On Appeal from the United States District Court for the Middle District of Pennsylvania (D.C. No. 97-cv-01242) District Judge: Honorable James F. McClure, Jr.
The opinion of the court was delivered by: Fisher, Circuit Judge.
Before: McKEE, FISHER and ROTH,*fn1 Circuit Judges.
In May 1996, Appellant Douglas Colkitt, M.D., entered into an "Offshore Convertible Securities Purchase Agreement" (the "Agreement") with Appellee Berckeley Investment Group, Ltd., an offshore financing entity based in the Bahamas. The Agreement provided that Colkitt would receive $2,000,000 from Berckeley in exchange for 40 convertible debentures, which Berckeley could convert after a specified time period into unregistered shares of stock held by Colkitt. The number of shares to be converted was controlled by a formula based on the current market value of the shares less a 17% discount for Berckeley.
The relationship between the parties quickly deteriorated, as Colkitt accused Berckeley of "short selling" in order to deflate the market price of the stock and thereby obtain more shares upon conversion. When the time came for Colkitt to convert the unregistered shares to repay his debt to Berckeley, he balked and ended up converting only a small percentage of the shares that Berckeley requested. Thereafter, each party filed suit against the other. There is no dispute that Colkitt breached his end of the bargain. Colkitt, however, asserts that he was justified in not complying with the Agreement because Berckeley made material misrepresentations in the Agreement that violated federal securities laws and constituted common law fraud.
Following seven years of protracted litigation, including a previous appeal to this Court, Berckeley Inv. Group, Ltd. v. Colkitt, 259 F.3d 135, 137 (3d Cir. 2001) ("Berckeley I"), the District Court found in favor of Berckeley on the parties' cross-motions for summary judgment. The District Court awarded damages to Berckeley in the amount of $2,611,075.52. Colkitt appeals that decision on a number of grounds, primarily relating to the District Court's analysis of federal securities laws. For the reasons set forth herein, we will affirm in part, reverse in part, and remand the case to the District Court for further proceedings.
Douglas Colkitt, M.D., is the Chairman of the Board and principal shareholder of National Medical Financial Services Corporation ("NMFS"), a corporation whose shares were traded on the NASDAQ stock exchange. Looking to obtain financing for an unrelated business venture, Colkitt sought out lenders who would be willing to lend him money in exchange for the right to convert his unregistered shares of NMFS stock. See, e.g., GFL Advantage Fund, Ltd. v. Colkitt, 272 F.3d 189, 194-95 (3d Cir. 2001).
In the spring of 1996, Colkitt entered into negotiations with Berckeley Investment Group, Ltd., a Bahamian corporation headquartered in Nassau, Bahamas. On May 30, 1996, the negotiations culminated in the Agreement between the parties.*fn2 Under the Agreement, Berckeley purchased 40 convertible debentures from Colkitt at $50,000 per debenture, for a total of $2,000,000.*fn3 Each debenture represented an unsecured loan for a one-year term, which also obligated Colkitt to pay to Berckeley six percent interest on a quarterly basis. In lieu of receiving repayment in cash per these terms, however, Berckeley was entitled under the Agreement to convert its debentures into NMFS shares. The Agreement provided that, upon demand by Berckeley, Colkitt would issue unregistered shares of NMFS at a 17% discount off the then-prevailing market price of the stock.*fn4 Berckeley was entitled to convert up to one-half of the principal amount into unregistered NMFS shares one hundred (100) days after the closing of the Agreement, and the remaining principal amount one hundred twenty (120) days after the closing date.
Several of the contractual provisions in the Agreement are key to an understanding of the dispute between the parties. The parties acknowledged that the Agreement was entered into pursuant to Regulation S of the Securities Act of 1933, 17 C.F.R. §§ 230.901-.04, and that it would be "governed by and interpreted according to the law of the State of New York." In paragraph 2.5 of the Agreement, Berckeley warranted that all subsequent offers or sales of the debentures or shares would be undertaken in accordance with the registration requirements of the 1933 Securities Act:
All subsequent offers and sales of the Debentures or the Shares will be made (a) outside the United States in compliance with Rule 903 or 904 of Regulation S, (b) pursuant to registration of the Debentures or the Shares, respectively, under the Securities Act, or (c) pursuant to an exemption from such registration. Buyer understands the conditions of the exemption from registration afforded by Section 4(1) of the Securities Act and acknowledges that there can be no assurance that it will be able to rely on such exemption. In any case, Buyer will not resell the Debentures or the Shares to U.S. Persons or within the United States until after the end of the forty (40) day period commencing on the date of completion of the Offering (the "Restricted Period").
