On May 15, 2019 the Ninth Circuit Court of Appeals affirmed a Bankruptcy Appellate Panel decision affirming a Judgment obtained by Spillane Law Group for California Farms Investors, LLC for securities fraud.
Jay Spillane tried the underlying action, California Farms Investors, LLC v. James Roberts, in the United States Bankruptcy Court for the Central District of California. The defendant promoted an organic lettuce venture through false and misleading statements and without disclosing that the venture was not growing its own lettuce. California Farms Investors invested $825,000 in the form of secured notes. The venture purchased lettuce from vendors with rights under the Perishable Agricultural Commodities Act (“PACA”), including the right to hold insiders of entities purchasing agricultural product personally liable for the purchases. The venture cratered and the PACA creditors sought to hold plaintiff’s insider, who had been given a junior inside position in the venture, personally liable. The insider surrendered the collateral given to secure repayment of the notes to the PACA creditors in exchange for a release. The bankruptcy court found that the investment had been procured by fraud, awarded damages in the amount of the entire investment of $825,000, and held that the judgment was not dischargeable in bankruptcy. [https://www.spillaneplc.com/spillane-trial-group-obtains-securities-fraud-win-for-entertainment-lawyer-michael-barnes]
The defendant/debtor appealed to the Ninth Circuit Bankruptcy Appellate Panel. He claimed that the bankruptcy court failed to consider the value of the collateral and apply that value to the claimed losses. The BAP held that notions of marshalling collateral in secured transactions don’t apply to fraud claims, and in any event the investor reasonably disposed of the collateral to avoid the liability foisted on it when the venture promoters purchased produce from PACA creditors. 17-1010 (9th Cir. BAP 2017). [https://spillaneplc.com/spillane-law-group-wins-affirmance-of-securities-fraud-judgment-by-9th-cir-bap-california-farms-v-roberts/]
The defendant/debtor appealed to the Ninth Circuit. The Ninth Circuit affirmed. In its decision, the Ninth Circuit said there was no “double recovery” warranting review under a “miscarriage of justice” theory. Nor were there any pure legal issues to review, the disposition of collateral question turning on the facts of the case. 17-60086 (9th Cir. 2019).
We try business cases for entrepreneurs faced with “bet the company” litigation. We win for plaintiffs. We win for defendants.
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