               Case: 13-10563        Date Filed: 09/04/2014      Page: 1 of 50


                                                                                   [PUBLISH]

                  IN THE UNITED STATES COURT OF APPEALS

                            FOR THE ELEVENTH CIRCUIT
                              ________________________

                                     No. 13-10563
                               ________________________

                          D.C. Docket No. 9:06-cv-80652-KLR

SFM HOLDINGS, LTD.
and SALOMON MELGEN,

                                                                        Plaintiffs–Appellants,

                                             versus

BANC OF AMERICA SECURITIES, LLC,

                                                                        Defendant–Appellee.
                               ________________________

                      Appeal from the United States District Court
                          for the Southern District of Florida
                            ________________________

                                    (September 4, 2014)

Before PRYOR and JORDAN, Circuit Judges, and FRIEDMAN, * District Judge.

FRIEDMAN, District Judge:

       The district court enjoined Plaintiffs–Appellants SFM Holdings, Ltd. and

Salomon Melgen (collectively “SFM”) from prosecuting an action in Florida state

*
  Honorable Paul L. Friedman, United States District Judge for the District of Columbia, sitting
by designation.
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court against Defendant–Appellee Banc of America Securities, LLC (“BAS”). The

district court considered the injunction necessary “to protect and effectuate”

judgments that were issued in an earlier federal lawsuit brought by SFM against

BAS, in which SFM’s claims were dismissed. See SFM Holdings, Ltd. v. Banc of

America Sec., LLC, No. 88, 06-cv-80652-KLR (S.D. Fla. Jan. 17, 2013). SFM

appeals from the issuance of this injunction, arguing that it does not fall within the

narrow “relitigation exception” to the Anti-Injunction Act, 28 U.S.C. § 2283. We

agree in large part, holding that SFM’s state court action presents some legal

claims that differ from those decided in the prior federal action. With respect to

other claims now advanced by SFM, however, we conclude that the district court

had authority to enjoin their relitigation in state court.

                                 I. BACKGROUND

      This appeal concerns the effect of an earlier federal lawsuit on a pending

state lawsuit, both arising from the same course of events between the parties. The

facts alleged in each case, however, tell the story somewhat differently; indeed,

these factual differences are integral to resolution of this appeal. We draw on the

facts as alleged in SFM’s most recent state court complaint, the “2012 State

Complaint,” an amended complaint filed in its state case, which was initiated in

2008. References to the complaint from SFM’s earlier federal lawsuit will employ

the label “2006 Federal Complaint.”


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      In September of 2004, Dr. Salomon Melgen, a Florida ophthalmologist,

invested a total of $15,000,000 in an account at BAS and granted permission to a

man named John Kim to trade securities in the account. 2012 State Complaint

¶¶ 1–2, 19. The investment was made through an entity, SFM Holdings, Ltd.,

controlled solely by Dr. Melgen. He made the decision to put his assets under

Kim’s management on the recommendation of a friend, Jerome Fisher, who told

Dr. Melgen that Kim had been producing strong returns for him. Id. ¶ 12. To

establish SFM’s account at BAS, Dr. Melgen signed two contracts: a Prime Broker

Margin Account Agreement (“PBA”) and an Institutional Account Agreement

(“IAA”). Id. ¶ 19. Melgen also signed a Trading Authorization form, through

which he designated Kim as his agent with authority to trade in the account. Id.

      Unbeknownst to Dr. Melgen, Fisher was in financial trouble and, more

specifically, it is alleged that this trouble was attributable to John Kim, who was

not the expert securities trader that Fisher had made him out to be. Id. ¶ 15. In

fact, Fisher’s account at BAS was incurring large losses on margin, due to the poor

stewardship of Kim and his business partner, Won Lee. Because of the losses that

Kim and Lee — through an entity called Shoreland Trading — were causing in

Fisher’s account, BAS had notified Lee that an infusion of new assets was needed

to cover the margin calls. Id. ¶ 87. Fortunately for Kim, Lee, and Fisher, they

found a source of fresh money to plug this gap: SFM.


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      Over a week-long period in late September and early October of 2004, SFM

funded its BAS account with $12.3 million. Id. ¶ 22. Shortly thereafter, Dr.

Melgen learned that his account had suffered some losses, and he informed Kim

that he planned on closing the account. Id. ¶¶ 29, 33. Fisher and Kim then met

with Melgen and persuaded him to keep the account open; as part of the

inducement, Kim provided Melgen with a written guaranty of his principal. Id.

¶¶ 33–34. Kim also transferred an additional $2.7 million into SFM’s account,

money which belonged to Dr. Melgen and was being held by Kim as part of a

separate investment. See id. ¶ 22; Appellants’ Brief at 4.

      Just a few months later, in February 2005, Dr. Melgen learned that the entire

$15 million held in the SFM account at BAS was gone. 2012 State Complaint

¶ 57. The story of what happened to Melgen’s money will be discussed in further

detail later in this opinion, as these facts pertain directly to whether SFM can

permissibly be enjoined from litigating its action in state court. For now, however,

we present a snapshot of the basic allegations set out in the 2012 State Complaint.

SFM first alleges that a substantial portion of its assets, roughly $9 million, was

converted to Fisher’s benefit by Won Lee, who allocated SFM’s assets to cover

margin calls in Fisher’s account, as well as by Lee’s allocation of trading gains to

Fisher and trading losses to SFM. Id. ¶¶ 26–27, 76, 82. Moreover, SFM alleges

that Lee was not even authorized to trade in its account, yet BAS permitted him to


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do so. Id. ¶¶ 24–25. Second, SFM alleges that the remainder of its funds was

transferred out of its account and into a separate Shoreland Trading account at

BAS, from which Lee eventually stole SFM’s assets. Id. ¶¶ 41, 45. The transfer

was executed by BAS, which relied on directions contained in a letter transmitted

to it by facsimile; the letter purported to be written and signed by Dr. Melgen, but

in fact was a forgery produced and sent by Won Lee. Id. ¶¶ 41–42, 131(c).

      In March 2005, shortly after Melgen learned of the loss of his assets, SFM

filed an action in Florida state court against Kim, Lee, Shoreland Trading, and the

KL Group, another entity controlled by John Kim and Won Lee. Appellants’ Brief

at 5. At that time, no wrongdoing was alleged against BAS, but SFM sought

discovery from BAS requesting the production of records relating to all accounts

controlled by Shoreland. The parties bitterly dispute the subsequent course of

events; SFM contends that BAS wrongfully refused to produce relevant

documents, and that BAS was even sanctioned by the state court for its

recalcitrance. Id. at 5–7. BAS maintains that it complied with all court orders,

and, to the extent that it did not produce documents sought by SFM, it argues that

its behavior was compelled by Florida law protecting its clients’ privacy.

Appellee’s Brief at 14. In any event, SFM’s state lawsuit was eventually dismissed

pursuant to a receivership order entered by the federal district court, emanating




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from an action brought by the Securities and Exchange Commission against the

KL Group. Appellants’ Brief at 7 n.5.

      In June 2006, SFM filed a lawsuit against BAS in federal court. In its

complaint — the 2006 Federal Complaint — SFM brought four claims: two for

violations of federal and Florida securities law, as well as tort claims for breach of

fiduciary duty and constructive fraud. The case was assigned to the same district

court judge who was overseeing the receivership, and he ultimately dismissed

SFM’s complaint with prejudice. SFM Holdings, Ltd. v. Banc of America Sec.,

LLC, No. 06-cv-80652-KLR, 2007 WL 7124464 (S.D. Fla. Feb. 12, 2007). In its

decision, the district court concluded that SFM had failed to state claims under

either federal or state securities law, and it denied SFM leave to replead those

claims. Id. at *7. The court also held that SFM’s claims for breach of fiduciary

duty and constructive fraud were deficient, stating that “[c]entral to both claims is

the allegation that Banc of America was acting as SFM’s fiduciary,” but

concluding that this requirement could not be satisfied, “[g]iven the plain language

in the Prime Brokerage Agreement.” Id. The court said it had examined that

agreement, which contained a clause that “state[d] unequivocally that Banc of

America was not ‘acting as a fiduciary,’ and was not ‘advising [SFM], performing

any analysis, or . . . offer[ing] any opinion, judgment or other type of information




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pertaining to the nature, value, potential or suitability of any particular

invest[ment].’” Id. (quoting the PBA) (some alterations in original).

      The court added that “[t]he tort claims are also barred by the application of

the economic loss rule, which provides that parties to a contract can only seek tort

damages if the alleged tortious conduct constitutes a tort distinct from the parties’

contractual rights and obligations.” Id. at *8. Finally, the court held that

“[r]epleading will not enable SFM to surmount the hurdles of the economic loss

rule or the language of the Prime Broker Agreement.” Id. It therefore dismissed

the complaint with prejudice. Id.

