Jimmy LEDFORD, Larry O'Dell, Bryan Walker, Dynavision Group LLC, Signature Leasing, LLC, Plaintiffs-Appellants Cross-Appellees, v. Shelby PEEPLES, Jr., PFLC, LLC, Internal Management, Inc., Defendants-Appellees Cross-Appellants, 568 F.3d 1258

TJOFLAT, Circuit Judge: In this case, two parties, X and Y, each owned a fifty percent interest in a limited liability company that manufactured and sold carpets. X provided the financing; Y ran the company and marketed its product. The parties had a buy-sell agreement that enabled either party to buy out the other at any time by offering to purchase the other’s interest in the company at a set price. After receiving an offer, the offeree would have thirty days in which to accept the offer or elect to purchase the offeror’s interest at the same set price. Y offered to purchase X’s interest for $3.5 million.

X demanded to know whether Y would be borrowing the funds from Z, who earlier had expressed an interest in purchasing the company. Y said that neither Z nor anyone else would be providing the money. X asked Z if he was financing Y; Z said no. X, unable to operate the factory and market its product without Y or someone with Y’s expertise, had to sell and therefore accepted Y’s offer. Prior to the date set for the closing, however, X told Y that it would not go forward with the closing unless Y represented that no third party was providing the funds to pay X.

Y responded that it had no obligation to disclose the source of its funds and that X was bound by contract to transfer its interest to Y unconditionally. X tacitly agreed by appearing at the closing and transferring its interest to Y. X subsequently learned that Z had provided the purchase price and, following the closing, had acquired the factory’s assets and hired Y to run the business. After discovering Z’s involvement, X took Y to court.

In a complaint filed in state court, X alleged that Y breached a fiduciary duty to tell it that Z had financed the purchase of its interest, and moreover, that Ys failure to disclose Z’s involvement fraudulently induced X to sell its interest to Y. X also brought suit against Z in federal district court, the case now before us, claiming that Z violated federal securities law, state securities law, and state common law by denying involvement in the transaction and causing X to sell its interest to Y. X lost both cases on

summary judgment. Both courts concluded that Y’s alleged misrepresentation about Z’s involvement in the buy-out did not cause X to sell its interest. Rather, X sold because it was in X’s economic self-interest to do so. X needed Y’s skills; had X purchased Y’s interest, it would have had no one to run the carpet factory or to market its product. X therefore had no economically viable option but to sell. After the district court granted Z

summary judgment, Z moved the court to sanction X and its counsel under the Private Securities Litigation Reform Act (“PSLRA”), Rule 11 of the Federal Rules of Civil Procedure, 28 U.S.C. § 1927, and the court’s inherent power on the grounds that X neither produced, nor at any time had available, any evidence to support its allegation that Z’s conduct caused it to sell its interest rather than buy Y’s interest. The court denied Z’s motion. X now appeals the district court’s decision rejecting its claims. Z cross-appeals the court’s denial of sanctions under the PSLRA.

On X’s appeal, we dismiss part of X’s claims for lack of subject matter jurisdiction and affirm the district court’s judgment as to the remainder. On Z’s cross appeal, we conclude that Z is entitled to sanctions and therefore remand the case for their imposition. This opinion is organized as follows.

Part I identifies X, Y, and Z and sets out the events that have given rise to this controversy.

Part II canvasses the litigation as it evolved in state court and spread to federal court; describes the state trial and appellate courts’ disposition of X’s claims against Y and the district court’s disposition of X’s claims against Z; and, after that, delineates the issues that X’s appeal to this court presents.

Part III addresses sua sponte whether the district court had jurisdiction to hear some of the federal securities law claims X brought against Z and concludes that it did not.

Part IV assesses the merits of X’s appeal as to the remaining securities law claims.

Part V examines X’s claim that Z aided and abetted Y’s breaches of fiduciary duty towards X.

Part VI explains why the district court should have sanctioned X’s counsel, and

part VII concludes. I. A. X is DynaVision Group, LLC (“DynaVision”) and its principal owners, Jimmy Ledford, Larry O’Dell, and Bryan Walker. Y is Brenda Smith, Robert Thomas, and Bryan Owenby. Z is Shelby Peeples. In July 1998, Paul Walker, Bryan Walker’s father, approached Smith, Thomas, and Owenby, experienced managers in the carpet manufacturing industry in Dalton, Georgia, with the idea of forming a company to manufacture and sell carpets to hotels, motels, restaurants, and others engaged in the hospitality business.

Soon thereafter, Smith, Thomas, Owenby, and Paul Walker formed Signature Hospitality Carpets, LLC (“Signature”), dividing the company’s interests equally between DynaVision on one hand and Smith, Thomas, and Owenby on the other. Under Signature’s operating agreement, Smith, Thomas, and Owenby managed the company, and DynaVision provided the capital. Signature sold carpet to hospitality customers — mainly through contacts that Smith, who was well respected in the industry, had previously established — and arranged for manufacturers in the Dalton area to fill the orders.

DynaVision provided the funds that Signature needed to pay the manufacturers by establishing a $200,000 line of credit at a bank near Dalton, the First National Bank of Chat-worth (“FNBC”). Signature initially operated out of rented office space; once the company established itself as a going concern, however, its owners decided to find their own manufacturing plant. Anticipating that they would be able to acquire a suitable site in the Dalton area, DynaVision, Smith, Thomas, and Owenby entered into a new operating agreement (“Operating Agreement” or “Agreement”), on May 6, 1999.

The Agreement referred to Smith, Thomas, Owenby, and DynaVision as Signature’s “Members,” and Smith, Thomas, and Owenby as the “Active Members.” It created a six-member Board of Directors, with three directors appointed by DynaVision and three by the Active Members. The Active Members appointed themselves; DynaVision appointed its accountant, Edward Staten, and left two of its seats vacant. The Operating Agreement required the Board to unanimously authorize all of Signature’s actions. This meant that DynaVision, through Staten, could have blocked any action the Active Members wanted to take.

The Board rarely met, however, face to face or otherwise, so the Active Members ran Signature’s operations without objection. Under the Agreement, Smith was the company’s president and the person in charge of marketing, Thomas was the vice-president of sales, and Owenby was the vice-president of manufacturing. A non-solicitation clause provided that if a Member sold his or her interest, that member could not for one year thereafter “call, solicit, or fulfill orders” from “customers or prospects” of Signature.

In reality, the clause applied only to the Active Members, since they were the ones who possessed Signature’s customer contacts. The Agreement also contained a buy-sell provision, which is at the center of the present controversy. This provision is contained in

Article Nine of the Agreement, entitled “Transfer and Assignment of Member Interests.”

Section 9.5, “Mandatory Put and Call,” reads as follows: At any time Dyna-Vision or the Active Members by majority vote within that group, may set a price per percentage Interest and give written notice of that price to the other group, (the “Notice of Offer to Sell or Purchase”). The Members receiving the Notice of Offer to Sell or Purchase shall have thirty (30) calendar days to decide whether to sell all their Interest at that price or to purchase all the Interest of the group giving Notice of Offer to Sell or Purchase at the Price set forth in the Notice of Offer to Sell or Purchase.

If the Members receiving the Notice of Offer to Sell or Purchase fail to make an election ..., the Members receiving the Notice of Offer to Sell or Purchase shall have to sell their Interest at the price set forth in the Notice of Offer to Sell or Purchase. Following the execution of the Operating Agreement, the parties located a site for Signature’s manufacturing plant and offices on Green Road in Chatsworth, Georgia, a short distance from Dalton.

To purchase the site, which included a building that could be converted to accommodate Signature’s requirements, the Active Members formed another limited liability company, Signature Leasing, LLC (“Leasing”), with Ledford, O’Dell, and Bryan Walker. On October 19, 1999, Leasing purchased the property (“Green Road Property”) with the proceeds of a $630,000 loan from Dalton Whitfield Bank. Bank employee Cynthia Trammel managed the paperwork for the loan. Once the building was equipped to manufacture carpets, Signature moved in. Signature then looked to FNBC for working capital.

Over a period of several months following its occupancy of the Green Road Property, Signature received several unsecured loans from the bank. In October 2001, Signature asked FNBC for a loan that would pay off its FNBC loans and the balance due on the Dalton Whitfield Bank loan, and provide Signature with additional working capital. In total, Signature needed $911,000. At Signature’s request, Trammel, who had moved from Dalton Whitfield Bank to FNBC the year before, handled the transaction.