Berckeley further represented that it was aware that Colkitt was relying upon the accuracy of its representations regarding federal and state securities laws, and that its "purchase of the Debenture or the Shares pursuant to this Agreement is not part of a plan or scheme to evade the registration provisions of the Securities Act." For his part, Colkitt represented that he would "take no action, including but not limited to the further sale of securities pursuant to Regulation S of [NMFS] that are held by [Colkitt], that will affect in any way the running of the Restricted Period or the ability of Buyer to freely resell the debentures or the Shares in accordance with applicable securities laws and this Agreement." In addition, Colkitt agreed to place 300,000 shares of NMFS stock in escrow to cover the $2,000,000 aggregate amount of the debentures. He further agreed that "[i]f the price has decreased so that the shares in escrow are insufficient for the conversion of all outstanding Debentures, [Colkitt] agrees to place in escrow additional shares representing that number of shares necessary for the conversion of all outstanding Debentures plus an additional 100,000 shares."
Berckeley upheld its end of the Agreement when it wired $2 million via Shoreline to Colkitt. Colkitt, however, did not. Following the expiration of the one hundred day period, Berckeley began making demands on Colkitt to convert the debentures into NMFS stock. Berckeley made five such demands on Colkitt during September 1996 to convert $300,000 worth of the debentures into 40,133 shares of stock.*fn5 On each occasion, Colkitt failed to comply with the conversion demands. Following repeated requests for conversion, Colkitt finally converted 18,230 shares on November 5, 1996.*fn6 Colkitt, however, refused to convert any additional shares, including $160,000 worth of the debentures demanded by Berckeley on November 6, 1996.*fn7 Colkitt further refused to make required quarterly interest payments that were due on the debentures under the Agreement, and to repay the balance due on the Debentures at the end of the term.
Berckeley filed suit in the District Court on August 13, 1997, alleging that Colkitt breached the Agreement by failing to convert the debentures.*fn8 After the District Court made several procedural rulings,*fn9 Colkitt filed a second amended counterclaim complaint containing five counts against Berckeley for violations of federal securities laws and the Pennsylvania Securities Act, common law fraud, and breach of contract. Following discovery, both parties filed cross-motions for summary judgment. In a decision dated December 7, 1999, the District Court granted Berckeley's motion and denied Colkitt's motion. The District Court recognized in the order that there were three remaining issues for its consideration: (1) the amount of damages to which Berckeley was entitled on its breach of contract claim against Colkitt; (2) Berckeley's breach of contract and breach of fiduciary claims against Shoreline; and (3) Shoreline's cross-claims against Colkitt for breach of contract and contractual indemnity. The District Court stated that it would defer the entry of a final judgment pending disposition of the remaining claims, and it requested the parties to file a statement "suggesting how the court shall proceed with the remaining claims/issues."
Berckeley and Shoreline suggested that Berckeley be permitted to file a motion for entry of final judgment against Colkitt, thus staying proceedings involving Shoreline for one year, because satisfaction of Berckeley's judgment against Colkitt would dispose of any remaining claims by or against Shoreline. In contrast, Colkitt stated his intention to seek leave for immediate appeal of the District Court's summary judgment decision pursuant to Fed. R. Civ. P. 54(b) and/or 28 U.S.C. § 1292(b). The District Court sided with Berckeley, which subsequently filed a motion for entry of final judgment against Colkitt. Berckeley and Shoreline then moved to stay Berckeley's claims against Shoreline and Shoreline's claims against Colkitt. On March 30, 2000, the District Court granted Berckeley's and Shoreline's motions and entered judgment in the amount of $2,611,075.52 against Colkitt.
