     Case: 15-30413   Document: 00513511371     Page: 1   Date Filed: 05/18/2016




        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT United States Court of Appeals
                                                                Fifth Circuit

                                                               FILED
                                                             May 18, 2016
                                 No. 15-30413
                                                             Lyle W. Cayce
                                                                  Clerk
REYMOND MEADAA; HARRY HAWTHORNE; JOSE MATHEW; DINESH
SHAW; NAVTEJ RANGI; NAJA HOLDINGS, L.L.C.; HULENCI, L.L.C.,

             Plaintiffs - Appellees

v.

ARUN K. KARSAN; VERSHA PATEL KARSAN,

             Defendants - Appellants




                Appeal from the United States District Court
                   for the Western District of Louisiana


Before DAVIS, SMITH, and HIGGINSON, Circuit Judges.
W. EUGENE DAVIS, Circuit Judge:
      In this case, we review the district court’s summary judgment on a
number of alternate theories in favor of plaintiff investors who purchased
securities from defendants. We focus on one of plaintiffs’ theories under
Louisiana Revised Statutes §§ 51:712(A)(2) and 51:714, which allows
purchasers of securities to recover their investment from the seller of the
securities, who made the sale based on false representations. Plaintiffs contend
that the defendants sold securities representing shares in SaiNaith L.L.C.
based on false statements that a hotel was owned by that company.
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                               No. 15-30413
      We agree with the district court that the summary judgment evidence
establishes that SaiNaith never owned the hotel and the investors received
interests in a shell company and defendants violated Louisiana law by
representing otherwise. Thus, we AFFIRM the judgment in favor of plaintiffs
against   defendants     personally    under     Louisiana     Revised    Statutes
§§ 51:712(A)(2) and 51:714.
                                       I.
      On November 7, 2007, Dr. Arun Karsan and Versha Patel Karsan
executed an agreement to purchase the Louisiana Hotel and Convention
Center (the Hotel) in Alexandria, Louisiana through their wholly owned
company K.A.P. Enterprises (KAP). KAP arranged to finance its purchase with
a loan from Red River Bank (the Bank). The Bank agreed to loan KAP $6.7
million toward the purchase price but also required that KAP raise an
additional $2.75 million to renovate the Hotel.
      Several of Dr. Karsan’s colleagues had expressed an interest in
participating in the project, so the Karsans decided to offer them a chance to
invest. On November 22, 2006, the Karsans hosted a dinner and presentation
for potential investors. The presentation, which was titled “Louisiana Hotel &
Convention Center,” described the facility’s history, explained its current
condition, detailed the Karsans’ plans for its renovation, and finally, outlined
the “Investor Opportunity” for attendees.
      The Karsans told attendees that they could become either a “Private
Debt” holder or an “Equity” holder. Private debt holders would receive a
promissory note entitling them to periodic interest payments with the
principal due on a set date. Meanwhile, an equity holder would receive a “share
certificate” and “participate in the profits and losses.”
      During the presentation, the Karsans stressed to attendees that equity
holders “would be members of a limited liability company that would own the

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                                 No. 15-30413
Hotel.” The plaintiffs understood this was the investment being offered to them
if they elected to participate. However, the Karsans did not tell investors that
KAP had already agreed to purchase the Hotel.
          Roughly a week after their presentation, the Karsans created SaiNaith,
L.L.C. (SaiNaith) which the Karsans represented to plaintiffs owned the Hotel.
To participate in the project, the Karsans presented investors with letters
designed to reserve and document their interest. These letters stated that
investors would receive a fractional interest or “share units” in SaiNaith; the
cost of each share was $125,000. “Louisiana Hotel and Convention Center”
appeared at the top of the letter, in large font, and directly below the “Letter
of Interest” title.
          All investors selected the equity option, executed their interest letters,
and paid for twenty-eight SaiNaith shares, totaling $3.5 million. 1 Some
plaintiffs paid at the time of signing their letters, while others paid later. After
their payment, the investors believed that they owned shares in the company
that owned the Hotel.
          On December 7, 2006, KAP executed closing documents and purchased
the Hotel. Before opening the Hotel, KAP made renovations which continued
until around July 2007. The Karsans used plaintiffs’ investment funds in large
part to make their mortgage payments and pay for the Hotel’s renovations.
The Hotel opened in late 2007 and operated for roughly one year, when the
Karsans held an investment meeting.
          In July 2008, after a year of financial losses from the Hotel’s operation,
the Karsans met with investors and announced their intent to transfer the
Hotel’s title to SaiNaith. To make the transfer, the Karsans required that
investors sign certain documents, including an act of sale, operating



