Seolas v. Bilzerian

Dr. Waldron Seolas (plaintiff) owned stock in Cimetrix, Incorporated (defendant). Seolas asserted that in late 1994, Paul Bilzerian (defendant), acting as Cimetrix’s agent, told Seolas that Bilzerian had discovered a discrepancy between Cimetrix’s shareholder records and what Cimetrix had reported to the Securities and Exchange Commission (SEC) regarding Seolas’s holdings in Cimetrix. Bilzerian allegedly told Seolas that Cimetrix could not amend its SEC filings, and instead, Seolas needed to return 215,000 shares to Cimetrix to keep Cimetrix from becoming the subject of an SEC investigation. Bilzerian allegedly also told Seolas that if the SEC investigated Cimetrix, Cimetrix’s stock price would decline. Seolas returned the shares to Cimetrix but subsequently sued Cimetrix and Bilzerian, alleging common-law fraud and violations of § 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. Seolas asserted that Bilzerian’s representations to Seolas were fraudulent and that Bilzerian had wrongfully induced Seolas to transfer the shares back to Cimetrix. Specifically, Seolas alleged that (1) Bilzerian had overstated the discrepancy in Cimetrix’s shareholder records, (2) any discrepancy in the records could have been corrected by an amended SEC filing, and (3) Cimetrix was not actually in any danger of an investigation or decreased stock price. Seolas contended that Bilzerian had induced Seolas to transfer the shares to Cimetrix to inflate the value of Bilzerian’s stock options in Cimetrix and allow Bilzerian to fund an employee stock-option plan with Seolas’s shares instead of diluting Bilzerian’s own interest. Cimetrix moved for judgment on the pleadings or summary judgment, asserting that the United States Supreme Court’s 1994 decision in Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A. precluded a § 10(b) action based on respondeat superior or vicarious liability. Thus, Cimetrix asserted that it could not be found liable for Bilzerian’s allegedly fraudulent conduct under respondeat superior principles.