Bush v. Rewald

Summary

The United States District Court for the District of Hawaii addressed defendants’ motions for summary judgment in a proposed securities-fraud class action arising from the collapse of Bishop, Baldwin, Rewald, Dillingham & Wong, a Ponzi scheme. The court analyzed potential primary, controlling-person, and aiding-and-abetting liability under federal securities laws, as well as common-law fraud, negligence, negligent misrepresentation, and professional negligence claims. Summary judgment was granted to several attorney and real-estate-agent defendants based on the absence of evidence establishing a duty, scienter, participation, or causation.

Holdings

1. A person associated with an investment firm does not owe investors a duty to disclose material facts merely because the person performed corporate legal work, served as a director, worked for the firm, or was listed as a consultant in promotional materials. The duty must be evaluated under the relevant relationship, access, benefit, reliance, and transaction-initiation factors, together with the required scienter.
2. A director is not automatically liable as a controlling person; control over the corporation's regular affairs must be shown.
3. Assuming aider-and-abettor liability exists, it requires actual knowledge of the fraud and substantial assistance in furthering it.
4. A section 12(2) seller need not be in privity with the buyer, but the defendant's conduct must have proximately caused the plaintiff's injury; the record showed no significant evidence that the moving defendants' acts were substantial factors in any investor's purchase.
5. An attorney generally owes professional duties to the client, or potentially to an intended third-party beneficiary for whose benefit services were undertaken; foreseeability alone does not establish a duty to investors.
6. The section 12(2) claim was time-barred because the fraud was publicly disseminated in late July and early August 1983, more than one year before suit was filed.
7. A district court may decide summary-judgment motions before ruling on class certification when fairness and efficiency support that sequence and the defendants consent or assume the associated risk.
8. The RICO claim was dismissed with prejudice because the complaint failed to plead predicate fraudulent acts with Rule 9(b) particularity and the claim was time-barred under the applicable Hawaii limitations provision.

Questions Presented

1. Whether summary judgment was appropriate on the securities-fraud, common-law fraud, negligent misrepresentation, negligence, professional-negligence, malpractice, real-estate recovery-fund, and unfair-trade-practices claims against the moving defendants.
2. Whether an alleged securities-law duty to disclose could arise merely from being an outside attorney, director, employee, or consultant listed in the firm's promotional brochure.
3. Whether defendants could be liable as controlling persons or aiders and abettors of securities fraud absent evidence of control, actual knowledge, or substantial assistance.
4. Whether the section 12(2) claim was barred by the applicable one-year limitations period.
5. Whether the RICO claim failed under Rule 9(b), was time-barred, or could proceed against defendants for whom no predicate acts were shown.
6. Whether summary judgment could be decided before class certification and before further substantive discovery.

Disposition

other