misrepresentation), then the SLUSA

did not apply. Id.

The court held that the bank’s supposed use of the

funds to buy “covered securities” (as defined by the

SLUSA) was too attenuated to the plaintiffs’ claims

which centered on their purchase of “non-covered” securities. Id. at 387-89. Importantly, the court noted

that the “in connection with” requirement focused on

whether there was a misrepresentation or fraud which

had a material impact on someone’s decision to buy or

sell a covered security, not the purported “fraudster’s”

decision to buy or sell covered securities. Id. at 388 (citing Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27,

44 (2011) (a misrepresentation or omission is “material” if a reasonable investor would have considered

the information significant when contemplating a statutorily relevant investment decision)).

D. The Eleventh Circuit’s opinion in Securities and Exchange Commission v. Radius Capital Corp.

In Radius Capital Corp. (an unreported decision

cited by the Commission below), the founder/CEO of a

mortgage lender and issuer of mortgage-backed securities (“MBS”) was charged—along with the company—by the Commission with violating the anti-fraud

provisions of the Securities Act of 1933 (§ 17(a)) and

Securities Exchange Act of 1934 (§ 10(b) and Rule 10b5). 653 Fed. Appx. 744, 748 (11th Cir. 2016).

The SEC alleged the defendants had made misrepresentations in order to become a Ginnie Mae-backed

issuer of MBS7 and also made misrepresentations in

the prospectuses of the MBS that were available to the

public. See id. The Commission alleged that after certain loans underlying the MBS fell into default, the investors, as well as Ginnie Mae (which guaranteed the

MBS) suffered losses. Id.

Relevant here, the defendant, on appeal, argued

that the statements made to Ginnie Mae in his application to become a backed issuer of MBS were not

made “in connection with” a securities transaction as

to support a finding of liability under the securities

laws, because the misrepresentations were not “disseminated into the public arena” or were not “an

The misrepresentations to Ginnie Mae included statements

that the loans underlying the MBS were FHA insured, despite

knowing that the majority of the loans did not meet FHA insurability standards.

attempted communication directly at the potential investing public.” 653 Fed. Appx. at 749.

The Eleventh Circuit began its discussion of

the defendant’s argument by noting the broad application of the “in connection with” requirement, both in

its own prior decisions but also in this Court as well.

See id., generally at 653 Fed. Appx. at 749-51 (including

Zandford).

Based upon the previously broad application of the

“in connection with” element,8 the Eleventh Circuit rejected the defendant’s argument, holding that the misrepresentations themselves need not be explicitly

directed at the investing public or occur during the

transaction to be “in connection with the purchase or

sale of ” or “in the offer or sale of ” any security. Id., at

653 Fed. Appx. at 751. However, the Radius Capital

Corp. opinion did not discuss whether the misrepresentations had to relate to the substance of the securities

involved in the transaction or simply the transaction

as a whole. See id.

Indeed, the district court in this case in its jury instructions

included language from Radius Capital in which Eleventh Circuit

restated its prior holding that the “ ‘in connection with’ requirement is satisfied where the fraud” touch[es] the transaction in

some way, including situations where “the purchase or sale of a

security and the [preceding] proscribed conduct are part of the

same fraudulent scheme.” (quoting Rudolph v. Arthur Andersen

& Co., 800 F.2d 1040, 1046 (11th Cir. 1986)).

III. This Court should grant certiorari and

hold that challenges to issues of law raised

in a pre-verdict Fed. R. Civ. P. 50(a) motion

for judgment as a matter of law can be reviewed in the appellate courts, notwithstanding a party’s failure to renew those

arguments on a post-verdict Rule 50(b) motion.

In the proceedings below, the Eleventh Circuit determined it lacked authority to hear Hall’s arguments

regarding whether the purported misrepresentations

at issue were made “in connection with” a securities

transaction. (Pet. App. 8-9, n. 6). Regardless of whether

he would have been successful on the merits of his substantive arguments (though Hall believes he would),

the Eleventh Circuit’s refusal to even consider Hall’s

arguments denied him of his rights to an appeal. This

Court should take the opportunity to correct this error.

As justification for its refusal to consider Hall’s arguments, the Eleventh Circuit, in a footnote, cited to

its own precedent in Hi Ltd. P’Ship v. Winghouse of

Fla., Inc., 451 F.3d 1300 (11th Cir. 2006) that drew

heavily from this Court’s opinion in Unitherm Food

Systems, Inc. v. Swift–Eckrich, Inc., 546 U.S. 394

(2006)—both of which held that in order for an appellate court to have authority to consider sufficiency of

the evidence arguments on appeal, a party must file a

post-verdict Fed. R. Civ. P. 50(b) motion in the trial

court. (Pet. App. 8-9, n. 6).

However, upon a close reading of the Eleventh Circuit’s opinion in Hi Ltd. P’Ship (which involved the

determination of whether a settlement agreement fell

within the statute of frauds or not), it is unclear

whether the Eleventh Circuit would require a Rule

50(b) motion as to permit any appeal or only such appeals that involve challenges to the sufficiency of the

evidence. The Eleventh Circuit’s opinion below—which

simply adopts the language of Hi Ltd. P’Ship—makes

this point no more clear.9

Here, Hall does not simply challenge whether the

evidence at trial was sufficient to support findings of

violations of the securities laws; rather, Hall appeals

whether the proper legal reasoning guided that determination in the first place. This does not require evaluating evidence or assessing the credibility of

witnesses; it requires an analysis of law as to whether

the “in connection with” requirement was satisfied

where the fraud (or misrepresentation) merely

“touches” upon the transaction (as was instructed to

the jury) or whether the fraud has to affect or relate to

the value or substance of the security transacted.

