          IN THE DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
                               FIFTH DISTRICT

                                                NOT FINAL UNTIL TIME EXPIRES TO
                                                FILE MOTION FOR REHEARING AND
                                                DISPOSITION THEREOF IF FILED

J.P. MORGAN SECURITIES, LLC, MADHUKAR NAMBURI
and ESTEBAN SCHRECK,

             Appellants,

 v.                                                    Case No. 5D15-4272

GEVERAN INVESTMENTS LIMITED, LIGHTING SCIENCE
GROUP CORPORATION, PEGASUS CAPITAL ADVISORS, L.P.,
PEGASUS CAPITAL, LLC, PEGASUS CAPITAL ADVISORS GP,
LLC, PCA LSG HOLDINGS, LLC, et al.,

           Appellees.
________________________________/

Opinion filed August 4, 2017

Appeal from the Circuit Court for
Orange County,
Alice Blackwell, Judge.

Mayanne Downs and Rachael M. Crews, of Gray
Robinson, P.A., Orlando, and Adam Balin, James I.
McClammy, Amelia T.R. Starr and Christopher
Ratcliffe Le Coney, of Davis Polk & Wardwell, LLP,
New York, NY, for Appellants, J.P. Morgan, et al. 1

Thomas A. Zehnder and David B. King, of King,
Blackwell, Zehnder & Wermuth, P.A., Orlando,
and Bruce S. Rogow and Tara A. Campion,


      1  Cases 5D15-4272 and 5D15-4273, traveling together on appeal, were
consolidated for oral argument and for purposes of this opinion. In case 5D15-4272, J.P.
Morgan, et al., appeal from the denial of a motion to dismiss as well as summary final
judgment in favor of Geveran Investments Limited. In case 5D15-4273, Lighting Science
Group Corp., et al., also appeal from the summary final judgment entered in Geveran’s
favor. Because J.P. Morgan initiated the appeal in case 5D15-4272 and did not join in the
appeal in case 5D15-4273, J.P. Morgan is an Appellant in case 5D15-4272 and an
Appellee in case 5D15-4273 pursuant to Florida Rule of Appellate Procedure 9.020(g)(2).
of Bruce S. Rogow, PA, Fort Lauderdale,
for Appellee, Geveran Investments Limited.

Barry Richard of Greenberg Traurig, P.A.,
Tallahassee, Alan T. Dimond, David A. Coulson
and Ian M. Ross, of Greenberg Traurig, P.A., Miami,
for Appellee, Lighting Science Group Corporation. 2

Daniel S. Newman, P.A., of Broad and Cassel,
Miami, Counsel for Amicus Curiae The Florida
Securities Dealers Association, Inc.

Nicholas A. Shannin, of The Shannin Law Firm,
Orlando, and Jonathan K. Youngwood, Kavitha
S. Sivashanker and Stephen A. O’Connor, of
Simpson Thacher & Bartlett LLP, New York, NY,
Attorneys for Amicus Curiae Securities Industry
and Financial Markets Association.

No Appearance for other Appellees.

And

LIGHTING SCIENCE GROUP CORP., RICHARD WEINBERG,
GREGORY KAISER AND PEGASUS CAPITAL ADVISORS, L.P.

             Appellants,

v.                                                    Case No. 5D15-4273

GEVERAN INVESTMENTS LIMITED, J.P. MORGAN
SECURITIES, LLC, PEGASUS CAPITAL ADVISORS, L.P.,
PEGASUS CAPITAL, LLC, PEGASUS CAPITAL
ADVISORS, GP, LLC, PCA LSG HOLDINGS, LLC, et al.,

           Appellees.
________________________________/

Opinion filed August 4, 2017



      2  Likewise, because Lighting Science Group Corp., Pegasus Capital Advisors,
Richard Weinberg, and Gregory Kaiser did not join J.P. Morgan, et al., in case 5D15-
4272, and instead appealed the summary final judgment in case 5D15-4273, these
parties are Appellants for purposes of case 5D15-4273 and Appellees for purposes of
case 5D15-4272, pursuant to Florida Rule of Appellate Procedure 9.020(g)(2).


                                             2
        LSG is a Delaware corporation with executive offices in Satellite Beach, Florida,

and is controlled by Pegasus Capital Advisors, L.P., a U.S.-based private equity fund.

LSG originally focused on selling high-end, made-to-order lighting, but in 2010, LSG

shifted its business model to designing, manufacturing, and marketing light-emitting diode

(“LED”) light products, including replacement bulbs and fixtures, for retail and commercial

customers. 5 Geveran is an international investment company, one of several companies

within the Fredriksen Group, organized under the laws of Cyprus. Geveran employed

Fredrick Halvorsen, a Norwegian businessman and investor, to identify investment

opportunities on its behalf. 6

        Halvorsen anticipated a “massive shift towards LED lighting” and sought out

investment opportunities within the green-energy industry for Geveran. Halvorsen

specifically sought “pre-IPO” investments—companies that were not publicly traded on

major stock exchanges but that were planning on becoming publicly traded in the near

future. 7




        5Because we are reviewing an order granting summary judgment, we present the
facts in the light most favorable to the nonmoving party, the defendants, and draw all
reasonable inferences in the nonmoving party’s favor. See Martins v. PNC Bank, Nat’l
Ass’n, 170 So. 3d 932, 935 (Fla. 5th DCA 2015).
        6
      Halvorsen had previously been the CEO and CFO of a Norwegian technology
company valued in the billions.
        7Technically, LSG was a “re-IPO” in that it already offered a small volume of
shares to the public on the “over-the-counter” (“OTC”) market. LSG’s S-1/A noted that the
value of these shares had been low and trading of them thin because Pegasus controls
LSG and minority shareholders would have little control over LSG. Given how thinly
traded LSG’s stock is, we have placed no significance on the fluctuations of the stock’s
price over the course of the events giving rise to this dispute.



