[00:00:03] Speaker 02:
Good morning, Your Honors.

[00:00:04] Speaker 02:
Charles Zavrath on behalf of the appellants Essabeg and Whaley.

[00:00:09] Speaker 02:
I'd like to reserve five minutes for rebuttal.

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Enforcement of contracts according to their terms serves a very important function in our system.

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Enforcement of contracts, according to its terms, preserves and protects and promotes reliability and stability in commercial dealings.

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So, counsel, I think we would agree with all of that, and that's why your client got a jury trial, because we do believe in the enforcement of contracts, and now you've had a jury trial.

[00:00:48] Speaker 03:
Your client was not successful.

[00:00:51] Speaker 03:
Why I mean you're up on a pretty Difficult standard that you got to show there was you know, there was no evidence at all to support the jury's verdict No substantial evidence your honor, but we also believe that there were legal issues.

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Yeah, and The point I was trying to make here is that people that the law in service

[00:01:16] Speaker 02:
of the principle of enforcement of contracts binds parties to their representations and obligations.

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Again, we don't have disagreement.

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But that's not what happened here.

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I want to know why is there no substantial evidence to support the jury's verdict?

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There's no substantial evidence to support the jury verdict.

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Well, which part of the jury verdict?

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Any of it.

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Show me your strongest argument.

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I understand you have a legal argument, so we can address that as well.

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But just to talk about the substantial evidence part, tell me what your strongest argument is for a position that there was no evidence at all that supported the jury verdict.

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No evidence.

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Well, first of all, Your Honor, on the sale of securities, I don't believe that issue should have been submitted to the jury for two reasons.

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First of all, the claim is that there were sale of unregistered securities to unaccredited investors.

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As a legal matter, that doesn't apply here.

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because there's an exemption for registration for non-public offerings.

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And there was nothing public about this transaction.

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Your position is that's a legal issue, or that's still reviewed for substantial evidence?

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My position is that that is a legal issue based upon the uncontradicted facts here, that there were no aspects at all of this transaction that involved the public.

[00:02:54] Speaker 01:
There are contradicted facts, though.

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There was the size of the offering, the $25 million, the fact that there were two potentially unsophisticated investors.

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I don't understand it to be an uncontradicted fact.

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So why is this a legal issue and not one that should have been sent to the jury?

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Because the statute says that there is an exemption for public offerings and there must be some public aspect to it.

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If this transaction could be a public offering, then any transaction could be a public offering.

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That's not true.

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I mean, not all transactions are $25 million.

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No, but there's nothing in the statute that says that the size alone makes something a public offering.

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It has to be a public offering.

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It has to be, there has to be something.

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I think what we're wrestling with is why isn't that a factual issue for a jury to decide?

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What makes this a pure question of law that should never have gone to the jury?

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Because I think the- If size matters and we have to determine what big size, small size, what makes it public or not, why is that a legal determination?

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Because I think when we're interpreting the statute, we have to interpret it according to its plain terms.

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And there's nothing that says in that statute that something is exempt or not exempt for registration if it's a big transaction.

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It has to be a public offering.

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And this was the opposite of it.

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How would you define public offering in a legal way that would preclude this going to a jury?

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How would I define it?

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Yeah.

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I don't know how I would define it, but I would say there has to be some aspect of a transaction that involved the public.

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That there was a solicitation to the public, that there was advertisement to the public.

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What's your best case for that proposition?

[00:05:03] Speaker 02:
The best case for that proposition is the case that they cite.

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I'm sorry, Your Honor.

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It's the platform wireless case.

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It's a limited distribution to highly sophisticated investors rather than a general distribution to the public is not a public offering.

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And that was resolved as a matter of law?

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That never went to the jury?

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I don't remember exactly how that was resolved, Your Honor.

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I think it may have been resolved on summary judgment.

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But again, no, there was nothing about this transaction that had anything to do with the public.

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Now the second point is the accredited investor issue.

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Here's why contracts, why we believe the language of the contracts are important.

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The definition of an accredited investor is someone that meets certain financial requirements or

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the issuer reasonably believes they meet those requirements.

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And how better, how better could you have for a reasonable belief that you meet the requirement, that an investor meets the requirements when he signs on the dotted line that I meet the requirements.

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And we- I mean, whether he meets the requirements, the way you phrase that, that just has jury issue written all over it.

