Avomeen Holdings, LLC v. Thanedar et al

Filing 41

OPINION and ORDER Denying Defendants' 28 MOTION for Summary Judgment and Maintaining Future Scheduling Dates. Signed by District Judge Gershwin A. Drain. (TMcg)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

AVOMEEN HOLDINGS, LLC,
Case No. 17-cv-13703

Plaintiff,

UNITED STATES DISTRICT COURT JUDGE
GERSHWIN A. DRAIN

v.
SHRI THANEDAR, ET AL.,

UNITED STATES MAGISTRATE JUDGE
ANTHONY P. PATTI

Defendants.
/

OPINION AND ORDER DENYING DEFENDANTS’ MOTION FOR
SUMMARY JUDGMENT [#28] AND MAINTAINING FUTURE
SCHEDULING DATES
I. INTRODUCTION
Plaintiff Avomeen Holdings, LLC initiated this securities fraud action on
November 14, 2017, alleging violations of Securities and Exchange Act Rule 10(b)
and SEC Rule 10b-5. Dkt. No. 1. In addition, Plaintiff raises several claims
arising under state law. Id.
Present before the Court is Defendants Shri Thanedar and Chemreal, LLC’s
Motion for Summary Judgment. Dkt. No. 28. The Court will resolve the matter
without a hearing. See E.D. Mich. LR 7.1(f)(2). For the reasons set forth below,
the Court will DENY the Motion [#28].

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II. BACKGROUND
This action arises out of an Equity Purchase Agreement, under which
Defendant Thanedar sold Plaintiff a majority interest in Avomeen, LLC
(hereinafter “Avomeen”) -- a chemical testing laboratory. Dkt. No. 1, p. 1 (Pg. ID
1). In July 2016, Plaintiff furnished and Defendant Thanedar accepted a Letter of
Intent (“LOI”) to purchase Avomeen for a pre-adjustment sale price of $30 million,
plus an earn-out of up to $5 million depending on the company’s 2016 EBITDA. 1
Id. Under the LOI, the transaction was subject to several conditions precedent,
including a four-month period of accounting and business due diligence. Id.
Plaintiff asserts that in pre-close discussions with its representatives,
Defendant Thanedar made several representations that proved to be inaccurate. Id.
at p. 9 (Pg. ID 889). Most glaring, Defendant Thanedar represented that the vast
majority (90% or more) of Avomeen’s revenue for a given month was recognized
upon 100% completion of a project for a client. Id. He noted only three types of
projects that fell outside of this general rule. Id. at p. 10 (Pg. ID 890). After the
sale was completed, however, Defendant Thanedar revealed that it was Avomeen’s
practice that “projects that [were] 90% or more completed in a month [were] billed
in the end of that month.” Dkt. No. 32-21, p. 3 (Pg. ID 1095).

1

Earnings Before Interest, Tax, Depreciation, and Amortization.
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Andrew Kolbert, who reported directly to Defendant Thanedar, asserts that
Thanedar made this change in September 2016 in order to inflate monthly revenue
for certain months leading up to the sale of Avomeen. Dkt. No. 32-15, pp. 5-6 (Pg.
ID 1061-62). But Plaintiff’s expert witness -- Certified Public Accountant J.
Bradley Sargent -- suggests Avomeen’s improper reporting practices manifested
much earlier. See Dkt. No. 28-13, p. 24 (Pg. ID 456). Namely, between October
1, 2015 and September 30, 2016, Avomeen had been pulling revenue from future
months into present months to create a false appearance of steady growth. See id.
at pp. 24-27 (Pg. ID 456-59). This practice, which Sargent likened to a Ponzi
scheme, led to an estimated $634,530 in improperly recognized revenue during that
twelve-month period. See id.
At some point prior to close, the parties agreed to modify the terms of the
original LOI. Dkt. No. 28-11. Rather than pay a base price of $30 million with a
potential $5 million earn-out, Plaintiff would now pay a guaranteed price of $33.6
million. Id. Plaintiff asserts that the purpose of this change was to avoid potential
disputes about what items fell inside or outside of the final adjusted EBITDA
calculation. Dkt. No. 32-3, p. 5 (Pg. ID 969). Further, that it felt comfortable with
this change because Avomeen had reported strong revenue earnings for several
months in a row.

