Unpublished Disposition, 914 F.2d 262 (9th Cir. 1990)Annotate this Case
Philip EMRICH, Eric Gillberg, Plaintiffs-Appellants,v.TOUCHE ROSS & COMPANY, Defendant-Appellee.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted April 12, 1990.Decided Sept. 5, 1990.
Before GOODWIN, Chief Judge, and TANG and FERGUSON, Circuit Judges.
The district court granted summary judgment for Touche Ross & Company in Philip Emrich's and Eric Gillberg's securities fraud action. The district court held that Emrich and Gillberg had failed to raise a material fact issue that they relied on Touche Ross's alleged misrepresentations and omissions in financial statements Touche Ross prepared for the June 1978 prospectus for Sambo's Restaurants, Inc. ("SRI"). Reliance is a necessary element of Emrich's and Gillberg's Section 10b claim under the 1934 Securities Exchange Act. See In re Apple Computer Securities Litigation, 886 F.2d 1109, 1113 (9th Cir. 1989), cert. denied, --- U.S. ----, 110 S. Ct. 3229 (1990); Rule 10b-5, 17 C.F.R. Sec. 240.10b-5. The district court also denied Emrich's and Gillberg's motion for class certification. We affirm.
Emrich and Gillberg contend they are entitled as a matter of law to a presumption they relied on Touche Ross's omissions and misrepresentations in the June 1978 joint venture propectus. Emrich and Gillberg assert an "Affiliated Ute " presumption whereby investors' reliance on omissions is presumed in face-to-face transactions. See Affiliated Ute Citizens v. United States, 406 U.S. 128, 153-54 (1972). They argue that the presumption should also apply to a mixed case such as theirs of omissions and misrepresentations. Emrich and Gillberg also assert an "Arthur Young " presumption whereby investors are presumed to rely on the integrity of the regulatory process during the initial offering of the security. See Arthur Young & Co. v. United States Dist. Ct., 549 F.2d 686, 695 (9th Cir.), cert. denied, 434 U.S. 829 (1977).1
As the parties have recognized, both presumptions raise issues of law still unresolved in this circuit. See, e.g., Kramas v. Security Gas & Oil, 672 F.2d 766, 769 n. 2 (9th Cir.), cert. denied, 459 U.S. 1035 (1982). We need not resolve those issues in this case either. As discussed below, even if Emrich and Gillberg are entitled to a presumption that they relied on Touche Ross's omissions and misrepresentations in the June prospectus, Touche Ross successfully rebutted the presumption. See Keirnan v. Homeland, Inc., 611 F.2d 785, 789 (9th Cir. 1980); Arthur Young, 549 F.2d at 695. The district court therefore properly granted summary judgment.
We have previously held that a defendant can rebut any available presumption of reliance by showing "that plaintiff did not attach significance to the misrepresented facts, and would not have attached significance to the omitted facts, and therefore would have acted as he did if he had known the truth." Keirnan, 611 F.2d at 789. We apply this two-step analysis to the record produced on summary judgment in this case.
First, Emrich's deposition testimony demonstrates that he did not attach significance to Touche Ross's alleged misrepresentations. In the Muller action, Emrich disavowed relying on the alleged misrepresentations or on anything else in the June 1978 prospectus for his investment decision. Second, Emrich's deposition testimony demonstrates that he would not have attached significance to the facts Touche Ross allegedly omitted from the June 1978 prospectus. Emrich's testimony shows that he decided to invest in the SRI joint venture before reading the prospectus and that he disbelieved the financial statements Touche Ross had prepared for the prospectus in all events. The record thus rebuts any presumption that Emrich relied on Touche Ross's misrepresentations or omissions in the June 1978 prospectus, and demonstrates instead that Emrich would have invested in the SRI joint venture regardless of Touche Ross's statements or omissions in the prospectus.
Similarly, Gillberg's deposition testimony shows that he did not attach significance to Touche Ross's alleged misrepresentations in the June 1978 prospectus and would not have attached significance to the alleged omission. Gillberg's deposition shows that, at best, he "skimmed" the prospectus. At one point in his deposition, Gillberg disavowed reading the prospectus at all. Gillberg further testified that the only portion of the prospectus he relied on for his investment decision was the section describing qualifications for investment. Finally, Gillberg's testimony shows he made his investment decision wholly independently of the prospectus, relying instead on his extensive personal knowledge of SRI management. Even when viewed in a light most favorable to Gillberg, his deposition testimony demonstrates that he relied on the prospectus at most for investor qualifications, and therefore did not rely on Touche Ross's statements and would not have relied on Touche Ross's alleged omissions.
D. Evidence in Opposition to Summary Judgment
Assuming arguendo Emrich and Gillberg are entitled to a presumption they relied on misrepresentations and omissions in the June 1978 prospectus, Touche Ross rebutted any such presumption with the plaintiffs' own testimony. In the face of the deposition evidence Touche Ross had marshalled for summary judgment, Emrich and Gillberg bore the burden of raising a genuine issue of fact about their reliance on the prospectus. See Fed.R.Civ.Proc. 56(e) ("When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party."); In re Apple Computer, 886 F.2d at 1113. Emrich and Gillberg failed to meet this burden. In opposing summary judgment, Emrich and Gillberg offered only affidavits avowing that they in fact had relied on the June prospectus in making their investment decisions. Emrich and Gillberg may not defeat summary judgment by raising an issue of fact through affidavits contradicting prior deposition testimony, however. See Radobenko v. Automated Equip. Corp., 520 F.2d 540, 543-44 (9th Cir. 1975); Harkins Amusement Enters. v. General Cinema Corp., 850 F.2d 477, 482-83 (9th Cir. 1988), cert. denied, --- U.S. ----, 109 S. Ct. 816 (1989). The district court therefore properly granted summary judgment to Touche Ross.
Because we affirm the district court's grant of summary judgment to Touche Ross, we need not address the class certification issue.
Even if Emrich and Gillberg are entitled to a presumption they relied on the June 1978 prospectus, Touche Ross has demonstrated for summary judgment purposes that Emrich and Gillberg did not in fact rely on the prospectus for their investment decisions. Having successfully rebutted any available presumption, Touche Ross was entitled to judgment as a matter of law and to denial of class certification.
The final judgment of the district court is therefore
This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir.R. 36-3
Emrich and Gillberg also contend they are entitled to a presumption of reliance under a "fraud on the market" theory. The Supreme Court premised the "fraud on the market" presumption on an "impersonal, well-developed market" where the "market price of shares traded ... reflects all publicly available information...." Basic Inc. v. Levinson, --- U.S. ----, ----, 108 S. Ct. 978, 991 (1988). The fraud-on-the-market presumption, therefore, cannot apply in this case of securities sold face-to-face at a single set price