Trammel informed Signature that, subject to the approval of the FNBC’s board of directors, the bank would make the loan on the following conditions: Signature would give the bank a deed to secure debt on the Green Road Property and Signature’s carpet-manufacturing machines; Smith, Thomas, Owenby, Ledford, and O’Dell (the “Guarantors”) would sign the note and thus guarantee its payment. Signature and the Guarantors agreed to these conditions, the bank’s board approved the loan, and Trammel proceeded to prepare for the closing.

Trammel’s first task was to have FNBC’s counsel, Todd McCain, examine the title to the Green Road Property. After examining the title, McCain sent Trammel an opinion indicating that Leasing, not Signature, owned the Green Road Property. Signature therefore could not give the bank a deed to secure the debt with the property unless and until Leasing conveyed the property to Signature. Trammel overlooked the need for the conveyance, and the loan closed on October 24, 2001 without Leasing having conveyed the property to Signature.

Therefore, as part of this transaction, Signature gave FNBC a deed to secure debt for real property it did not own. A month or so later, Trammel happened to read McCain’s opinion, noted that Leasing, not Signature, owned the Green Road Property, and realized that Signature’s deed to secure debt was worthless. Something had to be done, so Trammel called McCain. In mid-January 2002, McCain sent Trammel the document needed to solve the problem, a warranty deed conveying the Green Road Property from Leasing to Signature.

Trammel then contacted Smith, informing her that she and the other Guarantors would have to return to the bank and sign a “document” that had been neglected at the closing. The document was the warranty deed, although Trammel did not explain the document’s significance to Smith at that time. Trammel asked that Smith pass along this message to the others Guarantors, and Smith did. Smith, Thomas, and Owenby promptly went to the bank and signed the document before a notary public, Angela Garland, and in the presence of a witness, Trammel.

Smith read the document, which bore the heading “Warranty Deed,” and recognized its significance — that Leasing was conveying the Green Road Property to Signature to satisfy one of the conditions on which the bank had made the loan. Ledford and O’Dell did not appear to sign the document, so Trammel asked Smith to remind them to do so. Smith thereupon called Ledford and asked him to go to the bank and sign what she described as “a document that had been left out of the closing.” She did not inform Ledford of the document’s legal significance.

Smith also asked Ledford to contact O’Dell and remind him to sign the document. Ledford did so, and, in early February, he and O’Dell separately went to the bank and signed the warranty deed, also before Garland and Trammel. Trammel forwarded the executed warranty deed to the McCain firm, which filed it with the Clerk of the Murray County Superior Court on February 7, 2002.

Ledford and O’Dell insist that they did not know that they were signing a warranty deed; moreover, they claim that they had no understanding of the legal significance of a warranty deed and would not have signed the instrument had they known that it transferred the Green Road Property to Signature. B. In December 2001, Shelby Peeples, a Dalton businessman with interests in the carpet-manufacturing industry, contacted Paul Walker and Ledford and expressed an interest in purchasing Signature. Paul Walker, Ledford, and Peeples had been involved in several business ventures and were on friendly terms.

The three men met at least once during December to discuss the possible sale of Signature. At some point, Walker informed the Active Members that Peeples had shown an interest in purchasing Signature. On January 9, 2002, Paul Walker, Led-ford, O’Dell and the Active Members met and agreed to offer Signature and the Green Road Property to Peeples for between $10-12 million. They designated Paul Walker to represent them in negotiations with Peeples. Later that day, Paul Walker, Thomas, and Owenby met with Peeples and some of his associates.

Walker informed Peeples that the Green Road Property was owned by a separate company but offered to sell both Signature and the property for $12 million. Peeples rejected the offer. Walker countered with an offer of $10 million. Peeples rejected that offer as well. Peeples then asked Walker if he could meet separately with him and, after that, with the Active Members. Walker said yes but that Peeples could meet with the Active Members only once. Walker, having made that point clear, met with Peeples to discuss the matter. Peeples offered him $2 million for DynaVision’s interest.

Walker apparently felt insulted, so Peeples increased the offer to $2.5 million. Walker rejected it out of hand, and the discussion ended. As January wore on, Walker met with Peeples once or twice a week to discuss some business ventures in which they were involved. During some of their meetings, Walker asked Peeples whether he had been negotiating with the Active Members. Peeples said no, but his denial was false. Peeples and the Active Members had been meeting all along to discuss ways that Peeples could acquire DynaVision’s interest in Signature without dealing directly with DynaVision.

Moreover, with the assistance of his lawyer, Peeples had memorialized the substance of his discussions with the Active Members in a letter, which he faxed to the Active Members on January 21. The letter mapped out the steps that Peeples and the Active Members would take. First, the Active Members would acquire DynaVision’s interest in Signature using the Mandatory Put and Call provision of the Operating Agreement. According to the letter, “on terms and conditions to be set forth in a definitive, legally binding, written agreement, ... a company owned or controlled by ...

Peeples” would loan $3.5 million to the Active Members “for the purpose of enabling the Active Members to complete the acquisition of the DynaVision Interest.” This loan would be made after the Active Members acquired DynaVision’s interest. Next, Peeples would purchase all of Signature’s assets from the Active Members, forgive the $3.5 million loan, and pay the Active Members $3 million. The Active Members would remain as managers of Signature under five-year employment contracts, with annual salaries starting at $160,000 and increasing each year and possible bonuses based on Signature’s performance.

The letter contained sections entitled “Confidentiality” and “No Discussions with Others.” The “Confidentiality”

section provided, in pertinent part: [N]one of the parties hereto will ... (1) disclose or publicize in any manner (except as may be required by applicable law) that discussions relating to matters covered [in this letter] or the Loan or the Acquisition are taking place between or among the Active Members, the Peeples Group, Signature and/or Buyer, or (2) reveal the terms or proposed terms of either this Letter or the Loan ... to any person or entity other than [representatives of Peeples who would be conducting a due diligence investigation into Signature after the Active Members purchased DynaVision’s interest]. The “No Discussion”

section stated, again in pertinent part: [N]one of the Active Members ... will, directly or indirectly (

i) negotiate or discuss with any other person or entity any transaction involving any business combination involving Signature, or (ii) solicit ... negotiate ... or accept any offer, bid or proposal from any other person or entity respecting any transactions involving a sale of assets of Signature (except for sales of property in the ordinary course of business) or any other business combination involving Signature, or (iii) disclose or reveal ... [information related to Signature’s financial condition or methods and plans of operations], other than in the ordinary course of business, to any person or entity not a party to this Letter in connection with the type of transactions described in clauses (

i) and (ii) above ... In addition, the Active Members will immediately cease and cause -to be terminated any previously undertaken or ongoing ... negotiations with any other person or entity with respect to any transaction of the type described in the preceding clauses (

i) and (ii) above. The letter stated additionally that, “to the extent of any conflict in the provisions of this Letter and the provisions of the Signature Operating Agreement, the provisions of the Signature Operating Agreement shall prevail and the conflicting provisiones) of this Letter shall be void and of no effect whatsoever.” After the Active Members received the letter, they continued their negotiations with Peeples, which, toward the end of January or early February, led to a verbal understanding.

As indicated in the January 21 letter, Peeples would loan the Active Members $3.5 million to purchase DynaVision’s interests. If the purchase materialized, the Active Members would cause Signature to sell its assets to Peeples. On February 8, Smith summoned Led-ford and O’Dell to discuss tensions between Ledford and O’Dell and the Active Members. Toward the end of this meeting, Smith presented Ledford and O’Dell with the Mandatory Put and Call pursuant to

Section 9.5 of the Operating Agreement. The Put and Call informed DynaVision that the Active Members would purchase its interest in Signature for $3.5 million unless DynaVision opted to purchase the Active Members’ interests for $3.5 million within thirty days. The Put and Call also stated that if DynaVision elected to purchase the Active Members’ interests, it would release the Active Members from their obligations under the Operating Agreement’s non-solicitation clause. Led-ford asked Smith whether Peeples or anyone else would be providing the purchase price.