Id. Defendants, in contrast, characterize this change as a

reduction in price, and maintain that the reduction was prompted by concerns that

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Avomeen would not meet its revenue goal for the month of October, and
consequently, its projected EBITDA for the year. Dkt. No. 28, p. 14 (Pg. ID 275).
In any case, Avomeen did enter into a revenue slump beginning in October
2016. Id. at p. 13 (Pg. ID 274). One of Plaintiff’s representatives testified that
they were expecting Avomeen’s revenue for the months of October and November
to be close to $1 million, as opposed to the $800,000 and $900,000 actually
generated. Dkt. No. 28-4, p. 5 (Pg. ID 319). Still, Plaintiff opted to move forward
with the purchase and the parties closed their transaction on November 7, 2016.
Id.; Dkt. No. 32, p. 8 (Pg. ID 888). Plaintiff purchased Avomeen’s securities for
$33.6 million and is now the majority owner of the company. Id. Defendant
Chemreal, LLC -- an entity controlled by Defendant Thanedar -- continues to hold
a minority interest in the company.
Plaintiff brings the instant suit, asserting it was induced into overpaying for
Avomeen due to alleged misrepresentations by Defendant Thanedar surrounding
Avomeen’s monthly revenue earnings. Plaintiff contends that it suffered damages
in the range of $6,995,077 to $7,980,445. Id. at p. 17 (Pg. ID 897).
III. LEGAL STANDARD
Federal Rule of Civil Procedure 56(c) empowers a court to grant summary
judgment if “there is no genuine issue as to any material fact and the moving party
is entitled to judgment as a matter of law.”

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Cehrs v. Ne. Ohio Alzheimer’s

Research Ctr., 155 F.3d 775, 779 (6th Cir. 1998). The evidence and all reasonable
inferences must be construed in the light most favorable to the non-moving party.
Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1968).
There is a genuine issue of material fact “if the evidence is such that a reasonable
jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986). Mere allegations or denials in the non-movant’s
pleadings will not suffice, nor will a mere scintilla of evidence supporting the nonmoving party. Id. at 248, 252. Rather, there must be evidence on which a jury
could reasonably find for the non-movant. Id. at 252.
IV. DISCUSSION
A. Plaintiff has Standing to Assert a Rule 10b-5 Claim.
As an initial matter, Defendants assert that Plaintiff lacks standing to bring a
claim under Rule 10b-5. Defendants put forth several arguments, none of which
are persuasive.
“Rule 10b-5 prohibits ‘mak[ing] any untrue statement of material fact’ in
connection with the purchase or sale of securities.” Janus Capital Grp, Inc. v.
First Derivative Traders, 564 U.S. 135, 137-38 *2011). “A party bringing a
private action for money damages under Rule 10b-5 must be an actual purchaser or
seller of securities.” Grubb v. Fed. Deposit Ins. Corp., 868 F.2d 1151, 1159 (10th

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Cir. 1989) (citing Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 731-33
(1975)). “[I]t is not the case that plaintiffs must allege some direct communication
with [the defendants] to state a claim under § 10(b).” Benedict v. Cooperstock, 23
F. Supp. 2d 754, 758 (E.D. Mich. 1998). Rather, “[s]ection 10(b) specifically
provides that persons may not engage in prohibited conduct ‘directly or
indirectly.’” Id. In short, “plaintiffs must allege that [the defendants] made a false
or misleading statement (or omission) in connection with the sale of a security that
[they] knew or should have known would reach investors, and that the plaintiffs
relied on it and were damaged.” Id. (citing Anixter v. Home-Stake Prod. Co., 77
F.3d 1215, 1226 (10th Cir. 1996)).
Here, Defendants cannot dispute that Plaintiff was the purchaser of
Avomeen’s securities. Indeed, Plaintiff holds a majority interest in the company
and incurred over $16 million in debt in connection with the transaction. See Dkt.
No. 32, p. 8 (Pg. ID 888). While Defendants argue that Plaintiff is simply a
holding company, and that High Street Capital (private equity fund) was the
underlying financer, the cases on which Defendants rely do not support their
position that Plaintiff lacks standing. To the contrary, these cases, at best, stand for
the proposition that a de facto investing entity may have standing to bring suit in
addition to a holding company. See, e.g., Grubb, 868 F. 2d at 1159-62, n.11

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(recognizing for purposes of standing a suit filed on behalf of holding company
and underlying shareholders).
In addition, Plaintiff has alleged facts suggesting Defendants made
misleading statements in connection with the sale of Avomeen, and that Plaintiff
relied on those statements and was damaged as a result. Though Defendants argue
that the alleged misrepresentations were made to High Street Capital, and not
directly to Plaintiff, a claim under Rule 10b-5 does not require proof of direct
communication.

