                                        PRECEDENTIAL

        UNITED STATES COURT OF APPEALS
             FOR THE THIRD CIRCUIT
                  ____________

                      No. 18-1849
                     ____________

   OBASI INVESTMENT LTD; JINGLI SHAO; ROBIN
  JOACHIM DARTELL; LIXIN WU; JASON HELTON;
SEAN CARITHERS, individually and on behalf of all others
                similarly situated

                           v.

    TIBET PHARMACEUTICALS, INC; HONG YU;
         TAYLOR Z. GUO; SABRINA REN;
 WENBO CHEN; YOUHANG PEN; SOLOMON CHEN;
         ANDERSON & STRUDWICK INC;
     STERNE AGEE GROUP INC; HAYDEN ZOU;
L. MCCARTHY DOWNS, III; ACQUAVELLA CHIARELLI
        SHUSTER BERKOWER & CO., L.L.P.,

     HAYDEN ZOU; L. MCCARTHY DOWNS, III,
                          Appellants
                ____________

     On Appeal from the United States District Court
             for the District of New Jersey
               (D.C. No. 2-14-cv-03620)
         District Judge: Hon. John M. Vazquez
                     ____________
               Argued February 12, 2019
   Before: HARDIMAN, SCIRICA, and COWEN, Circuit
                       Judges.

                    (Filed: July 23, 2019)

A. Neil Hartzell [Argued]
Freeman Mathis & Gary
60 State Street, 6th Floor
Boston, MA 02109
       Attorney for Appellant L. McCarthy Downs, III

Michael P. Tremonte [Argued]
Justin J. Gunnell
Sher Tremonte
90 Broad Street, 23rd Floor
New York, NY 10004
        Attorneys for Appellant Hayden Zou

Laurence M. Rosen [Argued]

Rosen Law Firm
609 W. South Orange Avenue, Suite 2P
South Orange, NJ 07079

Keith R. Lorenze
Rosen Law Firm
101 Greenwood Avenue
Suite 440
Jenkintown, PA 19046
       Attorneys for Appellees




                                 2
                        ___________

                 OPINION OF THE COURT
                      ___________


HARDIMAN, Circuit Judge.

       This case comes to the Court as a certified interlocutory
appeal. The sole question presented is whether, under Section
11 of the Securities Act of 1933, 15 U.S.C. § 77k, a nonvoting
board observer affiliated with an issuer’s placement agent is a
“person who, with his consent, is named in the registration
statement as being or about to become a director[ ] [or] person
performing similar functions . . . .” Id. § 77k(a)(3).

       We think not. As required by the text of § 77k(a)(3), our
inquiry begins and ends with the registration statement’s
description of the Defendants. We hold as a matter of law that
the Defendants’ functions are not “similar” to those that board
directors perform, so we will reverse the District Court’s order
and direct the entry of summary judgment for the Defendants.

                               I1

      Tibet Pharmaceuticals, Inc. is a holding company.
Through an array of parent-subsidiary relationships and

       1
         The District Court had jurisdiction under 28 U.S.C.
§ 1331. We have jurisdiction under 28 U.S.C. § 1292(b) and
exercise plenary review over the question certified. Florence v.
Bd. of Chosen Freeholders of Cty. of Burlington, 621 F.3d 296,
301 (3d Cir. 2010). We review the District Court’s denial of
summary judgment de novo, applying the same standard it



                               3
contractual rights, Tibet “effectively control[led]” Yunnan
Shangri-La Tibetan Pharmaceutical Group Limited (Yunnan),
an operating company that manufactured and sold traditional
Tibetan medicines. Dartell v. Tibet Pharm., Inc., 2017 WL
1944106, at *2 (D.N.J. May 10, 2017). This case involves
Tibet’s attempt to raise capital for those operations through an
initial public offering (IPO).

       Hayden Zou was an early investor in Tibet and the sole
director of China Tibetan Pharmaceuticals Limited, a wholly
owned subsidiary of Tibet. Tibet’s ability to control Yunnan
flowed through China Tibetan. In late 2009, Zou told L.
McCarthy Downs, III, a managing director at the investment
bank Anderson & Strudwick, Inc. (A&S), about Tibet. The two
discussed the prospect of a Tibet IPO, and A&S later agreed to
serve as Tibet’s placement agent. Zou and Downs then worked
together to bring Tibet public. Tibet’s IPO registration
statement became effective in late 2010.

       Zou and Downs were neither signatories to the
registration statement nor named in it as directors of Tibet.
Instead, they were listed as nonvoting board observers chosen
by A&S. Though Zou and Downs would have no formal
powers or duties, the registration statement explained “they
may nevertheless significantly influence the outcome of
matters submitted to the Board of Directors for approval.” App.
178.




should apply. See Gruber v. Price Waterhouse, 911 F.2d 960,
963 (3d Cir. 1990).




                               4
       As it turned out, the registration statement2 omitted
material negative information about Yunnan’s finances.
Yunnan had defaulted on a loan from the Chinese government
a few months before Tibet’s registration statement became
effective and that default led to a judgment that required
repayment within 60 days. Though the registration statement
described a “long term loan,” it said nothing about the default
judgment.

        Just before Tibet filed its amended final prospectus, the
Chinese government froze all of Yunnan’s assets. Tibet did not
disclose that either. The IPO closed soon thereafter, and Tibet
and its underwriters offered 3 million shares to the public at
$5.50 per share. But Yunnan still hadn’t paid what it owed, so
the Agricultural Bank of China auctioned off the company’s
assets. This prompted the NASDAQ to halt trading in Tibet’s
stock, and its price plummeted.

       Plaintiffs sued Zou, Downs, Tibet, A&S, the IPO’s
auditor, and several other Defendants on behalf of a class of
stock purchasers. As relevant to this certified interlocutory

       2
        We note the District Court used the term “prospectus,”
not “registration statement” for the central document in this
case. That was accurate, but for our purposes there is no
difference between the two. That’s because Tibet’s amended
final prospectus, filed post-effectiveness under Rule 424, is
considered part of its registration statement. See Regulation C,
17 C.F.R. §§ 230.404, 230.430B(d). Because this appeal
concerns Securities Act § 11 registration statement liability, not
§ 12 prospectus liability, we use the term “registration
statement” to avoid confusion. We use the term “final
prospectus” in the next paragraph for chronological clarity.




                                5
appeal, Plaintiffs alleged Zou and Downs violated Section 11
of the Securities Act of 1933, 15 U.S.C. § 77k(a).

                                II

        Section 11 imposes near-strict liability for untruths and
omissions made in a registration statement. See In re Suprema
Specialties, Inc. Sec. Litig., 438 F.3d 256, 269 (3d Cir. 2006).
Unlike antifraud cases, a § 11 plaintiff need not allege scienter,
reliance,3 or loss causation. See In re Constar Int’l Inc. Sec.
Litig., 585 F.3d 774, 782–783 (3d Cir. 2009); In re Morgan
Stanley Info. Fund Sec. Litig., 592 F.3d 347, 359 (2d Cir.
2010). Congress imposed this in terrorem liability on those best
positioned to ensure accurate disclosure. In re Lehman Bros.
Mortg.-Backed Sec. Litig., 650 F.3d 167, 181 (2d Cir. 2011)
(citing Herman & MacLean v. Huddleston, 459 U.S. 375, 381–
82 & n.13 (1983)).