      SFM appealed the dismissal of the constructive fraud and breach of fiduciary

duty claims, but this court affirmed. See SFM Holdings, Ltd. v. Banc of America

Sec., LLC, 600 F.3d 1334, reh’g en banc denied, 402 F. App’x 513 (11th Cir.

2010). In reaching our decision, we examined not only the PBA, but also the IAA,

and concluded that these two contractual agreements foreclosed SFM’s tort claims.

Id. at 1339–40. We did not consider the district court’s alternative holding that

Florida’s economic loss rule operated to bar these claims. See id. But our ruling

did address SFM’s argument — made only in its appellate briefing — that it

should be granted leave to amend its complaint by adding a claim for breach of

contract, on the ground that the factual allegations already in its complaint could

support such a claim. Id. at 1340. In the final paragraph of our decision, we


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denied such leave by concluding that “Banc of America Securities’s compliance

with its obligations under [the PBA and IAA] precludes liability for breach of

contract. Therefore, the suggested amendment would be futile.” Id.

      Prior to oral argument before this court in that appeal, however, SFM had

already filed a new lawsuit in state court. Its complaint there included claims for

breach of contract with respect to both the PBA and the IAA, as well as for breach

of the implied covenant of good faith and fair dealing in these agreements.

Appellants’ Brief at 10–11. SFM also named Jerome Fisher — the friend who had

drawn Dr. Melgen into this mess — as a defendant in that action. BAS thereupon

removed the case to federal court on the ground that Fisher had been fraudulently

joined in order to destroy diversity; the federal district court accepted that

argument. Id. at 11. Eventually, the district court dismissed the removed action on

res judicata grounds. Id. SFM appealed, and this court, in a per curiam decision,

held that removal had been improper and the district court therefore lacked subject

matter jurisdiction over the case. SFM Holdings, Ltd. v. Fisher, 465 F. App’x 820,

821–22 (11th Cir. 2012). We vacated the district court’s dismissal of the action

and ordered that it be remanded to state court. Id. at 822. After the remand to state

court, SFM amended its complaint to add a claim alleging civil conspiracy between

BAS, Fisher, Kim, Lee, and Shoreland Trading. This complaint, the “2012 State




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Complaint,” is now the operative complaint in the state action. Appellants’ Brief

at 15.

         Finally, we arrive at the federal decision that is the source of this appeal.

After SFM’s case was remanded to state court and SFM had filed its amended

complaint there, BAS went back to federal court to seek an injunction against

SFM’s pursuit of the state action against it. BAS argued that the district court’s

2007 judgment dismissing SFM’s original federal case with prejudice, along with

our 2010 affirmance of that dismissal — which included the denial of leave to add

a claim for breach of contract — together deserved insulation from a potentially

inconsistent state court judgment. The district court agreed and granted the

injunction. See SFM Holdings, Ltd., No. 88, 06-cv-80652-KLR (S.D. Fla. Jan. 17,

2013). SFM now appeals, arguing that the federal injunction was inconsistent with

this court’s mandate that the lawsuit be remanded to the Florida court, and that the

injunction was impermissible under the Anti-Injunction Act, 28 U.S.C. § 2283,

which generally forbids federal courts from enjoining proceedings in state court.1

               II. JURISDICTION AND STANDARD OF REVIEW

         We have jurisdiction pursuant to 28 U.S.C. § 1291, as the district court’s

injunction was permanent rather than interlocutory. “Whether a district court has


1
  We reject SFM’s “mandate rule” argument summarily. There is absolutely no basis for finding
that this court, in determining that the district court lacked subject matter jurisdiction over the
removed state action, also “impliedly held” that SFM’s state court action should not be enjoined.

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the authority to enjoin a state court action under an exception to the Anti-

Injunction Act is a question of law that we review de novo.” Estate of Brennan ex

rel. Britton v. Church of Scientology Flag Serv. Org., Inc., 645 F.3d 1267, 1272

(11th Cir. 2011). “If the court had such authority, whether the [i]njunction should

have issued presents a mixed question of law and fact, which we review for abuse

of discretion.” Burr & Forman v. Blair, 470 F.3d 1019, 1030 n.31 (11th Cir.

2006).

                                III. DISCUSSION

  A. All Writs Act and the Relitigation Exception to the Anti-Injunction Act

      The All Writs Act provides that federal courts “may issue all writs necessary

or appropriate in aid of their respective jurisdictions and agreeable to the usages

and principles of law.” 28 U.S.C. § 1651(a). The statute codifies “the long

recognized power of courts of equity to effectuate their decrees by injunctions or

writs of assistance.” Burr & Forman, 470 F.3d at 1026 (quoting Wesch v. Folsom,

6 F.3d 1465, 1470 (11th Cir. 1993)) (alteration and quotation marks omitted).

Although its express language refers only to writs issued “in aid of [courts’]

jurisdictions,” it is understood that the All Writs Act “also empowers federal courts

to issue injunctions to protect or effectuate their judgments.” Id. (quoting Wesch,

6 F.3d at 1470).




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      The Anti-Injunction Act, however, “serves as a check on the broad authority

recognized by the All Writs Act.” Id. at 1027. The Anti-Injunction Act provides:

      A court of the United States may not grant an injunction to stay
      proceedings in a State court except as expressly authorized by Act
      of Congress, or where necessary in aid of its jurisdiction, or to
      protect or effectuate its judgments.

28 U.S.C. § 2283.

      The Anti-Injunction Act’s “core message is one of respect for state courts,”

and it “broadly commands that those tribunals ‘shall remain free from interference

by federal courts.’” Smith v. Bayer Corp., 131 S. Ct. 2368, 2375 (2011) (quoting

Atlantic Coast Line R. Co. v. Locomotive Engineers, 398 U.S. 281, 282 (1970)).

The statute allows three exceptions to this general prohibition, but “those

exceptions, though designed for important purposes, ‘are narrow and are not [to]

be enlarged by loose statutory construction.’” Id. (quoting Chick Kam Choo v.

Exxon Corp., 486 U.S. 140, 146 (1988)) (internal quotation marks omitted)

(alteration in original). The Supreme Court has long emphasized that “[a]ny

doubts as to the propriety of a federal injunction against state court proceedings

should be resolved in favor of permitting the state courts to proceed.” Id. (quoting

Atlantic Coast Line, 398 U.S. at 297).

      The third of the Anti-Injunction Act’s exceptions provides that a federal

court may issue an injunction “to protect or effectuate its judgments.” 28 U.S.C.

§ 2283. This provision “is designed to implement ‘well-recognized concepts’ of

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claim and issue preclusion,” and is commonly labeled the “relitigation exception.”

Smith, 131 S. Ct. at 2375 (quoting Chick Kam Choo, 486 U.S. at 147). The

exception “authorizes an injunction to prevent state litigation of a claim or issue

‘that previously was presented to and decided by the federal court.’” Id. (quoting

Chick Kam Choo, 486 U.S. at 147). But because preclusion decisions are “usually

the bailiwick of the second court . . . every benefit of the doubt goes toward the

state court [and] an injunction can issue only if preclusion is clear beyond

peradventure.” Id. (citing Atlantic Coast Line, 398 U.S. at 287).

      In Smith, the Supreme Court’s most recent decision explicating the

relitigation exception, the Court invalidated a district court’s injunction “for two

reasons.” Id. at 2373. First, the state court action involved a legal issue that “was

not identical to the one decided in the federal tribunal.” Id. Second, the plaintiff in

the state action had not been a party to the federal lawsuit in which the prior

judgment was issued, nor did he fall within one of the “handful of discrete and

limited exceptions” under which nonparty preclusion is permissible. Id. at 2379.

Consequently, the Court held that the district court, in issuing its injunction, had

“exceeded its authority” under the relitigation exception. Id. at 2373.

      In this case, our inquiry is limited to the first of the two grounds on which

the Court relied in Smith, namely whether SFM’s state action presents the same




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claims or issues that were previously decided in SFM’s federal lawsuit.2 If so, then

the district court possessed authority to enjoin their relitigation. If not, then it

lacked such authority and an injunction should not have issued. In conducting this

inquiry, we are mindful that the relitigation exception “permits a federal court to

enjoin a state proceeding only in rare cases,” id. at 2373, and that, under this

provision, “close cases have easy answers: The federal court should not issue an

injunction, and the state court should decide the preclusion question.” Id. at 2382.

       The parties seem to disagree about the breadth of the relitigation exception.

Appellant SFM argues that it is exceedingly narrow: for an injunction to issue, the

claim or issue sought to be litigated in state court must previously have been

actually litigated and decided in federal court. Appellants’ Brief at 25–29.

Appellee BAS argues, at least at certain points in its brief, for a broader view —

that an injunction may issue to prevent the litigation of claims that either were

actually litigated and decided or those that “could have been” litigated, but were

not. Appellee’s Brief at 40–42. This broader view is consistent with traditional

principles of claim preclusion (although not issue preclusion), see Taylor v.