Colkitt appealed the decision of the District Court. On appeal, however, Colkitt argued that we lacked appellate jurisdiction because the District Court had failed to comply with Rule 54(b) and indicate expressly that there was no "just reason" for delaying Colkitt's appellate rights. On July 26, 2001, we issued an opinion agreeing with Colkitt that we lacked appellate jurisdiction, and we remanded the matter back to the District Court. See Berckeley I, 259 F.3d at 146. On August 23, 2001, Berckeley filed with the District Court a motion to amend the judgment so that it comported with the requirements of Rule 54(b). Colkitt opposed the motion. On September 8, 2004, the District Court granted Berckeley's motion and entered an order certifying the judgment as final.*fn10 This appeal followed.
We have jurisdiction over Colkitt's appeal from the order of the District Court pursuant to 28 U.S.C. § 1291. We exercise plenary review over the District Court's entry of summary judgment in favor of Berckeley. Morton Int'l, Inc. v. A.E. Staley Mfg. Co., 343 F.3d 669, 679 (3d Cir. 2003). We therefore apply the summary judgment standard set forth in Federal Rule of Civil Procedure 56(c). Under that standard, we will affirm the judgment of the District Court "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c).
In deciding the motion for summary judgment, our job is to ascertain solely whether there is a dispute of material fact:
we are not permitted to make factual findings, which remains the province of the jury. See Bragen v. Hudson County News Co., 278 F.2d 615, 618 (3d Cir. 1960). When determining whether there are any genuine issues of material fact, we draw all inferences in favor of the non-moving party. Pa. Prot. & Advocacy, Inc. v. Pa. Dep't of Pub. Welfare, 402 F.3d 374, 379 (3d Cir. 2005) (citations omitted). Although the non-moving party receives the benefit of all factual inferences in the court's consideration of a motion for summary judgment, the non-moving party must point to some evidence in the record that creates a genuine issue of material fact. Id. (citing Fed. R. Civ. P. 56(e)). In this respect, summary judgment is essentially "put up or shut up" time for the non-moving party: the non-moving party must rebut the motion with facts in the record and cannot rest solely on assertions made in the pleadings, legal memoranda, or oral argument. See Jersey Cent. Power & Light Co. v. Lacey Twp., 772 F.2d 1103, 1109-10 (3d Cir. 1985). In addition, if the non-moving party has the burden of proof at trial, that party must set forth facts "sufficient to establish the existence of an element essential to that party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
A. THE DISTRICT COURT DID NOT ABUSE ITS DISCRETION IN CERTIFYING THE ORDER AGAINST COLKITT AS A PARTIAL FINAL JUDGMENT PURSUANT TO RULE 54(b)
The threshold issue confronting the Court is whether the District Court abused its discretion in certifying the order against Colkitt as a partial final judgment pursuant to Rule 54(b). Rule 54(b), which governs the certification of final decisions in multiple-claim actions, provides:
When more than one claim for relief is presented in an action, whether as a claim, counterclaim, cross-claim, or third-party claim, or when multiple parties are involved, the court may direct the entry of a final judgment as to one or more but fewer than all of the claims or parties only upon an express determination that there is no just reason for delay and upon an express direction for the entry of judgment. In the absence of such determination and direction, any order or other form of decision, however designated, which adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties shall not terminate the action as to any of the claims or parties, and the order or other form of decision is subject to revision at any time before the entry of judgment adjudicating all the claims and the rights and liabilities of all the parties.
Fed. R. Civ. P. 54(b) (emphasis added). We have explained that the rule was designed in an attempt "to strike a balance between the undesirability of piecemeal appeals and the need for making review available at a time that best serves the needs of the parties." Allis-Chalmers Corp. v. Philadelphia Elec. Co., 521 F.2d 360, 363 (3d Cir. 1975) (citations omitted).
A decision to certify a final decision under Rule 54(b) involves two separate findings: (1) there has been a final judgment on the merits, i.e., an ultimate disposition on a cognizable claim for relief; and (2) there is "no just reason for delay." Curtiss-Wright Corp. v. General Elec. Co., 446 U.S. 1, 7-8 (1980). The parties do not dispute that the District Court's decision entering summary judgment in favor of Berckeley on all claims against Colkitt constituted a final judgment. The dispute lies over whether the District Court abused its discretion in certifying that judgment for immediate appeal under Rule 54(b) on the basis that there was "no just reason for delay."