       Because § 11 is such strong medicine, and to meet its
purpose of enforcing accurate registration statement
disclosure, it applies only to limited and enumerated categories
of defendants. See Herman & MacLean, 459 U.S. at 381–82;
Lehman Bros., 650 F.3d at 185 (“It is precisely because § 11
‘gives rise to liability more readily,’ however, that it is [sic]
applies ‘more narrowly’ than § 10(b).” (quoting Morgan
Stanley, 592 F.3d at 359–60)). Among those defendants is
“every person who, with his consent, is named in the
registration statement as being or about to become a director,



       3
         Unless they bought their securities more than 12
months after the registration statement became effective, 15
U.S.C. § 77k(a).




                                6
person performing similar functions, or partner.” 15 U.S.C.
§ 77k(a)(3).

       The District Court, finding there were material issues of
fact about whether Zou and Downs had been named as people
“performing similar functions to a director,” Dartell, 2017 WL
1944106, at *12, denied summary judgment. At the outset, the
Court held that only the Defendants’ description in the
registration statement itself is relevant to the inquiry. Turning
to the merits, the Court observed Zou and Downs were named
in the registration statement as about to become “board
observers” appointed by Tibet’s placement agent. In a section
titled “Relationship with our Placement Agent,” the
registration statement describes their role:

       We will have an ongoing relationship with our
       Placement Agent that may impact our
       shareholders’ ability to impact decisions
       related to our operations.

       In connection with this offering, we have agreed
       to allow our Placement Agent to designate two
       non-voting observers to our Board of Directors
       until the earlier of the date that: (i) the investors
       that purchase shares in this offering beneficially
       own less than five percent (5%) of our
       outstanding shares; or (ii) the trading price per
       share is at least [$24 per share] for any
       consecutive 15 trading day period. Although our
       Placement Agent’s observers will not be able to
       vote, they may nevertheless significantly
       influence the outcome of matters submitted to
       the Board of Directors for approval.




                                7
App. 178; see App. 230.

       After acknowledging that Zou and Downs would not be
able to vote, the District Court observed “they may
nevertheless significantly influence the outcome of matters
submitted to the Board of Directors for approval.” Dartell,
2017 WL 1944106, at *10. In the Court’s view, because Zou
and Downs had the power to “influence,” this meant they
“arguably had more influence than any individual board
member, who could only cast a single vote.” Id. “The Court’s
only hesitation” in denying summary judgment was that the
registration statement used the word “may” rather than “shall”
or “will.” Id. at *11. That meant it “was not necessarily
mandatory that the Board Observers exercise their ‘significant
influence.’” Id. Still, the Court determined that whether Zou
and Downs were covered by § 11 was a jury question. Id.

       Zou and Downs moved for certification of that order
under 28 U.S.C. § 1292(b). The District Court granted the
motion, finding the underlying legal question—whether Zou
and Downs could be liable under § 11—met the requirements
of § 1292(b). First, the District Court found the question was a
controlling question of law, because its conclusion would
create reversible error if we disagreed on appeal. Second, the
District Court found there was substantial ground for
difference of opinion, despite the question being one of first
impression in the courts of appeals, because “Section 11 is
narrowly construed” and reasonable jurists could therefore
disagree with its conclusion. Dartell v. Tibet Pharm., Inc., 2018
WL 994896, at *5 (D.N.J. Feb. 21, 2018). Finally, the Court
thought an interlocutory appeal would materially advance the
ultimate termination of the litigation, because it had already



                               8
granted summary judgment for Zou and Downs on all counts
save the one alleging § 11 liability. If we disagreed with the
District Court, the litigation would thus be at an end. So the
District Court certified the following question:

       Can Defendants be potentially liable under
       Section 11 of the Securities Act of 1933, each as
       a “person performing similar functions” to a
       director, in light of Defendants’ role as board
       observers who could (but did not necessarily
       have to) significantly influence the outcome of
       matters submitted to the board of directors for
       approval?

Order at 2, No. 2-14-cv-03620 (D.N.J. Feb. 21, 2018), ECF No.
313. We granted Zou and Downs’s timely Petition for
Permission to Appeal and now reverse.4

                               III

        The Securities Act does not define “director,” so we turn
to dictionary definitions from the time Congress enacted the
statute. See New Prime Inc. v. Oliveira, 139 S. Ct. 532, 539
(2019). “Director” could mean “[o]ne who . . . directs, rules, or
guides; a guide, a conductor; ‘one that has authority over
       4
         The District Court granted Zou and Downs’s motions
for summary judgment “with respect to their liability pursuant
to [§ 77k(a)(2)],” Order at 1, No. 2-14-cv-03620 (D.N.J. May
10, 2017), ECF No. 269, and the parties have litigated this
interlocutory appeal solely under § 77k(a)(3). We follow the
parties’ lead in addressing only § 77k(a)(3), and express no
opinion on the correctness of the District Court’s summary
judgment for Zou and Downs under § 77k(a)(2).




                               9
others; a superintendent; [or] one that has the general
management of design or work.’” Director, Oxford English
Dictionary 392 (1st ed. 1933). Or, in a more specialized sense
related to business organizations, it could mean “[a] member
of a board appointed to direct or manage the affairs of a
commercial corporation or company.” Id.; see Directors,
Black’s Law Dictionary 581 (3d ed. 1933) (defining “director”
as a “person[ ] appointed or elected according to law,
authorized to manage and direct the affairs of a corporation or
company”).

        Because § 77k(a)(3) also lists “partner[s]” (in context,
another business organization title) and because § 77k(a) lists
other statutory defendants by technical titles (“underwriters”
for example), it seems clear enough Congress meant “director”
in the second, specialized sense. See Yates v. United States, 135
S. Ct. 1074, 1085 (2015) (“[A] word is known by the company
it keeps.”); Bradley v. United States, 410 U.S. 605, 609 (1973)
(“[T]he law uses familiar legal expressions in their familiar
legal sense.” (quoting Henry v. United States, 251 U.S. 393,
395 (1920))).

        Beyond the text of the Securities Act, the Exchange Act
definition of director—which uses the phrase “director of a
corporation”—reinforces our conclusion. See 15 U.S.C.
§ 78c(a)(7) (“The term ‘director’ means any director of a
corporation or any person performing similar functions with
respect to any organization, whether incorporated or
unincorporated.”). So does Securities Act Regulation C, which
defines “director” the same way. 17 C.F.R. § 230.405.5


       An amendment to the Securities Act suggests later
       5

Congresses agreed. The Private Securities Litigation Reform



                               10
        What functions, then, typify directorship? “The whole
of the directors collectively form the board of directors.”
Directors, Black’s Law Dictionary 581 (3d ed. 1933). Acting
as a board, directors are the corporation’s agents. 2 Fletcher
Cyc. Corp. § 507 (Sept. 2018 update); 4 Fletcher Cyc. Corp.
§ 2261 (1918). The board manages the corporation’s affairs by:
(1) selecting senior officers; (2) controlling executive
compensation; (3) delegating administrative authority to
officers; (4) making high level corporate policy; (5) deciding
financing and capital allocation; and (6) supervising the
“welfare of the whole enterprise.” 2 Fletcher Cyc. Corp. § 505
(Sept. 2018 update); see 4 Fletcher Cyc. Corp. §§ 1729, 1961,
1966 (1918); Blasband v. Rales, 971 F.2d 1034, 1044 (3d Cir.
1992). Directors owe duties of reasonable care and loyalty.
3 Fletcher Cyc. Corp. § 990 (Sept. 2018 update); see 4 Fletcher
Cyc. Corp. § 2261 (1918) (“[W]hether or not directors and
other corporate officers are strictly trustees, there can be no
doubt that their character is that of a fiduciary so far as the
corporation and the stockholders as a body are concerned.”).
And if shareholders are unhappy with directors, they can vote
them out for any reason (or no reason). 3 Fletcher Cyc. Corp.
§ 357.20 (Sept. 2018 update). At the most basic level, directors
are thus defined by their formal power to direct and manage a


Act of 1995 amended § 77k(f) to make “outside directors”
proportionately (rather than jointly and severally) liable. See
Pub. L. No. 104-67, § 201(b), 109 Stat. 737, 762 (1995). By
specifying “outside directors,” a corporate term of art for
“nonemployee director[s] with little or no direct interest in the
corporation,” Director, Black’s Law Dictionary 473 (7th ed.
1999), the amendment suggests “director” is used in the
corporate-law sense rather than the word’s broadest sense.