See Benedict, 23 F. Supp. 2d at 758.

Plaintiff can rely on

Defendants’ communications with High Street Capital because Defendants knew
their representations would reach potential investors.

See id.

Accordingly,

Plaintiff has alleged an injury sufficient to assert standing for a Rule 10b-5 claim.2
B. The Indemnification Clause in the Equity Purchase Agreement does
not Bar the Rule 10b-5 Claim.
In passing, Defendants suggest that the indemnification clause contained
within the parties’ Equity Purchase Agreement bars the instant Rule 10b-5 claim.
See Dkt. No. 36, p. 7-8 (Pg. ID 1751-52). However, the indemnification clause
2

Defendants also argue that Plaintiff lacks standing because it cannot sue its own
subsidiary. See Dkt. No. 28, pp. 17-18 *Pg. ID 278-79). This argument, however,
ignores the fact that Plaintiff is suing Defendants for misrepresentations made prior
to the acquisition of Avomeen. It is unclear why Defendants believe the
acquisition now immunizes them from those prior alleged misrepresentations.
Further, Defendants do not explain how the case law they cite supports their
argument, if at all.

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addresses only the parties’ liabilities in the case of a third-party claim. Here, the
suit is strictly between the parties to the Agreement. Accordingly, the Court finds
that the indemnification clause does not bar Plaintiff’s Rule 10b-5 claim.
C. A Reasonable Juror Could Conclude that Defendants Violated Rule
10b-5.
In order to prevail on a claim under § 10(b) of the Securities and Exchange
Act and SEC Rule 10b-5, “a plaintiff must prove (1) a material misrepresentation
or omission by the defendant; (2) scienter; (3) a connection between the
misrepresentation or omission and the purchase or sale of a security; (4) reliance
upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.
Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 552 U.S. 148, 157 (2008).
Here, Defendants challenge Plaintiff’s Rule 10b-5 claim on elements one, two,
four, five, and six. The Court will discuss each of these challenges, in turn, below.
1. Material Misrepresentation
It is well established that “[m]isrepresented or omitted facts are material
only if a reasonable investor would have viewed the misrepresentation or omission
as ‘having significantly altered the total mix of information made available.’” In
re Sofamor Danek Grp., 123 F.3d 394, 400 (6th Cir. 1997) (quoting Basic, Inc. v.
Levinson, 485 U.S. 224, 232 (1988)). The test is necessarily fact intensive. Saxe v.

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Dlusky, 268 F. App’x 438, 441 (6th Cir. 2008) (citing Helwig v. Vencor, Inc., 251
F.3d 540, 555 (6th Cir. 2001)).
Here, Plaintiff has alleged three fabrications that Defendant Thanedar
proffered during the parties’ transaction: (1) the vast majority of Avomeen’s
revenue for a given month (with specific exceptions) was recognized only upon
100% completion of a project for a client, (2) Avomeen did not recognize revenue
on a percentage-of-completion basis, and (3) Avomeen’s financial statements were
in accordance with Generally Accepted Accounting Principles (“GAAP”). See
Dkt. No. 32, pp. 20-21 (Pg. ID 900-01). Considered together, Plaintiff contends
that Defendant Thanedar engaged in a scheme of revenue shifting that resulted in
approximately $634,530 of improperly recognized revenue between the months of
October 2015 and September 2016. See Dkt. No. 28-13, pp. 24-27 (Pg. ID 45659). Plaintiff claims this scheme created a false portrayal of Avomeen’s growth
and induced them to overpay for the company.
While

Defendants

acknowledge

the

possibility

of

inconsistencies

surrounding Avomeen’s revenue recognition practices, they argue this does not
create liability under Rule 10b-5 for three reasons. First, Defendants maintain that
Defendant Thanedar did not make any false statements. They refer to an August

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25, 2016 email where Defendant Thanedar wrote to Plaintiff’s representative
stating the following:
The vast majority (90% or more) of Avomeen’s revenue is recognized upon
100% completion of a project. As referenced above, there are a few specific
project types that are recognized as revenue before 100% completion.

