Filed: Oct. 24, 2014
Latest Update: Mar. 02, 2020
Summary: Case: 14-11649 Date Filed: 10/24/2014 Page: 1 of 6 [DO NOT PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _ No. 14-11649 Non-Argument Calendar _ D.C. Docket No. No. 9:11-cv-81270-DMM GREENFIELD CHILDREN’S PARTNERSHIP, Individually and on Behalf of All Others Similarly Situated, Plaintiff-Appellant, GREENFIELD INVESTMENT SERVICES, LLC, et al., Plaintiffs, versus FRIENDFINDER NETWORKS, INC., LADENBURG THALMAN & CO., INC., IMPERIAL CAPITAL, LLC, MARC H. BELL, DANIEL C. STAT
Summary: Case: 14-11649 Date Filed: 10/24/2014 Page: 1 of 6 [DO NOT PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _ No. 14-11649 Non-Argument Calendar _ D.C. Docket No. No. 9:11-cv-81270-DMM GREENFIELD CHILDREN’S PARTNERSHIP, Individually and on Behalf of All Others Similarly Situated, Plaintiff-Appellant, GREENFIELD INVESTMENT SERVICES, LLC, et al., Plaintiffs, versus FRIENDFINDER NETWORKS, INC., LADENBURG THALMAN & CO., INC., IMPERIAL CAPITAL, LLC, MARC H. BELL, DANIEL C. STATO..
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Case: 14-11649 Date Filed: 10/24/2014 Page: 1 of 6
[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 14-11649
Non-Argument Calendar
________________________
D.C. Docket No. No. 9:11-cv-81270-DMM
GREENFIELD CHILDREN’S PARTNERSHIP,
Individually and on Behalf of All Others Similarly Situated,
Plaintiff-Appellant,
GREENFIELD INVESTMENT SERVICES, LLC, et al.,
Plaintiffs,
versus
FRIENDFINDER NETWORKS, INC.,
LADENBURG THALMAN & CO., INC.,
IMPERIAL CAPITAL, LLC,
MARC H. BELL,
DANIEL C. STATON, et al.,
Defendants-Appellees,
ROBERT BRACKETT, et al.,
Defendants.
Case: 14-11649 Date Filed: 10/24/2014 Page: 2 of 6
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(October 24, 2014)
Before HULL, MARCUS and WILLIAM PRYOR, Circuit Judges.
PER CURIAM:
Greenfield Children’s Partnership appeals the dismissal with prejudice of its
second amended complaint that Friendfinder Networks, Inc., its two underwriters,
and eight of its former officers and directors violated the Securities Act of 1933 in
connection with a public offering of its common stock. The district court dismissed
the complaint for failure to state a claim. Fed. R. Civ. P. 12(b)(6). We dismiss the
appeal of Greenfield Children’s Partnership in part for lack of jurisdiction, and we
affirm the dismissal of its complaint for failure to state a claim.
Friendfinder made an initial public offering of five million shares of
common stock. The prospectus provided that some Friendfinder stock was subject
to a lock-up agreement; that is, the prospectus stated that “[h]olders of at least 20,
917, 936 of the other shares outstanding or convertible into common stock have
agreed with the underwriters, subject to certain exceptions and extensions, not to
dispose of any of their securities for a period of 180 days following the date of this
prospectus, except with the prior written consent of the underwriters.” The
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prospectus also stated that Friendfinder “w[ould] be required to establish and
regularly evaluate the effectiveness of internal controls over financial reporting”
and that it “h[ad] taken and w[ould] continue to take actions designed to enhance
[its] disclosure controls and procedures.”
Greenfield Children’s Partnership, Greenfield Investment Services, LLC,
and David Schwartz were among those who purchased Friendfinder common stock
during the initial public offering. The price of the stock plummeted and continued
to decline for several months. The plaintiffs suspected that their losses were
attributable to insider trading, and a broker told Schwartz that “insiders are selling.
At least 700,000 shares were sold immediately upon opening, and . . . that number
may be as high as 2,000,000.”
Greenfield Children’s Partnership, Greenfield Investment, and Schwartz
filed a second amended complaint on behalf of themselves and others similarly
situated against Friendfinder, its underwriters, and its former officers and directors.