                                            5
       Lighting Science Group Corp., et al. 3 (“LSG”) and J.P. Morgan Securities, LLC,

Madhukar Namburi, and Esteban Schreck4 (“J.P. Morgan”) (collectively, “defendants”)

appeal the trial court’s entry of summary final judgment in favor of Geveran Investments

Limited (“Geveran”). The parties stipulated to final judgment and the dismissal of their

additional claims and affirmative defenses for the purposes of appealing the trial court’s

entry of partial summary judgment on Geveran’s claim under the Florida Securities and

Investor Protection Act (“FSIPA”), sections 517.011–32, Florida Statutes (2012). The final

judgment awarded Geveran $25 million in rescissory damages under section

517.221(3)(a), Florida Statutes (2012), along with $6,752,280 in prejudgment interest;

$4,456,787.40 in attorneys’ fees; and $469,061.93 in costs: a total recovery of

$36,678,129.33, for which the defendants are jointly and severally liable.

       The defendants argue that the trial court erred in entering summary judgment in

Geveran’s favor because genuine issues of material fact exist as to Geveran’s entitlement

to relief. We agree and reverse and remand this case for further proceedings. We also

find that the court erred in denying J.P. Morgan’s motion to dismiss Geveran’s claims

against Namburi and Schreck because the complaint failed to allege facts sufficient to

establish that they acted as agents of the seller, LSG. Therefore, on remand the trial court

is directed to dismiss LSG’s claims against Namburi and Schreck.




       3 The other Appellants in case 5D15-4273 are Pegasus Capital Advisors, LP,
which owns a controlling stake in LSG, Richard Weinberg, LSG’s CEO and a senior
partner at Pegasus, and Gregory Kaiser, LSG’s CFO.
       4
      Namburi and Schreck are employees of J.P. Morgan’s investment banking group.
Namburi is the executive director of the group, and Schreck is the vice president. Both
Namburi and Schreck were involved in assisting LSG in soliciting Geveran’s investment.


                                             4
        LSG is a Delaware corporation with executive offices in Satellite Beach, Florida,

and is controlled by Pegasus Capital Advisors, L.P., a U.S.-based private equity fund.

LSG originally focused on selling high-end, made-to-order lighting, but in 2010, LSG

shifted its business model to designing, manufacturing, and marketing light-emitting diode

(“LED”) light products, including replacement bulbs and fixtures, for retail and commercial

customers. 5 Geveran is an international investment company, one of several companies

within the Fredriksen Group, organized under the laws of Cyprus. Geveran employed

Fredrick Halvorsen, a Norwegian businessman and investor, to identify investment

opportunities on its behalf. 6

        Halvorsen anticipated a “massive shift towards LED lighting” and sought out

investment opportunities within the green-energy industry for Geveran. Halvorsen

specifically sought “pre-IPO” investments—companies that were not publicly traded on

major stock exchanges but that were planning on becoming publicly traded in the near

future. 7




        5Because we are reviewing an order granting summary judgment, we present the
facts in the light most favorable to the nonmoving party, the defendants, and draw all
reasonable inferences in the nonmoving party’s favor. See Martins v. PNC Bank, Nat’l
Ass’n, 170 So. 3d 932, 935 (Fla. 5th DCA 2015).
        6
      Halvorsen had previously been the CEO and CFO of a Norwegian technology
company valued in the billions.
        7Technically, LSG was a “re-IPO” in that it already offered a small volume of
shares to the public on the “over-the-counter” (“OTC”) market. LSG’s S-1/A noted that the
value of these shares had been low and trading of them thin because Pegasus controls
LSG and minority shareholders would have little control over LSG. Given how thinly
traded LSG’s stock is, we have placed no significance on the fluctuations of the stock’s
price over the course of the events giving rise to this dispute.



                                            5
       Prior to Geveran’s investment, J.P. Morgan agreed to work as a placement agent

and underwriter for LSG. Under the terms of the agreement, J.P. Morgan agreed to “assist

the Company [LSG] in soliciting and receiving an offer from the Purchasers to purchase

Securities.”8 At Halvorsen’s request, J.P. Morgan communicated Geveran’s interest in

investing in LSG.

