Paul Braunstein v. Thomas Pickens, III, No. 09-2080 (4th Cir. 2011)

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UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 09-2080 PAUL BRAUNSTEIN; KEVIN GASSER; JAMES IHA; CRAIG KANARICK; KATIE FORD; ANDRE BALAZS, D ARCY BROWN; Plaintiffs Appellees, v. THOMAS B. PICKENS, III, Defendant Appellant. Appeal from the United States District Court for the District of South Carolina, at Charleston. Patrick Michael Duffy, Senior District Judge. (2:08-cv-00193-PMD) Argued: October 28, 2010 Decided: January 4, 2011 Before KING, DAVIS, and KEENAN, Circuit Judges. Affirmed by unpublished per curiam opinion. ARGUED: Thornwell Forrest Sowell, III, SOWELL, GRAY, STEPP & LAFFITTE, LLC, Columbia, South Carolina, for Appellant. Andrew Kenneth Epting, Jr., ANDREW K. EPTING, JR., LLC, Charleston, South Carolina, for Appellees. ON BRIEF: Amy L. B. Hill, Tina M. Cundari, SOWELL, GRAY, STEPP & LAFFITTE, LLC, Columbia, South Carolina, for Appellant. Unpublished opinions are not binding precedent in this circuit. PER CURIAM: The defendant, Thomas B. Pickens, III ( Pickens, or the Defendant ), appeals from the district court s judgment in favor of the plaintiffs, Paul Braunstein, Kevin Gasser, James Iha, D Arcy Brown, Craig Kanarick, Katie Ford, and Andre Balazs (collectively, the Plaintiffs ), in this action to recover on a promissory note (the Promissory Note ). More specifically, Pickens contests the January 20, 2009 Order denying his motion for judgment on the pleadings and granting the Plaintiffs motions for summary judgment and to amend their Complaint, see Braunstein v. Pickens, 593 F. Supp. 2d 834 (D.S.C. 2009) (the Summary Judgment Order ), as well as the August 19, 2009 Order denying Pickens s motion for reconsideration, see Braunstein v. Pickens, No. 2:08-cv-00193 Reconsideration Order ). 1 (D.S.C. Aug. 19, 2009) (the As explained below, we affirm. I. A. On November 17, 2004, Pickens executed the Promissory Note, promising to pay the Plaintiffs the principal sum of $250,000.00 on or before July 30, 2007, plus accrued interest at the rate of 1 The unpublished Reconsideration Order is found at J.A. 130-34. (Citations herein to J.A. __ refer to the contents of the Joint Appendix filed by the parties in this appeal.) 2 5% per annum commencing on July 30, 2004. 2 The Promissory Note reflects that it was executed in exchange for the dismissal with prejudice of claims asserted by the Plaintiffs against Pickens in a South action, the Carolina state Plaintiffs had court proceeding. obtained confessions In of that state judgment, signed by Pickens, in the total amount of $2,886,994.64 plus interest and fees. 3 On the same day that Pickens executed the Promissory Note (November 17, 2004), he also signed a hypothecation agreement (the Hypothecation Agreement ), pledging his shares of common 2 Although there is some disagreement over certain immaterial facts, the facts material to the resolution of this matter are undisputed. Because the district court awarded summary judgment to the Plaintiffs, we must view the facts and inferences reasonably drawn therefrom in the light most favorable to Pickens. See FOP Lodge No. 89 v. Prince George s Cnty., 608 F.3d 183, 188 (4th Cir. 2010). 3 As background, the Plaintiffs assert that, between 1996 and 1998, they had invested substantial sums of money in various partnerships of Pickens. In 2000, the Plaintiffs discovered that Pickens had been making personal use of their investment monies. As a result, the Plaintiffs filed the state action against Pickens individually and against various entities controlled by him. After obtaining the confessions of judgment, the state action was stayed pending bankruptcy proceedings, and the Plaintiffs agreed to a $250,000.00 settlement giving rise to the Promissory Note. As Pickens tells the story, both he and the Plaintiffs were the victims of a duplicitous New York financial advisor, and he never promised to be held individually responsible for the confessions of judgment. In any event, as the district court recognized in its Summary Judgment Order, the underlying sequence of events [is] beyond the scope of the legal issues presented in the current action. See Braunstein, 593 F. Supp. 2d at 834. 