                               11
corporation, and the responsibilities and duties that accompany
those powers.6


       6
         Plaintiffs point to two Exchange Act SEC interpretive
releases they say suggest a broader definition. See Obasi Br.
23–25 (discussing Ownership Reports & Trading by Officers,
Directors & Principal Sec. Holders, Exchange Act Release No.
17991, 1991 WL 292000 (Feb. 21, 1991) and Interpretive
Release on Rules Applicable to Insider Reporting & Trading,
Exchange Act Release No. 18114, 1981 WL 31301 (Sept. 24,
1981)). Those releases say a person’s title should not determine
“whether an advisory, emeritus or honorary director is a
director for Section 16 purposes,” Release No. 17991, 1991
WL 292000, at *4, and that the focus should instead be on
whether the person performs duties likely to make him privy to
inside information, see id.; Release No. 18114, 1981 WL
31301, at *5 & n.15. But they do not undermine our analysis
for two reasons.
       First, the releases interpret the meaning of “officers and
directors” “for Section 16 purposes.” Release No. 17991, 1991
WL 292000, at *4; see Release No. 18114, 1981 WL 31301, at
*5 & n.15. The releases’ purposive interpretations revolve
around access to inside information because § 16 is an insider
trading provision. See Release No. 17991, 1991 WL 292000,
at *2; Release No. 18114, 1981 WL 31301, at *5 & n.15; see
also Foremost-McKesson, Inc. v. Provident Sec. Co., 423 U.S.
232, 253 (1976) (“Congress thought that all short-swing
trading by directors and officers was vulnerable to abuse
because of their intimate involvement in corporate affairs.”).
But § 11 is about ensuring the accuracy of registration
statements in securities offerings by issuers, not deterring
short-swing profiting by insiders through mandated disclosure



                               12
of holdings and trades. Compare Omnicare, Inc. v. Laborers
Dist. Council Const. Indus. Pension Fund, 135 S. Ct. 1318,
1323 (2015) (“Section 11 of the Act promotes compliance with
these disclosure provisions by giving purchasers a right of
action against an issuer or designated individuals . . . .”) with 1
Louis Loss et al., Securities Regulation 6.E.1 (6th ed. 2018)
(“[S]ection 16 remains a useful tool for preventing speculative
abuses by insiders and for focusing their attention on their
fiduciary duty and on long-term corporate health, rather than
on short-term trading profits . . . .” (quoting Report of the Task
Force on Regulation of Insider Trading—Part II: Reform of
Section 16, 42 Bus. Law. 1087, 1092 (1987))).
         Section 16’s divergent goals manifest in reasoning that
would make little sense in the § 11 context. Release No. 17991
explains, for instance, that the terms “[o]fficers, directors, and
ten percent holders . . . . also include[ ] an officer or director
who has terminated officer or director status but continues to
be subject to reporting under Section 16.” 1991 WL 292000, at
*2 n.14. That expansion of the term’s definition may be well-
advised in the insider trading context. But it has no connection
to the registration statement disclosures § 11 is meant to reach,
since former directors have no input into registration
statements.
       Second, and as we explain infra in Part IV, the
§ 77k(a)(3) inquiry is limited to the face of the registration
statement. That limitation is based on language in § 77k(a)(3)
(“named in the registration statement as”) that does not appear
in § 16. See § 16(a)(1), 15 U.S.C. § 78p(a)(1) (“Every person
who is directly or indirectly the beneficial owner of more than
10 percent of any class of any equity security . . . or who is a
director or an officer of the issuer of such security, shall file the



                                 13
        “Similar,” as the term is used in § 77k(a)(3), is most
aptly defined as “[h]aving a marked resemblance or likeness;
of a like nature or kind.” Similar, Oxford English Dictionary
59 (1st ed. 1933). True, there are varying degrees of likeness
that might be described as “similar.” See In re Bernard L.
Madoff Inv. Sec. LLC, 773 F.3d 411, 419 (2d Cir. 2014) (“In
ordinary usage, the word ‘similar’ means ‘having
characteristics in common,’ or ‘alike in substance or
essentials.’” (quoting Webster’s New Int’l Dictionary 2120 (3d
ed. 1993))); Ayes v. U.S. Dep’t of Veterans Affairs, 473 F.3d
104, 108 (4th Cir. 2006) (“Although the term ‘grant’ is not
defined in the statute, the use of the word ‘similar’ limits the
universe of ‘grants’ to . . . only grants bearing a family
resemblance . . . .”). But here, the use of “director” in its legal
rather than colloquial sense narrows the range of possible
meanings and suggests more than slight similarity.




statements required by this subsection with the Commission.”
(emphasis added)). Section 16, unlike § 77k(a)(3), invites an
inquiry into the actual circumstances of a purported director.
       Once we accept that distinction, our holding accords
with the release provisions Plaintiffs cite. The releases attempt
to cover people with policymaking power and access to inside
information,       while     excluding     figureheads—without
formalistic reliance on titles. Likewise, our interpretation of
§ 77k(a)(3) includes only persons who, on the face of the
registration statement, exercise formal power similar to
directors. If the registration statement here described Zou and
Downs as having that kind of power, their “observer” title
would not absolve them.




                                14
       A commonsense example explains why this is so. We
might describe a “sedan” as similar to a “truck”—both are
vehicles, after all. But an ordinary English speaker would not
say a sedan is similar to a “light-duty pickup truck.” The use of
a narrowing term of art that distinguishes one class of trucks
from others connotes a likeness of specific functions—beyond
basics like personal transportation. So too the question here is
not whether Zou and Downs are “similar” to “directors” in
some abstract sense. The question is rather whether they
possess at least some of the core powers and responsibilities
that define corporate directorship under the law of
corporations.7

                               IV

        Having defined our terms, we turn to consider what
sources are relevant to deciding whether a person is a proper
§ 77k(a)(3) defendant, and who ought to make that decision.
As to the first question, the District Court held only the
registration statement itself is relevant. We agree. It follows
from that holding that whether one is a proper defendant under
§ 77k(a)(3) is a question of law for the court, not a question of
fact for the jury.

                               A

       What evidence is relevant to our inquiry? Section
77k(a)(3) asks whether a defendant is “with his consent, [ ]
named in the registration statement as being or about to
       7
         As we explain infra in Part V, Securities Act § 6(a), 15
U.S.C. § 77f(a) (which prescribes who must sign the
registration statement) provides additional support for our
conclusion that “similar” requires a likeness of formal powers.