1   An eighth investor also purchased shares in SaiNaith but did not join this action as a plaintiff.

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                             No. 15-30413
agreement, and an assumption of the Hotel’s mortgage – which the Karsans
had personally guaranteed.
       This was the first time the investors learned that the company in which
they held an interest, SaiNaith, did not own the Hotel. They refused to sign
the documents.
                                                   A.
       Investors filed suit and asserted eleven causes of action against the
Karsans, KAP, and SaiNaith. In May 2010, the district court granted a motion
for partial summary judgment that found SaiNaith breached its contract with
plaintiffs. As damages for this breach, it determined that the defendants were
solidarily liable for $3.5 million – the amount of plaintiffs’ investment.
       The district court imposed judgment against SaiNaith as the party which
contracted with investors and against KAP for unjust enrichment. The district
court also pierced the SaiNaith company veil to impose personal liability on
the Karsans.
       In Meadaa v. K.A.P. Enterprises, L.L.C., 756 F.3d 875 (5th Cir. 2014), we
affirmed the district court’s grant of partial summary judgment against
SaiNaith and KAP. However, we vacated and remanded for the district court
to reconsider whether the Karsans were personally liable in light of Ogea v.
Merritt, 130 So. 3d 888 (La. 2013), which relied on a statutory exception to the
L.L.C. statute to impose personal liability. 2
                                                   B.
       On remand, the district court resolved the investors’ remaining claims
and reconsidered the Karsans’ personal liability for SaiNaith’s judgment.




2 See La. Rev. Stat. Ann. § 12:1320(D) (“Nothing in this Chapter shall be construed as being in
derogation of any rights which any person may by law have against a member, manager, employee, or
agent of a limited liability company because of any fraud practiced upon him, because of any breach of
professional duty, or other negligent or wrongful act by such person.”).

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                               No. 15-30413
       The district court granted partial summary judgment against the
Karsans personally on a number of alternate legal theories. First, it found the
Karsans made an untrue statement of material fact to sell securities, violating
Louisiana Revised Statutes §§ 51:712(A)(2) and 51:714, and cast the Karsans
in judgment for $3.5 million – the amount of plaintiffs’ investment. 3
       Second, the district court held that the Karsans were personally liable
for SaiNaith’s breach of contract either under a common-law veil piercing
theory or under the fraud exception to Louisiana’s L.L.C. statute.                     4


       With respect to the district court’s judgment based on the violation of
Louisiana Revised Statute § 51:712(A)(2), the court concluded that the
summary judgment evidence showed the Karsans made an untrue statement
of material fact to sell securities to the plaintiffs. It stated:


               [t]hus, under this [securities violation] theory as well,
               Plaintiffs were entitled to return of the consideration
               paid in cash (their investments). . . [and] [t]hough we
               have already ruled [in its breach of contract judgment
               that] Plaintiffs are entitled to a return of their
               investment monies, we determine here that under the
               Louisiana Securities Law, they are entitled to a return
               of their investments.

Accordingly, the district court ordered damages totaling $3.5 million under
Louisiana Revised Statute § 51:714, which states: “[a]ny person who violates
R.S. 51:712(A) shall be liable to the person buying such security, and such
buyer may sue in any court to recover the consideration paid in cash.”
                                                II.
       We review the district court’s grant of summary judgment de novo,




3 Otherwise, the investors’ remaining causes of action were voluntarily dismissed or subject to adverse
summary judgment.
4 See La. Rev. Stat. Ann. § 12:1320(D).