3 stock in the Code Corporation as security for the performance of his obligations under the Promissory Note. See Braunstein, 593 F. [h]ypothecation Supp. 2d defined as at 835 the n.1 (explaining pledging of that something as security is without delivery of title or possession (internal quotation marks and alteration omitted)). The Hypothecation Agreement provides that Pickens s lawyer would hold the shares in escrow and deliver them to Plaintiffs Pickens. J.A. 19. counsel in the event of any default by Additionally, the Hypothecation Agreement provides that, [i]n the event of his default on the terms of the Promissory Note . . . , Pickens hereby authorizes the [Plaintiffs] to sell any or all of his shares of stock in the Code Corporation. spells out Id. requirements at for 20. The such a Hypothecation sale, and Agreement specifies that Pickens shall not remain personally liable for any deficiency. Id. The July 30, 2007 deadline for Pickens s satisfaction of his obligations under the Promissory Note passed without Pickens having paid the Plaintiffs any of the money owed. Thus, on October 15, 2007, counsel for the Plaintiffs sent a letter to Pickens s lawyer warning that he would file suit if the full amount due calculated to be $293,023.82 as of October 31, 2007 was not Letter ). paid within ten days (the Plaintiffs Demand Additionally, the Plaintiffs Demand Letter requests 4 that Pickens s lawyer forward to Plaintiffs counsel the Code Corporation stock shares pledged in the Hypothecation Agreement as security for the Promissory Note. On November 12, 2007, Pickens s lawyer sent a response letter to counsel for the Plaintiffs, acknowledging that Pickens had defaulted on his obligations under the Promissory Note and that the Plaintiffs therefore had demanded delivery of the Code Corporation Pickens s original stock shares Response Letter stock certificate ( Pickens s reflects for Response enclosure 1,861,938 of shares Letter ). Pickens s of Code Corporation stock (the Stock Certificate ), and states that the Plaintiffs are now entitled to sell any or all of such shares. J.A. 11. Although the Stock Certificate was indeed enclosed with Pickens s Response Letter, Pickens had not endorsed the backside of the Stock Certificate to show transfer of his shares to the Plaintiffs. Id. at 13-14. Without seeking Pickens s endorsement of the Stock Certificate, the Plaintiffs thereafter initiated this action. B. 1. On January 21, 2008, the Plaintiffs filed their Complaint against Pickens in the District of South Carolina, diversity jurisdiction under 28 U.S.C. § 1332. invoking According to the Complaint, Pickens had defaulted on his obligations under the 5 Promissory Note and owed the Plaintiffs the principal sum of $250,000.00 plus accrued interest. The Complaint did not mention the Hypothecation Agreement or Pickens s delivery of the unendorsed Stock Certificate. Response Letter and the Nevertheless, copies of Pickens s unendorsed Stock Certificate were attached as exhibits to the Complaint. Pickens 2008. filed his Answer to the Complaint on April 10, As the third defense asserted therein, Pickens contended that [t]he debt owed to Plaintiffs by Defendant pursuant to the Promissory Code Note was Corporation satisfied Stock to when Defendant Plaintiffs surrendered counsel. J.A. the 16. Pickens s fifth defense was that Plaintiffs claims are barred by the terms of the Hypothecation Agreement dated November 17, 2004 executed by Defendant and accepted by Plaintiffs. Id. A copy of the Hypothecation Agreement and a frontside-only copy of the Stock Certificate (omitting the unendorsed backside) were attached as exhibits to the Answer. On April 17, 2008, the district court entered a Scheduling Order, establishing a June 9, 2008 deadline for motions to amend the pleadings, an October 7, 2008 discovery deadline, and an October 22, Scheduling 2008 Order deadline reflects for that, dispositive although motions. [l]ate requests The to amend [the pleadings are] strongly discouraged, such requests could be justified with adequate explanation. 