Smith’s reply, according to Led-ford, was that we “are doing this on our own.” On February 22, DynaVision’s lawyer, H. Greely Joiner, Jr., wrote a letter to the Active Members stating that because

Section 9.5 of the Operating Agreement precluded the imposition of conditions on a Put and Call, DynaVision would not honor the Put and Call with the non-solicitation clause condition. The Active Members tacitly agreed. On February 25, they presented DynaVision with a new Put and Call at the same price, $3.5 million, but without the requirement that DynaVision void the non-solicitation clause. Paul Walker and DynaVision treated this Put and Call as valid. DynaVision’s principals were not pleased.

They wanted Signature to continue on, under the Active Members’ management, because they believed that in time the company would become increasingly profitable. Nonetheless, they recognized that they had two options — buy or sell — and thirty days to decide. They did not want to sell because, as the prices ($12 million and $10 million) Paul Walker quoted to Peeples in January indicated, they believed their half-interest in Signature was worth substantially more than $3.5 million.

But they did not want to buy either because they lacked the contacts in the hospitality industry necessary to enable them to market Signature’s products with any measure of success. Without the Active Members — particularly Smith, with her extensive contacts in the hospitality industry — DynaVision’s principals knew they could not operate Signature at a profit. Faced with this dilemma, DyuaVision’s principals looked for an immediate buyer who would be willing to pay $10 million for the company.

If they could find a buyer willing to pay as much as $8.5 million, they would opt to buy out the Active Members for $3.5 million. The $5 million they would net was what they thought their half of Signature was worth. Ledford and O’Dell contacted three firms, Mohawk Carpets, Clay Miller Carpets, and Matel Carpets, in their search for a buyer. They initially proposed a $10 million price for Signature, eventually lowering the price to $8.5 million as the thirty-day Put and Call period drew to a close.

As part of his pitch to sell Signature, Ledford told Jerry Thomas, Matel’s owner, that Thomas ought to buy Signature to protect his company from Signature’s competition should Signature fall into Peeples’s hands. Ledford stressed “the dynamics of what might happen should a ... company like [Signature] fall into the hands of ... the Peeples family.” But Thomas was not persuaded, nor was anyone else. With time running out, Led-ford asked Smith if she would be willing to stay on and run the company if he and the others bought the Active Members’ interests. Smith was not interested.

Paul Walker and DynaVision’s principals discussed among themselves the possibility that Peeples had financed the Active Members’ February 25 Put and Call. Motivated by these suspicions, Walker confronted Peeples directly. Peeples denied any involvement. At one point, Walker warned Peeples that if he was involved, he would not be getting the Green Road Property, because Leasing owned it, not Signature. C. On March 27, the thirty-day election period provided by the Put and Call expired.

DynaVision had not exercised its option to purchase the Active Members’ interests within the election period; consequently, it had to sell its interest for the $3.5 million Put and Call price. On March 28, DynaVision and the Active Members began to negotiate the finer terms of the sale. A few days later, Joiner, presumably representing Ledford, O’Dell, and Bryan Walker as one-half owners of Leasing, asked Smith if he could draw up a lease for the Green Road Property between Leasing, as lessor, and Signature, as lessee. Smith responded that Signature, not Leasing, owned the property.

Joiner checked the title and discovered the warranty deed from Leasing to Signature that had been recorded on February 7. Paul Walker and Ledford then demanded that the Active Members consent to a conveyance of the property back to Leasing. The Active Members refused, explaining that it had been everyone’s intent to transfer the property to Signature so that Signature could go forward with the FNBC loan transaction; Signature had to have title to the property in order to give the bank a valid deed to secure debt.

Meanwhile, at a meeting of DynaVision’s members, the members unanimously adopted resolutions authorizing O’Dell and Ledford to “negotiate, execute and convey the interests of Dyna-Vision in Signature ... to Smith, Thomas, and Owenby .... ” The resolutions went on to allow O’Dell and Ledford to set certain conditions on the conveyance including: the repayment of all loans due any [DynaVision] member or any affiliate of any member; the release of all [DynaVision] members from any guarantees issued on behalf of Signature to any financial institution or vendor; the repayment of any and all funds due Dyna-Vision by Signature with respect to any distributions which had not been authorized by the Board of Directors of Signature; and a long-term Lease Agreement between Signature and Leasing, with a minimum term of five (5) years at a rental rate of $11,000 per month plus taxes, insurance, maintenance and repair.

The minutes of this meeting indicate that DynaVision’s members knew that the transaction would close on April 30. They provided that because O’Dell, DynaVision’s chairman, would be out of town that day, Ledford would act for DynaVision in his place. After this meeting adjourned, Ledford and O’Dell met with Joiner and spelled out several conditions the Active Members would have to meet before closing. Joiner informed the Active Members of these conditions in an April 11 letter to their attorney, Douglas Krevolin.

One called for the Active Members and DynaVision to execute an agreement Joiner had drafted and enclosed in his letter.

The agreement contained the following covenant, presumably designed to smoke out the Active Members’ involvement with Peeples: [ejach Assignee [i.e., Active Member] does hereby represent and warrant to the Assignor [i.e., DynaVision] that such Assignee has acquired the Interest from the Assignor for investments solely for said Assignee’s own account ... without any intention of conveying ... any portion of such Assignee’s Interest, and without the financial participation of any other Person in acquiring the Assignee’s Interest.

Another condition required the conveyance of the Green Road Property from Signature to Leasing. Krevolin responded to Joiner’s April 11 letter with a letter dated April 16. He informed Joiner that the Active Members would not consent to either of the two conditions.

Responding to the threat implicit in Joiner’s letter — that DynaVision would not close if the Active Members refused to represent that they were acquiring DynaVision’s interest without the financial participation of a third party— Krevolin said this: “If your client is not willing to proceed with the closing in accordance with the terms of the Operating Agreement, the Active Members may have no alternative but to seek a court order compelling it to close.” Joiner informed Ledford of what Krevolin had written and the position that the Active Members would take if DynaVision refused to close, and Ledford instructed Joiner to proceed with the closing on April 30.

D. In late April, prior to the closing, the Active Members signed two promissory notes and a collateral agreement. In the collateral agreement, entitled “Collateral Assignment of Membership Interest,” they pledged, “as record and beneficial” owner of Signature, all of their ownership interest in Signature as collateral for a loan of $3.5 million from PFLC, LLC and a loan of $855,000 from Internal Management, Inc., both companies owned by Peeples.

The proceeds of these loans were to be used, respectively, to pay for DynaVision’s interest in Signature and to pay the balance due, $855,000, on the loan FNBC had made to Signature the previous October. At some point between the April 30 closing and May 7, the Active Members and Peeples signed an Asset Purchase Agreement pursuant to which the Active Members, as owners of all of Signature, caused the transfer of Signature’s assets to Peeples for $5.75 million.

Of that amount, $2.25 million went directly to the Active Members, and $3.5 million served to cancel the loan Peeples had made to enable them to buy out DynaVision. The agreement also contained Peeples’s promise to indemnify the Active Members for any expenses, including those arising from litigation, they might incur as a result of the transfer of the Green Road Property from Leasing to Signature.

Contemporaneous with the execution of the Asset Purchase Agreement, PFLC, LLC entered into six-year employment contracts with the Active Members, their compensation to consist of $118,000 signing bonuses, initial salaries of $160,000 per year, annual salary increases of $10,000, and bonuses if Signature made over $1.5 million in pre-tax profits in a calendar year. II. A. On November 15, 2002, DynaVision, Ledford, O’Dell, Bryan Walker, and Leasing filed suit for equitable and legal relief against the Active Members and Signature in the Superior Court of Murray County, Georgia.

The plaintiffs all retained Joiner as counsel, along with H. Lamar Mixon and David G.H. Brackett, two partners in Bondurant, Mixon and Elmore, LLP. Their complaint was framed in four counts and asserted six claims, all on behalf of the plaintiffs both individually and collectively. Four claims were based on Leasing’s conveyance of the Green Road Property to Signature; two involved the transfer of DynaVision’s interest in Signature to the Active Members. We begin with the claims regarding the Green Road Property.

The first claim was that Leasing, and Ledford, O’Dell, Smith, Thomas, and Owenby as owners of interests in Leasing, mistakenly executed the warranty deed conveying the Green Road Property to Signature and thus were entitled to a rescission of that transaction. The second claim was that Smith induced Ledford and O’Dell to execute the warranty deed by falsely representing that FNBC needed a corrective document without warning that the document was in fact a warranty deed.