See Dkt. No. 28-8, p. 2 (Pg. ID 354). Defendants argue this email demonstrates
Thanedar fully disclosed that not all of Avomeen’s revenue was recognized upon
project completion. But this argument is difficult to accept in light of a letter
Defendant Thanedar wrote to Plaintiff’s representative several months after the
parties’ transaction closed, reading: “It is Avomeen’s practice that projects that are
90% or more completed in a month are billed in the end of that month.” See Dkt.
No. 32-21, p. 3 (Pg. ID 1095). These two statements from Defendant Thanedar
cannot be squared. Furthermore, Plaintiff’s findings regarding the $634,530 in
improperly recognized revenue already accounts for the specific project types that
Thanedar identified as exceptions to the general rule. See Dkt. No. 32-25, pp. 3-4
(pg. ID 1115-16).
Second, Defendants argue that Plaintiff’s representatives were aware that
Avomeen engaged in revenue shifting, and thus, could not have been misled by
Defendant Thanedar’s representations. Defendants point to an email exchange
between Thanedar and one of Plaintiff’s representatives in February 2017, where
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the two discussed keeping the month of January open so Avomeen could bill and
recognize revenue for that month. See Dkt. No. 28-12. However, because this
email exchange took place three months after the parties completed their
transaction, it does not necessarily speak to Plaintiff’s knowledge during the period
leading up to close. While one might infer prior knowledge, this, at most, creates a
genuine issue of material fact. See Matsushita Elec. Indus. Co., Ltd., 475 U.S. at
587 (instructing the evidence and all reasonable inferences must be construed in
the light most favorable to the non-moving party).
Finally, Defendants argue that any inaccuracies in Avomeen’s revenue
reporting were immaterial in nature. Defendants posit that the alleged inflation in
Avomeen’s revenue during the snapshot period amounted to a small financial sum
when compared to the company’s total assets.

But Defendants’ argument is

misplaced. Importantly, courts have routinely rejected the idea that small financial
distortions can never be material.3 Instead, courts take a more expansive approach,
looking to factors such as “whether the misstatement arises from an item capable
3

See Hutchinson v. Deutche Bank Sec. Inc., 647 F.3d 479, 485 (2d Cir. 2011)
(“We have consistently rejected a formulaic approach to assessing the materiality
of an alleged misrepresentation. . . . According to SEC Staff Accounting Bulletin
No. 99, the use of a percentage as a numerical threshold such as 5%, may provide
the basis for a preliminary assumption of materiality, but a bright line percentage
cannot be appropriately used as a substitute for full analysis of all relevant
considerations.”) (internal quotations and citations omitted); USM Holdings Inc. v.
Simon, 2016 WL 4396061, at *5 (E.D. Mich. 2016) (recognizing even relatively
small financial errors can be material).
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of precise measurement” and “whether the misstatement masks a change in
earnings.” See SEC Staff Accounting Bulletin No. 99, 1999 WL 1123073, at *3
(Aug. 12, 1999).
Here, a reasonable juror could conclude that Defendant Thanedar’s alleged
misstatements surrounding Avomeen’s revenue reporting practices were material.
Indeed, these statements were not a matter of opinion. Rather, they involved
objective representations that painted an inaccurate picture of Avomeen’s growth - a key factor in Plaintiff’s decision to purchase the company.4

And while

Defendants argue that on net, the alleged revenue shifting did not increase
Avomeen’s overall EBITDA calculation, Defendant Thanedar acknowledged that
any dip in monthly revenue growth put the transaction at risk.5 Moreover, as will
be discussed in the next section, there is evidence suggesting Defendant

