          United States Court of Appeals
                      For the First Circuit

No. 14-1276

                IN RE: ACCESS CARDIOSYSTEMS, INC.

                              Debtor


                         RANDALL FINCKE,

                            Appellant,

                                v.

    ACCESS CARDIOSYSTEMS, INC.; JOHN J. MORIARTY; RICHARD F.
  CONNOLLY, JR.; JOSEPH R. ZIMMEL; NORTH AMERICAN ENTERPRISES,
               INC.; JOHN MORIARTY AND ASSOCIATES,

                            Appellees.


          APPEAL FROM THE UNITED STATES DISTRICT COURT
                FOR THE DISTRICT OF MASSACHUSETTS

         [Hon. Nathaniel M. Gorton, U.S. District Judge]


                              Before

                       Lynch, Chief Judge,
               Howard and Barron, Circuit Judges.


     John J.E. Markham, II, with whom Markham & Read was on brief,
for appellant.
     Barry C. Klickstein, with whom Sara A. Colb and Day Pitney LLP
were on brief, for appellees.



                         January 13, 2015
            LYNCH,     Chief    Judge.       This   appeal    concerns     the

construction and application of a section of the Massachusetts

Uniform Securities Act, Mass. Gen. Laws ch. 110A, § 410(a)(2), both

as to the materiality of a misrepresentation and as to when an

offer or sale has been made "by means of" such a misrepresentation.

There is surprisingly little case law interpreting the statute's

phrase "by means of."      We are mindful that this provision is to be

"construed as to . . . make uniform" state securities laws and "to

coordinate the interpretation and administration of this chapter

with the related federal regulation."           Id. § 415.

            Access Cardiosystems, Inc. ("Access") was a small start-

up   company,   a    purveyor   of   portable   automated    external    heart

defibrillators ("AED"). Despite investments from four investors of

over $20 million from 2001 to 2005, the company struggled and

eventually filed for Chapter 11 bankruptcy protection in 2005. The

founder, director, and officer of Access was Randall Fincke.

            Four investors, in a third amended complaint filed on

April 5, 2007, alleged that Fincke had violated Mass. Gen. Laws ch.

110A,   §    410(a)(2),        and   had    committed   fraud,    negligent

misrepresentations, and numerous breaches of fiduciary duty.              The

bankruptcy court heard many witnesses over the course of successive

trials on liability and then on damages.             The bankruptcy court

found as a matter of fact that (i) Fincke had made a false

statement of material fact to investors in violation of the


                                      -2-
Massachusetts blue sky law, Mass Gen. Laws ch. 110A, § 410(a)(2),

and (ii) that one such investor, Joseph Zimmel, was entitled to

damages, totaling $1.5 million, for his investments that Fincke

solicited     "by   means     of"   that    material   misstatement.          Access

Cardiosystems, Inc. v. Fincke (In re Access Cardiosystems, Inc.),

404 B.R. 593, 698-99 (Bankr. D. Mass. 2009) (hereinafter Access II)

(liability); Access Cardiosystems, Inc. v. Fincke (In re Access

Cardiosystems, Inc.), 460 B.R. 67, 83 (Bankr. D. Mass. 2011)

(hereinafter Access IV) (damages).1              These findings were affirmed

on   appeal    to    the    district       court.      See      Fincke   v.   Access

Cardiosystems, Inc. (In re Access Cardiosystems, Inc.), 488 B.R. 1,

7-10 (D. Mass. 2012).

            Fincke has appealed those two findings to us. We affirm.

The extensive background and facts of the case are stated in both

the bankruptcy and the district court opinions.                   No purpose would

be served by repetition here.

                                           I.

            The     leading    Massachusetts        case   on    Mass.   Gen.   Laws

ch. 110A, § 410(a)(2) is Marram v. Kobrick Offshore Fund, Ltd., 809

N.E.2d 1017 (Mass. 2004).              Like its federal counterpart, the

Securities Act of 1933, 15 U.S.C. §§ 77a et seq., the state statute


     1
        This "interminable case" has numerous chapters, not all
relevant here; we follow the district court's numbering of these
bankruptcy decisions. See Fincke v. Access Cardiosystems, Inc. (In
re Access Cardiosystems, Inc.), 488 B.R. 1, 3, 5-6 (D. Mass. 2012)
(listing case history).