6 See J.A. 26. The Scheduling Order was initially characterized as tentative, id. at 27, but it was never formally changed. parties, however, they subsequently agreed According to the to an abbreviated schedule requiring them to submit dispositive motions by June 17, 2008. On June 17, 2008, Pickens filed a Federal Rule of Civil Procedure 12(c) motion for judgment on the pleadings. In support of his motion, Pickens contended that, pursuant to the Hypothecation Agreement, he had satisfied his obligations under the Promissory Note by delivering the Stock Certificate to the Plaintiffs. That same day (June 17, 2008), the Plaintiffs filed a Rule 56 motion for summary judgment. In their supporting memorandum, the Plaintiffs maintained that Pickens cannot claim that he has delivered the stock, as it has never been endorsed over to the Plaintiffs. Nor can he claim that the Plaintiffs accepted the stock in satisfaction of the admitted debt. 48. The Plaintiffs attached an affidavit of their J.A. counsel opining that the Stock Certificate was not signed in order to ensure that the stock could not be sold, and that, in any event, the Plaintiffs reject the sale of the collateral[, i.e., the Code Corporation stock shares] as their remedy because, since filing this action, they had learned that such shares were worthless. Id. at 80. 7 Also on June 17, 2008, the Plaintiffs filed a Rule 15(a)(2) motion to amend their Complaint. included two new allegations: The proposed Amended Complaint (1) that [t]he Defendant has not delivered his shares of stock in the Code Corporation ; and (2) that, [e]ven if the Defendant had delivered the stock, Plaintiffs have elected not to satisfy the [Promissory Note] by disposition of the collateral, as it is worthless. J.A. 84. In the proposed Amended Complaint, the Plaintiffs also asserted that they filing court district were as collateral. the original evidence Certificate their of Stock rejection in the of the Id. On July 7, 2008, Pickens filed his response in opposition to the Plaintiffs summary judgment motion. In his response, Pickens refrained from contending that providing the Plaintiffs with the unendorsed Stock Certificate was sufficient to satisfy his Promissory Note obligations. Rather, Pickens asserted that the Plaintiffs summary judgment motion constituted the first time that the Plaintiffs had raised an issue with the failure to endorse the Stock Certificate Corporation stock shares. or the value of the Code According to the response, Pickens s lawyer had since contacted counsel for the Plaintiffs to offer to remedy oversight. seeking a the lack of an endorsement, which had been an Thus, Pickens asserted, the Plaintiffs were actually deficiency judgment 8 the difference between the amount owed on the Promissory Note and the value of the Code Corporation stock shares which was explicitly precluded by the Hypothecation Agreement. Additionally, on July 7, 2008, Pickens filed a response in opposition to the Plaintiffs motion to amend. Pickens asserted that he would be unduly prejudiced if the motion to amend were granted, because and he that was the proposed willing to amendments endorse the would Stock be futile Certificate. Finally, on July 7, 2008, the Plaintiffs filed their response to Pickens s motion for judgment on the pleadings, reiterating both their position assigned shares and in that their the Stock rejection satisfaction of Certificate of the Code Pickens s was not properly Corporation stock obligations under the January 2009, the Promissory Note. 2. By its Summary Judgment Order of 20, district court disposed of the Plaintiffs motions for summary judgment and to amend their Complaint, as well as Pickens s motion for judgment on the pleadings (which the court treated as a summary judgment motion). In granting summary judgment to the Plaintiffs and denying it to Pickens the court explained: Plaintiffs essentially seek a judgment affirming Defendant s obligation to pay them $250,000 plus the relevant interest rate under the promissory note. The essential facts that form the basis of Plaintiffs claim is undisputed Plaintiffs obtained a judgment 9 against Defendant for $2,886,994.64 plus interest and attorneys fees, but agreed to drop that judgment in exchange for the $250,000 plus interest provided for in the promissory note. Defendant acknowledged that he defaulted on this amount. The only question, therefore, was whether mailing Plaintiffs the stock certificate discharged all obligation on the part of Defendant. . . . [M]ailing the stock certificate without any sort of endorsement failed to confer the legal rights upon the Plaintiffs which are attendant to owning stock. Since Plaintiffs could take no legal action with regard to the stock, Defendant was still the proper legal owner of the stock, and when Plaintiffs then specifically refused to accept the stock as a discharge of Defendant s obligations under the promissory note and filed a legal action, Defendant remained the actual owner of the stock in the Code Corporation. Therefore, Defendant