Sturgell, 553 U.S. 880, 892 (2008), but not with the relitigation exception to the

Anti-Injunction Act. Whether the principles of claim preclusion may “inform”
2
  It is undisputed that SFM and Dr. Melgen can be bound by the prior federal judgments.
Although Dr. Melgen was not himself a party to the federal action, the district court’s injunction
order correctly noted that “privity existed between SFM and Melgen,” as “Melgen is the
president and principal of SFM’s general partner and took all of the relevant actions on behalf of
SFM.” SFM Holdings, Ltd., No. 88, 06-cv-80652-KLR, at 11 n.3 (S.D. Fla. Jan. 17, 2013).

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one’s view of the relitigation exception, see Smith, 131 S. Ct. at 2376 n.7, the

relitigation exception is narrower and only authorizes an injunction “to prevent

state litigation of a claim or issue ‘that previously was presented to and decided by

the federal court.’” Id. at 2375 (quoting Chick Kam Choo, 486 U.S. at 147); see

Chick Kam Choo, 486 U.S. at 148 (“[A]n essential prerequisite for applying the

relitigation exception is that the claims or issues which the federal injunction

insulates from litigation in state proceedings actually have been decided by the

federal court.”). Indeed, as the district court noted in this case, “unlike pure res

judicata, the relitigation exception should only be invoked to preclude subsequent

litigation of matters that actually were decided by the federal court.” SFM

Holdings, Ltd., No. 88, 06-cv-80652-KLR, at 11 (S.D. Fla. Jan. 17, 2013). This is

the basis on which we shall proceed.

                   B. Semtek and Principles of Preclusion Law

      The Supreme Court in Smith and Chick Kam Choo, therefore, has set forth a

unique legal standard to determine the permissibility of enjoining state court

proceedings under the relitigation exception. Nevertheless, the parties expend a

fair amount of effort debating whether our inquiry in this case should be governed

by federal or, alternatively, Florida rules of preclusion. Compare Appellants’ Brief

at 37–46 (arguing for Florida law), with Appellee’s Brief at 42–46 (arguing for

federal law). Their dispute revolves around differing interpretations of the


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Supreme Court’s decision in Semtek Int’l Inc. v. Lockheed Martin Corp., 531 U.S.

497 (2001), which addressed the preclusive effect of federal diversity judgments.

Under Semtek, federal common law generally incorporates state law to determine

the preclusive effect of a federal diversity judgment. See id.3 “This federal

reference to state law will not obtain,” however, “in situations in which the state

law is incompatible with federal interests.” Id. at 509.

       We conclude, as did the Supreme Court in Smith, that the case before us

does not demand resolution of these concerns. See 131 S. Ct. at 2376 n.6 (“Neither

party identifies any way in which federal and state principles of preclusion law

differ in any relevant respect. Nor have we found any such divergence.”). A

comparison between Florida rules and federal rules governing claim and issue

preclusion reveals that the relevant principles are largely identical. Compare State

v. McBride, 848 So. 2d 287, 290 (Fla. 2003) (claim preclusion), and id. at 290–91

(issue preclusion), with Lobo v. Celebrity Cruises, Inc., 704 F.3d 882, 892 (11th

Cir. 2013) (claim preclusion), and CSX Transp., Inc. v. Bhd. of Maint. of Way

Emps., 327 F.3d 1309, 1317 (11th Cir. 2003) (issue preclusion). Moreover, we

may draw on the Supreme Court’s own precedents under the relitigation exception

for more specifically apposite guidance.
3
  In this context, the term “state law” is shorthand for the preclusive effect that a state court
“would accord one of its own judgments.” See Semtek Int’l Inc., 531 U.S. at 508; see also
Taylor, 553 U.S. at 891 & n.4 (contrasting the rules that apply, under federal common law, to
determine the preclusive effect of judgments issued in federal question as opposed to diversity
cases).

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       The one purported substantive difference between Florida and federal law

that is highlighted by the parties is the existence, under Florida law, of equitable

exceptions that militate against preclusion where the “ends of justice” or “manifest

injustice” so require. See Appellants’ Brief at 41–46 (citing, inter alia, Universal

Constr. Co. v. City of Fort Lauderdale, 68 So. 2d 366, 369 (Fla. 1953) (en banc)). 4

SFM argues that these principles come into play because BAS thwarted SFM’s

earlier attempts to obtain evidence pertinent to the parties’ relationship and

demonstrative of BAS’s wrongdoing. Consequently, SFM contends, its 2006

Federal Complaint was drafted without the benefit of complete information, a

defect from which BAS should not now be able to profit. We need not sort

through a history of discovery that remains bitterly disputed between the parties.

Under the narrow view of the relitigation exception — which asks whether the

claims or issues presented to the state court are the same as those that were actually

litigated and decided by a federal court — if there are indeed material differences

between the factual allegations presented by the 2006 Federal Complaint and the

2012 State Complaint, the cases present non-identical questions of law that render

a federal injunction impermissible. The parties’ ongoing disputes over what




4
  SFM also contests the premise that such exceptions do not exist under federal preclusion law,
as applied in this circuit. See Appellants’ Reply at 24–25 (citing Maldonado v. U.S. Attorney
Gen., 664 F.3d 1369, 1375 (11th Cir. 2011)).

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happened in discovery do not affect our narrow inquiry under the relitigation

exception to the Anti-Injunction Act.

                           C. SFM’s Conspiracy Claim

      In its 2012 State Complaint, SFM alleges that BAS engaged in a conspiracy

with Fisher, Kim, Lee, and Shoreland Trading “to mislead Dr. Melgen, and conceal

the truth from him concerning the fraud and conversion of SFM funds.” 2012

State Complaint ¶ 85. The 2006 Federal Complaint did not allege the tort of

conspiracy. Thus, SFM argues, the prior federal judgments could not have decided

this claim, and therefore SFM cannot be enjoined from prosecuting its conspiracy

claim in state court. Appellants’ Brief at 34.

                          1. Economic Loss Rule No Bar

      BAS contends that “SFM’s conspiracy tort claim in its 2012 State Complaint

is no different than the torts the District Court dismissed in the 2006 Federal

Action,” Appellee’s Brief at 48, and highlights the district court’s holding that

Florida’s economic loss rule foreclosed the viability of any tort claims arising out

of the contractual relationship between the parties. See id. at 51–52. Indeed, this

is the ground upon which the district court primarily relied in its injunction order.

See SFM Holdings, Ltd., No. 88, 06-cv-80652-KLR, at 13–15 (S.D. Fla. Jan. 17,

2013). The economic loss rule, as the district court described it in its 2007 ruling,

“provides that parties to a contract can only seek tort damages if the alleged


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tortious conduct constitutes a tort distinct from the parties’ contractual rights and

obligations,” and the court determined that SFM’s tort claims were barred by that

rule. SFM Holdings, Ltd., 2007 WL 7124464, at *8. In its injunction order, the

district court concluded that “SFM’s conspiracy claim in the 2012 State Complaint

is no different than the torts that this Court dismissed in the 2006 Federal Action,”

and that SFM’s conspiracy claim therefore “is barred by this Court’s economic loss

rule holding.” SFM Holdings, Ltd., No. 88, 06-cv-80652-KLR, at 13–14 (S.D. Fla.

Jan. 17, 2013).

      In response, SFM argues that a recent decision of the Supreme Court of

Florida — which limited application of the economic loss rule to products liability

cases — constitutes an intervening change in law that renders preclusion on this

ground impermissible. Appellants’ Brief at 34–35 (discussing Tiara Condo. Ass’n,

Inc. v. Marsh & McLennan Cos., Inc., 110 So. 3d 399 (Fla. 2013)). BAS replies

that changes in the law thwart preclusion only where there have been “momentous

changes in important, fundamental constitutional rights,” a situation that it

contends has not obtained here. Appellee’s Brief at 52 (quoting Precision Air

Parts, Inc. v. Avco Corp., 736 F.2d 1499, 1504 (11th Cir. 1984)).

      This court, in its 2010 opinion affirming the dismissal of SFM’s complaint,

did not address the district court’s economic loss rule rationale. Instead, exercising

de novo review of the dismissal order, we concluded that SFM failed to state


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claims for breach of fiduciary duty or constructive fraud. Our 2010 ruling was

based on a close examination of the two contracts executed between SFM and

BAS, which revealed that SFM’s tort claims rested on purported duties that BAS

did not owe to it. See SFM Holdings, Ltd., 600 F.3d at 1338–40. Accordingly, the

district court’s alternative rationale based on the economic loss rule is not a

judgment in need of “protection or effectuation” under the relitigation exception.

See RESTATEMENT (SECOND) OF JUDGMENTS § 27 cmt. o (1982) (“If the judgment

of the court of first instance was based on a determination of two issues, either of

which standing independently would be sufficient to support the result . . . [and]

the appellate court upholds one of these determinations as sufficient and refuses to

consider whether or not the other is sufficient and accordingly affirms the

judgment, the judgment is conclusive as to the first determination.”). We therefore

put the economic loss rule issue aside and return to the core inquiry: whether

SFM’s 2012 state conspiracy claim presents a legal claim or issue that has already

been decided by a federal court.