       Halvorsen met with representatives of LSG, including LSG’s director Richard

Weinberg and CFO Gregory Kaiser, along with representatives from J.P. Morgan,

including Namburi and Schreck, and representatives of Pegasus in Florida on April 4,

2011, to discuss a possible investment. Halvorsen sat through multiple presentations,

including presentations by Weinberg and Namburi, about LSG’s finances. Halvorsen also

heard a presentation about LSG’s initiatives to improve its gross profit margin. 9 Halvorsen

reviewed various financial projections and LSG’s 2010 form 10-K, 10 which was filed with

the SEC on April 1, 2011.




       8 The agreement entitled J.P. Morgan to rely on LSG’s company information
without independent verification and provided for indemnification by LSG for any liability.
The agreement also specified that LSG’s past financial data were prepared in accordance
with generally accepted accounting principles (“GAAP”).
       9 An expert for Geveran explained that gross profit is determined by subtracting
the cost of goods sold—all of the direct costs associated with producing the products—
from total revenue. When gross profits are divided by revenue and multiplied by 100%,
the resulting percentage, referred to as “gross margin,” provides an estimate of the profits
on each unit sold. Companies with high gross margins will become even more profitable
as revenues grow while companies with low gross margins will continue to generate low
profits even as their business expands.
       10The form 10-K is an annual report that provides a “comprehensive overview of
the company’s business and financial condition and includes audited financial
statements.”       SEC,        Form         10-K,        (June      26,        2009),
https://www.sec.gov/answers/form10k.htm.


                                             6
       Halvorsen prepared his own analysis of LSG in an email dated April 28, 2011. He

noted that LSG had a planned IPO within the next twelve months and was on pace to

begin earning money in July and to have positive cash flow by December. He also noted

a general shift toward LED lighting and LSG’s recent distribution agreement with Home

Depot, which would expand LSG’s retail sales. He noted, however, that the investment

was contingent on LSG shifting its manufacturing base from the United States to Mexico

and that the IPO required LSG to continue to improve its earnings.

       Geveran relied on Halvorsen’s expertise and presentations from LSG and J.P.

Morgan for its due diligence review. Geveran ultimately agreed to purchase 6,250,000

shares of LSG at $4 per share: a total investment of $25 million. The agreement certified

that the 2010 form 10-K provided to Halvorsen complied with all relevant laws and that

the financial statements included therein complied with generally accepted accounting

principles (“GAAP”). Halvorsen signed the subscription agreement with LSG on behalf of

Geveran on May 10, 2011. 11

       Prior to signing the agreement, LSG had filed a form S-1/A with the SEC in

anticipation of making a re-IPO in the summer of 2011. In response, the SEC sent LSG

a fax on April 28, 2011, raising several concerns with LSG’s S-1/A, including concerns

with note five of its financial statements regarding inventories. In note five, LSG explained

that because it was in an early stage of development, it classified its obsolete, unsold

inventory as “research and development” rather than a cost of manufacturing—a “cost of



       11 The agreement was a “Regulation S” offering, meaning that the securities
offered did not have to be registered under section 5 of the Securities Act of 1933 because
they were offered outside of the United States. See Lighting Sci. Grp. Corp., Current
Report (Form 8-K) (May 10, 2011) (announcing Regulation S subscription agreement).



                                             7
goods sold.” The SEC’s letter noted the SEC’s view, expressed in ASC section 420-10-

S99-3, that these costs should be included in cost of goods sold. 12 A copy of the SEC’s

letter was emailed to Namburi and Schreck, among many others, moments after it was

received. Halvorsen, however, was not provided the letter. 13 On May 3, the SEC sent a

similar letter to LSG, this time taking issue with LSG’s 2010 form 10-K—the same form

10-K referenced in the subscription agreement signed a week later and provided to

Halvorsen. The second letter raised the same concerns as the previous letter, and

Namburi and Schreck were again sent a copy of the letter soon after it was received.

      The day before the subscription agreement was signed, Namburi forwarded

Halvorsen an email that he had received from Kaiser containing information about LSG’s

April sales. Namburi had deleted the section of the email showing disappointing gross

margins for LSG. Namburi later claimed that he deleted the numbers because he was

unsure of their accuracy. In a separate email, Namburi expressed frustration to Kaiser

that the April gross margins were around 3–6% when they had informed Halvorsen the

margins would be around 9%.




      12     Accounting Standard Codification, § 420-10-S99-3, available                at
https://asc.fasb.org/section&trid=2558983#d3e141019-122747 (login required).
      13 Namburi testified that he was “pretty confident” he had a conversation with
Halvorsen about the SEC comments and LSG’s compliance with GAAP, although he did
not know the date. He also noted that the SEC’s approval was key to the timing of LSG’s
re-IPO, which was an important milestone for the company, although he declined to offer
an opinion about the materiality of the restatement.

        Namburi also sent an email days before the subscription agreement was signed
that referenced the SEC comment letters and stated that the comments would need to be
disclosed to “our investors” even though the restatement was not material. The email was
part of a chain related to soliciting additional investors for LSG, not including Geveran.