The third claim was that Smith and the Active Members breached their fiduciary duties to Leasing, causing Leasing to lose the value of the Green Road Property, on two occasions — when Smith induced Ledford and O’Dell to sign the warranty deed under false pretenses and when the Active Members refused to cause Signature to return the property to Leasing. The fourth claim was that Signature, Smith, Thomas, and Owenby were unjustly enriched by the acquisition of the Green Road Property. The fifth and sixth claims involved the transfer of DynaVision’s interest in Signature.

The fifth claim, a fraud claim, alleged that upon presenting the conditional Put and Call on February 8, 2002, Smith falsely stated that the Active Members were “doing this on our own,” intentionally inducing DynaVision to sell its interest. The sixth claim alleged that by failing to disclose their discussions and final arrangements with Peeples, the Active Members breached fiduciary duties imposed by the Operating Agreement, the Georgia Limited Liability Company Act, and Georgia common law.

On August 13, 2003, after the parties had joined the issues, plaintiffs moved the state court for leave to amend their complaint to add Peeples and his two companies, PFLC, LLC and Internal Management, Inc., as co-defendants. Plaintiffs represented that they had not learned of Peeples’s involvement until the day before, August 12, when they took Owenby’s deposition and Owenby testified that Peeples had provided the funds to enable the Active Members to trigger the Put and Call. The state court heard oral argument on the motion on September 25, 2003, after discovery had closed.

It denied the motion on October 29, 2003, concluding that DynaVision “knew or should have known” at the time it filed its complaint that Peeples was “involved.” In its order, the court noted that plaintiffs, in their complaint, had alleged that a third party had been involved in negotiations with the Active Members and DynaVision in early January 2002 over a possible purchase of Signature, but that these negotiations were unsuccessful.

Further, they had alleged, “upon information and belief,” that a third party had financed the Active Members’ acquisition of DynaVision’s interest in Signature and, after the Active Members had DynaVison’s interest in hand, had purchased Signature’s assets. In addition, Ledford had deposed that he knew that Peeples was involved in the January negotiations. It should have been obvious to DynaVision that since Peeples was involved in the January negotiations, he was the party that likely financed the Active Members and purchased Signature.

In addition, the court reasoned, adding Peeples as a party at that late stage of the litigation, after discovery had closed, would cause Peeples undue prejudice. Plaintiffs moved the court to reconsider its ruling. The court denied their motion on March 8, 2004.

In its order, the court was highly critical of plaintiffs’ delay in attempting to join Peeples as a party defendant: [As a result of Ledford’s deposition testimony] the Court [in its October 29 order] concluded that .the Plaintiffs knew of the involvement of the Peeples Group, at the time the original Complaint was filed____ The Plaintiffs then waited nine months, until August 13, 2003, before filing for leave to amend. The Plaintiffs had carefully waited until after the deposition of Shelby Peeples [on June 27, 2003] and until after the close of discovery to have their motion heard [on September 25, 2003].

In making the October 2003 ruling, this Court determined that the Plaintiffs engaged in a deliberate scheme to delay joinder without excuse or justification. Therefore, the Court finds that the [Plaintiffs] failure to offer evidence of excuse or justification is an independent reason that the Plaintiffs’ Motion [for Reconsideration] should be denied. B. 1.

On January 7, 2004, while their motion for reconsideration was pending in state court, plaintiffs, still represented by Joiner, Mixon, and Brackett, brought the instant lawsuit against Peeples, PFLC, LLC, and Internal Management, Inc. in the United States District Court for the Northern District of Georgia. The complaint was framed in 116 paragraphs and seven counts. Each count incorporated by reference each preceding count, such that Count Seven amalgamated and asserted all of the claims of the preceding counts.

Plaintiffs’ complaint is a “shotgun” pleading in that it lumps multiple claims together in one count and, moreover, appears to support a specific, discrete claim with allegations that are immaterial to that claim. See, e.g., Byrne v. Nezhat, 261 F.3d 1075, 1128-32 (11th Cir.2001). When faced with a complaint like the one here, in which the counts incorporate by reference all previous allegations and counts, the district court must cull through the allegations, identify the claims, and, as to each claim identified, select the allegations that appear to be germane to the claim.

This task can be avoided if the defendant moves the court for a more definite statement or if the court, acting on its own initiative, orders a repleader. In this case, Peeples did not move the court for a more definite statement, nor did the court require one on its own initiative. Consequently, it is left to this panel to identify in the first instance what plaintiffs were claiming. We do so by proceeding allegation by allegation and count by count, weeding out and disregarding as extraneous the allegations that have no bearing on a claim.

We begin this process with Count One, which alleged three violations of the federal securities laws. First, after the Put and Call offers of both February 8 and February 25, Peeples denied any involvement in the Active Members’ plan to acquire DynaVision’s interest, thereby violating

section 10(

b) of the Securities Exchange Act of 1934 (the “1934 Act”) and Rule 10b — 5(

b) promulgated thereunder. Second, Peeples “directly or indirectly controlled] the activities of the Active Members” using the “Confidentiality” and “No Discussions with Others” provisions of the January 21 letter, the “secret discussions” of January and February 2002, and the Asset Purchase Agreement. As such, Peeples was responsible for the Active Members’ conduct in violation of

section 10(

b) and Rule 10b-5(

b) as a “controlling person” under

section 20(

a) of the 1934 Act. Specifically, Peeples was responsible for Smith’s statement that we are “doing this on our own” and the Active Members’ breach of their fiduciary duty to DynaVision. Third, Peeples and the Active Members engaged in a “scheme, device, and artifice to defraud” DynaVision, in violation of

section 10(

b) and Rule 10b-5(a). In support of their 10b-5(

a) claim, plaintiffs, in their opposition to Peeples’s motion for

summary judgment, identified three components of the “scheme”:

(1) Peeples and the Active Members agreed not to disclose their negotiations, as evidenced by the January 21 letter;

(2) Peeples and the Active Members used the Put and Call provision “to improperly exclude DynaVision from participating in the sale of [Signature] to Peeples;” and

(3) Peeples and the Active Members collaborated to “deceive the individual Plaintiffs into signing [the] Warranty Deed.” Finally, the plaintiffs alleged that the misrepresentations, omissions, and scheme described in Count One caused DynaVision to sell its interests and suffer injury.

Paragraph 64 of the district court complaint stated: Based upon the false and misleading information concerning [Signature] and the source of funding for the buy/sell offers, which had been provided by the Active Members and Defendants, and in reliance on their misrepresentations that there was no offer to purchase [Signature] outstanding, DynaVision chose to sell its interest in [Signature], rather than purchase the interest of the [Active Members].

As a result, in late March 2002, DynaVision became contractually required to sell its interest in [Signature] to the Active Members pursuant to the terms of the [Signature] Operating Agreement. Counts Two through Five alleged causes of action under Georgia common law and statutory provisions. Count Two, “Violation of the Georgia Securities Act,” alleged that the same conduct that gave rise to the Count One claims for relief rendered Peeples liable to plaintiffs under the Georgia securities laws.

Count Three, “Conspiracy to Defraud,” alleged that Peeples conspired with the Active Members to (1) fraudulently induce DynaVision to sell its interest in Signature and (2) fraudulently induce Leasing to convey the Green Road Property to Signature.

Count Four, “Aiding and Abetting Breach of Fiduciary Duties,” alleged that the Active Members, aided and abetted by Peeples, breached the following duties: (1) the fiduciary duty to DynaVision to inform it that Peeples was supporting the February 25 Put and Call, and (2) the fiduciary duty to Leasing, and Ledford and O’Dell as Leasing’s part owners, to inform them that the document they signed at FNBC was a warranty deed, and (3) the fiduciary duty to Leasing to cause Signature to convey the property back to Leasing.

Count Five, “Tortious Interference with Business Relations,” alleged that Peeples tortiously interfered with the Active Members’ business relations with DynaVision. Count Six, “Attorneys’ Fees,” sought plaintiffs’ expenses, including attorney’s fees, incurred in prosecuting Counts One through Five.

Count Seven, “Punitive Damages,” sought punitive damages as to each of plaintiffs’ claims on the ground that the “[defendants have acted in bad faith and have been stubbornly litigious and caused Plaintiffs unnecessary trouble or expense.” On March 9, 2004, the day after the state court refused to reconsider its October 29, 2003 order denying plaintiffs’ motion for leave to join Peeples as a party defendant, Peeples moved the district court to dismiss plaintiffs’ complaint. Alternatively, he requested that the district court stay further proceedings pending the state court’s resolution of Ledford v. Smith.