                               15
become . . . [a] person performing similar functions” to a
director. (Emphasis added). The phrase “named in the
registration statement as” compels reference to the description
provided there. And § 77k(a)(3)’s text, structure, surrounding
provisions, and requirement of consent to be named all tell us
that the inquiry stops there.

      For starters, it would be odd as a matter of logic to
consider defendants’ real-world actions to determine whether
they were “named” in a specified document as “about” to
perform certain functions. To “name” a person as “about” to do
something is to make a prediction. And § 77k(a)(3) asks only
whether the issuer made that prediction in its registration
statement. Whether the prediction was well-supported when it
was made and whether it came true are irrelevant.

        Section 77k(a)(3)’s syntax leads to the same conclusion.
To hold extrinsic evidence relevant would substitute an “and”
for the “as”—so that once a court finds a person “named” in
the registration statement, it then determines whether in fact
the person’s role is, or will be, director-like. But the statute
doesn’t say “named in the registration statement and . . . about
to become . . . [a] person performing similar functions.” Read
slightly differently, Plaintiffs’ preferred interpretation would
excise the phrase “named in the registration statement as”
altogether and rewrite § 77k(a)(3) to say “every person who,
with his consent, is or is about to become a director [or] person
performing similar functions.” That language too would ask
whether Zou and Downs were in fact about to become quasi-
directors. And it would make sense then to consider extrinsic
evidence. But § 77k(a)(3) doesn’t say that either.

       Our reading is also supported by § 77k(a)’s provision
for expert liability, which uses language much like § 77k(a)(3):



                               16
      Every accountant, engineer, or appraiser, or any
      person whose profession gives authority to a
      statement made by him, who has with his consent
      been named as having prepared or certified any
      part of the registration statement, or as having
      prepared or certified any report or valuation
      which is used in connection with the registration
      statement, with respect to the statement in such
      registration statement, report, or valuation,
      which purports to have been prepared or
      certified by him . . . .

15 U.S.C. § 77k(a)(4) (emphases added). By making the
“statement” the subject of the phrase “purports to have been
prepared or certified,” § 77k(a)(4) limits the inquiry into
whether an expert is “named as having prepared or certified”
the statement to the face of the document in which it’s made.
See Herman & MacLean, 459 U.S. at 386 n.22 (explaining
“accountants with respect to parts of a registration statement
which they are not named as having prepared or certified”
cannot be held liable under § 77k(a)(4) “even if [they] engaged
in fraudulent conduct while participating in the registration
statement”).

       Of course, there was no reason to include the “purports
to have been prepared or certified” language in § 77k(a)(3).
That’s because liability under § 77k(a)(3) is not limited to
particular statements within the registration statement. But
§ 77k(a)(4) confirms the commonsense construction that the
phrase “named . . . as” asks only about the words of the
document doing the naming. And § 77k(a)’s other subsections
likewise suggest the phrase “named . . . as” has this meaning.




                              17
        Furthermore, it’s clear Congress knew how to extend
liability to a broader class of defendants when it wanted to—
because it did. Unlike § 77k(a)(3) and (4), two of § 77k(a)’s
enumerated categories are phrased without reference to how a
person is named in the registration statement. See 15 U.S.C.
§ 77k(a)(2) (liability for “every person who was a director of
(or person performing similar functions) or partner in the issuer
at the time of the filing of the part of the registration statement
with respect to which his liability is asserted” (emphasis
added)); id. § 77k(a)(5) (liability for “every underwriter with
respect to such security”). We “presum[e] that each word
Congress uses is there for a reason,” Advocate Health Care
Network v. Stapleton, 137 S. Ct. 1652, 1659 (2017), so we will
not read the phrase “named in the registration statement as” out
of § 77k(a)(3).8

       Finally, the requirement of consent to be named, see
§ 77k(a)(3), confirms that our inquiry stops at the text of the
registration statement. It is hard to see how this consent could
be informed if a person’s status (and potential liability) were
speculative and mutable based on facts and events beyond the
text of the registration statement. See 5 Arnold S. Jacobs,
Disclosure & Remedies Under the Sec. Laws § 3:17 (Dec.
2018 update) (“Questions regarding the interpretation” of the
phrase “performing similar functions” “rarely should arise


       8
          It cannot be that § 77k(a)(3)’s extra language adds
merely a requirement that the registration statement disclose
the defendant’s identity. The Securities Act already requires
registration statements to include “the names and addresses of
the directors or persons performing similar functions.”
Securities Act Schedule A, 15 U.S.C. § 77aa(4).




                                18
because the person would not give consent unless he thought
he was within the ambit of one of the terms”).

                                 B

        Having decided that the registration statement controls
who is subject to § 77k(a)(3) liability, it follows that courts, not
juries, must determine the scope of that provision and whether
the terms of a registration statement bring a defendant within
it. “The construction of written instruments is one of those
things that judges often do and are likely to do better than jurors
unburdened by training in exegesis.” Markman v. Westview
Instruments, Inc., 517 U.S. 370, 388 (1996); see also 10A
Charles Alan Wright & Arthur R. Miller, Federal Practice and
Procedure § 2725 (4th ed. Sept. 2018 update) (“[I]f the only
issues that are presented involve the legal construction of
statutes . . . or the legal sufficiency of certain documents,
summary judgment would be proper.” (footnotes omitted)).
And this inquiry involves “the use of legal skills to determine,”
Merck Sharp & Dohme Corp. v. Albrecht, 139 S. Ct. 1668,
1679–80 (2019), the significance of statements that are not in
dispute.

         Even if the inquiry included subsidiary questions of
fact, “[u]niformity would . . . be ill served,” Markman, 517
U.S. at 391, by submitting to juries the threshold question
whether the face of a registration statement brings a defendant
within § 77k(a)(3). Registration statements in public securities
offerings are addressed to the whole investing public and are
likely to describe putative defendants’ functions in familiar but
technical terms of art. It is important for issuers, investors, and
putative defendants to know the scope of quasi-director
liability. We hold that whether a defendant is “named in the
registration statement as being or about to become a director[ ]



                                19
[or] person performing similar functions,” § 77k(a)(3), is a
question of law for the court.9

                              V

       As we have explained, the function of a board of
directors is to direct and manage the company’s affairs.
Individual directors do this by formal voting. And because each
director bears part of the ultimate responsibility for the
company’s fate, each owes duties of care and loyalty and may
be voted out for mismanagement (or for no reason at all). Zou
and Downs’s roles, as described in the registration statement,
are not “of a like nature or kind,” Similar, Oxford English
Dictionary 59 (1st ed. 1933).

       Three features differentiate Zou and Downs from
directors. First, and most fundamentally, Zou and Downs
cannot vote for board action. Second, they are aligned with the

      9
          It’s conceivable that a registration statement’s
description of a defendant might include ambiguous terms. A
judge might then look to evidence of technical meaning (or to
other extrinsic sources). While this would be factfinding
reviewable only for clear error, see Teva Pharm. USA, Inc. v.
Sandoz, Inc., 135 S. Ct. 831, 840 (2015), we think this is the
sort of subsidiary factfinding that is “subsumed within an
already tightly circumscribed legal analysis.” Merck Sharp &
Dohme, 139 S. Ct. at 1680. So we decline to extend our
Circuit’s rule in contract interpretation—that juries interpret
ambiguous terms, see Wayne Land & Mineral Grp. LLC v.
Delaware River Basin Comm’n, 894 F.3d 509, 528 (3d Cir.
2018)—to this context.