                                            8
      On May 12, after the subscription agreement had been signed, LSG responded to

the SEC letters by explaining that its policy in 2008 and 2009 had been to purchase raw

materials and supplies for research and development but to classify those materials as

“obsolete” along with any unsold inventory—meaning LSG did not distinguish between

materials actually used for research and development and unsold product. LSG initially

claimed that only $2 million in 2009 and $445,000 in 2008 needed to be reclassified from

research and development to cost of goods sold. Days later, LSG sent an additional letter

to the SEC providing a materiality analysis based on Staff Accounting Bulletin 99. 14 The

analysis concluded that the misstatements were not material because they had no impact

on “any trends related to revenue, earnings, or EBITDA [earnings before interest, tax,

depreciation, and amortization]” and would not have affected investors because LSG’s

business and revenue had significantly shifted since 2008 and 2009. LSG’s accountant,

McGladrey and Pullen, LLP, (“McGladrey”) agreed with this determination and prepared

a similar SAB 99 analysis. McGladrey had identified the accounting problem in 2009 and

conducted a SAB 99 analysis that likewise concluded that no restatement was necessary.

      The SEC responded on June 2 by asking for additional information and a more

detailed explanation of how LSG decided to classify certain expenses as research and

development or cost of goods sold and how LSG valued its obsolete goods. LSG was not

able to provide data to justify its more limited restatement, leading the SEC to request

that all of the amount of obsolete goods be reclassified as cost of goods sold. On June



      14  The bulletin provides “guidance in applying materiality thresholds to the
preparation of financial statements.” SEC Staff Accounting Bulletin: No. 99, 64 Fed. Reg.
45150 (Aug. 19, 1999). The bulletin instructs accountants to consider a variety of context-
specific quantitative and qualitative factors in determining materiality.



                                            9
16, LSG filed a form 8-K, 15 indicating that the 2008 and 2009 financial statements would

need to be restated and included in the amended 2010 form 10-K. An amended form 10-

K for 2010 soon followed. The results of the restatement were:

      Originally Reported Gross Profits ($)          Restated Gross Profits ($)
      Originally Reported Gross Margins (%)          Restated Gross Margins (%)
 2008 $ 4,069,993                                    $ (448,110) 16
      19.6%                                          (2.2)%
 2009 $ 6,621,977                                    $ 2,495,867
      21.1%                                          8.0 %


The defendants maintain that the restatement only occurred to facilitate faster approval

of LSG’s form S-1/A and that the restatement was never material. The re-IPO was

eventually put on hold and still has not occurred.

       There is no record of Halvorsen’s reaction to the restatement disclosed in the form

8-K, and he did not discuss the 2008 and 2009 gross margins with anyone from LSG or

J.P. Morgan. The record does show that Halvorsen expressed continued confidence and

optimism about Geveran’s investment until LSG began to seek capital financing from

other investors. LSG sold preferred stock to other investors, effectively diluting the value

of Geveran’s shares. Halvorsen unsuccessfully attempted to obtain better terms for

Geveran’s investment. These lawsuits followed approximately one year after the

restatement.

       Namburi, Schreck, and Pegasus each filed a motion to dismiss, but the trial court

denied the motions. All parties later moved for summary judgment. The court granted



       15Form 8-K is used to report material events that shareholders should be aware
of—the SEC refers to this as “current reports.” SEC, Fast Answer: Form 8-K, (Aug. 10,
2012), https://www.sec.gov/answers/form8k.htm.
       16   Parentheses indicate negative values.


                                            10
partial summary judgment on Geveran’s claim for violations of the FSIPA. The parties

stipulated to dismissing their additional claims and to the entry of final judgment for the

purposes of this appeal.

       This Court reviews orders on motions for summary judgment de novo. Volusia Cty.

v. Aberdeen at Ormond Beach, L.P., 760 So. 2d 126, 130 (Fla. 2000). Summary judgment

must be granted where the summary-judgment evidence shows the absence of any

“genuine issue as to any material fact” and an entitlement to judgment as a matter of law.

Fla. R. Civ. P. 1.510(c). The moving party has the burden of establishing the absence of

any genuine issue of material fact, and all reasonable inferences are drawn in favor of the

nonmoving party. Martins, 170 So. 3d at 935.

       The FSIPA makes it unlawful to, “in connection with the offer, sale, or purchase of

any investment or security, . . . obtain money or property by means of any untrue

statement of a material fact or any omission to state a material fact necessary in order to

make the statements made, . . . not misleading.” § 517.301, Fla. Stat. (2012). The FSIPA

provides for a remedy of rescission for all violations of section 517.301 “if the plaintiff still

owns the security.” Id. § 517.211. Joint and several liability under section 517.301 extends

to any “director, officer, partner, or agent [of the seller who] has personally participated or

aided in making the sale or purchase.” Id.

       In E.F. Hutton & Co. v. Rousseff, 537 So. 2d 978, 979 (Fla. 1989), the Florida

Supreme Court analogized claims under section 517.211(3) seeking rescission to claims

under section 12 of the Securities Act of 1933, which is codified at 15 U.S.C. § 77(l)

(2016), as well as common law claims for rescission. Section 517.211(2) limits liability to

persons involved directly in the sale of the security and damages are limited to the




                                               11
consideration paid. 537 So. 2d at 981. A claim for rescission under section 517.211

includes: 1) a misrepresentation or omission, 2) of a material fact, 3) on which the buyer

relied. 17 See Kashner Davidson Sec. Corp. v. Desrosiers, 689 So. 2d 1106, 1107 (Fla. 2d

DCA 1997) (citing Rousseff, 537 So. 2d at 981).