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But there are.

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So you're not disagreeing.

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I guess your argument on this one is not that it's a legal issue, but that there's no evidence.

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The only evidence in there is that he signed on the dot a lot.

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So there's no other conclusion that the jury could have made.

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There's no other conclusion that the jury could reach.

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But there are also, Your Honor, we cited numerous cases, including two court of appeal decision in highly analogous circumstances, which said that as a matter of law, you can't.

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disclaim your creditor investor status if you say that in the contract.

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that the issue is entitled to rely on what you said in the contract.

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I take your point, but is that an automatic estoppel?

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So someone signs the contract and says that they're an accredited investor.

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Is that the end of the analysis?

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Because I, again, understood that there are different factors to go into and that there's more nuance involved.

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But is it your position that

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That alone is enough to take it out of someone being able to claim it.

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Otherwise, I think in this case, it's the end of the analysis.

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Why is that?

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because There is no plausible excuse for their failure to or for their

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failure to disclaim accreditor status.

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They said, well, we didn't read it, or we didn't understand it, or something like that.

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And that is simply not a valid excuse under any law.

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They knew what accreditor status was.

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We're talking here about the corporate lawyer, 20-year corporate lawyer who advised them.

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He knew what accreditor status is when he signed it.

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The other, Mr. Bond, claimed that he had previously been denied ability to invest in a transaction because he wasn't an accreditor.

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But here, he said he was an accredited investor.

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So in this specific case, I don't see how.

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There is an automatic estoppel, I believe.

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There is, because all the requirements of estoppel are met.

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There's a false statement.

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There's no question that the issuer of Mr. Esbeck could rely on it.

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Judge Cronstedt said, well, or the argument was, well, they didn't intend to lie.

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But there's no requirement of intent.

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The question is whether the person receiving the statement could reasonably rely.

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And that's why that statement was in there.

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What other purpose was there to put that statement in there other than that the issuer, Mr. Asabag, could be assured that they were accredited investors?

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And then they changed their position.

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This is all the elements of a stopple are met here.

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And again, it goes back to the basic principle of you sign a contract, you say something,

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You better have a good reason to disclaim it later.

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And they don't have a good reason here.

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I didn't read it.

[00:10:05] Speaker 02:
I didn't understand that it's not a good reason.

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Now, the second issue was the condition precedent.

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And this argument is a combination of legal and lack of evidence issues.

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But what happened here was we had a contract that said the MOU were going to make payments according to a schedule.

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There was an amendment.

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And the only thing the amendment said is we're going to pay $1 million a month earlier.

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But everything else remains the same.

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And then Judge Kronstadt submitted to the jury

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the question that whether there was a condition precedent based upon an alleged agreement to renegotiate.

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And the jury found there was.

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Now, the problem with that, there are many problems with this situation.

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First of all, California law is not entirely clear on this point, but under the Daniels case,

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An agreement to negotiate is not enforceable.

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How can an agreement to negotiate be the basis of a condition precedent?

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If it's not enforceable, it can't.

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The other California case that discusses this is the Baskin-Robbins case, which precedes Daniel's.

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And it says, well, an agreement to negotiate can be enforceable, but the only thing we're going to protect by the agreement to negotiate is the reliance interest.

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And that's not what happened here.

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Based upon this alleged agreement to negotiate,

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The guide group got out of paying the entire contract.

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They didn't make this amendment in reliance.

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They didn't make the contract in reliance on the agreement to negotiate.

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The agreement to negotiate happened months after the original contract was signed.

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So the alleged agreement, the only reliance interest that you could protect

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in the amendment was we paid a million dollars earlier than the contract required us to do.

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But the instruction to the jury allowed the guide group to get out of its entire obligation based upon this unenforceable agreement to renegotiate.

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And the reason

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There's a serious question under California law whether those agreements are enforceable.

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It's because there's no basis, and especially in this case, for the jury to determine whether there was compliance or what the remedy should be.

[00:13:23] Speaker 02:
Here, the alleged agreement to renegotiate was, well, there was an alleged agreement to renegotiate payment schedule based upon sales.

[00:13:35] Speaker 02:
Well, what does that mean?

[00:13:37] Speaker 02:
How can any juror, reasonable juror, determine whether that happened?

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What happened, as in this case, if Mr. Esibak kept making offers and there was no response?