                              20
placement agent, A&S, not Tibet. And third, their tenures are
set to end automatically, with no opportunity to vote them out.
Without the ability to manage the company’s affairs, Zou and
Downs lack directors’ most basic power. As agents of Tibet’s
placement agent, their loyalties aren’t with Tibet’s
shareholders—and loyalty to shareholders is as vital to
directorship as the power to manage. And unlike Tibet’s
directors, their tenure is not subject to shareholder vote. Add to
that the registration statement’s express provision for directors’
fiduciary duties, with no similar provision for Zou and Downs.

        Consider a hypothetical investment analyst for a
research firm. Like Zou and Downs, he owes no duties to the
issuer and is affiliated with a different entity. He might also
enjoy special access to the issuer’s board and management. Cf.
Regulation FD, 17 C.F.R. § 243.100 (seeking to curtail special
access to non-public information). Or he might not. But either
way, access to managers and directors alone does not make a
person a quasi-director. Consider the analyst’s power to
influence the issuer’s board. It might be substantial, depending
on the analyst’s reputation and influence in the industry. Or it
might not. In either case, he has the same “power” Zou and
Downs do—the “possibility” of “significantly influenc[ing]
the outcome of matters submitted to the Board of Directors for
approval.” App. 178. The analyst’s influence—his power to
persuade—might even “impact [the issuer’s] shareholders’
ability to impact decisions related to [its] operations.” Id. Or it
might not. But no one would argue that our hypothetical
analyst is in any meaningful way “similar” to a board member.

       Our conclusion is also supported by Securities Act
§ 6(a) and the consent requirement of § 77k(a)(3). And it fits
both the scant caselaw interpreting § 77k(a)(3) and the only
case in which our Court has interpreted parallel language.



                                21
       First, Securities Act § 6(a), 15 U.S.C. § 77f(a), which
lists who must sign10 the registration statement, suggests
“similarity” requires a close identity with the core functions
we’ve described. The registration statement must be signed by
“the majority of [the] board of directors or persons performing
similar functions (or, if there is no board of directors or persons
performing similar functions, by the majority of the persons or
board having the power of management of the issuer) . . . .” 15
U.S.C. § 77f(a) (emphasis added). This suggests that having
“the power of management of the issuer” (a power the board
delegates to management) is not even enough to qualify as
“similar.” But management has far more formal power than
Zou and Downs.

       Second, § 77k(a)(3) imposes liability only on a person
named in the registration statement as a director or similar
“with his consent.” Consent can’t be inferred merely by the
appearance of one’s name in the registration statement. By
regulation, the registration statement must include express,
written consent, filed as an exhibit. See 17 C.F.R. § 230.438.
Exceptions are permitted only where there is affidavit-
supported impracticability or undue hardship for the registrant.
Id. This consent requirement suggests a level of formality
consistent with our interpretation of “performing similar
functions.” It would be odd for observers like Zou and Downs,
who have no formal powers, to execute a formal consent that
envisioned § 11 liability.

       And third, our conclusion tracks the only cases to
interpret the phrase “performing similar functions” in

       10
         And thus become liable for misstatements under
§ 77k(a)(1).




                                22
§ 77k(a)(3), as well as our Court’s lone interpretation of the
same phrase in a different context. The two district courts to
consider the phrase suggested it requires something like formal
powers. See Mersay v. First Republic Corp. of Am., 43 F.R.D.
465, 469 (S.D.N.Y. 1968) (member of “executive advisory
board” didn’t qualify, because “[m]ost probably, this phrase is
concerned with imposing liability upon the person who is
actually directing the affairs of the corporation, but who, for
the purpose of avoiding liability, shuns the formal title
‘director’”); Lockheed Aircraft Corp. v. Rathman, 106 F. Supp.
810, 812 (S.D. Cal. 1952) (“It is quite apparent that Congress
added the ‘or any person’ provision to apply to organizations
which did not have directors in name but did have persons who
performed functions similar to those ordinarily performed by
the directors of a corporation.”).

       And the only case in which our Court interpreted the
phrase (in a different context) is likewise consistent with the
conclusion that “performing similar functions” entails a
similarity of formal powers and duties. In First Liberty
Investment Group v. Nicholsberg, 145 F.3d 647 (3d Cir. 1998),
we applied the phrase in a National Association of Securities
Dealers arbitration provision that borrowed its language from
the Exchange Act. We held a purportedly independent
contractor “perform[ed] similar functions” to those of a
“branch manager” of a broker-dealer. Id. at 651–52. Among the
reasons why were that the broker-dealer: provided the
contractor “facilities . . . for execution of transactions”;
designated the contractor’s office “an entity allowed . . . to
offer and solicit the sales of securities”; “gave [the contractor]
geographic exclusivity . . . and agreed not to open competing
offices without [his] prior written consent”; required the
contractor to comply with its policies and seek prior approval




                               23
for securities solicitation; and forbade the contractor to transact
with other broker-dealers. Id. at 652.

        The contractor was thus closely affiliated with the
broker-dealer, and operated very much like a branch manager
would—with formal powers, rights, and duties to match. See
id. (“[T]he parties’ total relationship, including the limitations
placed by [the broker-dealer] both on [the contractor’s]
conduct of his business and on its own conduct of business,
amount to . . . placing [the contractor] in much the same
practical position that would be occupied by a branch manager
in charge of [the broker-dealer’s] only New York metropolitan
area office.”). Unlike that close fit, Zou and Downs’s role as
nonvoting board observers does not put them “in much the
same practical position,” id., as Tibet’s directors.

        Plaintiffs’ two main arguments to the contrary are
unpersuasive. First, they contend the registration statement
contains a “clear grant of limitless power to Appellants to
‘significantly’ influence the ‘outcomes’ of the highest-level
corporate decision-making . . . .” Obasi Br. 12. Far from it.
That Zou and Downs, as nonvoting observers, “may” influence
board decisions is not a grant of power at all. That’s so even if
their influence turns out to be “significant.” And it’s so
notwithstanding the observations of “an experienced investor”
about the real-world social dynamics of boardrooms. Obasi Br.
25–28. Simply put, the face of the registration statement
confers no actual power upon Zou or Downs.

        The Sixth Circuit made a similar point in Bennett v.
Durham, 683 F.3d 734 (6th Cir. 2012), a case interpreting
“performing similar functions” language in a state blue sky
statute. Id. at 736 (quoting Ky. Rev. Stat. § 292.480). The
plaintiffs there argued the company’s “officers and directors



                                24
‘relied completely’ on [the defendant’s] work and would have
‘structured their sales operation in any way [the defendant]
advised.’” Id. at 738 (quoting appellate brief). The court
rejected that argument as “suggest[ing] only that [the
company’s] actual partners, officers and directors relied
heavily on [the defendant], not that [he] was the one calling the
shots.” Id.