Greenfield Children’s Partnership, Greenfield Investment, and Schwartz
complained that all the defendants violated Section 11 of the Act because the
registration statement included a prospectus that contained material misstatements,
15 U.S.C. § 77k(a), and that Marc H. Bell, Daniel C. Staton, and six other former
officers and directors of Friendfinder were liable under Section 15 of the Act as
“controlling persons” and “persons who aided and abetted” in violating securities
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laws, id. § 77o. Greenfield Investment and Schwartz also complained that
Friendfinder and its underwriters, Ladenburg Thalman & Co., Inc., and Imperial
Capital, LLC, violated Section 12(a)(2) of the Act by offering or selling securities
using a prospectus that contained material misstatements.
Id. § 77l(a)(2).
The complaint alleged that the prospectus was misleading because shares
were sold in violation of the lock-up agreement and because Friendfinder, its
underwriters, and its executives knew that the shares would be sold. The complaint
alleged that, “[c]ontrary to the statements about the lock-up agreement and the
implementation of internal controls, a material number of restricted shares were
sold” before expiration of the lock-up period. The complaint also alleged that a
restricted share could not be sold until its holder obtained consent from its issuer
and its broker to remove the restricted share legend; millions of shares were traded
during the lock-up period; and “it [was] simply not plausible” that holders of
restricted shares commenced the process to have the legends removed from the
shares “within minutes after the opening of the Offering.”
The district court dismissed for lack of standing the complaint of Greenfield
Investment and Schwartz against Friendfinder for its alleged violation of Section
12(a)(2), and the district court dismissed the remainder of the complaint for
“fail[ure] to adequately allege a prima facie case under Sections 11, 12, or 15” of
the Securities Act. The district court ruled that Greenfield Investment and
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Schwartz had purchased their shares from the underwriters and lacked standing to
complain that Friendfinder was a “seller” of the shares under Section 12(a)(2). The
district court also ruled that the statements about the lock-up agreement and about
the internal controls were not materially misleading. Greenfield Children’s
Partnership filed a notice of appeal of the dismissal of its complaint, but neither
Greenfield Investment nor Schwartz joined in that notice of appeal.
The complaint fails to allege facts to support a claim that the two statements
in the prospectus contain “an untrue statement of material fact” under Section 11.
15 U.S.C. § 77k(a). As explained by the district court, the statement about the lock-
up agreement “merely advise[d] potential investors that certain shareholders ha[d]
agreed to retain their shares for a specific period of time,” and the statement about
internal controls “merely disclosed . . . that there [were] disclosure controls and
procedures in place.” The prospectus did not address, much less guarantee,
enforcement of the agreement. The prospectus also stated that the agreement was
“subject to certain exceptions and extensions,” and the complaint fails to allege
that the sales were not excepted from the agreement. Because the complaint fails to
allege a plausible violation of Section 11, the complaint also fails to state a claim
against the former officers and directors of Friendfinder under section 15. See
Ehlert v. Singer, 245 F.3d 1313, 1320 (11th Cir. 2001).
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Greenfield Children’s Partnership lacks standing to contest the dismissal of
the complaint that Friendfinder, Ladenburg, and Imperial violated Section 12(a)(2).
Although the parties do not raise the issue of standing, we are obliged to do so sua
sponte. See Bochese v. Town of Ponce Inlet, 405 F.3d 964, 974 (11th Cir. 2005)
(“Standing is a threshold jurisdictional question which must be addressed prior to
and independent of the merits of a party’s claims.” (alteration omitted)). “Litigants
must establish their standing not only to bring claims, but also to appeal
judgments.” Wolff v. Cash 4 Titles,
351 F.3d 1348, 1353 (11th Cir. 2003).
Greenfield Children’s Partnership never alleged a violation of Section 12 because
it lacked standing to do so. As explained by the district court, “the Section 12(a)(2)
claim[] [was] alleged only by Plaintiffs [Greenfield Investment] and
Schwartz[ because they] . . . purchased stock directly from the Underwriter[s],”
and the “Plaintiffs concede[d] that [Greenfield Children’s Partnership] lack[ed]
standing to pursue a claim under Section 12, since it purchased its shares in the
secondary market.” And Greenfield Children’s Partnership lacks standing to
contest the dismissal of the claim on behalf of Greenfield Investment and
Schwartz. See
Wolff, 351 F.3d at 1354.
We DISMISS the appeal of the complaint of Greenfield Investment and
Schwartz about a violation of Section 12(a)(2), and we AFFIRM the dismissal of
the second amended complaint of Greenfield Children’s Partnership.
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