MEMORANDUM OF DECISION

HENRY J. BOROFF, Bankruptcy Judge.

The matter at hand requires this Court to visit, once again, the protracted contest between Access Cardiosystems, Inc. ("Access"), together with certain of Access's individual investors (the "Investors"), and Access's founder and former shareholder, officer, and director, Randall Fincke. Through their complaint, as amended (the "Complaint"), Access and the Investors sought damages for, inter alia, Fincke's alleged violation of Massachusetts securities law and breaches of his fiduciary duty owed to the Investors and to Access. The Court has earlier ruled that Fincke did breach certain of his fiduciary duties to Access and, in one instance, violated Massachusetts General Laws ch. 110A, § 410(a)(2) ("§ 410(a)(2)"). Fincke has waived any further contest to the entry of judgment on account of the fiduciary duty breaches in an amount which the Court has earlier determined. But the Court still must determine what, if any, damages are recoverable by the Investors on account of Fincke's violation of § 410(a)(2).

I. FACTS AND TRAVEL OF THE CASE2

Access Cardiosystems, Inc., the debtor in the underlying Chapter 11 case, was formed in 2000 by Randall Fincke (with the assistance of others) to develop, market, and sell a portable automated external defibrillator (the "Access AED"). Initially, Access's start-up costs were funded by advances made by Fincke and Gregory Baletsa,3 but these early investments soon proved insufficient. In the spring of 2001, Access received its first outside investment,4 in the amount of $50,000, from John J. Moriarty, one of Fincke's close personal friends. Moriarty then made two additional investments in 2001: $1,000,000 in July and $500,000 in December.5

Fincke also reached out to another personal acquaintance, Richard F. Connolly, Jr., who invested $500,000 in Access in November 2001.6 And in April 2002, both Moriarty and Connolly each invested $300,000 in Access,7 followed by additional investments in May and June.8 In the spring of 2002, Connolly began discussing Access with his close friend, James Radley, who agreed to meet with Fincke regarding a potential investment. Following that meeting, Radley invested $2 million in Access on June 14, 2002.9

Despite these substantial investments made in late 2001 and early 2002, working capital constraints plagued Access, which continued to struggle with paying past-due vendor accounts and securing the raw materials necessary to manufacture the Access AED. With an eye toward obtaining additional investments in Access, Fincke, together with Access's management team and its corporate counsel, Michael Elefante, prepared an investor letter and a business plan dated October 2002 (the "Business Plan"). Each of the then extant investors—Connolly, Moriarty, and Radley—received a copy of the Business Plan.

Joseph Zimmel, a potential investor introduced to Access by a company manager, also received a copy of the Business Plan in the fall of 2002, when he met with Fincke to discuss a possible investment in Access. Following that meeting, Zimmel invested $2 million in Access in three tranches: a $1,000,000 stock purchase in October 2002, a $500,000 stock purchase in November 2002, and a $500,000 loan in December 2002. See Access Cardiosystems Loan/Equity Investment Summary, Def.'s Ex. 1.

But notwithstanding these new cash infusions, things were still not going well, and in March 2003, Moriarty invested an additional $250,000 in Access while Elefante and Fincke began negotiations with the Investors to secure additional financing for the company. In connection with these negotiations, the Investors received a new document titled "Access CardioSystems Company Overview" (the "Company Overview"). In a March 2003 email to the Investors, Fincke outlined several financing options (including financing from other sources), and the Investors responded with a proposal to invest an additional $2 million in Access, contingent upon changes in the company's governance and conversion of some of the Investors' outstanding debt to equity. Various email exchanges ensued between Elefante, Fincke, and the Investors, as confusion arose regarding the terms of the additional financing. After some tense correspondence regarding the Investors' insistence on conversion of debt to equity and Fincke's initial reluctance to accept the Investors' proposed terms, a consensus was ultimately reached.

The additional financing from the Investors closed on April 25, 2003 (the "April 2003 Transaction"). Through the April 2003 Transaction, certain of the Investors' original notes were converted to stock and the Investors purchased additional stock as follows:

See April 2003 Transaction Closing Documents, Pl.'s Ex. 110.

