insist that because Gilford had no firm agreement to handle that offering, that statement was false or misleading.
As with so many of the issues in this case, the dispute comes down to a question of defendants' scienter. And, as with so many of the other issues, plaintiffs have failed to show any evidence of such scienter. Conversations between executives of Gridcomm and Gilford as to long-term financing began as early as April, and efforts to secure such financing continued through July. Wolfson himself testified to having the opinion that Holmes believed financing would be found (Wolfson Dep. 29-30).
3. Miscellaneous Omissions
A. Gridcomm's Financial Condition
Most of the claimed omissions relating to Gridcomm's financial condition are simply restatements of the matters already discussed. First, the asserted failure to disclose Gridcomm's inability to obtain alternate financing reasserts in the form of an omission the claimed misstatement just dealt with in Section 2(B) of this opinion. Like its counterpart, the claim fails for lack of evidence of scienter. Second, the asserted failure to disclose existing bank financing encumbering Gridcomm's accounts receivable simply restates the contention dealt with in Section 2(A), and it similarly fails for lack of evidence of the omission itself. Third, the claimed failure to disclose the extent of purchase orders and Gridcomm's inability to meet the terms of the purchase orders restates the claim in Section 1(C), and it too fails for lack of evidence of scienter.
Plaintiffs' fourth argument as to Gridcomm's finances, although new, is also without merit. Descriptions of "business prospects" are the very kind of tentative predictions that Panter, 646 F.2d at 292-93 has held immaterial as a matter of law. In addition, plaintiffs have failed to explain (or even assert) what information contained in Gridcomm's financial statements would have been material to plaintiffs' investment decision. Although financial statements theoretically contain much information pertinent to the health of a company, plaintiffs are obligated to point out to the court some contents that would make one of defendants' other statements misleading. They have not.
B. Gilford's Financial Interest
Plaintiffs' contention that Holmes failed to disclose Gilford's financial interest in having the financing fully subscribed borders on the frivolous. It is uncontroverted that Holmes told defendants he was so sure of Gridcomm's ability to succeed that Gilford's pension fund plan was itself planning to invest in Gridcomm (Wolfson Dep. 70). What more he could have said this Court does not know.
C. Gridcomm's Product
To this point plaintiffs' case has not passed muster on any claim. But their last contention -- that defendants failed to disclose problems with Gridcomm's product -- raises genuine issues of material fact for trial. Because plaintiffs' motion for summary judgment fails on all claims and defendants' motion fails on this one, the matter will be set for trial.
Defendants do not claim to have disclosed problems with Gridcomm's product, so it may be assumed no such disclosure was made. Defendants have also not argued (nor could they) that any such information would be immaterial as a matter of law, and because an omission is at issue, reliance may be presumed under Affiliated Ute. Nor is there any question that difficulties encountered in the development and production of Gridcomm's product "caused" plaintiffs' loss in the sense contemplated by Section 10(b).
Instead defendants have tried to justify the omission on the ground that the performance problems and development delays did not occur until after plaintiffs had signed the June 9 Letter and had thus become bound to invest in Gridcomm, so that defendants could not have had the requisite scienter to be liable under Section 10(b). But the evidence does not compel that conclusion.
Genuine issues of material fact remain as to defendants' knowledge of the risks posed by the repeated failures of the custom chip. From the perspective most favorable to plaintiffs' case, the relevant testimony is the statement by Worthington that Alpern informed him as early as January 23 that Gridcomm would receive delivery of the first custom chips on February 20, some three weeks later than originally scheduled. Thus Worthington was apparently aware early on of both the product's reliance on the chip and at least the initial delay in the chip's development.
It is unclear precisely when Gilford was first informed of the failure of the first chip. Plaintiffs offer the testimony and handwritten notes of Benjamin Kopin, a securities analyst at Gilford, which show that Kopin met with Alpern on June 10 to discuss Gridcomm and that they discussed the status of the chip. Kopin testified that he asked about the chip because it was his understanding that the chip was "important" (Kopin Dep. 144) and that it "didn't work" (Kopin Dep. 136). Alpern reassured him that a new chip was due from the designer on June 20.
That same evidence also reflects that Worthington and another Gilford representative met with Alpern again on June 20 to discuss Gridcomm. Kopin's notes show that Worthington was told the Gridcomm chip "should be o.k. this time" (P.Ex. 8 at 00066).
To be sure, the evidence does not reveal whether either of those meetings was held before the early June meeting or the signing of the June 9 Letter by plaintiffs. Nor does the evidence disclose when Gilford officials first became aware of the chip problems, or whether any of the participants in those meetings ever informed Holmes of the problems with the chip. Nevertheless plaintiffs need not prove their case to withstand summary judgment. At a minimum, the matters already discussed show the possibility that Gridcomm officials knew of the importance of the chip and of the problems Gridcomm was experiencing in developing it. While the securities laws do not require defendants to have predicted in June that the problems associated with the chip would cause customers to return or refuse delivery of Gridcomm products, it does require defendants not to have acted recklessly with respect to known risks.
Here it may reasonably be inferred that defendants knew the success of the product was related to the successful development of a computer chip but failed to disclose that fact to plaintiffs. Defendants' offer to make available to plaintiffs any information they desired as to Gridcomm's prospects could not substitute for such disclosure, because without a preliminary disclosure of the risks posed by the chip (or for that matter the chip's existence) plaintiffs would not have even known what inquiries to make. Further facts are necessary to resolve this factual issue.
For defendants to prevail on summary judgment, they must show that none of plaintiffs' contended-for misrepresentations or omissions could support a Section 10(b) claim. Defendants have met that requirement as to all but one of plaintiffs' contentions -- that is, in all respects save that referred to in the next paragraph, there are no genuine issues of material fact and defendants are entitled to prevail as a matter of law.
But this Court does find that plaintiffs' claim based on asserted omissions as to the status of Gridcomm's product does raise genuine issues of material fact sufficient to withstand defendants' summary judgment attack. That issue must go to trial, and this action is set for a status hearing at 9 a.m. November 22, 1989 to discuss the necessary preconditions to that end.
Date: November 8, 1989