        2. Comparison of 2006 Tort Claims and 2012 Conspiracy Claim

      Although it is plain that no conspiracy claim was alleged in the 2006 Federal

Complaint, “an actionable conspiracy requires an actionable underlying tort or

wrong.” Raimi v. Furlong, 702 So. 2d 1273, 1284 (Fla. Dist. Ct. App. 1997). This

is to say that conspiracy is not a freestanding tort, but, rather, “a cause of action for


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civil conspiracy exists . . . only if ‘the basis for the conspiracy is an independent

wrong or tort which would constitute a cause of action if the wrong were done by

one person.’” Id. (quoting Blatt v. Green, Rose, Kahn & Piotrkowski, 456 So. 2d

949, 951 (Fla. Dist. Ct. App. 1984)). The question before the court is whether

SFM now alleges that BAS engaged in a conspiracy to commit the same torts as

were previously alleged in its 2006 Federal Complaint, or, instead, a different tort

or torts. This question implicates the conduct of BAS as well as that of its alleged

co-conspirators, and the nature of the role now alleged to have been played by

BAS in causing SFM’s damages. Its resolution requires examination of SFM’s

allegations in both its 2006 and 2012 complaints. We therefore turn now to a close

study of these pleadings.

      In its 2006 federal lawsuit, SFM brought claims against BAS for breach of

fiduciary duty and constructive fraud. Under Florida law, these torts rest on the

same foundation, as “[a] constructive fraud is deemed to exist where a duty under a

confidential or fiduciary relationship has been abused.” Rogers v. Mitzi, 584 So.

2d 1092, 1094 (Fla. Dist. Ct. App. 1991) (citing, inter alia, Douglas v. Ogle, 85 So.

243 (Fla. 1920)). SFM’s tort claims rested on a threefold theory of wrongdoing.

First, SFM alleged that BAS allowed Won Lee to control the SFM account and to

include SFM’s assets in an omnibus account held by Shoreland Trading, without

Dr. Melgen’s authorization. 2006 Federal Complaint ¶¶ 25, 39, 40, 46, 51(A),


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51(B). SFM further alleged that BAS knew that Lee was an untrustworthy person

who had executed at least two illegal trades in SFM’s account, which prompted

BAS to order Lee to move his trading operations to another financial institution.

Id. ¶¶ 41–45, 47, 51(A), 51(D), 51(G), 51(I). Second, SFM maintained that BAS

failed to inform Dr. Melgen of Lee’s unauthorized and suspicious activities in the

SFM account. Id. ¶¶ 51–56, 74–75, 77, 80–81. Third, SFM alleged that BAS

acted recklessly in relying on a letter, purporting to be written and signed by Dr.

Melgen, instructing BAS to transfer SFM’s remaining assets into a separate

account at BAS — controlled solely by Shoreland Trading — from which Lee later

took them. In fact, the letter was a forgery produced by Lee. Id. ¶¶ 26–27, 48, 50,

55, 76, 78.

      These three basic allegations — BAS’s allowing Lee to control SFM’s

account, BAS’s failure to disclose to Melgen crucial information about Lee’s

activities in the account, and BAS’s transfer of SFM’s assets in reliance on the

forged letter — formed the bases for SFM’s breach of fiduciary duty claim in its

2006 federal lawsuit. Id. ¶¶ 51–56, ¶¶ 75–78. SFM’s constructive fraud claim

rested on the second of these allegations, namely that BAS “conceal[ed]

information” that it should have disclosed to Melgen, and that this concealment

proximately caused SFM’s damages. Id. ¶¶ 80–81. Those damages, according to

the 2006 Federal Complaint, resulted entirely — or almost entirely — from the


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forged-letter transfer. See id. ¶ 27 (stating that $15 million, the entirety of

Melgen’s investment at BAS, was transferred in reliance on Lee’s forged letter).

SFM did express some uncertainty in this regard, however, as elsewhere in its 2006

Federal Complaint it alluded to other losses that were incurred prior to the transfer

as a result of “risky and speculative” trading, and “trades effected by unauthorized

persons.” Id. ¶¶ 38, 60, 77.

       SFM’s 2012 State Complaint contains a new narrative, wholly absent from

its 2006 Federal Complaint, regarding how it suffered damages. Specifically,

SFM’s new complaint alleges that Lee converted — that is, intentionally took — a

substantial portion of SFM’s assets before the transfer by BAS occurred, by

allocating funds from SFM’s account to cover outstanding margin calls in Jerome

Fisher’s account, as well as by allocating trading losses to SFM and trading gains

to Fisher. See 2012 State Complaint ¶¶ 26–27, 37, 79–80, 86–96; see also

Appellants’ Brief at 27–28. By this mechanism of allocation, SFM contends in its

2012 State Complaint that roughly $9 million of its investment at BAS was

converted to Fisher’s benefit. 2012 State Complaint ¶¶ 76, 82.5 In its 2006

Federal Complaint, by contrast, SFM did not allege that its money was

5
  “For well over a century, Florida courts have generally defined conversion as a wrongful act
which deprives an owner of property of its use.” Joe Nagy Towing, Inc. v. Lawless, 101 So. 3d
868, 876–77 (Fla. Dist. Ct. App. 2012) (citing cases); see also RESTATEMENT (SECOND) OF
TORTS § 222A (1965) (“Conversion is an intentional exercise of dominion or control over a
chattel which so seriously interferes with the right of another to control it that the actor may
justly be required to pay the other the full value of the chattel.”).


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intentionally taken from it in this manner. Instead, as already noted, the complaint

seemed to allege an imprecise mix of losses, or perhaps alternative theories, based

partially on “risky” trading and predominantly on the eventual transfer executed by

BAS at Lee’s direction. See 2006 Federal Complaint ¶¶ 27–30, 38, 49, 51(F).

Thus, with respect to the $9 million that SFM now alleges was converted to

Fisher’s benefit by means of Lee’s intentional allocation decisions, the two

complaints describe different scenarios as to how a substantial portion of Dr.

Melgen’s money was taken from him. 6 While BAS argues that “SFM’s damages

claims in both actions relate to the loss of its entire investment because of BAS’s

alleged mismanagement and concealment,” Appellee’s Brief at 31–32, this

statement elides the difference in SFM’s new narrative concerning precisely how

those losses were caused.

       SFM’s 2012 State Complaint for the first time includes allegations drawing a

connection between BAS’s conduct — now described as affirmative, intentional

conduct — and the allocation scheme by which $9 million of SFM’s money was

converted to Fisher’s benefit. The character of this connection, according to SFM,

rested both on BAS’s facilitation of these acts of conversion, as well as on its

concealment from Dr. Melgen that his money was being misappropriated by Lee to
6
  We note that the math in SFM’s 2012 State Complaint does not quite add up — SFM alleges
that $9 million was taken through allocations to Fisher’s account, 2012 State Complaint ¶¶ 76,
82, while between $7 to $8 million was stolen by the transfer based on the forged letter. Id. ¶ 45.
These two figures total $16 or $17 million, which is somewhat greater than the $15 million that
SFM alleges was lost in total.

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benefit Fisher. Count III of SFM’s 2012 State Complaint, the conspiracy claim,

therefore includes factual allegations aimed at supporting conspiracies both to

commit conversion and to conceal this conversion from Dr. Melgen.

      As to BAS’s alleged participation in the conspiracy to convert, SFM

contends that BAS did so by permitting allocations to occur with the knowledge

that SFM’s funds were being wrongfully siphoned from it, as well as, in some

instances, by actively facilitating the execution of these allocations. To support

this theory, SFM puts forth an amalgam of factual allegations that includes new

facts — not alleged in its 2006 Federal Complaint — as well as some facts that did

appear in its earlier complaint. Paragraphs 85 through 108 of the 2012 State

Complaint set forth the bulk of the new allegations. SFM alleges, for example, that

on the day prior to its deposit of $10 million at BAS, a BAS account executive

named Brett Speer sent an e-mail to Won Lee asking how Lee planned to cover a

margin call in Fisher’s account amounting to more than $5 million. 2012 State

Complaint ¶¶ 15, 86–87. According to SFM, “Lee responded that he had a new

client who would be bringing $10,000,000 to BAS.” Id. ¶ 88. The following day,

Speer communicated with another BAS official and acknowledged receipt of

SFM’s funds, and discussed these funds as belonging to the Shoreland Trading

omnibus account. Id. ¶ 89.




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      The complaint goes on to describe further interactions between BAS’s Speer

and Lee that, according to SFM, demonstrate that BAS knew Lee was intentionally

allocating losses to SFM’s account and profits to Fisher’s account. Id. ¶¶ 90–96.

SFM cites, for example, a subsequent e-mail exchange between Lee and Speer in

which Lee directs Speer to allocate certain trades to SFM’s account. Id. ¶ 90.