As a result of the conversion of much of the Investors' debt to equity and their purchase of additional Access stock, Fincke ceded his majority ownership of Access to the Investors. Coincident with the April 2003 Transaction, a formal Board of Directors (the "Board") was established, comprised of Radley, Moriarty, Zimmel, and Fincke. Following the establishment of the Board, the Investors began to suspect Fincke of various misrepresentations and mismanagement of Access. And in November 2003, the Board voted to relieve Fincke of his executive and managerial positions.10

Some months later, on July 6, 2004, the Investors and Access (together, the "Plaintiffs") filed suit against Fincke in the Massachusetts Superior Court in response to Fincke's assertion that he owned the intellectual property related to the Access AED (the "Intellectual Property"). With regard to the Intellectual Property, the Plaintiffs sought a declaratory judgment that Access, and not Fincke, owned the Intellectual Property underlying the Access AED. They also asserted several claims against Fincke for alleged breaches of fiduciary duty, fraud, negligent misrepresentations, and securities fraud. Fincke counterclaimed, seeking declaratory determinations that he owned the Intellectual Property and that the purported repurchase of his Access stock was invalid. Fincke also sought damages on various breach of fiduciary duty, breach of contract, promissory estoppel, and wrongful discharge theories.

While that suit was pending, Access filed for protection under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code" or the "Code")11 on February 8, 2005. Fincke subsequently removed the pending Superior Court action to this Court. See Fed. R. Bankr.P. 9027. Throughout the relevant time period, the Investors continued to fund Access's operations, including as debtor-in-possession in the Chapter 11 case.12 Between the closing of the April 2003 Transaction through June 30, 2005, Radley invested an additional $6,862,549 in Access, Moriarty invested an additional $1,050,000, Connolly invested an additional $2,100,000, and Zimmel invested an additional $1,630,000. Through June 30, 2005, the Investors funded Access through various loans and stock purchases in the following total amounts:

  Radley:    $9,362,549
  Moriarty:  $3,900,000
  Connolly:  $3,400,000
  Zimmel:    $4,130,000

See Def.'s Ex. 1.

On March 31, 2006, this Court issued a Memorandum of Decision and Partial Judgment on the parties' cross-motions for summary judgment. See Access I, 340 B.R. 127. That judgment disposed of the contested ownership of the Intellectual Property. The Court ruled that Access, and not Fincke, rightfully owned the Intellectual Property, and Fincke was ordered to assign any rights he held in the Intellectual Property to Access. Id.

Following the partial summary judgment ruling, the parties agreed to bifurcate the remaining claims—trying issues of liability first and then, to the extent necessary, trying issues related to damages. A lengthy trial on liability ensued, and on April 17, 2009, the Court issued a Memorandum of Decision and Partial Judgment on the parties' remaining claims. See Access II, 404 B.R. 593. At the conclusion of trial, the Court found and ruled for the Plaintiffs with regard to each of Fincke's Counterclaims. Id. at 699. The Court also ruled that Fincke had breached his fiduciary duties to Access in two respects: (1) by receiving reimbursements for personal expenses charged to his company credit cards, id. at 694, and (2) "by causing the company to repay its [debts to] him at a time when Access was desperately in need of cash and without disclosure to and the consent of disinterested shareholders or the Board." Id. at 699. As to the remainder of the Plaintiffs' claims, the Court found and ruled for Fincke on each, "with the exception of its findings and rulings that Fincke [wa]s liable . . . for fraud, negligent misrepresentation, and violation of § 410(a)(2) on account of the false statement in the Business Plan [dated October 2002] that Access was advised by its patent counsel that its product did not infringe any patents known to him. . . ." Id. at 698-99.13

Following this Court's findings and ruling on liability, the Plaintiffs waived any claims for damages arising from Access's repayment of personal expenses charged on Fincke's credit cards, Summ. J. Hr'g Tr. 14:18-19, June 3, 2010, and Fincke waived any objection to the entry of judgment for Access in the amount of $281,534.62 for Fincke's causing Access to repay his personal loans to the company in violation of his fiduciary duties, id. at 14:4-12. On the remaining narrow issue of damages on account of this Court's finding that the false statement in the Business Plan gave rise to liability under § 410(a)(2), the Plaintiffs filed a motion for summary judgment, to which Fincke objected. In that motion, the Investors addressed their arguments solely toward the damages recoverable on account of Fincke's violation of § 410(a)(2), arguing that they were entitled, as a matter of law, to rescind all of their investment transactions and recover the total of their investments in Access.