[00:13:53] Speaker 01:
Well, as I understand it, the production was delayed and there was some hesitation about what was going on.

[00:13:59] Speaker 01:
I mean, the fraud claims are that there were a change in the composition of the ingredients.

[00:14:05] Speaker 01:
And so why would it be difficult for a jury to determine whether terms should be, you know, payment should be renegotiated based on how the sales proceed?

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Why is that impossible for the jury to be able to decipher?

[00:14:22] Speaker 02:
What does it mean to say you have to renegotiate an agreement based upon sales?

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First of all, does it mean you just have to offer to renegotiate, or do you have to actually agree?

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And if that's the case, does that mean that the guide group can keep saying no, no, no, no, no until you go down to zero?

[00:14:43] Speaker 02:
I mean, at what point can the jury say, OK,

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There was an agreement to renegotiate or you complied.

[00:14:55] Speaker 02:
What does it mean based upon sales?

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If sales go down one half, the price goes down one half?

[00:15:02] Speaker 02:
Who says that?

[00:15:03] Speaker 02:
Where does that come from?

[00:15:04] Speaker 02:
Did you want to reserve time for rebuttal?

[00:15:06] Speaker 02:
Yes, I do, Your Honor.

[00:15:07] Speaker 02:
OK.

[00:15:08] Speaker 02:
Thank you.

[00:15:08] Speaker 02:
Thank you.

[00:15:21] Speaker 00:
Good morning, and may it please the court, I'm Chip Childs for the Apple Ease.

[00:15:26] Speaker 00:
I'll go ahead and pick up where my colleague left off on the condition precedent issue.

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Mr. Essabag himself admitted at record pages 17, 12, and 13 that he and the guide group agreed that he would get an early payment of a million dollars in exchange for negotiating future payments in January of 2018.

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That's his own testimony.

[00:15:52] Speaker 00:
At record page 1798, Mr. Allen, who was either Mr. Essabag's COO or right-hand man, as he was variously described at trial, he testified that the early payment of $1 million was supposed to alleviate future payments until the guide group could start selling, and that Mr. Essabag agreed to that.

[00:16:17] Speaker 00:
The trial evidence from the guide group were also that the parties agreed that payments beyond the initial $2.5 million investment would come from profits they made from the sales of the Dr. Boost product.

[00:16:30] Speaker 00:
Now, Mr. Essabag's brief says that Mr. Whaley admitted that Mr. Essabag never agreed that payments would come from profits, but Mr. Whaley actually testified exactly the opposite at record pages 12, 28, and 29.

[00:16:47] Speaker 00:
Whether the parties agreed to the condition precedent requires determining their intent.

[00:16:53] Speaker 00:
As a multitude of the cases cited in the briefs make clear, the Colaco case, Starr versus Davis, Moncato, and this court's decision in Teamsters versus NASA services.

[00:17:05] Speaker 00:
And to address directly the point made in Mr. Essabag's brief that this condition precedent couldn't be enforced because it resulted in a forfeiture

[00:17:15] Speaker 00:
Mr. Essabag didn't suffer a forfeiture.

[00:17:18] Speaker 00:
The party's contract was rescinded due to his federal and state securities violations.

[00:17:25] Speaker 00:
So Mr. Essabag got all of his shares in ULG back.

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The guide investors did not get something for nothing.

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They got nothing for their $3.5 million investment, and they should get their money back.

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Like in Mankato, the parties here knew their obligations under the agreement.

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Not only Mr. Essabag admitted and the guide investors explained them, but as Mr. Allen, a third-party witness, explained the agreement.

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So it's just like the district court reasoned in its order denying Mr. Essabag's post-judgment motions.

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Here, the jury could have and did

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use its common sense, reason, and experience to evaluate whether Mr. Acebag satisfied the condition precedent.

[00:18:17] Speaker 00:
Now, Mr. Averett talked about the Daniels case, but that case is different from our case.

[00:18:25] Speaker 00:
That case went up on appeal.

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from a judgment on the pleadings, not after a trial with evidence and testimony from witnesses.

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And it involved a promise to enter into a loan agreement.

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That is, an agreement to agree.

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It wasn't an agreement to negotiate based on factors at some time in the future.