He requested a stay because the Active Members had moved the state court for

summary judgment, which, if granted, could settle through issue preclusion some of the factual issues involved in plaintiffs’ district court claims. The state court heard argument on the

summary judgment motions on April 1, 2004. On May 17, 2004, the district court denied Peeples’s motion to dismiss and, alternatively, for a stay. On June 6, 2004, Peeples answered plaintiffs’ complaint. 2. On May 18, 2004, the state court ruled on the pending motions for

summary judgment. It granted defendants

summary judgment on the fourth and fifth claims and on the sixth claim in part. It denied

summary judgment on the first, second and third claims and on the sixth claim in part on the ground that material issues of fact remained to be litigated. Regarding the sixth claim, the court found that the Active Members had a fiduciary duty to inform DynaVision of Peeples’s involvement under the Limited Liability Company Act and Georgia common law, but not under the Operating Agreement. Plaintiffs appealed the court’s dismissal of the fifth claim, that the Active Members fraudulently induced DynaVision to part with its interest in Signature.

The Active Members cross-appealed the court’s disposition of the first claim, that Leasing conveyed the Green Road Property due to mutual mistake; the second claim, that Smith fraudulently induced the transfer of the Green Road Property to Signature by misrepresenting the warranty deed; and part of the sixth claim, that the Active Members breached a fiduciary duty to inform DynaVision of Peeples’s participation. Plaintiffs did not appeal the court’s disposition of their fourth claim, unjust enrichment through the transfer of the Green Road Property, and the Active Members did not appeal the court’s denial of

summary judgment on plaintiffs third claim, that the Active Members had breached a fiduciary duty to Leasing, O’Dell, and Led-ford with respect to the transfer of the Green Road Property. While these appeals were pending in the Georgia Court of Appeals, the district court set February 26, 2005 as the discovery deadline. 3. On July 12, 2005, the Georgia Court of Appeals handed down its decision. Ledford v. Smith, 274 Ga.App. 714, 618 S.E.2d 627 (2005). The court affirmed the

summary judgment for the Active Members on plaintiffs’ fifth claim, reversed the denial of

summary judgment on plaintiffs’ second claim (effectively granting the Active Members judgment on that claim), and reversed part of the sixth claim. After the decision, only the plaintiffs’ first claim, which alleged that Leasing conveyed the Green Road Property because of mutual mistake, survived. The court of appeals explained why it held for the Active Members on all but plaintiffs’ first claim. It began with plaintiffs’ sixth claim, that the Active Members had a fiduciary duty under the Limited Liability Company Act and common law to disclose their negotiations with Peeples.

After observing that default fiduciary duties are trumped by an operating agreement, Ledford, 618 S.E.2d at 636, the court explained that Signature’s Operating Agreement allowed the Active Members to obtain Peeples’s assistance in funding the Put and Call. Citing

Section 7.3 of the Operating Agreement, which authorized the Active Members to “engage in all ... other business ventures ... but no Active Member shall engage in businesses similar to the business of the [Signature] by competing with the business of the Company,” the court reasoned that: This provision gave the Active Members wide latitude to engage in all other business activities except those “similar to the business of’ [Signature], that is, a “competing” carpet company.

The provision was broad enough to allow the Active Members to negotiate with Peeples for the purpose of obtaining financing to fund their buy-out of DynaVision’s interest in [Signature]. This activity did not “compete” with [Signature]; thus, it did not fall within the exception. Any fiduciary duty of disclosure that the Active Members’ may have owed Dyna-Vision with respect to such a business arrangement was eliminated by the terms of an operating agreement that allowed the business activity which occurred. See Stoker v.

Bellemeade, 272 Ga.App. at 824, 615 S.E.2d 1 (members of an LLC did not breach fiduciary duties by participating in other allegedly competing real estate developments because operating agreement allowed them to do so). Ledford, 618 S.E.2d at 636. The court also rejected plaintiffs’ argument that the Operating Agreement’s Right of First Refusal provision, in

Section 9.2.1, created a fiduciary duty that required the Active Members to disclose their intention to sell Signature’s assets to Peeples. The court explained: As the superior court correctly concluded, this provision was plainly “intended to prevent outsiders from buying into [Signature]. In this way, the Members maintained control over who their business ‘partners’ were to be.” Because the Active Members’ proposed buy-out of Dyna-Vision’s interest would not allow a third party to buy into [Signature] and become Dyna-Vision’s business partner, the purpose of the right of first refusal was not implicated.

Therefore, [Section] 9.2.1 did not require the Active Members to disclose to Dyna-Vision how it intended to finance its buy-out offer. Id. at 634. Turning to plaintiffs’ fifth claim, that the Active Members fraudulently induced DynaVision to sell its interest, the court held that

summary judgment was appropriate because the Active Members’ failure to inform DynaVision of their deal with Peeples did not cause DynaVision’s decision to sell. Once the Active Members invoked the Operating Agreement’s Put and Call provision, DynaVision, by its principals’ own deposition testimony, had no feasible option but to sell its interests.

As the court observed: Moreover, both Ledford and O’Dell deposed that, even if they could have raised the money to buy out the Active Members, owning [Signature] without the Active Members would have been “foolish” and “made no sense” because the Active Members were the heart of [Signature’s] value. As O’Dell admitted “we didn’t really have a choice .... We didn’t have a management group .... The day the put and call came in, I wouldn’t give two cents for finding a group to replace them.” Because Peeples’s involvement did not affect the value of the Active Members’ interest, it was immaterial.

Or, stated differently, [plaintiffs] cannot show that they suffered any damage as a result of their alleged reliance on the Active Members’ affirmative misrepresentation that Peeples was not involved in the buy-out .... Consequently, they could not prove causation or damages, which were essential to their fraud claims. Id. at 634-35. The court then addressed the plaintiffs’ second claim, that Smith, and thus the Active Members, fraudulently induced Leasing to sign the warranty deed at FNBC by asking Ledford and O’Dell to sign the deed without disclosing the nature of the document.

Because it found no evidence of misrepresentation, the court concluded that on this claim, the Active Members were entitled to

summary judgment. It held: In this case, the evidence shows that FNBC, on its own initiative, drafted the warranty deed and asked all the parties to the loan closing to sign this “corrective paper.” Although Ledford and O’Dell contend they signed the document because Smith asked them to do so, the evidence only shows that Smith was relaying the bank’s request. There is no evidence in the record that Smith caused the deed to be drafted, acted in concert with the bank, or misrepresented or concealed the document’s nature.

In fact, it appears from the record that Smith was as ignorant of the document’s significance as Ledford and O’Dell. Under these circumstances, we see no evidence of a fraudulent statement or the concealment of a material fact that Smith was under a duty to disclose. Id. at 636-37. 4. On July 15, 2005, shortly after the Georgia Court of Appeals’s opinion issued, Peeples’s counsel sent a letter to plaintiffs’ counsel, requesting that plaintiffs dismiss all claims against Peeples.

On July 25, plaintiffs’ counsel responded, stating that nothing in the court’s opinion warranted dismissal and that they had moved the court of appeals for reconsideration. On July 28, 2005, the motion for reconsideration was denied. On August 1, Peeples’s counsel again wrote plaintiffs’ counsel, asking that plaintiffs agree to a stay of proceedings in the district court. Plaintiffs’ counsel rejected that request the next day; they planned to petition the Supreme Court of Georgia for a writ of certiorari. On September 22, Peeples moved the district court for

summary judgment on all of plaintiffs’ claims. In the brief accompanying the motion, Peeples cited the court of appeals’s Ledford decision and stated: Should the Georgia Supreme Court deny Plaintiffs’ petition for certiorari or affirm the Georgia Court of Appeals’ order, then Plaintiffs’ derivative liability claims in the federal action are collaterally estopped. In the absence of affirmance or denial, the reasoning of the Georgia Court of Appeals, the applicable Georgia law as cited, and the conclusions reached on the undisputed facts as present in this case are instructive and may be considered by this Court.

