Preview
Received and E-Filed for Record
1/7/2021 9:45 PM
Melisa Miller, District Clerk
Montgomery County, Texas
Deputy Clerk, Jeff Fiore
No. 17-10-12820
ZEPHYR OIL & GAS FUNDING CO. LLC § IN THE DISTRICT COURT OF
and ZEPHYR ACQUISITION HOLDINGS §
LLC, §
§
Plaintiffs §
§
vs. § MONTGOMERY COUNTY, TEXAS
§
CHICAGO BRIDGE & IRON COMPANY §
N.V., PHILIP K. ASHERMAN, RONALD §
A. BALLSCHMIEDE, and WESTLEY S. §
STOCKTON, §
§
Defendants § 457TH JUDICIAL DISTRICT
THE INDIVIDUAL DEFENDANTS’1 REPLY
IN SUPPORT OF THEIR TRADITIONAL AND NO EVIDENCE
MOTION FOR PARTIAL SUMMARY JUDGMENT
1
Plaintiffs’ response in opposition to Defendants’ motion raised arguments are within the exclusive
jurisdiction of the bankruptcy court including, without limitation, (a) whether Plaintiffs’ claims against
CB&I are Section 510(b) Claims in Class 14 under the Bankruptcy Plan, and (b) whether CB&I waived
any rights with respect to the discharge and other relief provided in the Plan and the Confirmation Order.
CB&I has raised those issues with the bankruptcy court, which has ordered that Plaintiffs are currently
prohibited from proceeding against, and the parties shall not seek any rulings with respect to, CB&I in this
lawsuit pending further order from the bankruptcy court, with all parties’ rights reserved. Accordingly, this
reply is filed only on behalf of the Individual Defendants and only on the remaining, non-bankruptcy
defense grounds raised in the motion for partial summary judgment. CB&I reserves all rights.
1
INTRODUCTION
Rather than contest the Motion for Partial Summary Judgment (the “Motion” or “MPSJ”),
nine of the eleven Plaintiffs voluntarily dismissed their claims, and all Plaintiffs dropped their
claims under Section 33(C) of the Texas Securities Act (“TSA”). The only two remaining
plaintiffs—Zephyr Oil & Gas Funding Co. LLC and Zephyr Acquisition Holdings LLC (together,
“Zephyr”)—make tortured arguments under Section 27.01 of the Texas Business & Commerce
Code and Section 33A of the TSA that run contrary to the plain language of those statutes and the
uniform case authority interpreting them.2
ARGUMENT
I. Zephyr fails to offer any evidence that the Individual Defendants actively engaged in
the solicitation of any purchase of CB&I securities by Zephyr.
The Individual Defendants are entitled to summary judgment on all of Zephyr’s TSA
claims because Zephyr’s claims do not satisfy the statutory requirements for liability.
A. Zephyr fails to offer any evidence of solicitation.
Texas law is clear that the only people who can be liable under Section 33A(2) are (1) a
person who actually passes title to the buyer or (2) a person who actively engages in the solicitation
of the securities purchased by a plaintiff. Highland Capital Mgmt., L.P. v. Ryder Scott Co., 402
S.W.3d 719, 740–42 (Tex. App.—Houston [1st Dist.] 2012, no pet.). Zephyr makes no attempt to
show that any Defendant actually passed title to Zephyr; instead, Zephyr relies solely on the
solicitation prong. But Zephyr badly misunderstands the requirements for solicitation liability.
2
It is true, as Zephyr notes, that Defendants did not move for summary judgment as to the other claims.
That is because Defendants recognize that the naked testimony of Daniel Cohen on those claims, no matter
how implausible and contrary to the documentary record in this case, is sufficient to create a fact question
precluding summary judgment. See Hudnall v. Tyler Bank & Tr. Co., 458 S.W.2d 183, 185 (Tex. 1970) (“If
upon a conventional trial of the case the same testimony should be offered, the credibility of all of these
persons as witnesses would be in issue. In our review of the summary judgment proofs, however, we must
accept the testimony of [nonmovant] as true, and indulge every reasonable inference in favor of his
position.”).
2
According to Zephyr, “if there is evidence of ‘direct communication’ between the buyer
and the defendant, the buyer’s Section 33A(2) claim goes to the jury.” Resp. at 17. But
Section 33A(2) requires a solicitation, not merely a “direct communication.” Highland Capital,
402 S.W.3d at 742 (“[A] ‘seller’ for Section 33A(2) purposes can include ‘[a] person who
successfully solicits the purchase, motivated at least in part by a desire to serve his own financial
interests or those of the securities owner,’ such as a broker.” (quoting Pinter v. Dahl, 486 U.S.