Additional e-mails are cited as demonstrating Speer’s concern over the margin

calls in both the SFM and Fisher accounts. Id. ¶¶ 91–93. Drawing on these

communications, SFM alleges that BAS had specific knowledge of Lee’s attempts

to disproportionately allocate funds between the two accounts. Id. ¶¶ 90, 95-96.

Furthermore, SFM alleges that “in some cases BAS personnel assisted in making

the allocations.” Id. ¶ 96. SFM also asserts that BAS had a financial motive to

actively assist in Lee’s conversion of SFM’s funds, as BAS presumably did not

want to be left responsible for losses sustained on margin in Fisher’s account. See

id. ¶¶ 92, 96.

      In addition to BAS’s alleged complicity in a conspiracy to convert SFM’s

assets, SFM further alleges that BAS conspired “to mislead Dr. Melgen, and

conceal the truth from him concerning the fraud and conversion of SFM funds.”

Id. ¶ 85. SFM supports this assertion by alleging, for example, that “BAS and

Fisher knew that Kim, Lee, and Shoreland were frauds, but worked together with

them and with each other to conceal that information so they could protect and


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advance their own interests.” Id. More specifically, SFM alleges that “BAS

actively concealed from SFM the transactions in the Shoreland Trading omnibus

account, as well as the fact that profits had been allocated to Fisher.” Id. ¶ 97. 7

SFM further contends that “both BAS and Fisher concealed Fisher’s role in the

scheme that caused Plaintiff’s losses,” id. ¶ 66, and that “BAS maintained secrecy

concerning the wrongful actions of Kim, Lee, Shoreland Trading, and [itself] even

after Dr. Melgen learned that he had lost his assets.” Id. ¶ 97.

       The new factual allegations appearing in SFM’s 2012 State Complaint

provide support for two tort claims against BAS — conspiracy to convert, and

conspiracy to conceal — that are different in nature than its previously alleged

fiduciary-duty based claims. The key difference underlying both claims is that

SFM now alleges that intentional acts of conversion were ongoing in its account —

prior to the eventual transfer based on the forged letter — as to which BAS had

knowledge, with which BAS assisted, and which BAS concealed from Dr. Melgen.

Because these precise factual allegations have never been placed before any federal

court, the state court now faces tort claims that are “not identical to the one[s]

7
  Our dissenting colleague acknowledges SFM’s allegation in the 2012 State Complaint that
BAS concealed “the fact that profits had been allocated to Fisher,” 2012 State Complaint ¶ 97,
but he states that the conspiracy count “does not allege that Banc of America Securities knew
that these profits belonged to SFM.” Partial Dissent at 48. To the contrary, SFM expressly
asserts that BAS had knowledge of Lee’s misallocation of profits from SFM to Fisher. 2012
State Complaint ¶ 90 (“Attempts by Won Lee to allocate losses between the SFM and Fisher
accounts, and BAS’s knowledge of these attempts, can be seen [in an e-mail from Lee to
Speer].”); id. ¶¶ 95-96 (“The scheme was furthered by allocating, and in some cases reallocating,
trades to benefit Fisher. BAS was well aware that these allocations were taking place . . . .”).

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decided in the federal tribunal.” See Smith, 131 S. Ct. at 2373. Consequently, the

district court lacked authority to enjoin SFM’s prosecution of Count III of its 2012

State Complaint. 8

       Both the district court and BAS have noted that SFM’s 2006 complaint did

contain allegations related to the inclusion of its assets in a Shoreland Trading

omnibus account, through which Lee “was able to allocate trades among various

accounts controlled by it.” 2006 Federal Complaint ¶ 39. The district court, in its

injunction order, noted that one basis for SFM’s original tort claims was Lee’s

alleged “commingling [of] SFM’s funds with other accounts [and] allocating [of]

trades between accounts.” SFM Holdings, Ltd., No. 88, 06-cv-80652-KLR, at 13

(S.D. Fla. Jan. 17, 2013). And BAS argues that, “[i]n both actions, SFM alleged

that BAS permitted Lee to commingle assets, bulk trade through Shoreland’s

account, and allocate trades between accounts. SFM added only detail to these

allegations in the 2012 State Complaint.” Appellee’s Brief at 28; see also id. at

26–29, 49–50. Our dissenting colleague agrees. See Partial Dissent at 40–43,

46–49.

       But in the 2006 Federal Complaint, SFM was not able to connect these

allegations to a theory of harm resulting from Lee’s intentional allocation of
8
 We acknowledge our dissenting colleague’s concern that our reading of SFM’s conspiracy
count takes the “ordinary demands from a broker and calls them conversion.” Partial Dissent at
45. But we hasten to emphasize that our analysis here is conducted under the relitigation
exception to the Anti-Injunction Act; we express no view regarding whether the allegations in
SFM’s 2012 State Complaint actually would suffice to state viable claims under Florida law.

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SFM’s money to cover Fisher’s margin calls and to absorb losing trades, or to

BAS’s active role in facilitating and concealing these alleged acts of conversion.

The sole paragraph in the 2006 Federal Complaint referring to the inclusion of

SFM’s funds in an omnibus account identifies these facts merely as an example of

BAS’s negligently allowing unauthorized activity to occur in SFM’s account,

activity that BAS then failed to communicate to Dr. Melgen. See 2006 Federal

Complaint ¶ 39. In our view, our dissenting colleague reads far too much into

paragraph 39 of the 2006 Federal Complaint, which he regards as alleging that Lee

was “misallocating gains and losses of customers, including SFM and Fisher.”

Partial Dissent at 42–43; see also id. at 46–47 (reading paragraph 39 as including

allegations that BAS “failed to inform SFM that Lee was misallocating SFM’s

funds”). But paragraph 39 simply does not state that Lee intentionally

“misallocated” SFM’s funds through the omnibus account as a means of benefiting

Fisher; nor does any other paragraph appearing in the 2006 Federal Complaint.

      In addition, although SFM’s 2006 Federal Complaint advanced tort claims

of BAS’s alleged breach of fiduciary duty and constructive fraud based on its

failure to inform SFM — or, as SFM sometimes characterized it, BAS’s

concealment from SFM — of various matters, these earlier claims cannot justify

enjoining SFM’s pursuit of its claim that BAS conspired to conceal the conversion

of SFM’s assets. The two complaints accuse BAS of concealing different things.


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In 2006, SFM alleged that BAS concealed the fact that it had allowed Won Lee to

control SFM’s account, as well as that Lee had engaged in illegal short trades and

that BAS had responded by directing Lee to leave Banc of America. See 2006

Federal Complaint ¶¶ 51, 75, 80-81. By contrast, paragraph 85 of the 2012 State

Complaint expressly asserts that BAS concealed acts of conversion. Our

dissenting colleague believes that “the allegation about misallocations in the

omnibus account of paragraph 39 of the 2006 complaint bars SFM from

relitigating these more detailed claims about the concealment of misallocations as a

result of the margin calls in the 2012 complaint.” Partial Dissent at 49. But we

reiterate that neither in paragraph 39 nor in any other part of the 2006 Federal

Complaint did SFM include allegations concerning misallocations, or, as SFM also

characterizes them, “disproportionate[]” allocations, see 2012 State Complaint

¶ 26, made by Lee to benefit Fisher at SFM’s expense.

      It is also true, as BAS points out, that several other factual allegations

concerning BAS’s conduct appear to be virtually identical in both complaints. See

Appellee’s Brief at 29–31. But this does not alter the conclusion that SFM has

now brought different tort claims, based on new theories of liability alleging for

the first time BAS’s knowing and active participation in a scheme to allocate

SFM’s funds to cover Fisher’s losses, as well as BAS’s concealment of that

scheme. That having been said, this court need not grapple with BAS’s argument


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that SFM could have, or should have, advanced this claim of conspiracy in the

original federal lawsuit. See id. at 26–29. BAS will be free to make this argument

to the state court in support of any eventual preclusion defense it raises. We face a

simpler inquiry: has a federal court actually ruled on the identical legal questions

posed by SFM’s conspiracy claim, as that claim is founded on the allegations in the

2012 State Complaint? For the reasons described above, we answer no, and

therefore conclude that the high bar of identity required by the relitigation

exception has not been met. Consequently, the district court lacked authority to

enjoin SFM’s prosecution of its conspiracy claim in state court.

                            D. SFM’s Contract Claims

      In addition to its conspiracy claim, SFM also brings four contract-based

claims in its 2012 State Complaint. With respect to each of the two contracts

executed between SFM and BAS — the Prime Broker Margin Account Agreement

(PBA) and the Institutional Account Agreement (IAA) — SFM alleges both breach

of contract and breach of the implied covenant of good faith and fair dealing. 2012

State Complaint ¶¶ 117–38. This court, in its 2010 decision, held that the factual

allegations contained in the 2006 Federal Complaint were insufficient to support

claims for breach of either contract, and accordingly we denied SFM leave to

amend its complaint to add them. SFM Holdings, Ltd., 600 F.3d at 1340. In its

injunction order, the district court therefore concluded that “[t]he only way SFM


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could proceed with its contract-based claims in state court is if those claims are

based on different allegations than those previously presented to the Eleventh

Circuit.” SFM Holdings, Ltd., No. 88, 06-cv-80652-KLR, at 15 (S.D. Fla. Jan. 17,

2013). The district court found, however, that the basic allegations in both actions

were the same, and therefore our 2010 ruling precluded SFM’s pursuit of contract

claims in state court. Id. at 15–17.