On October 31, plaintiffs’ counsel responded to this statement in their brief in opposition to Peeples’ motion for

summary judgment: As an initial matter, throughout their brief, the Defendants refer to an Opinion of the Georgia Court of Appeals in a state court proceeding between the Plaintiffs and the Active Members .... The state court case has no effect on the central securities fraud claims in this action; the opinion is not binding on this Court. Furthermore, a petition for certiorari has been filed with the Georgia Supreme Court seeking to correct the multitude of legal and factual errors contained in that opinion.

On November 18, the Georgia Supreme Court denied plaintiffs’ petition for certiorari review in the state court case. Ten days later, plaintiffs moved the Court to reconsider its decision. The court denied plaintiffs’ motion on December 16. The denial operated to make the court of appeals’s Ledford decision binding authority on matters of Georgia law. See Lexington Developers, Inc. v. O’Neal Const. Co., Inc., 143 Ga.App. 440, 238 S.E.2d 770, 770-71 (1977). On December 22, the district court, in a comprehensive sixty-eight page order, granted Peeples’s motion for

summary judgment on all of plaintiffs’ claims. Using the doctrine of collateral estoppel, the court disposed of Count Three, that Peeples conspired with the Active Members to defraud DynaVision into selling its interest in Signature, and Count Five, that Pee-pies tortiously interfered with the Active Members’ business relationship with DynaVision. The court rejected plaintiffs’ Count Four claims, that Peeples aided and abetted the Active Members’ breach of fiduciary duties, on the ground that Georgia law did not recognize such claims.

The court disposed of Counts One and Two, charging Peeples with securities fraud, on the grounds that plaintiffs failed to demonstrate a genuine issue of material fact as to the several elements of those claims. 5. On January 9, 2006, Peeples moved the district court pursuant to Rule 59(

e) of the Federal Rules of Civil Procedure to alter and amend its judgment. He argued that, with respect to plaintiffs’ federal securities law claims in Count One, the court had failed to issue the findings required under the PSLRA. The PSLRA requires a district court, upon final adjudication of a federal securities law claim, to “include in the record specific findings regarding compliance by each party and each attorney representing any party with each requirement of Rule 11(

b) of the Federal Rules of Civil Procedure as to any complaint, responsive pleading, or dispositive motion.” 15 U.S.C. § 78u-4(c)(1). Peeples urged the court to sanction plaintiffs and their counsel for failing to comply with Rule 11. He also requested sanctions for the Count One claims pursuant to 28 U.S.C. § 1927 and the district court’s inherent power. Plaintiffs and their attorneys filed separate responses to Peeples’s request for attorney’s fees and expenses under the PSLRA.

Plaintiffs, represented in the matter of sanctions by new attorneys, claimed that they did not misrepresent the historical facts to counsel, did not advise counsel regarding the law, and were not responsible for the manner in which counsel litigated the case. Relying on our decision in Byrne v. Nezhat, 261 F.3d 1075 (11th Cir.2001), plaintiffs averred that sanctions against them would not be appropriate.

In their separate response, plaintiffs’ attorneys, asserted, in essence, that a reasonably competent attorney would.have recognized that the claims set out in Count One of the complaint were cognizable under the federal securities laws. On March 21, 2006, the district court granted Peeples’s motion to the extent that it sought PSLRA findings, but refused to sanction plaintiffs or their counsel, finding that they had acted in compliance with Rule 11 in pleading and prosecuting their case. 6. All five plaintiffs now appeal the district court’s disposition of each of their claims.

Their brief, however, presents no argument as to Counts Three and Five through Seven. We therefore treat as abandoned their appeal of the district court’s disposition of those counts. We also treat as abandoned the appeal of the court’s disposition of plaintiffs’ claims under two of the federal securities laws. As noted, Count One contained claims under

section 20(

a) of the 1934 Act and Rules 10b-5(

a) and (b). Plaintiffs’ brief presents no argument in support of their

section 20(

a) and Rule 10b-5(

a) claims, and, as in the case of Counts Three and Five through Seven, we deem the appeal of the court’s disposition of those claims to have been abandoned. Accordingly, what remains are plaintiffs’ Count One claims under Rule 10b — 5(b); their Count Two claims under the comparable Georgia securities law provision; and part of their Count Four claim, that Peeples aided and abetted the Active Members’ breach of their fiduciary duty regarding the handling of the Green Road Property.

Peeples cross-appeals the district court’s refusal to sanction plaintiffs and their counsel as required by the PSLRA for prosecuting Count One of the complaint. Our review proceeds as follows. We first consider our jurisdiction over plaintiffs’ Count One 10b-5(

b) claims. Next, we move to plaintiffs’ Count Four aiding and abetting claims. After that, we take up the PSLRA sanctions issues. III. Before we assess the merits of plaintiffs’ Rule 10b-5(

b) claims, we address a threshold question: whether we have subject matter jurisdiction, under 28 U.S.C. § 1331 and 15 U.S.C. § 78aa, to entertain the claims. Hernandez v. Att’y Gen., 513 F.3d 1336, 1339 (11th Cir.2008) (“[WJe must inquire into subject matter jurisdiction sua sponte whenever it may be lacking.”). We find the answer to that question in two Supreme Court decisions, Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975), and Bell v. Hood, 327 U.S. 678, 66 S.Ct. 773, 90 L.Ed. 939 (1946).

Under Blue Chip Stamps, a plaintiff must be a purchaser or seller of a security to have a private cause of action under Rule 10b-5. Here, one seller, DynaVision, sold, at most, one security, a fifty-percent interest in Signature. Accordingly, DynaVision, as the seller of a security, had standing to sue Peeples under Rule 10b-5. Ledford, O’Dell, Walker, and Leasing (“co-plaintiffs”) did not. The district court should have recognized this at the time it considered and ruled on Peeples’s motion to dismiss the complaint.

After concluding that co-plaintiffs failed to state a claim under Rule 10b-5, the court should have moved to the question of whether to dismiss their claims for want of subject matter jurisdiction under Rule 12(b)(1) of the Federal Rules of Civil Procedure. Bell v. Hood holds that “a suit may sometimes be dismissed for want of jurisdiction where the alleged claim under the Constitution or federal statutes clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction or where such a claim is wholly insubstantial and frivolous.” 327 U.S. at 682-83, 66 S.Ct. at 776 (emphasis added).

The word “may” implies that the dismissal of a claim for want of jurisdiction is committed to the sound discretion of the district court. But, just as in any instance where a district court has discretion, that discretion can be abused. Here, co-plaintiffs’ federal securities fraud claims were plainly and indisputably frivolous. They were, in the Supreme Court’s words, “so patently without merit as to justify ... the court’s dismissal for want of jurisdiction.” Id. Moreover, no amendment of the complaint could possibly have cured its patent, and fatal, deficiency, that co-plaintiffs lacked standing to sue.

In such an extreme case, the district court abused its discretion in failing to dismiss co-plaintiffs’ Count One claims for want of jurisdiction. Co-plaintiffs’ inability to invoke the district court’s jurisdiction under 28 U.S.C. § 1331 and 15 U.S.C. § 78aa for Count One did not foreclose their right to litigate the claims asserted in Counts Two through Seven. Despite the fact that Counts Two through Seven do not implicate a federal question, they are joined in the case by a series of jurisdictional steps.

First, because DynaVision sold a security, the district court had jurisdiction under 28 U.S.C. § 1331 and 15 U.S.C. § 78aa to adjudicate DynaVision’s Count One securities fraud claims.

Second, the court therefore had supplemental jurisdiction under 28 U.S.C. § 1367 to adjudicate any other claims DynaVision had against Peeples that were “so related to” the Count One claims that they formed part of “the same case or controversy.” DynaVision’s claims in Counts Two through Seven, given the manner in which the complaint presented them, appear to have been so related to DynaVision’s Count One’s allegations, that they formed part of the same case or controversy described in Count One.

Finally, Rule 20 of the Federal Rules of Civil Procedure authorized co-plaintiffs to join DynaVision as plaintiffs in Counts Two through Seven since their claims arose out of “the same transaction, occurrence, or series of transactions or occurrences” forming the predicate for DynaVision’s claims. Except as to Count One, therefore, we have jurisdiction to consider co-plaintiffs’ claims. IV. With jurisdiction established, we now turn to plaintiffs’ remaining securities fraud and aiding and abetting claims. We address these claims in turn, affirming the district court’s grant of

summary judgment for Peeples. A. In a typical

section 10(

b) civil action for a violation of Rule 10b-5(b), 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, 128 S.Ct. 761, 768, 169 L.Ed.2d 627 (2008).