                                           -3-
"creates    criminal    and    civil   liability      for    securities-related

infractions."    Marram, 809 N.E.2d at 1025.            In turn, § 410(a)(2)

specifically creates civil liability for sales of securities "by

means of fraud or misrepresentation."            Id. (citation and internal

quotation    marks     omitted).       Both    oral    and    written   material

misrepresentations are actionable.            Id. at 1026.     The state law is

very consumer-oriented, and does not require the plaintiff to show

that the defendant knew that the statement or omission was false or

misleading.     Id.    Instead, the defendant is held to an "inverse

negligence standard":

            While not imposing strict liability on the
            seller for untrue statements or omissions,
            [the state law] holds the seller to the heavy
            burden of proof "that he did not know, and in
            the exercise of reasonable care could not have
            known, of the untruth or omission."

Id. (quoting Mass. Gen. Laws ch. 110A, § 410(a)(2)) (citing 12A

J.C. Long, Blue Sky Law § 9:23 (2003)) (describing a statutory

defense).     The law limits relief to returning the buyer to the

status quo through recission, or if recission is unavailable, to

equivalent damages.           Marram, 809 N.E.2d at 1025 n.16, 1028.

Contract damages are not available, nor are punitive damages.               Id.

at 1028.

            The bankruptcy court thoroughly examined the context in

which the misrepresentation was made.                 It found that Fincke's

faltering    start-up    company,      Access,    needed     substantial   cash

infusions in 2002 to pay vendor accounts and buy necessary raw

                                       -4-
materials. Accordingly, Fincke and others prepared a business plan

in October 2002 ("October 2002 Business Plan") to solicit further

investments and additional investors.      They sent the October 2002

Business Plan to each of the three extant investors, as well as to

Joseph Zimmel, a new, potential investor.     The Plan contained this

statement:

             Access has been advised by its patent counsel
             that its product does not infringe any patents
             known to him.

The bankruptcy court found that this was a misrepresentation:

patent counsel never offered any opinion, formal or informal, on

this matter, and Fincke knew or should have known of the falsity of

the statement.    Access II, 404 B.R. at 614-15, 666; Access IV, 460

B.R. at 70-71, 75-76.

             Fincke's first argument on appeal is that the bankruptcy

court erred in so finding falsity.      He argues that the court erred

by "converting" the statement "from a statement that Fincke had

been advised that there were no patent infringements, to the

assertion, never made, that Fincke had received a formal legal

opinion."     He also argues that the bankruptcy court failed to

appreciate the context of the statement, which he claims went to

great lengths to warn investors that the advice could not be relied

upon.2


     2
       The paragraph containing this statement appears in Section
Eleven, "Risk Factors," of the October 2002 Business Plan. That
paragraph reads in full (emphasis added):

                                  -5-
           Both arguments fail. The bankruptcy court's finding that

patent counsel never offered any opinion, formal or informal, is

fully supported by the record. At most, Fincke had "discussed" the

claims from the Philips letter with patent counsel, and "related

[Fincke's] personal conclusion that the [device] did not infringe."

Access II, 404 B.R. at 666.       We agree with the bankruptcy court's

conclusion that this is a "far cry from receiving 'advice.'"              Id.

And Fincke's attempt to distinguish between "advice" and "formal

opinion"   is   particularly     frivolous   given   that    the   sentence

immediately following the Plan's misstatement expressly refers to

"that opinion."

           The bankruptcy court also correctly concluded that the

warnings   could   not   "cure   the   obvious   falsity    of   this   clear

representation of fact."         Access II, 404 B.R. at 666.            Those



     Many U.S. and foreign patents have been issued to
     Access's competitors with respect to AED's and their
     constituent components. Access has been advised by its
     patent counsel that its product does not infringe any
     patents known to him. However, there can be no assurance
     that that opinion is correct in all respects.

The Business Plan also made plain that others disagreed that the
AED did not infringe any known patents by disclosing that Access
had already been sued for patent infringement (emphasis added):

     Access is a defendant in a patent infringement claim
     brought by Cardiac Sciences, Inc. Access believes that
     it has a complete defense to the infringement claim.
     However, there can be no assurance that the Court hearing
     the matter will agree with Access.          The cost of
     litigation may have a material adverse impact on Access,
     even if Access prevails.