                             1. Our 2010 Futility Ruling

      Before delving into our own analysis, we must address a preliminary issue,

namely SFM’s argument that because it never previously had the opportunity to

litigate its contract claims in the district court, this court’s 2010 ruling, which held

that it would have been futile to grant SFM leave to amend its complaint to add

them, cannot now preclude its litigation of these claims in state court. Appellants’

Brief at 29–34. SFM never sought leave to amend while the case was before the

district court, but instead noted in its briefing before this court that, “[a]t the very

least, the factual allegations of SFM’s complaint will support an action against

[BAS] for breach of contract,” and therefore asked that, “at minimum, the

dismissal with prejudice should be reversed, and the cause remanded with

directions to grant SFM leave to amend its complaint.” Brief of Appellant at 28,

SFM Holdings, Ltd., 600 F.3d 1334 (No. 07-11178). We concluded, however, that

SFM’s proposed amendment would be futile because “Banc of America Securities


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acted pursuant to the IA Agreement and the PB Agreement,” and thus “Banc of

America Securities’s compliance with its obligations under those documents

precludes liability for breach of contract.” SFM Holdings, Ltd., 600 F.3d at 1340.

       A court’s determination that a proposed amendment to a complaint would be

futile operates as a judgment on the merits of the proposed claim. This conclusion

follows from the fact that “[w]hen a . . . court denies the plaintiff leave to amend a

complaint due to futility, the court is making the legal conclusion that the

complaint, as amended, would necessarily fail.” St. Charles Foods, Inc. v.

America’s Favorite Chicken Co., 198 F.3d 815, 822 (11th Cir. 1999); see also

Burger King Corp. v. Weaver, 169 F.3d 1310, 1320 (11th Cir. 1999) (“This court

has found that denial of leave to amend is justified by futility when the ‘complaint

as amended is still subject to dismissal.’” (quoting Halliburton & Assocs., Inc. v.

Henderson, Few & Co., 774 F.2d 441, 444 (11th Cir. 1985))). In other words,

denial on grounds of futility is essentially a holding that the proposed amended

complaint fails to state a claim upon which relief can be granted, and “the Supreme

Court has clearly stated that ‘[t]he dismissal for failure to state a claim . . . is a

judgment on the merits.’” N.A.A.C.P. v. Hunt, 891 F.2d 1555, 1560 (11th Cir.

1990) (quoting Federated Dep’t Stores, Inc. v. Moitie, 452 U.S. 394, 399 n.3

(1981)) (internal quotation marks omitted) (alteration in original).




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      SFM complains that it never offered a proposed amended complaint to the

district court; but the substance of its proposed amendment was made clear in its

appellate briefing. See Brief of Appellant at 28, SFM Holdings, Ltd., 600 F.3d

1334 (No. 07-11178) (maintaining that “the factual allegations of SFM’s complaint

will support an action against [BAS] for breach of contract” (emphasis added)). In

effect, SFM sought to add a count for breach of contract to its original complaint,

without changing any of the factual allegations within it. Thus, this court in 2010

had before it everything we needed to determine whether SFM could state a viable

claim for breach of contract. Based on our review of the factual allegations then

presented and the two contracts at issue, we concluded that it could not.

      2. Comparison of 2006 Contract Claims and 2012 Contract Claims

      In any event, SFM’s argument is inconsequential given that it now has

placed a new complaint before this court — its 2012 State Complaint — which

may allege new facts supporting breach of contract claims. Under the relitigation

exception we must take care to “assess[] the precise state of the record and what

the earlier federal order actually said.” Chick Kam Choo, 486 U.S. at 148. As just

noted, the facts alleged in the 2006 Federal Complaint were insufficient to state a

claim for breach of either the PBA or IAA. But as explained in our discussion of

SFM’s conspiracy count, supra at 20–29, the 2012 State Complaint advances a

theory of harm that was not presented in its earlier federal lawsuit: the conversion


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of a portion of SFM’s funds through Lee’s allocation of them to cover Fisher’s

losses. In addition, SFM alleges that BAS participated in this conversion by

knowingly permitting intentional misallocation to take place, as well as by

facilitating these acts of allocation in at least some instances and by concealing that

these activities were occurring, all with the presumed purpose of protecting BAS’s

own interests. Because this theory of liability was not presented to this court in

SFM’s 2006 federal action, our 2010 ruling could not have decided the viability of

any contract claims based on it. Count VII of the 2012 State Complaint, claiming

that BAS breached the PBA, is such a claim. It expressly states that one ground

for the asserted breach of that contract rests on the allegation that “BAS allowed

Lee . . . to disproportionately allocate assets between SFM’s account and Fisher’s

account.” 2012 State Complaint ¶ 131(a). This claim, therefore, was improperly

enjoined; SFM must be permitted to pursue it upon remand to state court.

      BAS, in its briefing, argues that this court’s earlier holding — that “Banc of

America Securities acted pursuant to the IA Agreement and the PB Agreement” —

forecloses any further litigation of contract claims arising from this course of

events. See SFM Holdings, Ltd., 600 F.3d at 1340. And it highlights several

factual allegations that appear to be virtually identical, in all material respects, in

both complaints. Appellee’s Brief at 16–17, 28–32. But, again, the fact that much

of the narrative remains the same cannot detract from the differences that exist


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between the 2006 and 2012 complaints. The critical difference is that SFM now

contends that it was harmed in a different manner than was previously alleged —

with respect to a portion of its assets — and that BAS bore an active causal

connection to this harm. These allegations were not before this court in 2010; thus,

determining whether BAS’s conduct, as newly alleged, breached the PBA requires

resolution of a legal claim that is not identical to those already decided. See Smith,

131 S. Ct. at 2373; Chick Kam Choo, 486 U.S. at 148. Consequently, SFM cannot

be enjoined from pursuing in state court its claim for breach of the PBA, based on

the theory that BAS participated in a scheme to convert SFM’s assets by the

mechanism of allocation between accounts.

      On the other hand, to the extent that SFM’s claim for breach of the PBA in

Count VII is based on its original theory of harm — Lee’s submission of a forged

letter on which BAS relied to transfer SFM’s funds out of its account — it is

foreclosed. See 2012 State Complaint ¶ 131(c). In our 2010 decision, we squarely

faced this issue and concluded that BAS acted pursuant to the two contracts when

it relied on the letter to execute the transfer. SFM Holdings, Ltd., 600 F.3d at

1340. In doing so, we cited a provision of the IAA establishing that BAS “shall

incur no liability in acting upon [instructions of the client’s attorney-in-fact]

provided such instructions reasonably appear genuine to [BAS].” Id. (quoting the

IAA ¶ 3). In addition, we noted that the IAA “provided that [BAS] could accept


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‘without any inquiry or investigation by [BAS] . . . any other instructions

concerning said Account’ from an introducing broker.” Id. (quoting the IAA ¶ 27).

      In its 2012 State Complaint, SFM adds a few specifics to its recounting of

this transaction, including the facts that Lee transmitted the letter by facsimile, that

Lee has since admitted to having electronically pasted Dr. Melgen’s signature, and

that the letter lacked letterhead and was neither witnessed nor notarized. 2012

State Complaint ¶¶ 41–42, 131(c). What it does not allege is that BAS knew that

the letter was a forgery. The facts alleged therefore simply do not add up to

present a new legal issue, a new claim, or a new theory of liability to be resolved

by the state court. They are, in a word, immaterial, given the facts that were

already before this court when we made our earlier determination. This issue is

surely important to SFM because SFM maintains in its 2012 State Complaint that a

substantial portion of its funds — between $7 and $8 million — were taken from it

by this transfer. Id. ¶ 45. We hold, however, that SFM can permissibly be

enjoined from pursuing its claim for breach of the PBA based on BAS’s transfer of

these funds at Lee’s direction.

      As for SFM’s other contract claims — Count V (breach of IAA), Count VI

(breach of implied covenant in IAA), and Count VIII (breach of implied covenant

in PBA) — they do not purport to rest on the newly alleged narrative of

misallocation. See id. ¶¶ 117–27, 133–38. Moreover, none incorporates by


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reference some of the key paragraphs in the conspiracy count that purport to show

BAS’s active participation in the scheme. See id. ¶¶ 117, 122, 128, 133

(incorporating by reference paragraphs 2–69, but not paragraphs 85–108).

Accordingly, the district court acted within its authority when it enjoined SFM’s

pursuit of these three claims, and it did not abuse its discretion in doing so.