        Finally, Plaintiffs insist the Securities Act is a remedial
statute that we should construe broadly. That may be so, see
Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128,
151 (1972), but the argument misses the mark here. Cf. SEC v.
Zandford, 535 U.S. 813, 820 (2002) (“[T]he statute must not
be construed so broadly as to convert every common-law fraud
that happens to involve securities into a violation of
§ 10(b) . . . .”). Congress expressly circumscribed the class of
defendants subject to § 11 liability—and it did so for good
reason. Section 11 “was designed to assure compliance with
the disclosure provisions of the [Securities] Act by imposing a
stringent standard of liability on the parties who play a direct
role in a registered offering.” Herman & MacLean, 459 U.S. at
381–82 (footnote omitted); cf. Lehman Bros., 650 F.3d at 181
(discussing limited scope of § 11 underwriter status). Plaintiffs’
broad construction argument relies “on the flawed premise”
that the statute “‘pursues’ its remedial purpose ‘at all costs.’”
Encino Motorcars, LLC v. Navarro, 138 S. Ct. 1134, 1142
(2018) (quoting Am. Express Co. v. Italian Colors Rest., 570
U.S. 228, 234 (2013)). Such an approach “frustrates rather than
effectuates         legislative       intent”      because       it
“simplistically . . . assume[s] that whatever furthers the
statute’s primary objective must be the law.” Rodriguez v.
United States, 480 U.S. 522, 526 (1987) (per curiam).




                                25
        Plaintiffs also overstate the concern that a broad
construction is necessary to hold wrongdoers accountable.
Section 11 is but one part of an overlapping web of civil
liability provisions. Recall that Plaintiffs allege “Zou and
Downs orchestrated the fraudulent sale of $16.5 million of
worthless Tibet stock.” Obasi Br. 10. Exchange Act § 10(b), 15
U.S.C. § 78j, and Rule 10b-5, 17 C.F.R. § 240.10b-5, have
been interpreted to grant a broad private right of action for
fraud in the purchase or sale of securities. See Janus Capital
Grp., Inc. v. First Derivative Traders, 564 U.S. 135, 141–42
(2011). Or take Securities Act § 12(a)(2), 15 U.S.C.
§ 77l(a)(2), which provides a right of rescission for private
plaintiffs where a seller makes misleading statements or
omissions in a prospectus. See Gustafson v. Alloyd Co., 513
U.S. 561, 564, 567 (1995). Securities Act § 15, 15 U.S.C.
§ 77o, provides yet another remedy—one that Plaintiffs sought
and then abandoned. Then there’s Exchange Act § 18, 15
U.S.C. § 78r, which provides a right of action for damages
against “any person” who makes a false or misleading
statement in Exchange Act filings. And Exchange Act § 9, 15
U.S.C. § 78i, gives plaintiffs a private right of action for
manipulation of security prices in national exchanges. See
Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083, 1104
(1991). Add to all these provisions additional remedies under
state blue sky laws and common law. Apart from these private
remedies, the SEC also holds wrongdoers accountable through
the many enforcement mechanisms available only to it.

       For these reasons, “we will not presume with [Plaintiffs]
that any result consistent with their account of the statute’s
overarching goal must be the law but will presume more
modestly instead ‘that the legislature says what it means and
means what it says.’” Henson v. Santander Consumer USA




                              26
Inc., 137 S. Ct. 1718, 1725 (2017) (quoting Dodd v. United
States, 545 U.S. 353, 357 (2005)).

                      *      *      *

       Because Zou and Downs were not “named in the
registration statement as being or about to become [ ]
director[s] [or] person[s] performing similar functions,” we
will reverse the District Court’s denial of summary judgment
and direct the entry of judgment for Zou and Downs.




                            27
COWEN, dissenting

       The District Court certified the following question for
interlocutory appeal:

       Can Defendants be potentially liable under
       Section 11 of the Securities Act of 1933, each
       as a “person performing similar functions” to a
       director, in light of Defendants’ role as board
       observers who could (but did not necessarily
       have to) significantly influence the outcome of
       matters submitted to the board of directors for
       approval?

(2/21/18 Order at 2.) Because I agree with the District Court
that this question must be answered in the affirmative, I
respectfully dissent.

       I do not really take issue with the basic definitions of
“director” and “similar” offered by the majority, although I
do reject its application of these concepts. “[I]n a more
specialized sense related to business organizations,
[‘director’] could mean ‘[a] member of a board appointed to
direct or manage the affairs of a commercial corporation or
company.’ [Director, Oxford English Dictionary 392 (1st ed.
1933)]; see Directors, Black’s Law Dictionary 581 (3d ed.
1933) (defining ‘director’ as a ‘person[ ] appointed or elected
according to law, authorized to manage and direct the affairs
of a corporation or company’).” (Majority Opinion at 10.)
The District Court likewise “defines ‘director’ as [inter alia]
‘[a] person appointed or elected to sit on a board that manages
the affairs of a corporation or other organization by electing
and exercising control over its officers.’” Dartell v. Tibet
Pharms., Inc., Civil Action No. 14-3620, 2017 WL 1944106,




                              1
at *9 (D.N.J. May 10, 2017) (footnote omitted) (quoting
Director, Black’s Law Dictionary (10th ed. 2014)). In
general, the term “similar” is “most aptly defined as ‘[h]aving
a marked resemblance or likeness; of a like nature or kind’”
(id. at 14 (quoting Similar, Oxford English Dictionary 59 (1st
ed. 1933))). See, e.g., id. (“The Court will also apply the
ordinary meaning of ‘similar,’ which is defined as ‘having
characteristics in common.’ See Similar, [Merriam-Webster
Dictionary] (2016).”).

       Even if Section 11(a)(3) of the Securities Act thereby
requires more than some slight similarity, the majority fails to
recognize the expansive scope of this “similar” language.
Congress chose to use this word instead of the terms
“identical” or the “same”—or even “essentially identical” or
“essentially the same.” We should honor Congress’s choice
of such language, which the majority acknowledges could
encompass varying degrees of likeness. According to the
majority, “[t]he question is rather whether they possess at
least some of the core powers and responsibilities that define
corporate directorship under the law of corporations.” (Id. at
15 (footnote omitted).) However, the statutory language
plainly requires that the individual merely perform functions
“similar” to, i.e., “‘of a like nature or kind’” as (id. at 20
(quoting Similar, Oxford English Dictionary 59 (1st ed.
1933)), the functions of a director. The majority’s approach
actually resembles the formulation set forth by the British
Companies Act of 1929, which defines “director” as
including “any person occupying the position of director by
whatever name called.”          (JA818 (comparing statutory
language).) Although the Securities Act was modeled on the
British Companies Act, see, e.g., Gustafson v. Alloyd Co.,
513 U.S. 561, 599 (1995) (Ginsburg, J., dissenting), Congress




                               2
did not follow Parliament’s “director by whatever name
called” approach. It instead adopted what could only be
considered a more sweeping “similar” formulation.