To establish a genuine issue of material fact as to the reliance element, plaintiffs had to present evidence that, in conversations with Paul Walker, Peeples stated that he was not involved in the Active Members’ attempt to acquire DynaVision’s interest in Signature, that his statements were false, that DynaVision’s principals reasonably relied on the statements, and that because of that reliance, the principals caused DynaVision “to engage in the transaction in question.” Robbins v. Koger Properties, Inc., 116 F.3d 1441, 1447 (11th Cir.1997) (quotation omitted).

Put another way, plaintiffs had to demonstrate that but for Peeples’s statements, DynaVision would not have sold its interest but, instead, would have bought the Active Members’ interests. Huddleston v. Herman & MacLean, 640 F.2d 534, 549 (5th Cir. Mar.1981), rev’d on other grounds, 459 U.S. 375, 103 S.Ct. 683, 74 L.Ed.2d 548 (1983) (“Reliance is a causa sine qua non, a type of ‘but for’ requirement: had the investor known the truth he would not have acted.”).

After carefully considering the evidence before it, the district court concluded that no genuine issue of material fact existed as to this element: Peeples’s denial of any involvement in the Active Members’ plan did not cause DynaVision to sell its interest.

The court explained: The evidence in the record, viewed in the light most favorable to Plaintiffs, shows that Plaintiffs themselves did not have the necessary experience, marketing skills, and expertise to run [Signature] in the absence of the Active Members, and that Plaintiffs’ attempts to obtain a management group and necessary personnel to work with [Signature] were unsuccessful. Plaintiffs themselves testified that it would be foolish or risky to purchase the Active Members’ interests in [Signature] without having a management group or marketing group in place to replace the Active Members.

Although Plaintiffs summarily contend that they would have acted differently if they had known of Defendant Peeples’ involvement, that

summary and conclusory contention is not sufficient to allow Plaintiffs to avoid

summary judgment. Indeed, knowledge of Defendant Peeples’s involvement would not have changed the fact that Plaintiffs did not have the necessary experience, marketing skills, and expertise to run [Signature], and that Plaintiffs’ attempts to obtain a management group and necessary personnel to work with [Signature] were unsuccessful. The failure to disclose Defendant Peeples’ involvement thus did not cause Plaintiffs’ decision to sell Plaintiff DynaVision’s interest under the February 25, 2002, Put and Call .... B.

To obtain a reversal of the district court’s resolution of the reliance issue, plaintiffs must satisfy us that the evidence in the record creates a jury issue as to whether DynaVision would have purchased the Active Members’ interests, rather than sell its interest, had Peeples told Paul Walker and Ledford that he was providing the Active Members the $3.5 million they needed to close the transaction. There is no direct evidence that DynaVision would have elected to buy the Active Members’ interests had Peeples admitted that he was providing the money.

Because there is no direct evidence that DynaVision would have elected to buy, we ask whether such election can be inferred from the record. Specifically, we ask whether it can be inferred as an ultimate fact from the subsidiary, circumstantial facts shown by the evidence, viewed in the light most favorable to plaintiffs. Plaintiffs argue that circumstantial facts sufficient to create the inference are present.

Peeples argues that they are not, that the circumstantial facts create the contrary inference: DynaVision sold because doing so was in the economic self-interest of its principals, and it would not have elected to buy even if it had known of Peeples’s involvement. In assessing these opposing positions, our first task is to identify the circumstantial facts that the evidence establishes as a matter of law.

Once that is done, we determine whether it would have been permissible for a jury to draw the inference that DynaVision would have elected to purchase the Active Members’s interests had it known that Peeples was providing the $3.5 million that enabled the Active Members to close. The evidence discloses three sets of circumstantial facts, with inferences flowing from each set. We summarize each set in the headings of the following sub-parts and conclude that, as a matter of law, DynaVision’s principals would have sold even if they had known about Peeples’s involvement. 1.

DynaVision lacked the expertise necessary to operate Signature’s factory and market Signature’s product. Consequently, if the Active Members left, there would be no one to run the company, and Signature’s value would rapidly decline. There is no dispute regarding the roles that DynaVision’s principals and the Active Members performed for Signature. The principals functioned as Signature’s financiers.

By establishing the $200,000 line of credit, they were able to provide Signature with the funds required to start the business and pay the bills until carpet sales generated enough income to cover the company’s operating expenses. The Active Members were the managers of the enterprise. Owenby and Thomas handled the manufacturing and sales. Smith, the company’s president, was in charge of marketing, since she was well and favorably known in the hospitality industry and thus capable of attracting a considerable volume of business.

By their own admission in depositions taken in the state court case and in this case, DynaVision’s principals could not, themselves, replace the Active Members, most notably Smith, for the principals had no experience in manufacturing carpet and were virtually incapable of marketing Signature’s products. Ledford testified that the principals had no “experience with [the] customer base” and therefore could not run the company.

He emphasized Smith’s key role in marketing Signature’s products, stating that “had we been able to retain Brenda, we would have purchased the company.” Paul Walker said that “none of the DynaVision Group were a part of the everyday management or marketing of Signature” and that this “was [the] only reason” why DynaVision did not elect to purchase the Active Members’ interest after the Put and Call issued.

O’Dell admitted that DynaVision’s principals were not qualified to run the company- In addition to this testimony, DynaVision’s principals’ conduct towards the Active Members spoke volumes about how important the principals felt it was to keep the Active Members in the company, at least until the principals themselves decided to sell. The principals included in the Operating Agreement a provision that made it highly unlikely that the Active Members would leave Signature before the principals were ready to sell. If an Active Member sold his or her interest in the company,

Section 10.4 of the Agreement would preclude that Member from competing with Signature for a period of one year. Because they were not financially independent, the Active Members would presumably need to find other employment in the carpet business upon leaving the company. Lying idle for a year would be burdensome, and an Active Member would therefore think twice before leaving Signature. The principals also included a provision to make it hard for the Active Members to buy out DynaVision before DynaVision was ready to sell.

Section 9.1 of the Operating Agreement addressed the possibility that the Active Members might attempt to buy DynaVision’s interest pursuant to the

Section 9.5 Put and Call provision. DynaVision’s principals knew the Active Members lacked the personal resources sufficient to make an offer that DynaVision’ principals would be tempted to accept; consequently, the Active Members would have to borrow the money to fund any buy-out. Obtaining a conventional loan from a bank or other lending institution would require collateral, and the only collateral they had of significant value was their individual interests in Signature.

Section 9.1, however, barred the Active Members from pledging their interests to a lending institution. As a practical matter, then, the only way the Active Members could attempt a buy out DynaVision’s interest would be to find someone like Peeples — someone willing to advance the purchase price on the condition that, after acquiring DynaVision’s interest, the Active Members would sell him all or part of the business and agree to stay on and run the company.

Joiner revealed how indispensable the Active Members were to Signature’s value in the letter he wrote to Krevolin on April 11, 2002, nineteen days before the closing was to take place.

In the letter, Joiner informed Krevolin that DynaVision would refuse to close unless the Active Members signed a new agreement with DynaVision and, as required by that new agreement, represented in writing that they were acquiring DynaVision’s interest “solely for [their] own account ... without the financial participation of [a third party].” Although Joiner pointed to nothing in the Operating Agreement that would require the Active Members to make these representations, he, or his clients, apparently thought Krevolin would agree that the Agreement, read as a whole, required that the representations be made.

If Krevolin had agreed, he would have advised his clients that they could not honestly make such misrepresentations without inviting DynaVision to claim fraud. See McFarland v. Kim, 156 Ga.App. 781, 275 S.E.2d 364, 366 (1980) (holding that misrepresentations about present state of mind are actionable as fraud). The misrepresentations would also have given DynaVision an affirmative defense in the event the Active Members sued for specific performance.

Defending an action for fraud or countering an affirmative defense in a suit for specific performance would be expensive and could be very unpleasant; Joiner apparently thought Krevolin would therefore advise his clients to abandon their plans and continue to manage Signature in partnership with DynaVision. Krevolin’s response, in a letter to Joiner dated April 16, was brief: The Active Members would not make the representations Joiner’s letter was seeking, and moreover, if DynaVision refused to close, the Active Members would take it to court.