The Supreme Court has analogized the function of district courts under Rule 54(b) as akin to a "dispatcher": district courts are to consider judicial administrative interests, as well as the equities involved in the case, in order to determine whether discrete final decisions in multiple-claim actions are ready for appeal. Curtiss-Wright Corp., 446 U.S. at 8. Recognizing that the District Court is "most likely to be familiar with the case and with any justifiable reason for delay," we apply an abuse of discretion standard of review to the District Court's determination that there is no just cause for delay. Berckeley I, 259 F.3d at 140 n.4, 145.*fn11 We apply as a benchmark against the District Court's exercise of discretion whether that discretion was applied in the "interest of sound judicial administration." Curtiss-Wright Corp., 446 U.S. at 10. Our proper role in this regard "is not to reweigh the equities or reassess the facts but to make sure that the conclusions derived from those weighings and assessments are juridically sound and supported by the record." Id. As a result, we "should disturb the trial court's assessment of the equities only if we can say that the judge's conclusion was clearly unreasonable." Id.
Our decision in Berckeley I is illustrative of this general principle. In Berckeley I, we determined that there were three principal defects in the District Court's original order entering judgment in favor of Berckeley. First, contrary to the explicit requirement of Rule 54(b), the District Court's opinion did not contain an express determination that there was "no just reason for delay." Berckeley I, 259 F.3d at 141. We concluded that such an express determination was a jurisdictional prerequisite required by Rule 54(b), and thus declined to adopt Berckeley's position that "general references to the necessity of expedition" were sufficient. Id. (citation omitted).
Second, the District Court's original order stated only that it was granting "final judgment" with respect to the claims between Berckeley and Colkitt; it did not cite, or even discuss, Rule 54(b). Thus, it was unclear whether the District Court intended to enter a partial final judgment in accordance with Rule 54(b). Although stopping short of holding that citing to Rule 54(b) is a jurisdictional prerequisite, we concluded that "where there is a concurrent failure to make an express determination of no just cause for delay, we cannot reasonably conclude that the District Court intended to enter a partial final judgment pursuant to that Rule." Id. at 144.
Finally, we noted that the District Court did not discuss in its opinion any factors relevant to whether there was a just reason for delay. We have set forth several factors that courts should consider when assessing that there is a "just reason for delay" under Rule 54(b):
(1) the relationship between the adjudicated and unadjudicated claims;
(2) the possibility that the need for review might or might not be mooted by future developments in the district court;
(3) the possibility that the reviewing court might be obliged to consider the same issue a second time;
(4) the presence or absence of a claim or counterclaim which could result in set-off against the judgment sought to be made final;
(5) miscellaneous factors such as delay, economic and solvency considerations, shortening the time of trial, frivolity of competing claims, expense, and the like.
Allis-Chalmers Corp., 521 F.2d at 364. Although the factors set forth in Allis-Chalmers are not jurisdictional prerequisites -- but instead constitute "a prophylactic means of enabling the appellate court to ensure that immediate appeal will advance the purpose of the rule," Carter v. City of Philadelphia, 181 F.3d 339, 345 (3d Cir. 1999) -- the District Court's original order did not contain any statement of reasons as to why there was no just cause for delay. Berckeley I, 259 F.3d at 145. We held that this omission, when combined with the other two omissions in the order and our inability to ascertain the propriety of the certification from the record, precluded us from exercising appellate jurisdiction over the merits of Colkitt's appeal. We thus dismissed the appeal for lack of jurisdiction and remanded the case to the District Court. Id. at 146.