        More broadly, the Court should not overlook the
purposes of the 1933 Securities Act as well as Section 11 in
particular. The “basic purpose” of this legislation was “to
provide greater protection to purchasers of registered
securities.” Herman & MacLean v. Huddleston, 459 U.S.
375, 383 (1983). Section 11 was then “designed to assure
compliance with the disclosure provisions of the Act by
imposing a stringent standard of liability on the parties who
play a direct role in a registered offering.” Id. at 381-82
(footnotes omitted). Admittedly, Section 11 actions (which,
as the District Court acknowledged, implicate virtually
absolute liability) can only be brought against certain
defendants (which do not include, for example, corporate
officers other than as specified). See, e.g., id. at 382 & n.13,
386 n.22. Nevertheless, Section 11 still encompasses a wide
range of defendants, including every person who signed the
registration statement; every person who was a director of (or
person performing similar functions) or partner in the issuer
at the time of filing; every accountant, engineer, appraiser, or
any person whose profession gives authority to a statement
made by him, who has with his consent been named as having
prepared or certified any part of the registration statement, or
as having prepared or certified any report or valuation used in
connection with the registration statement, with respect to the
statement in such document, which purports to have been
prepared or certified by him; and every underwriter with
respect to such security. The Supreme Court has “repeatedly
recognized that securities laws combating fraud should be
construed ‘not technically and restrictively, but flexibly to




                               3
effectuate [their] remedial purposes.’” Id. at 386-87 (quoting
SEC v. Capital Gains Research Bureau, 375 U.S. 180, 195
(1963)). We should thereby specifically consider whether the
defendant is named in the registration statement as being or
about to become a person performing similar functions to a
director with respect to the drafting, publication, or accuracy
of the registration statement itself. Furthermore, “Plaintiffs
point to two Exchange Act SEC interpretive releases they say
suggest a broader definition.” (Majority Opinion at 12 n.6
(citing Ownership Reports & Trading by Officers, Directors
& Principal Sec. Holders, Exchange Act Release No. 17991,
1991 WL 292000 (Feb. 21, 1991); Interpretive Release on
Rules Applicable to Insider Reporting & Trading, Exchange
Act Release No. 18114, 1981 WL 31301 (Sept. 24, 1981)).
“Those releases say a person’s title should not determine
‘whether an advisory, emeritus or honorary director is a
director for Section 16 purposes,’ Release No. 17991, 1991
WL 292000, at *4, and that the focus should instead be on
whether the person performs duties likely to make him privy
to inside information, see id.; Release No. 18114, 1981 WL
31301, at *5 & n.15.” (Id.) While these releases implicate
the Exchange Act and access to inside information, they
certainly are consistent with the expansive statutory language
and legislative purposes at issue in this appeal. In fact, the
majority looks elsewhere in its opinion to “the Exchange Act
definition of director” (id. at 10 (quoting 15 U.S.C. §
78c(a)(7)), and Defendants likewise rely on the SEC’s
interpretation.

       Accordingly, a person may be named as performing
similar functions to a director even if he or she does not
possess the directors’ “formal power to direct and manage a
corporation, and the responsibilities and duties that




                              4
accompany those powers” (id. at 11-12 (footnote omitted)).
On the contrary, he or she is a person named in the
registration statement as being or about to become a person
performing similar functions if, pursuant to this statement, he
or she possesses powers or abilities that are of a like nature or
kind as the power to direct or manage the affairs of the
corporation. As the District Court aptly explained, “a
defendant may be held liable if he had the ability to exercise
similar control and management as a director when the
registration statement at issue was filed or was named as
about to assume such a role in the registration statement, even
if the corporation at issue also had a board of directors or
persons about to be named directors.” Dartell, 2017 WL
1944106, at *9. Applying this approach to the Tibet
registration statement, I have no difficulty concluding that
Zou and Downs are proper Section 11(a)(3) defendants.1


       1
        I agree with the majority that, in considering a claim
under Section 11(a)(3), we must look to what is actually
stated in the registration statement (as opposed to the
defendant’s real-world actions). I, however, do not agree that
“whether one is a proper defendant under § 77k(a)(3) is a
question of law for the court, not a question of fact for the
jury.” (Majority Opinion at 15.) While judges often do
construe written instruments, there are some clear exceptions.
For example, if a contract is susceptible to multiple
reasonable interpretations, the contract is ambiguous, and the
jury is tasked with resolving that ambiguity. See, e.g.,
Baldwin v. Univ. of Pittsburgh Med. Ctr., 636 F.3d 69, 76 (3d
Cir. 2011); Ram Const. Co. v. Am. States Ins. Co., 749 F.2d
1049, 1052 (3d Cir. 1984). The whole concept of similarity
also appears to trigger the sort of open-ended factual




                               5
        “[T]he registration statement explained ‘they [Zou and
Downs] may nevertheless significantly influence the outcome
of matters submitted to the Board of Directors for approval.”
(Id. at 4 (quoting JA178).) Specifically, the “Management”
section of the statement (JA226) included a subsection
addressing the “Relationship with our Placement Agent”:



assessment that a jury would usually be expected to
undertake, i.e., deciding whether something is more or less
“similar’ to something else and whether this similarity is
enough to satisfy the statutory scheme. In this case, Zou “was
an early investor in Tibet and the sole director of [China
Tibetan], a wholly owned subsidiary of Tibet.” (Id. at 4.)
“Tibet’s ability to control Yunnan flowed through China
Tibetan.” (Id.) It was Zou who told the placement agent and
Downs about Tibet, and the two Defendants “then worked
together to bring Tibet public.” (Id.) Zou opened China
Tibetan’s HSBC Hong Kong bank account, and his name
remained on the account. Defendants insist that Zou’s name
was supposed to be removed, he did not make any
withdrawals or transfers into or out of the China Tibetan
account, Tibet’s CEO and its cashier had complete control
over the account, and Tibet had full control over the IPO
proceeds, which were deposited into another account held by
Tibet. However, more than $4 million was deposited into
China Tibetan’s account just two days after the proceeds were
transferred to Tibet’s HSBC Hong Kong account, and
approximately $3.5 million in cash was then withdrawn from
the China Tibetan account less than a month later. In any
event, I believe that Plaintiffs prevail even if the present
inquiry is characterized as a question of law for the courts to
decide.




                              6
      In connection with this offering, we have
agreed to allow our Placement Agent to
designate two non-voting observers to our
Board of Directors until the earlier of the date
that:

• The investors that purchase shares in this
  offering beneficially own less than 5% of
  our outstanding shares; or

• The trading price per share is at least $24
  per share for any consecutive 15 trading
  day period.

      It is anticipated that Mr. Downs, our
Placement Agent’s Senior Vice President, and
Mr. Hayden Zou will serve as the Placement
Agent’s observers to our Board of Directors.

       Although     our    placement    agent’s
observers will not be able to vote, they may
nevertheless influence the outcome of matters
submitted to the Board of Directors for
approval. We have agreed to reimburse the
observers for their expenses for attending our
Board meetings, subject to a maximum
reimbursement of $6,000 per meeting and
$12,000 annually, which amount is not more
than the reimbursement payable to our
directors. The observer will be required to
certify that such travel expenses are not
reimbursed by any other party. We will also
pay observers the same amount as our
independent directors receive.




                       7
(JA230.) A similar subsection was included as part of the
“RISK FACTORS” discussion (JA152):

      We will have an ongoing relationship with
      our Placement Agent that may impact our
      shareholders’ ability to impact decisions
      related to our operations.

            In connection with this offering, we have
      agreed to allow our Placement Agent to
      designate two non-voting observers to our
      Board of Directors until the earlier of the date
      that:

             (i) the investors that purchase
            shares in this offering beneficially
            own less than five percent (5%) of
            our outstanding shares; or

            (ii) the trading price per share is at
            least four (4) times the offering
            price for any consecutive 15
            trading day period.

             Although our Placement Agent’s
      observers will not be able to vote, they may
      nevertheless significantly influence the outcome
      of matters submitted to the Board of Directors
      for approval. We have agreed to reimburse the
      observers for their expenses for attending our
      Board meetings, subject to a maximum
      reimbursement of $6,000 per meeting and




                              8
       $12,000 annually, which amount is not more
       than the reimbursement payable to our
       directors. The observer will be required to
       certify that such travel expenses are not
       reimbursed by any other party. We will also
       pay observers the same amount as our
       independent directors receive. As of the date of
       this prospectus, Mr. L. McCarthy Downs III
       and Mr. Hayden Zou are serving as our
       Placement Agent’s observers to our Board of
       Directors.   See “Management – Board of
       Directors Observer.”