                                    -6-
warnings, that "there can be no assurance that [the] opinion is

correct in all respects" or that others disagreed as evidenced by

pending litigation, merely suggest that the supposed advice was not

dispositive.     But Massachusetts law does not permit a seller to

defeat his statutory obligation of truthfulness by suggesting that

a nonexistent opinion should not be relied upon, or by hedging his

misrepresentation.    Cf. Marram, 809 N.E.2d at 1028 ("[T]o permit

the seller of securities to discharge, or to defeat, his statutory

obligation of truthfulness to the buyer merely by attaching an

integration clause to a subscription agreement would enfeeble the

statute.").

                                 II.

          Fincke's next argument on appeal appears to be that it

was somehow inconsistent for the court to find this particular

misstatement was material to investors.          Fincke argues that the

bankruptcy court found the numerous other statements he made were

not misrepresentations and that the court disbelieved many of the

investors' assertions of reliance at the damages trial.

          There is no inconsistency.     The standard for materiality

is "objective," only requiring a "substantial likelihood" that the

(hypothetical)     reasonable   investor    would       find     that    the

misrepresentation    "significantly    altered    the   'total    mix'   of

information made available."      See Marram, 809 N.E.2d at 1030

(quoting Craftmatic Sec. Litig. v. Kraftsow, 890 F.2d 628, 641 (3d


                                 -7-
Cir. 1989)).         It does not require that the particular investor in

question actually so relied.            Id. at 1026-27 ("[B]ecause . . .

§ 410(a)(2) . . . holds the seller liable for inaccurate disclosure

or   nondisclosure      of   material    information,   foremost       among   the

elements that the buyer does not have to prove is reliance."

(citation and internal quotation marks omitted)).

               As the bankruptcy court found, affirmatively representing

that patent counsel "has reviewed and preliminarily passed muster

on the patent soundness of the intellectual property" significantly

alters the total mix of information about the proposed investment's

risk.       Access II, 404 B.R. at 666; see Access IV, 460 B.R. at 76.

Fincke's argument as to materiality falls far short of meeting the

clear       error   standard;   the   bankruptcy   court   made   no    mistake.

Palmacci v. Umpierrez, 121 F.3d 781, 785 (1st Cir. 1997) (noting

that finding clear error requires a "definite and firm conviction

that a mistake has been committed" (citation and internal quotation

marks omitted)).

                                        III.

               Finally, Fincke challenges the court's finding as to

damages.3      Here, the bankruptcy court held that only one investor,


        3
          The bankruptcy court ruled that rescission was no longer
available as a remedy because the investors no longer owned the
securities under the confirmed Chapter 11 plan, but found they were
entitled to damages calculated as the amount that would be
recoverable upon a tender. Access Cardiosystems, Inc. v. Fincke
(In re Access Cardiosystems, Inc.), 438 B.R. 16, 23 (Bankr. D.
Mass. 2010) (hereinafter Access III). Fincke does not contest
                                        -8-
Zimmel, was entitled to damages for investments solicited "by means

of" the material misstatement, and, even then, as to only some of

his investments. See Access IV, 460 B.R. at 82-83. The bankruptcy

court   found   that   Zimmel   and    the   other    investors'   remaining

investments, though made after the material misstatement, had not

been solicited by means of that misstatement.             Id.   All parties

appealed   to   the    district   court,      which    affirmed.      Access

Cardiosystems, 488 B.R. at 9-10.

           Only Fincke presses his appeal.           He claims that he does

not dispute the court's finding that the language of § 410(a)(2)

limits liability to instances where securities were sold "'by means

of' [a] material misstatement," or that reliance need not be shown.

Rather, he argues that the court's reasoning is insufficient to

meet the "by means of" requirement because it is based solely on

the timing of the investor's receipt of the misrepresentation and

the dates of the actual investments made, and not, he says, on the

role the misstatement actually played in Zimmel's decision to

invest.    But the alternative standard he appears to suggest for

determining the role played, and so for determining if the "by

means of" requirement has been met, comes too dangerously close to

a reliance or loss-causation requirement.




this. Cf. Mass. Gen. Laws ch. 110A, § 410(a)(2) (providing for
damages).