                                 IV. CONCLUSION

       “[T]he [Anti-Injunction] Act’s core message is one of respect for state

courts.” Smith, 131 S. Ct. at 2375. The Act’s relitigation exception permits

federal court injunctions “only in rare cases,” id. at 2373, “to prevent state

litigation of a claim or issue ‘that previously was presented to and decided by the

federal court.’” Id. at 2375 (quoting Chick Kam Choo, 486 U.S. at 147). In this

context, “[a]ny doubts as to the propriety of a federal injunction against state court

proceedings should be resolved in favor of permitting the state courts to proceed.”

Id. (quoting Atlantic Coast Line, 398 U.S. at 297). And “[i]f we err, all is not

lost,” as “[a] state court is as well qualified as a federal court to protect a litigant by

the doctrines of res adjudicata and collateral estoppel.” S. Cal. Petroleum Corp. v.

Harper, 273 F.2d 715, 719 (5th Cir. 1960).

       In this case, SFM has placed a complaint before a Florida state court that

advances some legal claims that were not previously decided in its federal lawsuit.

We therefore hold, as explained in finer detail throughout this opinion, that the


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district court lacked authority under the Anti-Injunction Act to enjoin SFM’s

pursuit of its conspiracy claim (Count III) and one of its contract claims (Count

VII), to the extent the latter claim is based on the newly alleged facts pertaining to

BAS’s participation in a scheme to convert SFM’s assets by the mechanism of

allocation between accounts. As to these claims, therefore, the district court’s

injunction order is reversed.

      With respect to certain of SFM’s contract claims — Counts V, VI, and VIII,

as well as Count VII insofar as it is based on the forged letter transaction — this

court’s 2010 ruling may permissibly stand as a bar to their relitigation in state

court. We therefore affirm the district court’s injunction order with respect to

Counts V, VI, and VIII. As to Count VII, because we hold that this claim can

proceed at least in part, we remand to the district court to determine whether to

issue a more limited injunction with respect to it, or whether considerations of

comity militate against constraining the state court’s ability to consider the full

breadth of allegations and arguments in its resolution of this claim. See Chick

Kam Choo, 486 U.S. at 151 (“Because the injunction actually entered by the

District Court was broader than the limited injunction we find acceptable, we must

reverse the judgment approving a broad injunction and remand for entry of a more

narrowly tailored order. Of course, the fact that an injunction may issue under the

Anti-Injunction Act does not mean that it must issue.” (citation omitted)). Whether


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a more narrowly tailored injunction should issue against SFM’s prosecution of this

claim, therefore, is a discretionary decision that we return to the district court.

             AFFIRMED IN PART, REVERSED IN PART and REMANDED.




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PRYOR, Circuit Judge, concurring in part and dissenting in part:

      I concur in part and respectfully dissent in part. I concur with the majority’s

opinion that the Anti-Injunction Act bars relitigation of some counts brought

against Banc of America Securities, but I would affirm the injunction against

prosecuting the other counts too. I agree with the majority about the governing

law; my partial disagreement concerns only the record. Central to my disagreement

with the majority is whether SFM alleged that Banc of America Securities

participated in a conspiracy of conversion in the 2012 complaint. The clear answer

is no. The district court correctly ruled that the 2012 complaint rehashes in greater

detail the 2006 complaint. The 2012 complaint presents no new allegations—only

more facts—and is barred by the Anti-Injunction Act.

      I divide my discussion in three parts. First, I explain that the conspiracy

count alleges only a conspiracy to conceal information from SFM. Second, I

explain that the alleged conspiracy to conceal is not materially different from the

concealment alleged in the 2006 complaint. Third, I explain that the remaining

count for breach of contract should also be enjoined.

   A. SFM Has Not Alleged that Banc of America Securities Was a Conspirator
                        in the Conversion of its Funds.

      The 2012 complaint alleges more facts about the same trades, but more facts

do not excuse us from invoking the relitigation exception. Contrary to the

majority’s conclusion, the conspiracy count of the 2012 complaint defines the

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scope of the conspiracy as one of fraudulent concealment, not of conversion:

“FISHER conspired with Kim, Lee, Shoreland Trading, and [Banc of America

Securities] to mislead DR. MELGEN, and conceal the truth from him concerning

the fraud and conversion of SFM funds.” 2012 State Complaint ¶ 85 (emphasis

added). These allegations are no different from the allegations of constructive

fraud in the 2006 complaint. See 2006 Federal Complaint ¶¶ 79–81. By way of

comparison, that complaint stated, “By concealing information which BANC OF

AMERICA SECURITIES, LLC had a duty to disclose, BANC OF AMERICA

SECURITIES, LLC committed a constructive fraud proximately causing the loss

of the value of the assets held in the account of SFM Holdings, Ltd. at BANC OF

AMERICA SECURITIES, LLC.” Id. at ¶ 80 (emphasis added).

      The majority acknowledges that both complaints involve the tort of

fraudulent concealment, but the majority takes it upon itself to amend the 2012

complaint to allege a tort that SFM never alleged against Banc of America

Securities—conversion. The majority then uses its amendment to tie Banc of

America Securities to the allegations of conversion levied against only Fisher in

the 2012 complaint. And the majority improperly conflates the tort of conversion

with a broker’s demand that Lee cover the large margin calls in the SFM account.

      The majority argues that the 2012 complaint contains a “new narrative”

about how SFM lost its money. Majority Op. at 22–23. Hardly so. The 2012


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complaint is a more detailed narrative about the conversion perpetuated by Kim

and Lee’s Ponzi scheme, which SFM has now learned benefited Jerome Fisher. In

particular, the 2012 complaint is a more detailed narrative of paragraph 39 of the

2006 complaint. That paragraph alleged that, before Lee transferred SFM’s assets

to Shoreland Trading in November,

      BANC OF AMERICA SECURITIES, LLC was permitting the assets
      of SFM Holdings to be traded in an omnibus account owned by
      Shoreland Trading, LLC. By this means Shoreland Trading, LLC was
      able to allocate trades among various accounts controlled by it
      including the account of SFM Holdings, Ltd. SFM Holdings, Ltd. did
      not authorize Shoreland Trading to trade or manage its account and
      had no knowledge that trading was being done in an omnibus account
      owned by Shoreland Trading, LLC and controlled by Won Lee.

2006 Federal Complaint ¶ 39 (emphasis added).

      The misallocations in the omnibus account detailed in the 2006 complaint

are the same “commingled” trades discussed in the 2012 complaint. 2012 State

Complaint ¶¶ 26, 89, 93–97. In particular, paragraph 97 of the 2012 complaint

states that the commingling was occurring in “the omnibus account.” Id. at ¶ 97.

This misallocation or commingling of funds arose after Lee made “risky trades,”

which were margin trades that resulted in huge margin calls. Compare 2006

Federal Complaint ¶¶ 40–44, with 2012 State Complaint ¶¶ 28, 30–32, 66, 85–94.

Shoreland Trading, with Lee at the helm, covered the margin calls by commingling

the funds in the “omnibus account” referenced in both complaints and

misallocating gains and losses of customers, including SFM and Fisher. Compare

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2006 Federal Complaint ¶ 39, 42, 46, with 2012 State Complaint ¶¶ 24, 66, 89.

SFM alleges that this commingling could not have occurred “without the assistance

of [Banc of America Securities],” 2012 State Complaint ¶ 93, which parallels the

2006 allegation that Banc of America Securities “permitt[ed] the assets of SFM

Holdings to be traded in an omnibus account,” 2006 Federal Complaint ¶ 39. Our

Court has already held that it was the duty of Lee, the introducing broker, to sort

out the gains and losses within that omnibus account. See SFM Holdings, Ltd. v.

Banc of America Sec., LLC, 600 F.3d 1334, 1340 (11th Cir. 2010). The only

concern of Banc of America Securities was to ensure that the margin calls were

met. See id. at 1338–40.

      The majority would have us forget about paragraph 39 of the 2006

complaint. The majority insists that SFM alleged those facts “merely as an

example” of the negligence of Banc of America Securities. Majority Op. at 28. But

SFM reincorporated those allegations into both counts for breach of fiduciary duty

and fraudulent concealment. We cannot now ignore paragraph 39 and allow SFM

to relitigate those allegations because discovery unearthed more details about the

omnibus account and Jerome Fisher. Contrary to the majority’s assertion, id. at 28–

29, the new allegations in the 2012 complaint that Fisher benefited from Lee’s

wrongdoing has no bearing on the nature of the allegedly tortious wrongdoing

committed by Banc of America Securities.


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      Satisfied with its new narrative, the majority goes on to propose that Banc of

America Securities “actively facilitat[ed]” the misallocation of gains and losses,

but Banc of America Securities is not a conspirator in the conversion of SFM’s

funds because it demanded that Lee satisfy the margin calls. Id. at 24–25. The

majority discusses only one instance of this so-called active facilitation—a

conversation between a Banc of America Securities’s employee and Lee about

upcoming margin calls. The majority then announces that the complaint describes

“further interactions . . . [that] demonstrate that [Banc of America Securities] knew

Lee was intentionally allocating losses to SFM’s account and profits to Fisher’s

account.” Id. at 25. But where are these allegations?