      The defendants argue that there are genuine issues of material fact as to all three

elements of Geveran’s claim. We focus on the second and third elements—materiality

and reliance—and find there are genuine issues as to both. 18 Although few Florida courts

have addressed the issue, the majority of federal courts interpreting section 517.301 have

adopted the test for materiality developed by the United States Supreme Court for rule

10b-5 claims. 19 See, e.g., Grippo v. Perazzo, 357 F.3d 1218, 1222 (11th Cir. 2004) (noting

the elements of a section 517.301 claim are similar to those under Federal Rule 10b-5

with some exceptions). Under rule 10b-5, a material fact is a fact that would be important

to a reasonable investor in deciding whether to invest—meaning that there is a



      17  At oral argument, counsel for Geveran conceded that reliance is an element of
a claim under section 517.211. We note that one federal court has found that reliance is
not an element under that section. Waters v. Int’l Precious Metals Corp., 172 F.R.D. 479,
492–96 (S.D. Fla. 1996). Geveran has also not argued here or below that reliance should
be presumed given that its claim is based on an omission. Cf. Affiliated Ute Citizens of
Utah v. United States, 406 U.S. 128, 152 (1972) (concluding that court erred in requiring
reliance in case involving omission of material information under rule 10b-5).
      18  As to the first element, misrepresentation or omission, LSG’s failure to disclose
the SEC letters to Halvorsen was a clear omission. We note, however, that note five of
LSG’s 2010 form 10-K disclosed LSG’s decision to treat obsolete inventory as a cost of
goods sold. While we doubt that this disclosure, standing on its own, would be sufficient—
Geveran has no obligation to consult an accountant to review the entire form 10-K—it is
worth noting that the information was disclosed, albeit not in a form easily accessible to
investors. In addition, Namburi testified that he actually disclosed the SEC comment
letters to Halvorsen. While that testimony is of questionable reliability given its lack of
specificity, assessing the credibility of a witness is generally a matter for the jury.
      19   17 C.F.R. § 240.10b-5 (2016) (implementing 15 U.S.C. § 78j (2016)).


                                            12
“substantial likelihood” the reasonable investor would have viewed the misrepresentation

as altering the “total mix” of available information. Basic Inc. v. Levinson, 485 U.S. 224,

231–32 (1988) (adopting materiality standard from TSC Indus., Inc. v. Northway, Inc., 426

U.S. 438, 449 (1976)); cf. Restatement (Second) of Torts § 538 (“The matter is material

if [] a reasonable man would attach importance to its existence or nonexistence in

determining his choice of action in the transaction in question . . . .”); SEC Staff

Accounting Bulletin: No. 99, 64 Fed. Reg. at 45151 (noting that the accounting standard

for materiality is “in substance identical to the formulation used by the courts in interpreting

the federal securities laws”).

       Geveran recognizes the inherent factual issues in determining whether the 2008

and 2009 restatements of gross margins were themselves material. Geveran focuses

instead on the concealment of the SEC comment letters and LSG’s failure to maintain

GAAP compliant financial records as the material omissions and misrepresentations to

support the order granting summary judgment. The subscription agreement between the

parties included detailed assurances that LSG’s 2010 form 10-K complied with GAAP and

all relevant SEC rules. Halvorsen’s deposition testimony repeatedly emphasized the

importance of GAAP compliance to Geveran not only because GAAP compliance allows

for an objective evaluation of the financial strength of a particular investment, but also

because GAAP compliance was necessary to obtain SEC approval of LSG’s re-IPO.

       Geveran’s FSIPA claim, however, is not a claim on the subscription agreement,

but rather a statutory claim, meaning that materiality must be based on the effect of the

omission and misrepresentation on a reasonable investor looking at the total mix of

information. See Levinson, 485 U.S. at 231–32. McGladrey looked at LSG’s accounting




                                              13
error, prepared its own analysis, and determined that the misrepresentation of the 2008

and 2009 gross profits was not material and that LSG’s 2008 and 2009 financial

statements remained materially compliant. The defendants’ expert witnesses concurred

in this assessment. They focused on the significant changes to LSG’s business model

from 2008 and 2009 to 2010. In addition, GAAP are not a single, unified standard but

rather a set of possible accounting treatments. See Thor Power Tool Co. v. C.I.R., 439

U.S. 522, 544 (1979) (noting GAAP compliance is not a single standard). We believe a

reasonable juror could infer from these facts that the accounting error regarding the 2008

and 2009 gross margins would not be a material misrepresentation to a reasonable

investor. 20

       Geveran points out that LSG quickly acquiesced to the SEC’s recommendation

that the 2008 and 2009 financial statements needed to be restated, a step that the SEC

only requires for past financial statements if the restatement is material. Yet many federal

courts have held that a misstatement under the accounting standard for materiality is not

per se material as a legal matter. See, e.g., In re Atlas Mining Co., Sec. Litig., 670 F.