In its Memorandum of Decision and Order dated October 14, 2010, this Court ruled that: (1) rescission was not available to the Investors because they no longer owned the securities underlying the § 410(a)(2) claim, the stock having been terminated in the Debtor's confirmed plan of reorganization, Access III, 438 B.R. at 23; and (2) nonetheless, the Investors were entitled to damages calculated as the "amount that would be recoverable upon a tender," but only as to those sales of securities made "by means of" the misstatement in the Business Plan, id. at 24-25. Relying on the plain language of § 410(a)(2), the Court ruled:

Id.

On April 15, 2011, this Court held an evidentiary hearing on the question of damages. Five witnesses testified—each of the four Investors and Fincke. Following the trial, the parties were given an opportunity to file proposed findings of fact and conclusions of law, which each have done. In addition, Fincke has since filed a motion asking the Court to reconsider its original finding and ruling that Fincke violated § 410(a)(2) by making a material misstatement in the Business Plan (the "Motion to Reconsider"). The Investors, of course, have objected. This Memorandum addresses both the Motion to Reconsider and the issue of damages— now completing what is, hopefully, the final chapter in this years-long litigation between Access, its Investors, and Randall Fincke.

II. POSITIONS OF THE PARTIES

A. The Motion to Reconsider

Fincke asks this Court to reconsider its finding and ruling that Fincke violated § 410(a) when he falsely stated in the Business Plan that Access had been advised by its patent counsel that its product did not infringe any patents known to him—when in fact no such advice was given. Fincke's argument is premised on the Investors' testimony during the damages trial to the effect that they did not understand from the Business Plan that the advice was a "formal" opinion. Accordingly, Fincke maintains, this Court's conclusion that the Business Plan contained a misstatement was based on the erroneous assumption that the Investors believed the Business Plan's language referred to a "formal" opinion by patent counsel. According to Fincke's testimony at the damages trial, he had been personally told by patent counsel that the Intellectual Property did not infringe any other patents, and thus he concludes that the Investors were not misled by the Business Plan.

The Investors object to reconsideration on two grounds. First, they say the request is untimely under relevant rules of bankruptcy and federal civil procedure. Second, they disagree that the Court's ruling was based on any distinction between a "formal" and "informal" opinion. Rather, the Investors maintain that the reference in the Business Plan to Access having been "advised by" patent counsel was false in respect to either a formal or informal opinion of patent counsel. The Investors argue instead that the Court's ruling was based on the finding that no such advice was given, formally or informally, and thus the statement was false.

B. Damages

Relying on broad principles derived from interpretations of the "in connection with" requirement under § 10(b) of the Securities Exchange Act of 1934, the Investors say that their entitlement to the return of all of their post-October 2002 investments is nearly conclusively established by the simple fact that the investments were made after Fincke made the material misstatement in the Business Plan. They base this argument on the statement in a leading treatise that: "if the misrepresentation or omission takes place before the sale, few cases have found a lack of the necessary nexus . . . It should be obvious that virtually all Sections 12(a)(2), 410(a)(2), and 509(b) cases will meet the test if the misrepresentations are made before the sale." Pl.'s Proposed Findings of Fact and Conclusions of Law 7 ¶ 32 (quoting 12A Joseph C. Long, Blue Sky Law, § 9:117.45), June 20, 2011, ECF No. 304. The Investors further argue that their pre-October 2002 investments are likewise recoverable because they refrained from calling their notes and eventually converted their loans to equity through purchase of Access stock in April 2003, after the dissemination of the Business Plan.

And to demonstrate a more concrete connection between the misstatement in the Business Plan and all subsequent investments, the Investors point to their testimony at the damages trial to the effect that they relied on the misstatement in making each and every investment in Access after October 2002. The Investors characterize the "by means of" requirement under § 410(a)(2) as a "lower hurdle," and insist that they have met a "higher standard" by establishing their continuing reliance on the misstatement. Id. at 6, ¶¶ 29, 30.