[00:18:49] Speaker 00:
This court has held in reliance on the Copeland versus Baskin-Robbins case

[00:18:56] Speaker 00:
that in California such agreements to negotiate are enforceable and Copeland noted that that is the majority rule and said that in our view ordinary citizens applying their experience and common sense are very well equipped to determine whether the parties negotiated with each other in good faith.

[00:19:17] Speaker 00:
So I'd like to turn now to the issue of materiality, which is on the 25-401 claim, the state securities fraud claim.

[00:19:25] Speaker 00:
And it's also relevant to the federal claims, but that hasn't been addressed.

[00:19:30] Speaker 00:
At record page 1636, Mr. Essabag admitted that investors in the Dr. Boost product would want to know what the ingredients in the product were because retailers and consumers would want to know.

[00:19:47] Speaker 00:
And then at record pages 16, 39, and 40, he admitted that he wanted a doctor affiliated with the product because he thought it would increase value.

[00:19:58] Speaker 00:
In the platform's wireless case, this court held that it is almost certainly the single most important piece of information for an investor deciding to invest in a startup, whether there's a finished, tested product.

[00:20:15] Speaker 00:
And in that case, this court reasoned that the defendants couldn't plausibly argue that admitting that the fact that they didn't have a product was not a highly unreasonable omission.

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So in this case, it's no wonder then that all the guide investors testified that that information was important to them and critical to their investment.

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And contrary to Mr. Essabag's brief, their testimony was not conclusory.

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We have cited certain portions of it in our brief.

[00:20:46] Speaker 00:
But the record is replete with their testimony, where if you look at Mr. Hatch, Mr. Whaley, Mr. Maddie, and so forth, where they talk about their concerns about product credibility and product efficacy.

[00:20:59] Speaker 00:
And of course, as this course reasoned in the Thane or Miller versus Thane case, Mr. Essabag himself thought that the representations, the information was important, or he wouldn't have included it in the first place.

[00:21:16] Speaker 00:
And I call the court's attention to the Supreme Court's decision in TSC versus Northway, where the court held that the determination requires delicate assessments of the inferences a reasonable shareholder would draw from a given set of facts and the significance of those inferences to him.

[00:21:35] Speaker 00:
And these assessments are peculiarly ones for the trier of fact.

[00:21:41] Speaker 00:
And the court even went further in a footnote to analogize this situation of the determination of materiality to the reasonable man standard in a negligence case, which the court said, similarly, is peculiarly an issue for the jury.

[00:22:00] Speaker 00:
On the issue of Mr. Essabag's affirmative defense to this claim that the guide investors, as a matter of law, knew the truth about the product, Mr. Allen explained at record pages 1793 and 94 that there were still references in Mr. Essabag's marketing materials to the three scientifically proven premium ingredients as late as August of 2017.

[00:22:30] Speaker 00:
Weeks, months after money had changed hands and the MOU had been signed.

[00:22:36] Speaker 00:
Weeks, months after Mr. Esbag had scrapped these products because they were banned by anti-doping agencies or uninsurable.

[00:22:45] Speaker 00:
He's still referring to them in marketing materials.

[00:22:49] Speaker 00:
Every guide investor testified he did not know the truth.

[00:22:53] Speaker 00:
And Mr. Allen, again, the third party witness,

[00:22:56] Speaker 00:
Mr. Essabag's former COO confirmed that the guide investors were not told these material facts.

[00:23:04] Speaker 00:
And if that's not enough, Mr. Essabag himself admitted it.

[00:23:08] Speaker 00:
Consider his testimony at record pages 1644 and 45.

[00:23:13] Speaker 00:
I didn't have to tell them anything.

[00:23:17] Speaker 00:
He was absolutely defiant about it.

[00:23:21] Speaker 00:
He acted insulted that anyone would even challenge him on the point.

[00:23:26] Speaker 00:
and virtually admitted that he didn't reveal anything because he didn't have to.

[00:23:32] Speaker 00:
Now, Mr. Essavag relies on a handful of documents that he says show as a matter of law that the guide group knew the truth.

[00:23:40] Speaker 00:
But as the district court meticulously went through each of those documents, none of them says

[00:23:47] Speaker 00:
and certainly not with the clarity required for determination as a matter of law.

[00:23:53] Speaker 00:
None of them shows that the guide group necessarily knew the truth.

[00:23:58] Speaker 00:
Now, let me turn then to the Section 5 claim and this first, this issue of public versus private offering.