Supp. 2d 1128, 1133 (D. Idaho 2009) (rejecting theory, under rule 10b-5, that restatement

of financials is an admission of falsity and materiality and collecting cases). The fact that

LSG agreed to restate its previous financial statements is strong evidence of a material

omission, but it is not dispositive and must be weighed against expert testimony and




       20Halvorsen’s own analysis of LSG looked to LSG’s recent contract with Home
Depot and shifting base of manufacturing from the United States to Mexico, suggesting
the 2008 and 2009 gross margins were not material to the investment decision.



                                             14
analysis by LSG’s accountant along with the fact that LSG’s business model was

changing significantly, making the 2008 and 2009 financials less relevant. 21

       Finally, we note as well that materiality is most often a jury question as it involves

a full assessment of the various potentially relevant facts and surrounding circumstances.

See Ward v. Atl. Sec. Bank, 777 So. 2d 1144, 1146 (Fla. 3d DCA 2001). Although we do

not doubt that Geveran has a strong argument that LSG’s misstatements were material,

ultimately assessing alternative versions of events based on a review of various

documents and competing testimony is the role of the jury. We do not believe, given the

circumstances of this company, that the defendants’ omission of the SEC comment letters

and the misrepresentation that the 2008 and 2009 financial statements were GAAP

compliant were material as a matter of law.

       In addition to a genuine issue of fact as to materiality, we also find a genuine issue

of material fact exists as to whether Geveran relied on the omitted SEC letters and the

misrepresented accounting figures. Consistent with Geveran’s concession and the

Florida Supreme Court’s opinion in Rousseff, Geveran must show that it actually relied

on the omission or misrepresentation. See 537 So. 2d at 981. But see Waters, 172 F.R.D.

at 492–96 (finding that statement as to justifiable reliance in Rousseff was dicta and

holding reliance is not an element of a section 517.301 claim seeking rescission). 22



       21 We are mindful that Geveran was not only investing in a product line but also in
the entire company. Nonetheless, the shift in LSG’s core operations creates a genuine
issue of fact as to the materiality of LSG’s past performance.
       22  We note as well that the Florida Supreme Court’s decision in Rousseff refers to
justifiable reliance. 537 So. 2d at 981. Yet many cases state that the plaintiff in a FSIPA
claim need only show that the plaintiff relied on the omission or misrepresentation not that
such reliance was justified. See, e.g., Desrosiers, 689 So. 2d at 1107 (holding reliance is
an element of a cause of action under 517.301). In the context of common law claims, the


                                             15
       Even though an average investor would generally rely on assurances given in an

investment contract, Halvorsen is not an average investor. Halvorsen was given complete

access to confidential information at LSG as well as J.P. Morgan’s due diligence

materials. By his own admission, he looked carefully at LSG and performed an extensive

independent review. Halvorsen was adamant during his deposition that he was not an

accountant and could not have identified the flaws in LSG’s accounting merely by reading




Florida Supreme Court has held that the level of reliance required is dictated by the level
of culpability required to establish liability—liability for merely negligent
misrepresentations extends only to statements justifiably relied on while liability for
fraudulent statements extends to any statement actually relied on. See Butler v. Yusem,
44 So. 3d 102, 105 (Fla. 2010) (reiterating justifiable reliance is an element of a negligent
misrepresentation claim but not a claim for fraudulent misrepresentation); see also
Restatement (Second) of Torts § 552 cmt. a (1977) (“The liability stated in this Section is
likewise more restricted than that for fraudulent misrepresentation stated in § 531. When
there is no intent to deceive but only good faith coupled with negligence, the fault of the
maker of the misrepresentation is sufficiently less to justify a narrower responsibility for
its consequences.”).

       In the context of a statutory claim under section 517.301 based on a direct sale,
we believe it is appropriate to presume that the reliance was justified. The exhaustive
statutory scheme created by the FSIPA evidences a legislative intent to extend liability
beyond the common law cause of action for negligent misrepresentation and encourage
investors to rely on representations from a seller of securities.

        As to the state of mind required to establish liability, we follow the majority of
decisions surveyed in finding that liability exists for mere negligence. See, e.g.,
Gochnauer v. A.G. Edward & Sons, Inc., 810 F.2d 1042, 1046 (11th Cir. 1987). Claims
under the FSIPA seeking rescission based on a direct sale are more similar to section 12
claims under the federal Securities Act of 1933. Rousseff, 537 So. 2d at 981. In a section
12 claim, the burden is on the defendant to show that “he did not know, and in the exercise
of reasonable care could not have known” of the falsity of the information—although
recent amendments have added a requirement that the plaintiff show the omission
caused its damages. 15 U.S.C. § 77(l). We believe it would be inconsistent to require a
plaintiff proceeding under Florida law to prove fraudulent intent when the same plaintiff
proceeding under federal law would not be so required. See § 517.24, Fla. Stat. (2012)
(providing that “[t]he same civil remedies provided by laws of the United States for the
purchasers or sellers of securities, under any such laws, in interstate commerce extend
also to purchasers or sellers of securities under [the FSIPA]”).


                                             16
note five of the 2010 form 10-K. Yet a jury could determine that Halvorsen conducted an

independent assessment of LSG and made his own decision to invest by relying on

information other than the 2008 and 2009 gross margins.