Fincke urges the Court to reject the Investors' "reliance" argument because, according to Fincke, the Investors' testimony was disingenuous. Fincke maintains that the Investors' testimony "by rote" that "every investment they made, no matter how far in time removed (even three years later) . . . was based centrally on that one statement about patents made in the [Business Plan]" was too incredible to be believed. Def.'s Mem. of Law in Supp. of Fincke's Mot. to Recons. and to Address the Damages Issue 2-3.

Fincke argues instead that the Investors failed to establish a nexus between the Business Plan and virtually all of their investments. According to Fincke, the only investments possibly connected to the Business Plan were those made in late 2002, shortly after the distribution of the Business Plan. Especially given the Investors' assumption of a majority interest in the company in April 2003 and the eventual filing of a patent infringement suit by Philips Electronics in late June 2003, says Fincke, the Investors cannot demonstrate a plausible connection between the false statement in the Business Plan and their later investments.

III. DISCUSSION

A. The Motion to Reconsider

Fincke has asked the Court to reconsider its finding and ruling that the statement in the October 2002 Business Plan that "Access has been advised by its patent counsel that its product does not infringe any patents known to him. . . ." was a material, false statement that renders Fincke liable under § 410(a)(2). The Investors argue that reconsideration is foreclosed because the request is untimely. But the Court need not consider the timeliness argument, because even if the Motion for Reconsideration was timely filed, it should be denied.

In Access II, the Court found that the statement in the Business Plan was a "clear representation of fact," and that:

Access II, 404 B.R. at 666. Although the Court made reference to an opinion "formally given," the context makes clear that the Court found, based on the testimony at the liability trial, that Pandiscio had given no opinion, formal or otherwise, to the effect that Access's product infringed no patent known to him. Although Fincke insisted at the damages trial that he indeed had been so advised by Pandiscio, the Court is unable to sufficiently credit that testimony to overcome the conclusions it reached following the testimony of both Pandiscio and Fincke during the liability phase of trial.

To the extent the Investors' testimony during the damages trial regarding their understanding that such advice referred to an informal, rather than formal, opinion differs from their testimony adduced during the liability trial, any such discrepancy is irrelevant. The Court's ruling on liability under § 410(a)(2) was founded in an objective analysis of the truth and materiality of the statement, as the Massachusetts Supreme Judicial Court (the "SJC") has directed. See Marram v. Kobrick Offshore Fund, Ltd., 442 Mass. 43, 809 N.E.2d 1017, 1030 (2004). Viewed objectively, the Court found the statement to be false and also found that it would have been material to the average investor, since "[b]y affirmatively representing that a professional in the patent field has reviewed and preliminarily passed muster on the patent soundness of the intellectual property, the risk of those claims is, in the eye of a reasonable investor, greatly reduced." Access II, 404 B.R. at 666. Accordingly, Fincke's Motion for Reconsideration must be denied.

B. Damages

Section 410(a)(2) creates "civil liability for sales [of securities] by means of fraud or misrepresentation," Marram, 809 N.E.2d at 1025 (quoting L. Loss, Commentary on the Uniform Securities Act, draftsmen's commentary to § 410(a), at 147 (1976)), and provides a "`heightened deterrent against sellers [of securities] who make misrepresentations by rendering tainted transactions voidable at the option of the defrauded purchaser,' regardless of the actual cause of the investor's loss." Id. (quoting Casella v. Webb, 883 F.2d 805, 809 (9th Cir.1989)). A violation of § 410(a)(2) renders the seller liable to the buyer for:

Remaining to be determined, therefore, is which, if any, sales of securities were made "by means of" that material misstatement. See Access III, 438 B.R. at 24 ("The plain language of § 410(a)(2) limits liability to instances where securities were sold `by means of' a material misstatement."); Mass. Gen. Laws ch. 110A, § 410(a)(2). There is little guidance in the case law interpreting the "by means of" language in § 410(a)(2). But federal court decisions dealing with identical language in § 12(2) of the Securities Act of 1933 ("§ 12(2)")14 and the analogous "in connection with" language in § 10(b) of the Securities Exchange Act of 1934 ("§ 10(b)")15 provide a framework for understanding the "by means of" language in § 410(a)(2).16 The Supreme Court of the United States has opined that the "in connection with" requirement under § 10(b) must be construed "not technically and restrictively, but flexibly to effectuate its remedial purposes," SEC v. Zandford, 535 U.S. 813, 819, 122 S.Ct. 1899, 153 L.Ed.2d 1 (2002), and has stated that the "in connection with" requirement is met where the alleged fraud "coincides" with a securities transaction, Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71, 85, 126 S.Ct. 1503, 164 L.Ed.2d 179 (2006), or where the plaintiff's injury was incurred "as a result of deceptive practices touching [a] sale of securities," Superintendent of Ins. of N.Y. v. Bankers Life & Cas. Co., 404 U.S. 6, 13, 92 S.Ct. 165, 30 L.Ed.2d 128 (1971).