On remand, the District Court addressed each of the Allis-Chalmer Corp. factors to determine whether to enter a final judgment with respect to all claims between Berckeley and Colkitt. First, the District Court concluded that the adjudicated claims between Berckeley and Colkitt and the outstanding unadjudicated claims did not conflict because "the other pending claims may easily be resolved upon execution of the order of final judgment against Colkitt." (App. VI at 5.) Second, the court stressed that the procedural posture of this case presented the possibility that immediate appellate review might actually moot the remaining proceedings in front of the District Court, which were wholly derivative of the claims on appeal. (Id.) Whether Shoreline will owe damages to Berckeley and whether Colkitt will be required to indemnify Shoreline depends upon Colkitt's underlying liability to Berckeley and Colkitt's ability, if applicable, to satisfy the judgment. Third, the District Court stated that it was unlikely that the remaining claims between Berckeley and Colkitt could be revisited a second time on appellate review because the remaining claims did not involve Berckeley and Colkitt. (Id. at 6.) Finally, the District Court mentioned two judicial economy considerations weighing in favor of certification: (1) depending upon the result on appeal, immediate appellate review could shorten the time for trial or eliminate the need for a trial altogether; and (2) any further delay in the lengthy proceedings could prejudice Berckeley's ability to execute the judgment. (Id.)
Colkitt has once again appealed the District Court's certification decision on the basis that we lack appellate jurisdiction. Colkitt's primary argument is that the District Court abused its discretion in certifying the judgment under Rule 54(b) because the adjudicated claims are factually and legally intertwined with the non-adjudicated claims. A close review of the District Court's September 2004 order, however, reveals that all of the defects in the original order certifying judgment have been remedied. The District Court's decision rested upon pragmatic considerations, particularly the fact that a final appellate determination could moot the remaining derivative claims existing between the parties. Although the Allis-Chalmers Corp. analysis was framed by the converse scenario, i.e., in which appellate review might be mooted by further developments in the district court, the District Court's evaluation of the procedural posture of this case was reasonable. The remaining claims in this case are wholly derivative of the claims between Berckeley and Colkitt, arising from separate agreements entered into between each of those parties and Shoreline. Practically, however, if the summary judgment decision of the District Court is upheld and Berckeley is able to execute on the full amount of the judgment, Shoreline's indemnity claim against Colkitt would become moot and Berckeley would no longer be compelled to continue its claims against Shoreline.
These considerations are amplified when we take into account the miscellaneous factors addressed by the District Court. This case has been litigated by the parties for nearly ten years, and it has been approximately six years since the District Court entered its summary judgment order. In addition, Colkitt's shares of NMFS stock have experienced a steep decline over the past decade, to the point that they are practically worthless. Under these circumstances, it was reasonable for the District Court to take into consideration the possibility that any further delays might impact Berckeley's ability to execute on the judgment. See Curtiss-Wright Corp., 446 U.S. at 11-12 (finding that the difference between statutory and market interest rates, combined with the reality that the prevailing party would not be able to execute the judgment for many years due to the complexity of the litigation and the other party's declining financial position, was an appropriate basis to certify the judgment under Rule 54(b)); see also Allis-Chalmers Corp., 521 F.2d at 367 (Gibbons, J., dissenting) (referencing as a factor the "ingenuity of debtors in devising reasons for not paying liquidated indebtedness").
Taking all of these factors into consideration -- the possibility that our determination on appeal might moot the remaining claims, the derivative nature of the remaining claims, the length of the litigation, and the possibility that further delays might impair Berckeley's ability to execute the judgment -- we find that the decision of the District Court to certify the order as a partial final judgment was not "clearly unreasonable." Curtiss-Wright Corp., 446 U.S. at 10. As a result, we conclude that we have appellate jurisdiction over the present appeal and proceed to address the merits of the dispute.
B. SECTION 29(b) OF THE SECURITIES ACT OF 1934
Colkitt contends that he is entitled to rescind the Agreement under Section 29(b) of the Securities Exchange Act of 1934 (the "Exchange Act"). Section 29(b) provides in pertinent part that:
Every contract made in violation of any provision of this chapter or of any rule or regulation thereunder, . . . [or] the performance of which involves the violation of, or the continuance of any relationship or practice in violation of, any provision of this chapter or any rule or regulation thereunder, shall be void.
15 U.S.C. § 78cc(b). Section 29(b) itself does not define a substantive violation of the securities laws; rather, it is the vehicle through which private parties may rescind contracts that were made or performed in violation of other substantive provisions. See National Union Fire Ins. Co. v. Turtur, 892 F.2d 199, 206 n.4 (2d Cir. 1989). Although the word "void" is contained in the statute, the Supreme Court has read Section 29(b) to be ...