      Furthermore, the circumstances surrounding the restatement suggest that

Halvorsen might not have relied on the omissions and misrepresentations. Halvorsen did

not react unfavorably when he learned of the restatement, and he continued to take an

optimistic view of LSG. Only when LSG’s re-IPO continued to lag and the company began

to offer more favorable credit terms to lure new investors did Halvorsen object and bring

suit. Even though the contract provisions and Halvorsen’s testimony are powerful

evidence that compliance with SEC regulations and GAAP principles was important to

the investment, there is a genuine issue of material fact as to whether Halvorsen relied

on those assurances in determining whether to invest or whether he made the decision

based on other information. His own assessment of LSG focused on the market for green-

energy technology generally and specific challenges facing LSG in shifting its

manufacturing base.

      Therefore, we reverse the trial court’s order granting summary judgment on

Geveran’s claims under the FSIPA. We find there are genuine issues of material fact as

to whether the omission of the SEC letters and the misrepresentation of LSG’s 2008 and

2009 financial statements were material to a reasonable investor. We also find there is a

genuine issue of material fact as to Halvorsen’s reliance on those omissions and

misrepresentations.




                                           17
       Finally, we turn to Namburi, Schreck, and Pegasus’s claims that they are not liable

under FSIPA. 23 Section 517.211 creates liability for two classes of persons: 1) sellers,

and 2) “every director, officer, partner, or agent of . . . [the] seller.” § 517.211(2), Fla. Stat.

Liability for the second category is further limited to those persons who “personally

participated or aided in making the sale or purchase.” Id. Although “seller” is not a defined

term under the statue, the federal courts that have considered the issue of who is a “seller”

under section 517.211 have relied on the United States Supreme Court’s decision in

Pinter v. Dahl, 486 U.S. 622 (1988), which held that liability under section 12 of the

Securities Act extends to anyone who solicits an investment “motivated at least in part by

a desire to serve his own financial interests or those of the securities owner.” 486 U.S. at

647; see also Hilliard v. Black, 125 F. Supp. 2d 1071, 1083 (N.D. Fla. 2000) (noting

reliance on Pinter); Beltram v. Shackleford, Farrior, Stallings, & Evans, 725 F. Supp. 499,

500 (M.D. Fla. 1989) (same).

       As to Pegasus, Geveran focuses on Pegasus’s role in soliciting Geveran’s

investment as a majority, controlling shareholder of LSG, which could bring Pegasus

under the category of “seller” for the purposes of section 517.211. See Pinter, 486 U.S.

at 647. LSG’s S-1/A and 2010 form 10-K disclosed Pegasus as a controlling shareholder

in LSG. There is no dispute that Pegasus had a significant financial interest in LSG. Thus,




       23 Pegasus only appeals from the denial of its motion for summary judgment.
Accordingly, we assess the record under the summary-judgment standard of review. J.P.
Morgan appeals from the denial of its motion to dismiss the claims against Namburi and
Schreck. We review the order denying the motion to dismiss de novo to assess whether
the allegations contained within the four corners of the complaint, taken in the light most
favorable to Geveran, state a claim for which relief could be granted. See Huet v. Mike
Shad Ford, Inc., 915 So. 2d 723, 725 (Fla. 5th DCA 2005).


                                                18
there is, at a minimum, a genuine issue as to whether Pegasus would have benefited

from Geveran’s investment.

       There is also a genuine issue as to whether Pegasus and its employees solicited

Geveran’s investment and participated in the alleged omission and misrepresentations.

The record shows involvement by employees of Pegasus in making the sale. Weinberg,

in addition to his position with LSG as CEO, was a senior partner at Pegasus and was on

the board of LSG as a representative of Pegasus and its controlling interest in LSG.

Weinberg attended the meeting in Florida and was a primary salesman, according to

Halvorsen. In addition, Jared Berheim and Steven Wacaster, two other Pegasus

representatives, participated in the meeting. Weinberg, Bernheim, and Wacaster were

also provided copies of the SEC comment letters soon after they were received.

       Pegasus argues, nonetheless, that it cannot be liable under section 517.211

because of the buyer/seller privity requirement it claims the Florida Supreme Court

recognized in Rousseff. 537 So. 2d at 981. This statement from Rousseff is misleading,

however. Section 517.211, by its plain language, extends liability to “every director,

officer, partner, or agent of or for the purchaser or seller.” § 517.211(2), Fla. Stat. Such

parties would not necessarily be in privity of contract with the buyer or seller in a strict

sense. Rousseff established that parties liable under section 517.211 have to be directly

involved in a sale of securities. The Court was distinguishing liability under section

517.211 from liability under federal rule 10b-5, which extends to fraud more generally,

whether conducted during the sale of securities or not. 24 The Court used “privity” as a



       24
        Rousseff, 537 So. 2d at 981 (“Rule 10b-5 is wide-ranging, covering a broad
spectrum of fraud. It applies to any person who is deceitful in connection with the
purchase or sale of securities. It requires no privity between buyer and seller. Remedies


                                            19
short-hand for a direct sale of securities distinct from general corporate malfeasance. See

In re Sahlen & Assocs., Inc. Sec. Litig., 773 F. Supp. 342, 372 (S.D. Fla. 1991)

(disapproving of a reading of Rousseff in the “strict sense” based on the plain language

of the statute); see also Michael A. Hanzman, Civil Remedies Under the Fla. Secs. &

Investor Protection Act, 64 Fla. Bar J. 36 (Oct. 1990) (approving of Rousseff in general

but noting that the privity requirement, in a strict contractual sense, cannot be correct). In

this context, section 517.211 is transaction-specific, while other provisions of Florida

statutory and common law reach other types of wrong-doing by corporate officers.