still owes Plaintiffs the $250,000 plus interest he promised to pay them under the terms of the promissory note. Braunstein, 593 F. Supp. 2d at 839. Additionally, the district court granted the Plaintiffs motion to amend their Complaint to add the theories that the shares are essentially worthless and certificate was never properly endorsed. Supp. 2d at 839. that the stock Braunstein, 593 F. With respect to the worthlessness theory, however, the court observed that allegations about the lack of value of the stock in question are rendered moot by the court s decision that endorsed. the stock Id. at 839-40. in question was never properly Furthermore, with respect to the endorsement theory, the court concluded that Pickens failed to demonstrate Complaint. he would be prejudiced The court explained: 10 by amendment of the Plaintiffs raised [the endorsement theory] in their Motion to Amend and their Motion for Summary Judgment, which were filed simultaneously. This was a purely legal question, which Defendant had ample opportunity to address but chose not to, and an issue on which the facts were plainly clear and in need of no further discovery. Defendant does not dispute that he mailed Plaintiffs the stock certificate without properly transferring it through endorsement. No additional amount of time, discovery, or legal debate would change these undisputed facts, nor would it change the court s holding that without a proper legal transfer of the stock shares, Plaintiffs could not have sold the shares and therefore the portion of the Hypothecation Agreement which Defendant s entire case is reliant upon never came into play and thus offers him no protection. Id. at 840. The court concluded that, [i]n accordance with Rule 15, . . . justice requires that the court consider the fact that the stock certificate was not endorsed, and the court holds that Defendant consideration. is not improperly prejudiced by this Id. 3. On February 3, 2009, Pickens filed a motion for reconsideration, requesting the district court to alter or amend the judgment under Rule 59(e). Pickens therein raised for the first time in these proceedings numerous arguments as to why providing the Plaintiffs with the unendorsed Stock Certificate satisfied his obligations under the Promissory Note. Additionally, Pickens reiterated his summary judgment contention that he had offered to remedy the lack of an endorsement. Pickens also asserted that the court erred by granting summary 11 judgment on the basis of issues raised only in the Plaintiffs motion to amend their Complaint, in that such motion was granted in conjunction with the summary judgment award. In addition to filing his motion for reconsideration on February 3, Complaint. 2009, Pickens filed an Answer to the Amended The next day (February 4, 2009), he filed an Amended Answer to the Amended Complaint. Plaintiffs filed reconsideration, a On February 23, 2009, the response asserting to that he Pickens s had not motion satisfied for the standard for Rule 59(e) relief and that his contentions were without merit. On March 5, 2009, Pickens filed a reply memorandum in support of his motion for reconsideration, yet again raising a new contention: Hypothecation that, based on Agreement that the bare Pickens statement shall not in the remain personally liable for any deficiency, J.A. 20, he was no longer liable on the Promissory Note once he provided the Plaintiffs with the unendorsed Stock Certificate, even without a sale of the stock shares. Pickens also refined his contention that it was improper to grant summary judgment on the basis of issues raised only in the Plaintiffs concurrently granted motion to amend their Complaint. In that regard, Pickens asserted that the summary judgment award was premature because he had not been afforded the opportunity to answer 12 the Amended Complaint. Pickens also pointed out that it was unclear whether the Amended Complaint had actually been filed in the district court, and that he had filed his Answer to the Amended Complaint out of an abundance of caution. 