4

See Dkt. No. 32-3, p. 5 (Pg. ID 969) (Decl. Robert France: “If Mr. Thanedar had
accurately portrayed Avomeen’s performance to Purchaser, High Street, and Plante
Moran, had accurately disclosed Avomeen’s revenue recognition practices, or
disclosed the changes to the practices that Avomeen employees have testified
about, Purchaser would have either renegotiated or walked away from the
transaction.”).
5

See Dkt. No. 32-4, pp. 7-8 (Pg. ID 977-78) (Dep. Shri Thanedar: “In the month of
October, we set a goal of, I think only 800,000. Prior to October, the month of
September, August, and July, I believe the monthly revenues were about a million.
However, in October, it was looking like we’re going to have a month that was
going to be somewhere around $800,000 in revenue, which was a 20 percent drop,
and I certainly wondered what will High Street -- how would High Street react to
that.”).
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Thanedar’s alleged deception was intentional. See SEC Staff Accounting Bulletin
No. 99, 1999 WL 1123073, at *4 (“While the intent of management does not
render a misstatement material, it may provide significant evidence of materiality.
The evidence may be particularly compelling where management has intentionally
misstated items in the financial statements to ‘manage’ reported earnings. In that
instance, it presumably has done so believing that the resulting amounts and trends
would be significant to users of the registrant’s financial statements.”).
Accordingly, Plaintiff has met its burden at this stage of establishing a material
misrepresentation.
2. Scienter
The second element of a Rule 10b-5 claim is scienter, defined as a “mental
state embracing intent to deceive, manipulate or defraud.” In re Comshare Inc.
Sec. Litig., 183 F.3d 542, 550 (6th Cir. 1999) (quoting Ernst & Ernst v.
Hochfelder, 425 U.S. 185, 194 (1976)). “In order to satisfy this element, the
defendant must have acted with at least recklessness in making the misleading
representation or omission.” USM Holdings, 2016 WL 4396061, at *4. The
appropriate inquiry “is whether all of the facts alleged, taken collectively, give rise
to a strong inference of scienter, not whether any individual allegation, scrutinized

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in isolation, meets that standard.” Frank v. Dana Corp., 646 F.3d 954, 959 (6th
Cir. 2011).
Here, when viewing the evidence in a light most favorable to the nonmoving party, Plaintiff has satisfied its burden of establishing Defendant Thanedar
acted with the intent to deceive, manipulate, or defraud. Tellingly, Defendant
Thanedar acknowledged that Plaintiff could have walked away from the deal at
any time and admitted that he had concerns about whether the transaction would
actually close. See Dkt. No. 32-4, pp. 7-8 (Pg. ID 977-78). Part of this concern
was based on the fact that he knew a drop in Avomeen’s revenue during the fourmonth due diligence period could scare Plaintiff away. Id. at p. 8 (Pg. ID 978).
When you couple this concern with the testimony of his former employees -- who
claimed he changed Avomeen’s revenue reporting practices in the months leading
up to the sale, and purportedly for the purpose of inflating revenue -- a reasonable
juror could conclude that Defendant Thanedar misrepresented Avomeen’s
performance and revenue earnings with the intent to deceive Plaintiff.6 Only

6

See, e.g., Dkt. No. 32-7, p. 8 (Pg. ID 8) (Dep. Melissa Gransden: “[During] the
months leading up to the sale, if the projects that were going to complete at the end
of the month and went into the subsequent month, Shri would want to keep the
subsequent month open longer and longer to ensure that that month would have the
number that he felt was more acceptable.”); Dkt. No. 32-8, p. 9 (Pg. ID 1023)
(Dep. Andrew Kolbert: “Sometime between September 20th and September 30th,
Shri came to my office and said, you know, the report doesn’t have to be out to the
client. It can be 90, 95 percent done, and we will count it for the month. And I
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adding to this conclusion is the fact that Thanedar attempted to downplay
Avomeen’s impending revenue slump by misrepresenting the amount of business
in the company’s pipeline.7
3. Reliance
The next element of a Rule 10b-5 claim requires the Court to assess whether
Plaintiff reasonably relied on Defendant Thanedar’s alleged misrepresentations.
Defendants offer three arguments for why Plaintiff fails to satisfy its burden on this
element.
First, Defendants argue that the integration clause contained within the
parties’ Equity Purchase Agreement makes reliance on a prior oral representation
unreasonable per se. See Dkt. No. 28, p. 29 (Pg. ID 290). Section 7.3 of the
Equity Purchase Agreement reads as follows:
presume the rationale was because they would increase revenue in the month of
September.”).
7