[00:24:07] Speaker 00:
In this circuit, the Erickson case makes clear that this is a flexible test, but it and Ralston Purina and the Murphy case from this court make clear that really the critical factor is the relationship of the parties.

[00:24:23] Speaker 00:
And those cases hold that the issuer must show as to every offeree, every offeree, that that person had access to the kind of information that registration would disclose in order for there to be a private offering.

[00:24:44] Speaker 00:
That is really the critical factor.

[00:24:46] Speaker 00:
And consider what Erickson said.

[00:24:49] Speaker 00:
Such information is available only if, in fact, it is disclosed though the offerees have access to it.

[00:24:55] Speaker 00:
That is, there must be a relationship based on factors such as employment, family, or economic bargaining power that enables the offeree effectively to obtain such information.

[00:25:09] Speaker 00:
And really, we need look no further than Mr. Bond, one of the guide investors.

[00:25:17] Speaker 00:
He was not involved in the negotiations.

[00:25:20] Speaker 00:
He is undisputedly not an accredited investor.

[00:25:25] Speaker 00:
He did not even understand that he was making an investment that would make him personally liable for millions of dollars.

[00:25:32] Speaker 00:
And here's what's critical.

[00:25:35] Speaker 00:
Mr. Essebag denied ever talking to him at trial, denied even knowing who he was or selling him securities.

[00:25:45] Speaker 00:
And even at trial, after having sued him for millions of dollars, Mr. Essabag from the stand denied even knowing who he was.

[00:25:55] Speaker 00:
So there is absolutely no way that this investor had a relationship with the issuers that would have given him automatically, by virtue of that relationship, access to the kind of information that registration would disclose.

[00:26:10] Speaker 00:
In his reply brief, Mr. Essabag cites,

[00:26:13] Speaker 00:
Brown versus Earth Board sports from the Eastern District of Kentucky for the proposition that the statement in the MOU that the offering was private is somehow binding on all of these investors.

[00:26:28] Speaker 00:
As the district court noted, that decision was reversed by the Sixth Circuit and the federal claim at issue on appeal didn't even confront that issue.

[00:26:40] Speaker 00:
Further, the Brown case relied on a deposition admission by the investor that the offering was private.

[00:26:50] Speaker 00:
And there's, of course, nothing like that here.

[00:26:53] Speaker 00:
And this case, as well, doesn't involve the flexible test that's used in this circuit.

[00:27:00] Speaker 00:
Mr. Essabag also argues that there is a stopple as a matter of law based on statements in the MOU.

[00:27:09] Speaker 00:
But as the district court recognized, the cases Mr. Essabag relied on do not confront a situation where the issuer knew or reasonably should have known that the purchaser was not trying to say he was an accredited investor.

[00:27:24] Speaker 00:
And rule 506 of the federal regulations, rule 506 is critical here because that rule gives several examples of ways that an issuer can go about determining accreditation.

[00:27:39] Speaker 00:
They all involve looking at financial information from the investor or relying on a statement from a professional like a lawyer or an investment advisor or an accountant who himself clearly has looked at financial information and made the determination.

[00:27:57] Speaker 00:
The only instance provided in the rule where merely relying on a statement of accreditation by the investor works is when the issuer has previously made

[00:28:10] Speaker 00:
a determination of accreditation that is satisfactory under the rule.

[00:28:15] Speaker 00:
So that obviously had not happened here.

[00:28:19] Speaker 00:
And that being the case, a mere boilerplate statement in an MOU signed by people you don't even know cannot satisfy the standard.

[00:28:29] Speaker 00:
Now, my understanding is that rule was promulgated in September 2013.

[00:28:35] Speaker 00:
Most of the cases on which Mr. Essabag relies for his estoppel as a matter of law proposition are before that.

[00:28:44] Speaker 00:
The one circuit court case that's after a Scott, that's the Third Circuit case, that's an unpublished decision that is, like the other cases, distinguishable on their facts.

[00:28:57] Speaker 00:
Now, Mr. Hatch and Mr. Bond, the two investors here who are indisputably unaccredited.

[00:29:03] Speaker 00:
explained why they did not intend that the statement and the MOU be relied on.

[00:29:10] Speaker 00:
And we can get into it as necessary, but as to Mr. Hatch, this investment began, the investor was supposed to be a limited liability company, the guide group, which was an accredited investor.