4. By its Reconsideration Order of August 19, 2009, the district court denied Pickens Rule 59(e) relief on the ground that the previous [Summary Judgment] Order need not be amended or altered in order to correct a clear error of law or to avoid a manifest injustice. Reconsideration Order 5. The court specifically addressed several of Pickens s arguments, including the contention in his reply memorandum that the Hypothecation Agreement does not require a sale of his Code Corporation stock in order to satisfy his obligations under the Promissory Note. On this issue, the court observed: Defendant claims that, [t]he simple statement in the Hypothecation Agreement is, Pickens shall not remain personally liable for any deficiency. This is a one sentence statement. It does not have any contingencies surrounding it. The Court disagrees. If this were, in fact, a one sentence statement, without any contingencies surrounding it, then Defendant would have been immediately released from any obligation as soon as Plaintiffs signed the Hypothecation Agreement. However, this would have run directly counter to the express purpose of the Hypothecation Agreement, which was to ensure that Defendant paid the small fraction of the damages he had allegedly caused to Plaintiffs [as] he had previously promised. Here, Defendant seeks to avoid this obligation. 13 The most logical reading of the portion of the Hypothecation Agreement in question is that Defendant would be released from his obligation upon sale of the stock . . . . Plaintiffs clearly were not simply releasing Defendant from his obligations. Instead, they were seeking some security that Defendant would in fact perform these obligations, by reserving the right to sell the shares of stock in question to obtain what was due to them. Here, the stock was never sold, Defendant acknowledges that no attempt to sell the stock was ever [made], and Defendant acknowledges that the stock is no longer in Plaintiffs possession. Exactly why Plaintiffs counsel demanded the shares of stock and then refused possession and sale of the stock is unclear. However, the reason is not relevant to the matter before the Court. What does matter is that Defendant has failed to live up to his obligations under the settlement and subsequent Hypothecation Agreement, and that Plaintiffs never sold the shares of stock in Code Corporation, which would have released Defendant from those obligations. Id. at 4-5 (first alteration in original) (citation omitted). The district court also rejected Pickens s contention that the summary judgment award was premature because he had not been afforded the opportunity to answer the Amended Complaint after the court authorized its filing. The court explained that Pickens did have an opportunity to respond, since he filed an Answer to the Amended Complaint. Reconsideration Order 4. The court further recognized that, in any event, it is undisputed that the stock certificate was not delivered to Plaintiffs counsel. Id. 14 indorsed when it was Pickens timely noted this appeal from the Summary Judgment Order and the Reconsideration Order, and we possess jurisdiction pursuant to 28 U.S.C. § 1291. II. We review a district court s ruling on a motion for leave to amend a complaint for abuse of discretion, bearing in mind that, under Rule 15(a)(2), such leave should freely be given when justice so requires. 192 (4th Cir. 2002). See Franks v. Ross, 313 F.3d 184, The law is well settled that leave to amend a pleading should be denied only when the amendment would be prejudicial to the opposing party, there has been bad faith on the part of the moving party, or the amendment would be futile. Edwards v. City of Goldsboro, 178 F.3d 231, 242 (4th Cir. 1999) (internal quotation marks omitted). We review judgment, de viewing novo the a district facts and court s inferences award of summary reasonably drawn therefrom in the light most favorable to the nonmoving party. See FOP Lodge No. 89 v. Prince George s Cnty., 608 F.3d 183, 188 (4th Cir. 2010). Summary judgment is appropriate only if the record shows that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c)(2). 15 We review a district court s denial of a Rule 59(e) motion for abuse of discretion. 