                                      -9-
           There     is   little   discussion   of   the   "by   means   of"

requirement under § 410(a)(2) in the case law, including in

Massachusetts, in part because the issue rarely arises.            See 12A

J.C. Long, Blue Sky Law §§ 9:117.44-45 (2014) (explaining "[i]t

should be obvious that virtually all" § 410(a)(2) cases satisfy the

requirement "if the misrepresentations are made before the sale").

We turn for guidance to the related federal legislation, and in

particular to "Federal decisions under § 12(2), as well as to the

plain language of the statute." Marram, 809 N.E.2d at 1025 (noting

that Mass. Gen. Laws § 410(a)(2) "is almost identical with § 12(2)

of the Securities Act of 1933, 15 U.S.C. § 77l[(a)](2)" (citations

and internal quotation marks omitted)).4


     4
         The relevant provision reads:

     (a)   In general[.]     Any person who . . .

           (2)     offers or sells a security (whether or not
                   exempted by the provisions of section 77c of
                   this title, other than paragraphs (2) and (14)
                   of subsection (a) of said section), by the use
                   of any means or instruments of transportation
                   or communication in interstate commerce or of
                   the mails, by means of a prospectus or oral
                   communication, which includes an untrue
                   statement of a material fact or omits to state
                   a material fact necessary in order to make the
                   statements, in the light of the circumstances
                   under which they were made, not misleading
                   (the purchaser not knowing of such untruth or
                   omission), and who shall not sustain the
                   burden of proof that he did not know, and in
                   the exercise of reasonable care could not have
                   known, of such untruth or omission,

           shall be liable, subject to subsection (b) of this

                                    -10-
               Several federal courts have held that the "by means of"

language in § 12(2) of the federal statute requires "some causal

connection between the misleading representation or omission and

[the] plaintiff's purchase."            Sanders v. John Nuveen & Co., 619

F.2d 1222, 1225 (7th Cir. 1980); see also Jackson v. Oppenheim, 533

F.2d 826, 830 & n.8 (2d Cir. 1976).               Although the characterization

of this connection as "causal" raises clarity problems, the cases

themselves      are    instructive.         Cf.   Sanders,   619    F.2d    at    1225

(explaining that it is "well settled" that "by means of" does not

create a reliance requirement). Sanders found that the requirement

was satisfied by the use of a misleading prospectus to sell

"securities of which those purchased by the plaintiff were a part,"

even though the plaintiff never received the report.                 Id. at 1225-

27.     Conversely, Jackson held that the requirement was not met

where    the     allegedly      misleading    omissions      occurred      during    a

conversation      at    which    it   was    "undisputed     that   no     sale     was


               section, to the person purchasing such security
               from him, who may sue either at law or in equity in
               any court of competent jurisdiction, to recover the
               consideration paid for such security with interest
               thereon, less the amount of any income received
               thereon, upon the tender of such security, or for
               damages if he no longer owns the security.

15 U.S.C. § 77l(a)(2). There is an important difference between
the two causes of action, however: the federal cause of action does
require loss causation, as expressly provided for in a separate
provision not relevant here. Compare 15 U.S.C. § 77l(b) (providing
lack of loss causation as an affirmative defense), with Mass. Gen.
Laws ch. 110A, § 410(a)(2) (providing no such limitation on or
defense to liability).

                                       -11-
contemplated or discussed," such that "the evidence [was] clear

that       the   challenged       communication          was   neither   intended      nor

perceived as instrumental in effecting the sale."                            Jackson, 533

F.2d at 829-30 (emphasis added).

                 We find this "use" approach persuasive.                     Given that a

central      purpose       of   the    statute      is   to    provide   a    "heightened

deterrent"        against       the    use   of   misrepresentations          in   selling

securities, Marram, 809 N.E.2d at 1025 (citation and internal

quotation marks omitted), we find that the requisite connection is

established         when    the       communication       containing     the       material

misrepresentation was used to effect the sale -- and not whether it

was actually successful in securing the sale that, in any event,

transpired.         See Jackson, 533 F.2d at 830 n.8.5                        This is an