[00:29:25] Speaker 00:
And so, Mr. Hatch testified when that was the case and he saw the provision in the agreement, he thought nothing of it.

[00:29:33] Speaker 00:
But because United Licensing Group was an S corporation and Mr. Essabag needed the tax advantage, the investors were changed to all these individuals.

[00:29:42] Speaker 00:
And this issue never surfaced again.

[00:29:44] Speaker 00:
As to Mr. Bond, of course, he wasn't involved in the negotiations he testified.

[00:29:50] Speaker 00:
He didn't even know it was in there.

[00:29:52] Speaker 00:
And the district judge who presided over the trial not only concluded that there was substantial evidence to support the jury's verdict on Estoppel, but he characterized their testimony as persuasive in ruling on the post-trial motions at record page 28.

[00:30:12] Speaker 00:
And of course, the jury was also free to conclude that Mr. Essoback, in fact, did not rely on these statements in the MOU.

[00:30:21] Speaker 00:
He never asked these investors for any financial information.

[00:30:25] Speaker 00:
And the truth is, as he admitted at record page 1741, he only cared about Justin Whaley and Ron Whaley.

[00:30:36] Speaker 00:
As he characterized it, these are the people I was doing business with, those two, not the others.

[00:30:43] Speaker 00:
but he purported to sell securities to the others and then he sued them for millions and millions of dollars.

[00:30:49] Speaker 00:
So Scott, Wright, UBS, Goodwin Properties, these cases all involved responsible issuers who took significant steps to ensure the protection of investors.

[00:31:01] Speaker 00:
In most of these cases, there is no dispute that the investors were in fact accredited and the issuers were dealing with people who personally and directly

[00:31:12] Speaker 00:
who filled out financial information and held themselves out as sophisticated wealthy investors.

[00:31:19] Speaker 00:
All of these cases are distinguishable on their facts, in addition to the fact that the rule tells us that you can only rely on a statement when you've previously made a determination of accreditation.

[00:31:37] Speaker 00:
And let me just address briefly the argument that the district judge abused his discretion by asking Mr. Essabag's counsel not simply to read from exhibits.

[00:31:54] Speaker 00:
Now, we are talking about four instances identified by Mr. Essabag's brief during an eight-day trial.

[00:32:03] Speaker 00:
In other situations, for example, at record pages 1179 and 1182, Mr. Essobag's lawyer was allowed to read from exhibits during witness examination.

[00:32:16] Speaker 00:
But just briefly, the example at record page 83, this was lengthy reading of several sentences from an email.

[00:32:24] Speaker 00:
And the judge asked counsel, and of course, the email is being published.

[00:32:28] Speaker 00:
Just ask questions, please.

[00:32:30] Speaker 00:
Don't read lengthy passages.

[00:32:33] Speaker 00:
record page ninety three the exhibit was being published for the jury it didn't have to be read at page ninety seven council was noting language in a document not asking a question and then finally at one oh four the district judge just ask counsel to uh...

[00:32:51] Speaker 00:
not to ask whether an admitted exhibit just says things, but ask him what he knows and if appropriate, use the document to refresh recollection.

[00:33:01] Speaker 00:
The judge said, I'm not saying the evidence can't come in.

[00:33:05] Speaker 00:
Counsel just needed to ask questions.

[00:33:08] Speaker 00:
So in conclusion, Section 7 of the MOU said that if the guide investors missed a required payment, Mr. Essabag could pay $25.

[00:33:21] Speaker 00:
each the $3.5 million he had already received and get all of his shares back.

[00:33:28] Speaker 00:
Mr. Esseback did not attempt to take advantage of that provision.

[00:33:33] Speaker 00:
Instead, he sued for $21.5 million more for a worthless investment that he marketed and sold in violation of state and federal securities laws.

[00:33:45] Speaker 00:
The jury was well within its province to evaluate the evidence, judge the credibility of the witnesses, and reject all of Mr. Essabeg's arguments.

[00:33:55] Speaker 00:
And the district judge properly denied his post-trial motions.

[00:34:00] Speaker 00:
This court should summarily affirm the judgment based on the well-reasoned decisions of the district court.

[00:34:06] Speaker 03:
Thank you.

[00:34:07] Speaker 03:
Thank you, counsel.

[00:34:08] Speaker 03:
We have some time for rebuttal.

[00:34:13] Speaker 02:
Thank you, Your Honors.