(JA178.)

        According to the majority, there are three features
differentiating Defendants from directors: (1) “First, and
most fundamentally, Zou and Downs cannot vote for board
action” while individual directors direct and manage company
affairs by means of formal voting (Majority Opinion at 20);
(2) they are aligned with the placement agent as opposed to
Tibet and its shareholders; and (3) their tenures are set to end
automatically without any opportunity for the shareholders to
vote them out. There are some obvious differences between
observers as described by the registration statement and
directors (after all, even the registration statement
acknowledged Defendants’ inability to vote), and I agree with
the District Court that “simply being named a board observer
did not open Downs or Zou up to Section 11 liability because
the title does not indicate that such a position necessarily
performs similar functions to a director,” Dartell, 2017 WL
1944106, at *10. However, the registration statement went
beyond merely identifying two non-voting board observers.




                               9
It also indicated that: (1) most importantly, Defendants may
nevertheless significantly influence the outcome of matters
submitted to the Board of Directors for approval; (2)
Defendants are aligned with the placement agent in exercising
this significant influence over Board action—serving as the
placement agent’s own “eyes and ears at Board meetings” as
Defendants put it (Appellants’ Reply Brief at 12 (footnote
omitted))—and could not be voted out by the shareholders;
(3) in order to observe and exercise their significant
influence, Defendants implicitly have the right to inside
information, to attend meetings of the Board of Directors, and
to speak or otherwise share their opinions; and (4) Defendants
are entitled to the same pay as “our independent directors
receive” (JA178, JA230) and (like the members of the Board
of Directors) are also eligible for reimbursement for attending
Board meetings (although their reimbursement is capped).

        Given the plain language of the registration statement,
Defendants are clearly named as possessing powers or
abilities that are of a like nature or kind as the directors’
power to direct or manage the affairs of the corporation:

              The prospectus does not define any of
       the words used to describe the Board
       Observers’ role. As a result, the Court turns to
       dictionary definitions. First, the statement
       indicates that Board Observers would have the
       ability to influence the Tibet Board.
       “Influence” is defined as “the power or capacity
       of causing an effect in indirect or intangible
       ways.”          Influence,    [Merriam-Webster
       Dictionary] (2016).      Next, the description
       provides that this influence would be




                              10
       significant.     “Significant” means “of a
       noticeably or measurably large amount.”
       Significant, [Merriam-Webster Dictionary]
       (2016).      Thus, the language “significantly
       influence” indicates that the two Board
       Observers could play a critical role in board
       decisions.

Id. at *10. In fact, the registration statement “does not place a
limit on whom or what they may influence,” id., and
Defendants’ thereby may “significantly” influence the
outcome of all matters submitted to the Board—which,
according to the statement, “makes all relevant [Tibet]
decisions” (JA229).        In turn, “our Placement Agent’s
observers” were appointed “[i]n connection with this
offering” (JA178, JA230), indicating that Defendants’
capacity for significant influence is linked to the public
offering itself. See, e.g., Herman & MacLean, 459 U.S. at
381-82 (observing that Section 11 was “designed to assure
compliance with the disclosure provisions of the Act by
imposing a stringent standard of liability on the parties who
play a direct role in a registered offering” (footnotes
omitted)). Furthermore, similar compensation points to
similarity in functions. After all, compensation (at least
theoretically) reflects the sort of work the individual has
performed.

       According to the majority, “[t]hat Zou and Downs, as
nonvoting observers, ‘may’ influence board decisions is not a
grant of power at all.” (Majority Opinion at 24.) It compares
Defendants to a hypothetical investment analyst for a research
firm, who might (or might not) have special access to the
issuer’s board of directors and management, power to




                               11
influence the board based on the analyst’s reputation and
influence in the industry, and whose “influence—his power to
persuade—might even ‘impact [the issuer’s] shareholders’
ability to impact decisions related to [its] operations’” (id. at
21 (quoting JA178)). However, we do not—and should not—
decide whether this imaginary analyst is named as being or
about to become a director or a person performing similar
functions. In any event, there is no indication that the analyst
resembles “our Placement Agent observers” (JA230) and is
entitled to similar compensation as the directors. The
majority continues to insist that Section 11(a)(3) “includes
only persons who, on the face of the registration statement,
exercise formal power similar to directors” (Majority Opinion
at 14 n.6)—even though someone need not have any “formal
powers” to perform similar functions under Section 11(a)(3).
In fact, influence is itself a form of power, defined as “the
power or capacity of causing an effect in indirect or
intangible ways.” Influence, Merriam-Webster Dictionary
(2016) (emphasis added). Under the plain language of the
registration statement, such “significant” power over the
outcome of matters submitted to the Board of Directors for
approval is of a like nature or kind to the formal powers that
directors possess to direct and manage the company’s affairs.
In fact, Defendants may have more real power than the
nominal members of the Board of Directors. The majority
recognizes that directors act as a board and that it is the board
of directors that manages the corporation’s affairs. In short,
an individual director or group of directors may vote and lose
on matters submitted to the Board for approval and thereby
fail to influence the outcome of such matters while
Defendants “may nevertheless significantly influence the
outcome of [the] matter[ ]” (JA178). In such circumstances,




                               12
the statutory language and purpose plainly mandate holding
such individuals liable under Section 11(a)(3).2

      For the foregoing reasons, I would affirm the District
Court’s denial of summary judgment.3

       2
         I also am not persuaded by the other arguments raised
by the majority opinion, including the case law it cites. In
First Liberty Investment Group v. Nicholsberg, 145 F.3d 647
(3d Cir. 1998), this Court did not consider whether a
defendant was named as being or about to become a person
performing similar functions as a director. Instead, it
“applied a phrase in a National Association of Securities
Dealers arbitration provision” (Majority Opinion at 23) and,
in any event, “held a purportedly independent contractor
‘perform[ed] similar functions’ to those of a ‘branch
manager’ of a broker-dealer” (id. (quoting First Liberty, 145
F.3d at 651-52)). Applying a state blue sky statute, the Sixth
Circuit explained that “Clayton offered no facts on summary
judgment from which we could infer that Durham did
anything beyond what would be expected of a securities
attorney providing run-of-the-mine legal services.” Bennett
v. Durham, 683 F.3d 734, 738 (6th Cir. 2012) (“Clayton’s
brief on appeal seeks to add more, but the effort is too little
and too late.”). The district court decisions, in turn, read the
statutory language too narrowly, taking it to mean persons
performing the same functions as directors while shunning
the directorial title. See, e.g., Mersay v. First Republic Corp.
of Am., 43 F.R.D. 465, 469 (S.D.N.Y. 1968); Lockheed
Aircraft Corp. v. Rathman, 106 F. Supp. 810, 812 (S.D. Cal.
1952). Finally, I note that Defendants have failed to argue
that they never consented to be named in the registration
statement.




                              13
       3
          Defendants also assert that Section 11(a)(3), at least
as interpreted by the District Court and Plaintiffs, would be
unconstitutionally vague as applied to them. Given my
analysis of this statutory provision, I do not agree that it
“‘fails to give a person of ordinary intelligence fair notice that
his contemplated conduct is forbidden by the statute.’”
Papachristous v. City of Jacksonville, 405 U.S. 156, 162
(1972) (quoting United States v. Hariss, 347 U.S. 612, 617
(1954)).




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