Hall’s appeal therefore involves issues of law:

whether it was proper for the court to deny Hall’s

In the opinion below, the Eleventh Circuit concluded—

without discussion—that Hall was challenging the sufficiency of

the evidence, and therefore, Hi Ltd. P’Ship applied and foreclosed

the court’s authority to hear his “materiality” and “in relation to”

arguments. Because it gave no explanation as to why it concluded

Hall’s challenges were evidentiary, the Eleventh Circuit has left

ambiguity as to whether it is consistently applying the law or is

simply adopting language from prior precedent without fully evaluating the difference between appeals of evidentiary matters and

those of legal issues.

motion for judgment as a matter of law and whether

the jury was instructed with the proper legal standards. See, e.g., Badger v. S. Farm Bureau Life Ins. Co.,

612 F.3d 1334, 1339 (11th Cir. 2010) (appellate court

reviews jury instructions de novo to determine

whether the instructions misstate the law or mislead

the jury to the prejudice of the party who objects to

them).

And Hall appeals issues of law that he raised in

the district court not once, not twice, but thrice: in his

motion for summary judgment; in his pre-verdict Rule

50(a) motion for judgment as a matter of law; and in

his objections to the district court’s jury instructions.

His appellate rights should not be foreclosed simply because of a misapplication of a procedural ruling.

Because it is unclear whether the Eleventh Circuit

below—and in Hi Ltd. P’Ship—would believe that any

appeal is foreclosed when there is no post-verdict motion, this Court should take the opportunity to definitively state what the proper scope of review should be.

IV. The Court should grant certiorari and

hold that in order to satisfy the “in connection with” element of the anti-fraud provisions of the securities laws, the fraud or

misrepresentation at issue must relate to

or affect the value or substance of the securities transacted.

Petitioner concedes that the proceeds of the loans

at issue were not used in the same manner in which

Petitioner represented to Penson he would use those

funds. However, this did not materially affect the securities element of the transaction, as Penson received as

collateral shares of Call Now which far exceeded the

value of the loans advanced. Importantly, it was Penson that called for enough shares of Call Now which

would constitute a controlling interest in the company.

This is what they were provided. Penson participated

in an arm’s length transaction and received as consideration exactly what it had bargained for.

While any potential claim against Petitioner for

his conduct may be considered a common-law fraudulent inducement type claim, it should not be a securities law claim. Indeed, as articulated by this Court in

Zandford, “the [anti-fraud statute] must not be construed so broadly as to convert every common-law

fraud that happens to involve securities into a violation of § 10(b). . . .” 535 U.S. at 820 (citing Marine Bank

v. Weaver, 455 U.S. 551, 556 (1982) (“Congress, in enacting the securities laws, did not intend to provide a

broad federal remedy for all fraud”)). Here, however,

the district court’s jury instruction does just that.

In the matter below, the court instructed the jury

that the “in connection with” standard is met simply

where fraud “touches” upon the transaction. (Pet. App.

36). While technically true in language, as applied, this

overly basic instruction—which Petitioner objected

to—invites a finding of violation of the anti-fraud provisions to any transaction that happens to involve securities in any capacity.

This Court has articulated that the “in connection

with” requirement is not met unless it is “material to a

decision by one or more individuals (other than the

fraudster) to buy or sell a [ ] security.” Chadbourne &

Park LLP, 571 U.S. at 387. The purported misrepresentations here did not have this effect.

The purported misstatements—the reasons articulated why Petitioner needed the loans (to pay down

liens)—did not have an impact on Penson’s decision to

accept the Call Now shares as collateral (the securities

transaction at issue).10 Indeed, it was the drop in value

of Petitioner’s accounts which precipitated the initial

call by Penson for additional collateral in the first

place. And the value of the securities that Penson received as collateral was consistent with what Penson

had bargained for. In other words, to the extent that

any fraud occurred, it was merely in the inducement of

a transaction that simply involved securities but

where the parties both received fair consideration.

Petitioner respectfully asks that this Court grant

certiorari so that it can clear ambiguity between

prior holdings which have held the “in connection

with” requirement requires only that fraud or a misrepresentation “touches” upon a securities transaction

(Superintendent of Insurance v. Bankers Life &

It could also be argued that the misrepresentations were

not made “in connection with” the purchase or sale of securities

because the misrepresentations did not have an effect on the reasons Penson accepted securities as collateral. Indeed, Penson

could have accepted any asset as collateral, including nonsecurities, but simply happened to prefer shares of Call Now.

Casualty Co.), and articulate a standard that more reliably gives instruction in an application similar to the

Chadbourne & Park LLP holding, which stated that

the fraud or misrepresentation must have a material

effect on a party to buy or sell a security.

------------------------------------------------------------------

CONCLUSION

The petition for a writ of certiorari should be

granted.

Respectfully submitted,

BURTON W. WIAND

Counsel of Record

JARED J. PEREZ

ERIC R. FELD

WIAND GUERRA KING PA

5505 West Gray Street

Tampa, FL 33609

Telephone: (813) 347-5100

E-Mail: bwiand@wiandlaw.com

Counsel for Petitioner

May 20, 2019

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.