555 (4th Cir. 2005). in three See Bogart v. Chapell, 396 F.3d 548, [A] court may grant a Rule 59(e) motion circumstances: (1) to accommodate an intervening change in controlling law; (2) to account for new evidence not available at trial; or (3) to correct a clear error of law or prevent manifest omitted). injustice. Id. (internal quotation marks Importantly, Rule 59(e) permits a district court to correct its own errors, sparing the parties and the appellate courts the burden of unnecessary appellate proceedings. Pac. Ins. Co. v. Am. Nat l Fire Ins. Co., 148 F.3d 396, 403 (4th Cir. 1998) (internal quotation marks omitted). Rule 59(e) motions may not be used, however, to raise arguments which could have been raised prior to the issuance of the judgment, nor may they be used to argue a case under a novel legal theory that the party had the ability to address in the first instance. Id. III. On appeal, Pickens first contends that the district court erred summary in concurrently judgment and granting to amend the Plaintiffs their Complaint motions without for first affording him an opportunity to answer the Amended Complaint. In that regard, Pickens points to the court s observation in its Reconsideration Order that Pickens did have an opportunity to 16 respond, since he filed an Answer to the Amended Complaint a statement that ignores the fact that Pickens s Answer necessarily post-dated the Summary Judgment Order granting the Plaintiffs motion to amend. See Reconsideration Order 4. Additionally, Pickens asserts the theory not raised in the district court or supported by citation to any authority that the court erred by granting the Plaintiffs motion to amend even though it was filed after the Scheduling Order s deadline for such motions. Unfortunately for Pickens, even assuming the court erred in its handling of the Plaintiffs motion to amend, its error was harmless. of the proceeding, the See Fed. R. Civ. P. 61 ( At every stage court must disregard all errors and defects that do not affect any party s substantial rights. ); McDonough Power Equip., Inc. v. Greenwood, 464 U.S. 548, 554 (1984) ( [I]t is well settled that the appellate courts should act in accordance with the salutary policy embodied in Rule 61. ). Simply put, there was no need for the Plaintiffs to amend their Complaint to address the issue of whether Pickens satisfied his Promissory Note obligations pursuant to the terms of the Hypothecation Agreement, because that issue was first raised in these proceedings by Pickens himself. More specifically, once the Plaintiffs had alleged in their original Complaint of January 21, 2008, that Pickens had defaulted on his 17 Promissory Note obligations, Pickens filed an April 10, 2008 Answer asserting Plaintiffs by the defenses Defendant that pursuant to [t]he the debt owed to Promissory Note was satisfied when Defendant surrendered the Code Corporation Stock to Plaintiffs counsel and that Plaintiffs claims are barred by the terms of the Hypothecation Agreement dated November 17, 2004 executed by Defendant and accepted by Plaintiffs. 16. J.A. In these circumstances, the Plaintiffs were entitled to refute Pickens s defenses in their dispositive motion papers, without any need to amend their Complaint. And, as the district court properly recognized, Pickens had ample opportunity at the summary judgment stage to address the Plaintiffs Hypothecation Agreement-related contentions, but chose not to do so. See Braunstein, 593 F. Supp. 2d at 840. Pickens also contends on appeal that the district court s summary judgment award was inappropriate because questions of material fact exist. Br. of Appellant 18. Many of the questions of material fact identified by Pickens are actually questions of law. those issues at Moreover, Pickens failed to raise any of the summary judgment stage, as his entire defense against the Plaintiffs summary judgment motion was that he was willing Certificate. to provide an endorsement of the Stock And, although Pickens belatedly raised some of his questions of material fact at the reconsideration stage (e.g., 18 that he could satisfy his Promissory Note obligations pursuant to the Hypothecation Corporation stock), Agreement other without issues were a sale even of more the Code belatedly introduced in this appeal (e.g., that the Plaintiffs accepted the original Stock Certificate by submitting it to the district court rather than returning it to him). Having had the benefit of oral argument and having carefully considered the briefs, the Joint Appendix, and the applicable authorities, we are satisfied that the district court properly awarded summary judgment in this matter. Furthermore, we are satisfied that the court did not abuse its discretion in refusing to Accordingly, alter we or affirm amend the the judgment judgment under entered in Rule favor 59(e). of the Plaintiffs, substantially for the reasons spelled out by the district court in its Summary Judgment Order and subsequent Reconsideration Order. AFFIRMED 19

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