622, 646–47 (1988) (construing Section 12 of the Securities Act of 1933))) (emphasis added).3 A
solicitation requires a contact with a buyer that is aimed at urging the buyer to purchase the
security. 486 U.S. at 646 (“The solicitation of a buyer is perhaps the most critical stage of the
selling transaction. It is the first stage of a traditional securities sale to involve the buyer, and it is
directed at producing the sale.”); see also Joseph E. Reece, Would Someone Please Tell Me the
Definition of the Term ‘Seller’: The Confusion Surrounding Section 12(2) of the Securities Act of
1933, 14 Del. J. Corp. L. 35, 105 (1989) (“Pinter apparently requires someone to be an issuer or a
paid participant who actually contacted a buyer and urged the buyer to purchase before such
participant would meet the first prong of the solicitation test.”). If an alleged seller does not initiate
or negotiate the transaction, then that person cannot be liable for solicitation. See Royal Am.
Managers, Inc. v. IRC Holding Corp., 885 F.2d 1011, 1016–17 (2d Cir.1989) (holding attorney
who was director and member of executive committee of seller, but who did not initiate or
negotiate sale, could not be liable under Section 12). In Pinter, the Supreme Court rejected the rule
3
“Texas courts generally cite decisions of the federal courts to interpret the TSA. The Supreme Court of
Texas has explained that the Texas Legislature intended the TSA to be interpreted in harmony with federal
securities law.” Highland Capital, 402 S.W.3d at 741 (citations omitted). To determine who can be a
“seller” for Section 33A(2) purposes, the Highland court examined Section 12 of the Securities Act of 1933
and drew from “analogous federal precedent.” Id. at 741–42. Thus, it defined seller for Section 33A(2) the
same way the Unites States Supreme Court did for Section 12. Id. at 742.
3
that solicitation liability can extend to “one whose participation in the buy-sell transaction is a
substantial factor in causing the transaction to take place.” 486 U.S. at 649 (internal quotation
marks omitted). As the Supreme Court warned, a substantial-factor test would impermissibly
extend liability “to participants only remotely related to the relevant aspects of the sales
transaction.” Id. at 651.
Notwithstanding this clear authority from the Supreme Court, Zephyr cherry-picks portions
of opinions from a random assortment of federal cases to support its theory of liability. But none
of those cases supports its cause. For example, in Pirani v. Slack Technologies, Inc., the district
court merely noted that other district courts have noted that “although the act of signing a
registration statement, alone, may not always suffice, it is at least suggestive of solicitation
activity.” 445 F. Supp. 3d 367, 384 (N.D. Cal. 2020) (quoting In re Charles Schwab Corp. Sec.
Litig., 257 F.R.D. 534, 549 (N.D. Cal. 2009)). The court went on to hold that the plaintiffs had
stated a Section 12 claim against the company’s officers and board members—all of whom were
“insiders and early investors of the company [who] were able to sell their preexisting shares to the
public” in a direct listing—because “all of the Individual Defendants signed the Offering
Materials, [] certain defendants solicited sales at the Investor Day, and [] all of the Individual
Defendants were financially motivated to solicit sales.” Id. at 373, 384. Zephyr offers no evidence
of any of that here, nor could it because there was no such direct offering during the relevant
period. See MPSJ Ex. A ¶ 7
Zephyr also selectively quotes from Rosenzweig v. Azurix Corp., 332 F.3d 854, 871 (5th
Cir. 2003), for the proposition that “to count as solicitation, the seller must, at a minimum, directly
communicate with the buyer.” Resp. at 17. In doing so, Zephyr mischaracterizes the Fifth Circuit’s
“solicitation” standard. In Lone Star Ladies Inv. Club v. Schlotzsky’s Inc., the Fifth Circuit adopted
4
the “vendor’s agent” standard, whereby if the alleged seller can incur Section 12 liability if he or
she “is sufficiently active in promoting the securities as to essentially become the vendor’s agent.”