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                            No. 15-30413
applying the same standard as the district court. 5 Summary judgment is
proper if “the movant shows that there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law.” 6 On summary
judgment, evidence is viewed in the light most favorable to the non-moving
party. 7
                                               III.
        We conclude that it is unnecessary for us to consider all the alternative
theories of liability relied on by the district court. 8 We are satisfied that the
district court did not err in imposing liability on the Karsans for violating
Louisiana Revised Statute § 51:712(A)(2), which provides:


                It shall be unlawful for any person [t]o offer to sell or
                to sell a security by means of any oral or written
                untrue statement of a material fact. . .the buyer not
                knowing of the untruth. . .if such person in the exercise
                of reasonable care could not have known of the untruth
                or omission. 9

To prevail under this statute, a plaintiff must show: (1) the defendant made an
untrue statement of a material fact; (2) the plaintiff did not know of the
untruth; and, (3) the defendant knew, or in the exercise of reasonable care
could have known, of the untruth. 10
        The plaintiffs rely on the Karsans’ November 22, 2006 representation
that they were offering to sell equity shares in the company that would own
the Hotel. When the letters of interest in SaiNaith, which contained the title
“Louisiana Hotel and Convention Center,” were presented by the Karsans in

5 Cass v. City of Abilene, 814 F.3d 721, 728 (5th Cir. 2016).
6 Fed. R. Civ. P. 56(a).
7 Gen. Universal Sys. v. Lee, 379 F.3d 131, 141 (5th Cir. 2004) (internal quotations omitted).
8 The Karsan’s argument that the district court abused its discretion by striking Versha Karsans’

affidavit is without merit.
9 La. Rev. Stat. Ann. § 51: 712(A)(2).
10 Heck v. Triche, 775 F.3d 265, 280 (5th Cir. 2014) (quoting Ponthier v. Manalla, 951 So. 2d 1242, 1255

(La. Ct. App. 1988)).

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                                No. 15-30413
return for $125,000 per share, the plaintiffs reasonably understood they were
purchasing shares in the company that owned the Hotel. This was in fact
untrue – SaiNaith owned nothing. The Karsans’ solely owned company, KAP,
owned the Hotel.
       The Karsans argue that they did not make an untrue statement of
material fact. According to the Karsans, their statement was an unfulfilled
future promise.
       But, when we combine the Karsans’ November 22 oral statement that
investors would become owners of shares in the L.L.C. that owned the Hotel
together with the information conveyed when the Karsans presented interest
letters to the investors specifying their individual interests in SaiNaith, their
meaning is clear – SaiNaith owned the Hotel. Otherwise, plaintiffs would not
have paid the Karsans $3.5 million. The district court did not err in concluding
that the summary judgment evidence established that the statements of the
Karsans were material statements of present fact that were false.
       The investors also satisfied the remaining elements of § 51:712(A)(2).
They had no knowledge that the Karsans’ statement was untrue. 11 And, the
Karsans clearly knew that their statement was untrue, because when the
Karsans represented to investors that SaiNaith owned the Hotel, KAP had
already purchased the Hotel and had no plans to transfer it to SaiNaith. For
these reasons, the district court did not err finding that the Karsans violated
Louisiana Revised Statute § 51:712(A)(2) and are personally liable to return
plaintiffs’ investment.
                                              IV.
       We agree with the district court that the summary judgment evidence


11 The Karsans gave investors documents that portrayed SaiNaith as the Hotel’s owner. For example,
financial documents showed that SaiNaith shared in the Hotel’s profits and losses. Also, the Karsans
registered vehicles used by the Hotel in SaiNaith’s name. Finally, SaiNaith entered into a franchise
agreement with Baymont Hotels.

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                              No. 15-30413
establishes that the Karsans sold shares in SaiNaith to plaintiffs for $3.5
million, based on false representations that SaiNaith would own the Hotel.
When the plaintiffs purchased their securities, SaiNaith did not and had never
owned the Hotel. Instead, it was owned by KAP, a company wholly owned by
the Karsans. The plaintiffs are therefore entitled to recover their investment
from the Karsans personally under Louisiana Revised Statutes §§ 51:712(A)(2)
and 51:714. This resolution of the case makes it unnecessary to consider the
plaintiffs’ alternate theories of liability.
      Therefore, the judgment of the district court is AFFIRMED.




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