       To summarize, Pegasus’s pecuniary interest in Geveran’s investment and the

evidence of its participation in soliciting the investment creates a genuine issue of fact as

to Pegasus’s liability as a seller under the FSIPA, making the denial of Pegasus’s motion

for summary judgment appropriate. Yet, as with LSG and J.P. Morgan, genuine issues of

material fact preclude summary judgment in Geveran’s favor on its FSIPA claim.

       As to Namburi and Schreck, Geveran’s second amended complaint alleged that

Namburi and Schreck were liable under section 517.301 for soliciting Geveran’s

investment and as agents of the seller, LSG. While Geveran’s complaint alleges that

Namburi and Schreck “solicited the sale of LSG stock,” it does not allege that Namburi

and Schreck had a personal interest in the transaction—only that J.P. Morgan would

receive an agency fee. There is also no allegation that Namburi and Schreck acted to




are not restricted. . . . The Florida statutes, on the other hand, are far more
restrictive. . . . Section 517.211 says that if a seller (or buyer) is untruthful in a sale, the
buyer (or seller) can rescind the transaction and get his money back. This provision
applies to a far more narrow group of activities than does rule 10b-5. Buyer/seller privity
is required.”).



                                              20
serve the interests of LSG, given that they were actually employees of J.P. Morgan. Thus,

Geveran has not alleged facts sufficient to state a claim on the basis that Schreck and

Namburi are liable as “sellers.”

       As noted above, section 517.211(2), Florida Statutes (2012), also extends liability

to “every director, officer, partner, or agent of or for the purchaser or seller, if the director,

officer, partner, or agent has personally participated or aided in making the sale or

purchase.” It is undisputed that Namburi and Schreck were not directors, officers, or

partners of LSG, so if they are liable under this category, it must be as agents of LSG.

The Fourth District Court of Appeal has held that under section 517.211, the term “agent”

is given its common meaning—“representation of a principal.” Rubin v. Gabay, 979 So.

2d 988, 990 (Fla. 4th DCA 2008). Agency can either be actual or apparent. Id. The

elements of actual agency are: 1) acknowledgment by the principal of the agent; 2) the

agent’s acceptance; and 3) control of the agent by the principal. Id.

       While Namburi signed the agency agreement with LSG, he did so as an employee

of J.P. Morgan and not in his personal capacity. Schreck did not sign the agreement and

had a narrower role in the transaction. The second amended complaint specifically

alleges that J.P. Morgan had a contractual relationship with LSG to act as its agent in

soliciting the investment and attached the agreement to the complaint. The complaint

does not allege or demonstrate that either Namburi or Schreck accepted an agency

agreement with LSG or that LSG exercised control over them. Therefore, Geveran failed

to state a cause of action against Namburi and Schreck based on an actual agency

theory.




                                               21
       Likewise, whatever apparent agency is alleged to exist in the transaction was

apparent agency between J.P. Morgan and LSG, rather than Namburi, Schreck, and LSG.

The elements of apparent agency are: 1) a representation by the principal; 2) reliance by

a third party; and 3) a change in position by the third party based on the representation

of an agency relationship. Id. The second amended complaint does not allege any facts

relating to these elements but merely asserts that Namburi and Schreck were agents or

“subagents” of LSG by virtue of their employment with J.P. Morgan. This is insufficient to

state a cause of action under an apparent agency theory.

       Geveran argues that Namburi and Schreck are nonetheless liable because they

“personally participated or aided in making the sale.” § 517.211(2), Fla. Stat. Yet personal

participation is a limitation on the list of people enumerated in the statute who may be

liable—officers, directors, partners, and agents who personally participated. Geveran

essentially reads additional language into the statute that would extend liability to anyone

who personally participated or aided in the sale even if the party did not have a pecuniary

interest in the investment and did not qualify as an officer, director, partner or agent under

the statute. This reading conflicts with the statutory text and is not supported by any other

source. Therefore, because Geveran failed to allege facts that would establish that

Namburi and Schreck were agents of LSG, the trial court erred in denying J.P. Morgan’s

motion to dismiss Geveran’s claim against them.

       In sum, we find that the complaint did not state a claim against Namburi and

Schreck. Therefore, the trial court’s order denying J.P. Morgan’s motion to dismiss

Geveran’s claims against Namburi and Schreck is reversed and remanded with directions

for the court to dismiss the claims against them. The summary final judgment entered




                                             22
against the remaining defendants, including Pegasus, is reversed because there are

genuine issues of material fact as to the materiality of LSG’s misrepresentations and

omissions as well as to Geveran’s reliance. The case is remanded for further

proceedings.

      REVERSED; REMANDED with instructions.

SAWAYA and WALLIS, JJ., concur.




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