[00:34:15] Speaker 02:
Briefly, Daniels says, under controlling California law, preliminary negotiations or agreements for future negotiations, so-called agreements to agree, are not enforceable contracts.

[00:34:32] Speaker 02:
That's exactly the agreement here that gave rise to the alleged condition precedent.

[00:34:40] Speaker 02:
It's not enforceable as a matter of law.

[00:34:43] Speaker 02:
Mr. Childs talked about some evidence from Mr. Allen that evidence related to supposed negotiations when the MOU was first signed.

[00:34:55] Speaker 02:
It was part of the claim by the guide group that Mr. Essebeg fraudulently promised that despite what the MOU said, sales would determine how much they would pay.

[00:35:11] Speaker 02:
The jury rejected that claim.

[00:35:15] Speaker 02:
So there is no evidence whatsoever from which a jury could find here whether an agreement to negotiate was breached or not.

[00:35:33] Speaker 02:
Third, I didn't get into before, we had the prejudicial exclusion of the evidence based on alleged settlement discussions.

[00:35:43] Speaker 02:
showing that there was, in fact, an attempt to renegotiate.

[00:35:50] Speaker 02:
In terms of the Section 5 claim, the unregistered securities, there is no distinction, no substantive distinction between the cases we cited and this case.

[00:36:04] Speaker 02:
Mr. Childs said that all those cases involved, responsible,

[00:36:09] Speaker 02:
issuers who made an attempt to determine the financial wherewithal of the investor, Scott, the Third Circuit's decision involved an investor who was a 13-year-old girl.

[00:36:22] Speaker 02:
And the Court of Appeals said she signed.

[00:36:30] Speaker 02:
They can't claim that she's an unaccredited investor.

[00:36:36] Speaker 02:
In terms of the

[00:36:39] Speaker 02:
Evidence concerning the alleged fraud.

[00:36:42] Speaker 02:
There was no alleged fraud.

[00:36:44] Speaker 02:
They knew, according to their own documents, that this formula that was told to them four months ago was no longer the formula.

[00:36:58] Speaker 02:
Their own documents state there's a new formula guy.

[00:37:02] Speaker 02:
There's a new formula.

[00:37:06] Speaker 02:
They were told in documents what the ingredients were.

[00:37:10] Speaker 02:
This is all before the MOU was signed.

[00:37:16] Speaker 02:
There is not one whiff of any evidence, any communication, internal or external, from the time that they first saw anything having to do with Dr. Boos until two years after the lawsuit was filed, of any concern on their part

[00:37:35] Speaker 02:
about who the formula.

[00:37:39] Speaker 02:
Nothing.

[00:37:40] Speaker 02:
They didn't rely on it.

[00:37:41] Speaker 02:
It wasn't material to them.

[00:37:43] Speaker 02:
They liked the idea.

[00:37:45] Speaker 02:
They thought it was a great idea.

[00:37:47] Speaker 02:
That's why they bought it.

[00:37:49] Speaker 02:
They thought they could sell it to Walmart.

[00:37:52] Speaker 02:
They found out after they signed a deal that they couldn't, so they backed out.

[00:37:56] Speaker 02:
And then two years later, they came up with some alleged fraud.

[00:38:01] Speaker 02:
They didn't care about it at all.

[00:38:10] Speaker 02:
There's no substantial evidence, no substantial evidence at all.

[00:38:15] Speaker 02:
The only evidence we had at trial of any alleged reliance or materiality was self-serving, uncorroborated testimony from six or seven members of the guide group who said, no, they never told me it was false.

[00:38:34] Speaker 02:
And then when counsel tried to ask them about documents showing that it was false, the district court said, you can't read from it.

[00:38:44] Speaker 02:
How are you supposed to cross-examine the witness?

[00:38:49] Speaker 02:
That's what the prejudice was.

[00:38:53] Speaker 02:
Thank you very much, Your Honor.

[00:38:55] Speaker 03:
Thank you, counsel.

[00:38:56] Speaker 03:
Thank you for your arguments in this case.

[00:38:58] Speaker 03:
The case is now submitted.

[00:38:59] Speaker 03:
And that concludes our arguments for the week.

[00:39:02] Speaker 03:
And the court's in recess.

[00:39:05] Speaker 03:
All rise.

[00:39:15] Speaker 01:
This court for this session stands adjourned.