      We all agree that Lee made some bad trades that led to multimillion-dollar

margin calls. And, as any brokerage would do, Banc of America Securities

“demanded” Lee to cover the margin, which SFM alleged in both the 2006 and

2012 complaints. Compare 2006 Federal Complaint ¶ 42, with 2012 State

Complaint ¶¶ 86–92. To cover the margin, Banc of America Securities required

him to either add cash to customer accounts or to liquidate some of his holdings

because it was clear that the equity in the account was insufficient collateral for the

loan that Banc of America Securities agreed Lee could have. Specifically,

paragraphs 87, 91, and 92 of the 2012 complaint allege that Banc of America

Securities informed Lee that he had margin calls exceeding $5 million in some of


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his customer’s accounts and that Lee had to either “bring in money” or Banc of

America Securities was going to sell shares in the omnibus account to cover the

margin call. 2012 State Complaint ¶¶ 87, 91–92. I part ways with the majority

when it takes these ordinary demands from a broker and calls them conversion,

even though that allegation appears nowhere in the complaint.

      Had SFM intended to peg Banc of America Securities with the tort of

conversion, it would have realleged the allegations of conversion in the 2012

complaint against Banc of America Securities, but it did not. In particular,

paragraphs 78 through 83 allege that Fisher, and only Fisher, was liable for

converting the funds of SFM. If SFM intended to plead that Banc of America

Securities was also liable as a co-conspirator in converting those funds, then SFM

would have included Banc of America Securities in the count of conversion or

realleged some of the paragraphs about Fisher’s conversion in the count of

conspiracy. But SFM did not include Banc of America Securities in the count of

conversion. Nor did it reallege paragraphs from that count in the count of

conspiracy.

      The conspiracy alleged in the 2012 complaint is a conspiracy to conceal by

its plain terms. 2012 State Complaint ¶¶ 85, 96–97. In the same manner that SFM

alleged that Banc of America Securities fraudulently “conceal[ed] information” in

the 2006 complaint, 2006 Federal Complaint ¶¶ 79–81, the conspiracy count of the


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2012 complaint alleges that Banc of America Securities conspired “to mislead” and

“conceal the truth,” 2012 State Complaint ¶ 85, that Banc of America Securities

“never informed SFM or DR. MELGEN of these illegalities [perpetrated by Lee],”

id. at ¶ 96, that Banc of America Securities “maintained secrecy” and “actively

concealed from SFM the transactions in the Shoreland Trading omnibus account,”

id. at ¶ 97, and that Banc of America Securities “was also concealing from

Plaintiffs information concerning FISHER’S account statements,” id. at ¶98. The

conspiracy alleged in the 2012 complaint is one of fraudulent concealment, not

conversion.

  B. The Nature of the Concealment Alleged in 2006 Is the Same as that Alleged
                                   in 2012.

      The majority also erroneously concludes that the concealment alleged in

2006 was materially different from the concealment alleged in 2012. Majority Op.

at 28–29. The majority says that SFM alleged in 2006 that Banc of America

Securities concealed only that it allowed Lee to control the account, that Lee had

engaged in illegal short trades, and that Banc of America Securities directed Lee to

leave the brokerage. Id. The majority contrasts that concealment with the

“concealed acts of conversion” in the 2012 complaint. Id. at 29.

      A fairer comparison of the complaints is that both contain allegations that

Banc of America Securities withheld two pieces of critical information concerning

the SFM account. First, Banc of America Securities failed to inform SFM that

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Shoreland Trading, led by Kim and Lee, traded SFM’s funds in an omnibus

account. Compare 2006 Federal Complaint ¶¶ 25, 39, 51, with 2012 State

Complaint ¶¶ 66, 89, 97. Second, Banc of America Securities failed to inform SFM

that Lee was misallocating SFM’s funds before it transferred the remaining funds

pursuant to the forged letter. Compare 2006 Federal Complaint ¶ 39, with 2012

State Complaint ¶¶ 26, 66, 97.

      The majority downplays the nature of the concealment in the 2006

complaint. In addition to the concealment described by the majority, 2006 Federal

Complaint ¶ 75, SFM also alleged that Banc of America Securities concealed that

it permitted Lee to trade SFM’s funds in an omnibus account. 2006 Federal

Complaint ¶ 39. As a result, Shoreland Trading “was able to allocate trades among

various accounts.” Id. SFM further alleged that “Banc of America Securities, LLC

well knew [that] the SFM Holdings account was not an account of Won Lee and

neither he nor Shoreland Trading, LLC had any authority to act in that account.”

Id. at ¶ 46. And with that knowledge, Banc of America Securities “permitt[ed] an

unauthorized person to make decisions concerning the account without the consent

or knowledge of SFM Holdings, Ltd.” Id. That concealment “proximately caus[ed]

the loss of the value of the assets” in the SFM account. Id. at ¶ 80.

      To distinguish the 2006 allegations from the 2012 allegations, the majority

places undue emphasis on the word “conversion” in the 2012 complaint, but the


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allegations of concealment in 2012 were the same as those in 2006. In both

complaints, SFM alleged that Banc of America Securities concealed that Lee

commingled funds from different customers. 2012 State Complaint ¶¶ 66, 89, 95,

97; see also 2006 Federal Complaint ¶ 39. As it alleged in 2006, SFM alleged in

2012 that Banc of America Securities “actively concealed from SFM the

transactions in the Shoreland Trading omnibus account.” 2012 State Complaint

¶ 97. But nowhere in the 2012 complaint will you find an allegation that Banc of

America Securities knew that Lee was misallocating profits from SFM to cover

Fisher’s losses. According to the conspiracy count of the 2012 complaint, Banc of

America Securities concealed “that profits had been allocated to FISHER,” but that

count does not allege that Banc of America Securities knew that these profits

belonged to SFM. Id. at ¶ 97; see also id. at ¶ 90 (alleging Banc of America

securities had “knowledge of [Lee’s] attempts” to “allocate losses” between SFM’s

and Fisher’s accounts, but not alleging that Banc of America Securities knew Lee

allocated SFM’s profits to Fisher). Only the second count in the 2012 complaint

for conversion against Fisher, not Banc of America Securities, alleges that

“FISHER received benefits from these improperly allocated trades, as funds from

unauthorized trades and improper allocations that belonged to Plaintiffs were

placed into his [Banc of America Securities] account.” Id. at ¶ 80.




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      As I see it, the allegation about misallocations in the omnibus account of

paragraph 39 of the 2006 complaint bars SFM from relitigating these more detailed

claims about the concealment of misallocations as a result of the margin calls in

the 2012 complaint. The conspiracy count of the 2012 complaint does not include

an allegation that Banc of America Securities concealed that Lee allocated profits

to Fisher that belonged to SFM. That count contains more details about the same

theory of Lee’s misallocations in response to the margin calls. The district court

was correct to enjoin SFM’s attempted relitigation of fraudulent concealment.

 C. The District Court Was Correct to Enjoin the Remaining Count for Breach of
                                   Contract.

      I also reject the majority’s conclusion that SFM may relitigate its claim that

Banc of America Securities breached the Prime Brokerage Agreement. Majority

Op. at 33–35. The majority surmises that “the 2012 State Complaint advances a

theory of harm that was not presented in its earlier federal lawsuit” and, as a result,

“SFM must be permitted to pursue [the breach-of-contract allegations] upon

remand to state court.” Id. at 33–34. But, as I have discussed, the more detailed

facts in the 2012 Complaint do not allege a conspiracy of conversion; those facts

allege only that Banc of America Securities conspired to conceal facts from SFM

about the loss of its funds.

      The majority contends that the breach-of-contract allegations in the 2012

complaint are predicated on a new theory of harm, id. at 33–34, but I cannot agree.

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SFM alleged in 2012 that “[Banc of America Securities] allowed Lee to trade in

the SFM Account and to commingle funds without any authorization, and to

disproportionately allocate assets between SFM’s account and FISHER’s account.”

2012 State Complaint ¶ 131(a). But SFM already alleged the same in 2006 by

pleading that Banc of America Securities allowed Lee to place SFM’s account in

an omnibus account with other customers and, as a result, Shoreland Trading

“allocate[d] trades among various accounts” in that omnibus account. 2006 Federal

Complaint ¶ 39. For these reasons, I cannot agree that Count VII of the 2012

complaint contains a new claim for breach of contract.

      Let’s not confuse a presumption against preclusion with more details about

the same conduct. The Supreme Court has instructed us that preclusion must be

“clear beyond peradventure.” Smith v. Bayer Corp., ___ U.S. ___, ___, 131 S. Ct.

2368, 2376 (2011). That difficult standard has been satisfied in this appeal. For that

reason, I would affirm.




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