As far as the Active Members were concerned, their business relationship with DynaVision’s principals was at an end. The principals’ threat of litigation if the Active Members did not abandon the Put and Call had gone for naught. Joiner informed Ledford of Krevolin’s response, and, after considering DynaVision’s options, Ledford instructed Joiner to go forward with the closing on April 30, as previously agreed. 2.

DynaVision’s principals could not have persuaded the Active Members to remain with the company, obtained a management team to replace them, or located a buyer for Signature, even if Peeples admitted his involvement. DynaVision’s principals have conceded that they were unable to persuade the Active Members or Smith individually to remain with Signature and that they were unsuccessful in finding a suitable management team to replace them. They likewise have conceded that they had no success in locating a carpet company or an investor willing to purchase the company.

Two of the three carpet manufacturers Ledford and O’Dell contacted, Mohawk Carpets and Clay Miller Carpets, expressed no interest in buying Signature, even if doing so meant keeping the firm out of Peeples’s hands. Jerry Thomas of Matel Carpets expressed interest but only if Smith and the other Active Members would be willing to stay with Signature, which they were not. In their brief to us, however, plaintiffs argue that Ledford and O’Dell would have been able to find a buyer for $8.5 million if Peeples had simply admitted his involvement in the Put and Call.

With a buyer’s commitment in hand, DynaVision would have then purchased the Active Members’ interest for $3.5 million and reaped a $5 million profit. Plaintiffs explain that once Peeples admitted his involvement, DynaVision’s principals would have discovered that he agreed to pay $10 million for Signature (including $3.5 million to DynaVision). Ledford and O’Dell would have then had two excellent selling points when offering Signature to Mohawk, Clay Miller, and Matel.

First, because Peeples was going to pay $10 million for Signature, their asking price of $8.5 million was not only reasonable, it was an exceptional bargain. Second, Peeples saw Signature as an effective way to reach the hospitality industry. By buying Signature, Peeples’s competitors could gain entry to the hospitality market and, at the same time, keep Peeples out. Plaintiffs argue: Had [DynaVision] known the truth, DynaVision’s chances of finding a buyer willing to pay more than $7 million for [Signature] would have increased dramatically.

Potential buyers and investors would certainly view the [Active Members’] agreement to sell [Signature] for $10 million to the Peeples Group as material. Thus, those contacted by DynaVision during the [thirty-day] election period may have acted differently, themselves, had they known of the agreement between the Peeples Group and the Active Members. Such knowledge may have increased their assessment of the value of the company or validated the value mentioned by DynaVision.

Moreover, knowledge of a strategic acquisition by Shelby Peeples might have inspired those with marketing experience to assist DynaVision in order to maintain their competitive advantage. Knowledge of the truth could have enabled DynaVision to find a purchaser and/or marketing group for [Signature]. Appellants’ Br. at 39-40. Several flaws in plaintiffs’ argument are immediately obvious. First, there is no support in the record for the statement that Peeples agreed to pay the Active Members $10 million for Signature at any time, let alone during the thirty-day election period.

The most Peeples ever offered for Signature was roughly $6.5 million. In the January 21 letter of intent, Peeples discussed loaning the Active Members $3.5 million to enable them to purchase DynaVision’s interest and then forgiving the loan and paying them $3 million for Signature’s assets once they acquired the company. In actuality, Peeples paid around $6 million to acquire Signature. Following the closing, he forgave the $3.5 million loan he had given the Active Members and paid $2.25 million for Signature’s assets. He lowered the price upon discovering an error in the company’s books.

To arrive at the $10 million figure, plaintiffs add the bonuses Peeples agreed to pay the Active Members under the Asset Purchase Agreement and employment contracts to the amount he actually paid for Signature’s assets. The amount of these bonuses, however, was contingent on Signature’s future performance; the Active Members would only be eligible if Signature made a profit above a certain amount on a yearly basis. Consequently, the bonuses are not part of Peeples’s payment for Signature; they are simply part of the Active Members’ compensation arrangements for their continued service with the company.

Second, plaintiffs have not explained how they would have learned of the price Peeples intended to pay for Signature. According to the Georgia Court of Appeals, the Active Members had no obligation under the Operating Agreement to reveal the details of their plan. Ledford, 618 S.E.2d at 633-36. If Paul Walker had asked about these details, Peeples’s response would therefore undoubtedly have been that it was none of his business.

This is essentially what Krevolin told Joiner when Joiner demanded that the Active Members represent prior to closing that they were purchasing DynaVision’s interest “solely for [their] own account” and “without the financial participation of any other Person,” meaning without Peeples’s participation. Plaintiffs would therefore not have been able to lure potential buyers by telling them that Peeples offered $10 million for the company.

Instead, plaintiffs’ best selling pitch was the one they actually used: Peeples was going to acquire Signature, and Peeples’s competitors would benefit economically if they stepped in, bought the company, and kept it from falling into Peeples’s hands. 3. The principals had to choose between purchasing the Active Members’ interest and risking the loss of their investment or selling their interest for a $3.5 million profit. DynaVision’s principals had thirty days to decide whether to buy or sell. They opted to sell and received a $3.5 million profit, an extraordinary return on their initial investment.

Ledford and O’Dell also received the release of their obligation to FNBC to guarantee payment of the $911,000 loan the bank had given Signature. Had they opted to buy instead, they would have assumed the risk that the company would have to close down unless they found a management team to run it. Moreover, without a management team, they would have had great difficulty selling the company.

Potential buyers, knowing that Signature’s value was diminishing, perhaps exponentially, would have been able to simply stand by and wait for the day when the principals had no alternative but to take whatever price they could get. Faced with these alternatives, DynaVision’s principals had to choose the one that satisfied their economic self-interest: They had to sell. As the Georgia Court of Appeals, drawing on what Ledford and O’Dell had to say on deposition, observed: Either the Active Members’ interest in [Signature] was worth $3.5 million to Dyna-Vision or it was not.

The fact that Peeples financed the offer could not have materially affected Dyna-Vision’s decision-making with respect to [Signature’s] value, because if Dyna-Vision chose to buy the Active Member’s interest, it could not force Peeples (or any other prospective buyer) to buy [Signature] for a fixed price. And there is no evidence in the record that Dyna-Vision had an interested buyer or that [Signature] had any value to any other prospective buyer.

Moreover, both Led-ford and O’Dell deposed that, even if they could have raised the money to buy out the Active Members, owning [Signature] without the Active Members would have been “foolish” and “made no sense” because the Active Members were the heart of [Signature’s] value. As O’Dell admitted “we didn’t really have a choice .... We didn’t have a management group .... The day the put and call came in, I wouldn’t give two cents for finding a group to replace them.” Because Peeples’ involvement did not affect the value of the Active Members’ interest, it was immaterial. Ledford, 618 S.E.2d at 634-35.

We began this discussion by stating that to obtain a reversal of the district court’s determination that they failed to create a jury issue as to the reliance element of their Rule 10b-5(

b) claims, plaintiffs had to convince the court that the evidence, considered in the light most favorable to them, yielded circumstantial facts from which a jury reasonably could infer that if Peeples had not denied his involvement in the Put and Call, DynaVision’s principals would have purchased the Active Members’ interest. Peeples contends that the evidence establishes circumstantial facts that yield but one inference: DynaVision’s principals had no option but to sell. We agree. Peeples’s misrepresentations played no causative role in the DynaVision principals’ decision to sell to the Active Members. C.

Perhaps realizing the futility of the arguments they have advanced, plaintiffs present an argument that they failed to present to the district court while it was considering the merits of their claims. The argument is founded on

Section 9.1 of the Operating Agreement, which precludes a Member from pledging an interest in Signature as collateral for a loan. Plaintiffs contend that the Active Members breached this provision by pledging their interests in Signature as collateral for the $3.5 million loan they obtained from Peeples. They did not know about the pledge prior to the April 30 closing, they represent, but would have suspected it had Peeples admitted that he was behind the Put and Call. DynaVision now argues that had it suspected that the Active Members had pledged their interests in violation of

Section 9.1, it would have rejected the Put and Call. Then, if the Active Members sued for specific performance, it would have asserted the breach of

Section 9.1 as an affirmative defense, citing the Georgia principle of equity' — that “a party seeking specific performance of a contract must show substantial compliance with his part of the ag

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