However, what still remains wanting is a substantial body of case law "etch[ing] more finely the contours of the `in connection with' clause" under § 10(b), Ketchum v. Green, 557 F.2d 1022, 1026-27 (3d Cir.1977), or fleshing out more distinctly the contours of the "by means of" requirement under § 12(2) or § 410(a)(2).17 Notably, this determination does not require the Investors to prove either reliance or loss causation. Marram, 809 N.E.2d at 1027. But there must be "some causal relationship between the challenged communication and the sale, even if not `decisive.'" Jackson v. Oppenheim, 533 F.2d 826, 830 & n. 8 (2d Cir.1976) (discussing "by means of" provision in § 12(2)); see also Marram, 809 N.E.2d at 1030 n. 24 (citing, quoting Jackson). That is, while the Investors need not prove that the misleading statement caused them to make their investments, they nonetheless must link a particular securities transaction to the misleading statement; i.e., they must demonstrate that a particular sale was made "by means of" the statement. See Jackson, 533 F.2d at 829 ("While appellant need not prove that the alleged `misleading nature' of [the challenged statement] `caused' the eventual purchase of . . . stock, he must still prove that the challenged sale was effected `by means of' the communication. . . ."); Gandhi v. Sitara Capital Mgmt., LLC, 689 F.Supp.2d 1004, 1011-12 (N.D.Ill.2010) (even if reliance is not required, "plaintiffs must somehow link the deceptive conduct to the claimed harm and to a relevant securities transaction").

During the damages trial, each of the Investors attempted to link the entirety of their investment decisions to the misstatement contained in the Business Plan. They testified that they had considered, and relied upon, the misrepresentation in the Business Plan regarding Access's Intellectual Property in making each and every one of their investments. None of the Investors' testimony on this point was credible. In fact, their mechanistic, knee-jerk responses to counsel's questioning gave the overall appearance that much of their testimony was wholly contrived.18

In addition, some of the Investors' direct testimony regarding the Business Plan was contradicted by later testimony on cross examination. For example, Zimmel initially testified that all of his investments in Access were made, in part, in reliance on the misstatement in the Business Plan relative to the Intellectual Property.19 But Zimmel's response to being shown a copy of the Business Plan belied his earlier testimony that the document was central to all his investment decisions. Asked if the exhibit was a copy of the document he was given in October 2002, Zimmel hesitated, stating: "Well, this certainly looks like the document that—as—as it would have been. I don't specifically recollect whether it is the exact same one, or I saw a draft, but this is an offering memorandum of the type I would have expected to have seen." Trial Tr. 14:2-7, April 15, 2011.20

Moriarty similarly testified that both his decision not to call his loans made prior to October 2002 and each of his investments made after that time were in partial reliance on the misstatement regarding Access's Intellectual Property.21 Like Zimmel, however, Moriarty's confidence faltered during cross examination. When he was handed a copy of the Business Plan and asked if he recognized it, he stated "You know, I'm sure I—I'm sure I have seen this before, but I—I can't testify with specificity exactly when or—I've seen everything in the book. So can I tell you I got this on a timely basis? I'm sorry, I can't." Trial Tr. 25:10-14, April 15, 2011. And when asked which document contained the representation he purportedly relied on in connection with his loans, he testified that he could not remember which document it was. Id. at 25:15-19.