       5
         The Second Circuit's language exhibits the same tension
identified above.     First, the court states that while "the
statement that 'reliance' need not be proven by plaintiffs in 12(2)
actions has been broadly read by several courts[,] [t]heir purport
is that a plaintiff need not prove that the challenged
communication had a 'decisive effect' in his decision to buy the
stock." Jackson, 533 F.2d at 830 n.8 (collecting cases) (citations
omitted). That is, the court explains, "[w]here liability is not
based on an offer containing a misleading communication, but is
based on a sale, Section 12(2) requires there to be some causal
relationship between the challenged communication and the sale,
even if not 'decisive.'" Id. (emphasis added) (citations omitted).
Then, second, the court summarizes its reasoning: "In short, the
communication must have been intended or perceived as instrumental
in effecting the sale." Id. (emphasis added).
     These are two distinct standards. "Intending" there to be
some causal relationship does not entail that there will actually
"be" some causal relationship. We adopt the "intended or perceived
as instrumental" standard, to the extent that what the Second
Circuit meant by this is that "the communication must have been
used."    (Despite talk of intentionality, we adopt an objective

                                             -12-
objective standard, readily met.         This gives content to the phrase

"by means of" that is consistent with the plain language of the

statute, and follows the federal decisions to which we are directed

by Marram.

                 Accordingly, the bankruptcy court committed no error in

looking to objective evidence of whether Fincke had used the

October 2002 Business Plan to solicit particular investments.

Access IV, 460 B.R. at 82.           Contrary to what Fincke argues, the

court did not merely rely on the timing of the investments relative

to the plan, but looked to objective evidence of whether Fincke had

used       the   October   2002   Business   Plan   to   solicit   particular

investments.6          See id.    This is an objective test.       The court

found that Fincke provided Zimmel with the October 2002 Business

Plan when Fincke met with Zimmel in October to discuss Zimmel's

becoming a new investor in Access.            Access II, 404 B.R. at 615.

Zimmel had not purchased Access shares earlier and was not part of

the original investor group. Id. Zimmel then purchased $1 million

in Access shares later that month on October 30 and another



standard that determines use without reference to the seller's
actual state of mind.)
       6
        We need not decide whether a mere timing connection is
sufficient.   It would, however, be consistent with the Supreme
Court's construction of a related provision in the federal law,
Section 10(b) of the Securities Exchange Act, 15 U.S.C. § 78j.
See SEC v. Zandford, 535 U.S. 813, 820-25 (2002) (defining "in
connection with" in terms of the misrepresentation and investment
"coincid[ing]").

                                      -13-
$500,000 in shares in November. Id.; Access IV, 460 B.R. at 82-83.

These facts, the court correctly concluded, were sufficient to show

that Fincke had solicited Zimmel's October and November investments

"by means of" the October 2002 Business Plan.           Access IV, 460 B.R.

at 83 ("[B]ecause Zimmel need not demonstrate actual reliance on

the misstatement, the use of the Business Plan to solicit that sale

of stock allows Zimmel to recover damages under § 410(a)(2) for

that particular transaction." (emphasis added)).

              That the bankruptcy court discounted Zimmel's testimony

that he had read the plan and relied on it as to his investments,

id. at 78-79, 82, does not undermine the conclusion that Fincke

used the plan to secure the investments.          Reliance may be an easy

or obvious way to demonstrate that a sale was "by means of" the

relied upon misrepresentation, but it is not necessary.                    In

context, the seller's actions alone may also show that a subsequent

sale was "by means of" the misrepresentation.                Cf. Marram, 809

N.E.2d   at    1025   ("Section   410(a)(2)     provide[s]     a    heightened

deterrent against sellers who make misrepresentations by rendering

tainted transactions voidable at the option of the defrauded

purchaser, regardless of the actual cause of the investor's loss."

(citations and internal quotation marks omitted) (alteration in

original)).

              Our   interpretation   is     supported   by    the    statutory

limitation on defenses.       Mass. Gen. Laws ch. 110A, § 410(a)(2),


                                     -14-
provides only "two affirmative defenses in addition to a direct

attack on one of the prima facie elements of a § 410(a)(2) claim":

(i) that the plaintiff "actually knows that a representation is

false or knows that existing information has been withheld," and

(ii) that the defendant "did not know, and in the exercise of

reasonable care could not have known, of the untruth or omission."

Id. at 1027-28 (citations and internal quotation marks omitted).

The second keeps the emphasis squarely on the seller's actions; the

first    prevents     buyers   from    intentionally    exploiting

misrepresentations to insure their investments.

          Affirmed.




                               -15-