See Dkt. No. 32-27, pp. 2-3 (Pg. ID 1120-21) (Decl. Kathleen Morgan: “In 2016
but prior to October 2016, I based the ‘win’ report on the ‘date ready to begin’
field in Salesforce. . . . When I used this field as the basis for the ‘win’ report, it
demonstrated a current and accurate snapshot of the upcoming pipeline for the
company. In October or early November 2016, Thanedar instructed me to change
the ‘win’ report to be based on the ‘won pending’ field in Salesforce. . . . Projects
could have a ‘won pending’ date entered for as little as a positive phone call with
the customer suggesting that a project might be directed to Avomeen. When I used
this field as the basis for the ‘win’ report, the report captured a broader set of
potential projects, but because the ‘won pending’ date was farther removed from a
project materializing, there was greater risk of inflated numbers.”).
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7.3 Entire Agreement. This Agreement, the Exhibits, the Disclosure
Statement, the Company Ancillary Documents, the Purchaser Ancillary
Documents and any other documents delivered by the parties hereto in
connection herewith constitutes the entire agreement among the Parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings among the Parties hereto with respect
thereto. No addition to or modification of any provision of this Agreement
shall be binding upon any Party hereto unless made in writing and signed by
all Parties hereto.
Dkt. No. 32-2, pp. 30-31 (Pg. ID 944-45). Critically, however, the Sixth Circuit
has rejected the per se rule that Defendants offer here. See Brown v. Earthboard
Sports USA, Inc., 481 F.3d 901, 921 (6th Cir. 2007) (“To erect a per se rule with
respect to non-reliance clauses would undermine the essential point of undertaking
a contextual analysis, and we do not choose to adopt such a blanket rule now.”).
Moreover, the integration clause in the parties’ Equity Purchase Agreement is
ambiguous as to its scope. In particular, it is not clear whether it embraces precontractual representations, as distinct from promises, made by either party. See
Galeana Telecomms. Invs., Inc. v. Amerifone Corp., 202 F. Supp. 3d 711, 726
(E.D. Mich. 2016) (“The merger clause in the Agreement between Galeana and
Amerifone only encompasses ‘all prior negotiations, letters and understandings.’
Arguably, the clause’s language does not include prior representations.”). Because
a reasonable juror could conclude that the integration clause does not encompass
prior representations, the Court cannot find that Plaintiff’s reliance on Defendant
Thanedar’s alleged misrepresentations was unreasonable.
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Second, Defendants argue that the rationale for Plaintiff purchasing
Avomeen makes the alleged misrepresentations irrelevant. See Dkt. No. 28, p. 28
(Pg. ID 289). Specifically, Defendants assert that because Plaintiff purchased the
company for its potential, rather than for its present performance, it could not have
relied on Defendant Thanedar’s representations surrounding Avomeen’s monthly
revenue.

Though creative, Defendants ignore the fact that the primary issue

underlying this case is whether Plaintiff was induced into overpaying for Avomeen
at a price of $33.6 million.

Because Avomeen’s monthly revenue earnings

undoubtedly played a role in the parties’ transaction, Plaintiff’s rationale for
purchasing the company does not make its reliance on Defendant Thanedar’s
alleged misrepresentations immaterial.
Finally, Defendants argue that Plaintiff fails to satisfy its burden on this
element because it was a sophisticated investor with access to sufficient
information to evaluate the statements in question. See id. at p. 27 (Pg. ID 288).
But there are several defects in this reasoning. As a beginning point, the fact that
Plaintiff is an investing firm, standing alone, does not preclude them from bringing
suit under Rule 10b-5. See, e.g., Wright v. Nat’l Warranty Co., 953 F.2d 256, 261
(6th Cir. 1992) (rejecting argument that plaintiff’s status as an “insider” foreclosed
recovery under 10b-5). In addition, questions of material fact remain surrounding
whether Plaintiff was given access to accurate, pertinent information.