Connolly's testimony also attempted to cast a broad net of reliance on the Business Plan over all his subsequent investments.22 And Radley completed the testimony in the same vein.23

Not only did the substance of the Investors' testimony and its delivery undermine their credibility with regard to which investments were related to the Business Plan, but their shifting focus from the allegations in the Complaint and testimony during the liability trial to the damages trial is telling. Initially, in their Complaint, the Investors complained largely of alleged misrepresentations and omissions in the Company Overview given to the Investors in the spring of 2003 and in information subsequently given by Fincke to the Board. During the liability trial, the testimony almost exclusively focused on those other allegations of fraud. Now that the Court has rejected most of those claims, the Investors have changed their tune, resurrecting the earlier-drafted Business Plan as the operative document in all their investments. Thus, instead of elucidating the issue of which investments truly were made in connection with the Business Plan, the Investors have done little more than cast doubt over the entirety of their testimony.

Because the Court finds the Investors' testimony of reliance on the Business Plan not credible, it is left only with an objective analysis of the relation of the investments to the dissemination of the Business Plan to determine which investments, if any, were procured "by means of" the material misstatement contained in that document. This inquiry must ultimately focus, therefore, on the proximity between the misstatement and specific securities transactions in order to ascertain whether a real nexus exists or whether "the relationship between the fraud and the securities transaction is too attenuated." Ketchum, 557 F.2d at 1028 (quoting Jacobs, The Role of the Sec. Exch. Act Rule 10b-5 in the Regulation of Corporate Mgmt., 59 Cornell L.Rev. 27, 43 (1973)).

The only sale of securities made shortly after the Business Plan was drafted and disseminated were Zimmel's purchase of $1,000,000 in Access shares in October and $500,000 in shares in November 2002. Ironically, although the Court has not been persuaded by Zimmel's newly reinforced testimony that he read the Business Plan and relied on it, Fincke's own testimony and this Court's earlier findings compel the conclusion that the sale of Access stock to Zimmel in the fall of 2002 was made "by means of" the Business Plan and, consequently, the material misstatement contained in that document. While Fincke attempted to shift the drafting of the false statement to Elefante, he admitted that the Business Plan was given to all Investors, including Zimmel, in October 2002. See supra n. 18; Access II, 404 B.R. at 615. He is now estopped from saying otherwise. And because Zimmel need not demonstrate actual reliance on the misstatement, the use of the Business Plan to solicit that sale of stock allows Zimmel to recover damages under § 410(a)(2) for that particular transaction.

Following those investments, however, no additional purchases of Access stock were made until April 2003. The Court cannot conclude that the sales of stock in connection with the April 2003 Transaction were made "by means of" the misstatement in the Business Plan. Instead, those investments were made through the dissemination of a new company document—the Company Overview— and as the result of extensive negotiations between Fincke, Elefante, and the Investors in light of Access's dire financial situation, the need for additional working capital, and the desirability of a change in corporate structure. There was no evidence, apart from the Investors' self-serving and perfunctory testimony, that the Business Plan played any role in the solicitation of those additional investments. Thus, since the investments made during April 2003 were not as the result of a sale of securities "by means of" the material misrepresentation in the Business Plan, those investments are not recoverable pursuant to § 410(a)(2).

Following the April 2003 transaction, in addition to the dramatically changed circumstances and the Investors' new role in the government of Access,24 there is simply no evidence that any of the Investors purchased additional Access stock. Accordingly, the Investors may not recover their post-April 2003 investments pursuant to § 410(a)(2), because none of those investments involved the sale of securities.

IV. CONCLUSION

The only sales of securities made "by means of" the material misstatement in the Business Plan were those purchases of Access stock made by Zimmel in October and November 2002. Therefore, the Court will enter judgment against Fincke and in favor of Zimmel in the amount of $1,500,000 plus interest at six percent per year from May 25, 2007, the date of the of the disposition of the securities,25 pursuant to § 410(a)(2), plus costs pursuant to Bankruptcy Rule 7054(b).26 In addition, given Fincke's waiver of any objections to the entry of judgment in favor Access on account of his breaches of fiduciary duties, the Court will enter judgment against Fincke and in favor of Access in the amount of $281,534.62, plus interest at the rate of twelve percent from July 6, 2004, the time this action was commenced, pursuant to Mass. Gen. Laws ch. 231, § 6B,27 plus costs pursuant to Bankruptcy Rule 7054(b). Postjudgment interest at the federal28 rate established by 28 U.S.C. § 1961 will run on the entirety of both awards, including prejudgment interest and costs, from the date of judgment forward. A judgment in conformity with this memorandum shall issue forthwith.