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John

Samulak and Robert France, two of Plaintiff’s representatives, testified that none
of Plaintiff’s advisers were given physical access to Avomeen’s Salesforce
system.8 Dkt. No. 32-5, pp. 4-5 (Pg. ID 985-86); Dkt. No. 32-6, p. 5 (Pg. ID
1003). Further, that the information Defendant Thanedar provided from Salesforce
did not match the company’s Quick Books accounting data.9
In short, Plaintiff has presented evidence suggesting Defendant Thanedar
intentionally misrepresented the state of Avomeen’s finances and concealed these
facts. This is especially true where at least one former high-ranking employee
testified that Defendant Thanedar would not let him speak to anyone from
Plaintiff’s advisement team because Defendant Thanedar wanted to be in control of
all communications. See Dkt. 32-8, p. 4 (pg. ID 1018). Given that Defendant
Thanedar purportedly controlled the flow of information coming from Avomeen, a
reasonable juror could conclude that Plaintiff’s advisers relied on Defendant
Thanedar’s representations in making their decision to purchase the company.

8

Salesforce is the company’s client relationship management software.

9

See Dkt. No. 32-5, p. 4 (Pg. ID 985) (Dep. of John Samuluk – Q: “So when you
said that the information that came from Sales Force did not match, are you -- does
that mean that the Sales Force information did not match what the Quick Books
information showed?” A: “Correct.”); see also Dkt. No. 32-9, p. 7 (Pg. ID 1033)
(Dep. of Tyrone Tessmer – Q: “What information did you personally compile that
you understood was going to be turned over to High Street Capital?” A:
“Financials.” Q: “What was in those financials that you considered to be false?”
A: “I believe the revenue associated with certain periods of certain months were
inaccurately reported.”).
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4. Economic Loss and Loss Causation
The final two elements of a Rule 10b-5 claim require the Court to examine
economic loss and loss causation.

The Sixth Circuit has instructed that loss

causation requires “a causal connection between the material misrepresentation and
the loss.” Brown, 481 F.3d at 920 (quoting Dura Pharmaceuticals, Inc. v. Broudo,
544 U.S. 336, 342 (2005)).
Here, Defendants conflate both elements into one and raise a single
argument. Defendants argue that because Plaintiff purchased Avomeen for its
growth potential, and not its present performance, Defendant Thanedar’s alleged
misrepresentations could not have caused any economic loss.

But again,

Defendants fail to recognize that the crux of this suit is that Plaintiff claims it was
induced into overpaying for Avomeen. Because Avomeen’s monthly revenue
earnings certainly played a role in the parties’ transaction, the Court, for all of the
reasons expressed earlier, finds Plaintiff has met its burden of demonstrating
economic loss and loss causation.10

10

In addition, Defendants reference an October 4, 2016 email sent between
Plaintiff’s representatives, suggesting it shows Plaintiff was aware Avomeen’s
revenue reporting practices had been altered, thereby severing any link between
Defendant Thanedar’s alleged misrepresentations and Plaintiff’s economic loss.
See Dkt. No. 28-15 (“Question – why do all periods for net revenue take company
adjustment into account except for July? Why $1,085k vs. $1,039?”). The email
appears to comment on a report attached in an earlier message, which Defendants
failed to include. By not providing the attachment, the Court cannot determine
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V. CONCLUSION
For the reasons stated herein, the Court will DENY Defendants’ Motion for
Summary Judgment [#28]. The following future court dates remain in effect:
a. In Limine motion deadline of June 11, 2019;
b. Final Pretrial Order submission deadline for July 17, 2019;
c. Final Pretrial Conference for July 24, 2019, at 4:00 p.m.; and
d. Trial shall commence on July 30, 2019, at 9:00 a.m.

IT IS SO ORDERED.
Dated:

April 15, 2019
s/Gershwin A. Drain
HON. GERSHWIN A. DRAIN
United States District Court Judge

CERTIFICATE OF SERVICE
I hereby certify that a copy of the foregoing document was mailed to the attorneys
of record on this date, April 15, 2019, by electronic and/or ordinary mail.
s/Teresa McGovern
Case Manager

whether the email says what Defendants purport it says. Plaintiff maintains that
Defendants have taken the email out of context. Regardless, this creates a genuine
issue of material fact, making summary judgment inappropriate.
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