238 F.3d 363, 370 (5th Cir. 2001) (holding, in the context of a firm commitment underwriting, that
plaintiff could “show that an issuer’s role was not the usual one; that it went farther and became a
vendor’s agent”). That is the same standard the Fifth Circuit applied in Rosenzweig. 332 F.3d at
871. There, the plaintiffs purchased stock in Azurix on the secondary market before Enron took
the company private. Id. at 858. The plaintiffs later sued Azurix, Enron, and six former Enron and
Azurix officers and directors under Section 12. Id. The plaintiffs’ sole argument with respect to
the individual defendants was that they had signed a registration statement, which the plaintiffs
contended met the solicitation standard because there was “a ‘complex entanglement’ with Azurix
and Enron, from which it could be inferred that the companies participated in a ‘concerted course
of action to market Azurix.’” Id. at 871. Relying on Lone Star Ladies, the Fifth Circuit affirmed
dismissal of the Section 12 claims against the individual defendants (as well as the corporate
defendants), reasoning that the plaintiffs failed to allege “that any of the defendants assumed the
‘unusual’ role of becoming a ‘vendor’s agent,’ or otherwise actively solicited the plaintiffs to
purchase.” Id. (emphasis added) (citation omitted). That was the context in which the court
commented that “[t]o count as ‘solicitation,’ the seller must, at a minimum, directly communicate
with the buyer.” Id. Nothing in Rosenzweig supports Zephyr’s suggestion that merely
communicating with the buyer is enough; rather, it confirms that active solicitation of a sale is
required.
The Fifth Circuit’s dismissal of a Section 12 claim that alleged nothing more than the
signing of a registration statement does not support Zephyr’s proposed rule that “if there is
evidence of ‘direct communication’ between the buyer and the defendant, the buyer’s Section
5
33A(2) claim goes to the jury even under the Fifth Circuit’s heightened standard.” Resp. at 17.
Nor does In re Charles Schwab Corp., 257 F.R.D. 534, where the court found that the complaint
stated a Section 12 claim because it alleged that the defendants had signed a registration statement
and participated in the written and oral communications used to market the mutual fund’s shares.
Id. at 549–50. Ultimately, Zephyr tries to fashion a rule whereby any direct, in-person
communication is sufficient to create a fact issue on solicitation. This rule has no basis in law. If
anything, Zephyr gets it backwards: direct communication is necessary for a fact issue on
solicitation, but it is not sufficient to create one.
Zephyr offers evidence of communications between Daniel Cohen and Defendant
Asherman but fails to offer evidence that these conversations qualify as solicitation. Resp. at 18.
To “solicit” means “to ask or seek earnestly or pleadingly,” Webster’s New World Dictionary (2d
College ed. 1979) (emphasis added), which hardly describes any of Cohen’s alleged conversations
with the Individual Defendants. During Cohen’s conversations with Asherman that Cohen himself
initiated, CB&I’s nuclear projects and other business projects were discussed. Id. At no time did
Cohen and Asherman discuss transactions in CB&I securities, nor is it clear that Asherman even
knew Cohen was contemplating stock transactions. See id. Zephyr may be able to point to direct
conversations with Asherman, but it cannot show that any one of them involved Asherman
“ask[ing] or seek[ing] earnestly or pleadingly” for Cohen to purchase CB&I securities. As to
Defendants Ballschmiede and Stockton, Zephyr offers no evidence of any direct communications
with Cohen, let alone solicitations. See Resp. at 18–19.
Zephyr simply has no evidence that the Individual Defendants initiated contact with Cohen
and asked, sought or urged him to buy CB&I securities. Pinter, 486 U.S. at 646. Zephyr lacks any
evidence of a negotiation of any kind, Royal Am. Managers, Inc., 885 F.2d at 1016–17, or conduct
6
causing the Individual Defendants to rise to the level of the vendor’s agent, Lone Star Ladies, 238
F.3d at 370. Zephyr asks this Court to adopt the rule that mere discussions with an investor who
later buys securities based on such discussions establishes Section 33A(2) liability. But such a rule
resembles the substantial-factor test that Pinter expressly rejected. 486 U.S. at 654.
Even if Zephyr could show solicitation, it fails to provide evidence that any Individual
Defendant “successfully solicit[ed] the purchase, motivated at least in part by a desire to serve his
own financial interests or those of the securities owner,” such as a broker. Id. at 646–47. This
element requires a showing that the alleged seller expected to benefit from the buyer’s purchase.
See id. at 647 (“The person who gratuitously urges another to make a particular investment
decision is not, in any meaningful sense, requesting value in exchange for his suggestion or seeking
the value the titleholder will obtain in exchange for the ultimate sale.”). Zephyr fails to show that
Asherman requested value in exchange for his discussion of CB&I stock or sought value from
Zephyr in exchange for the ultimate sale of CB&I stock. It is not enough for Zephyr to offer
evidence that the Individual Defendants had an incentive to maintain a high CB&I stock price. If
that were the case, Section 12 and 33A liability would extend to nearly all officers and directors
of publicly traded U.S. corporations, who typically hold company stock and options and who
frequently discuss the company with investors, since under Zephyr’s theory they are “motivated”
for the company’s stock price to increase. Because Zephyr lacks evidence that the Individual
Defendants were sellers who acted for their own financial benefit, Zephyr’s Section 33A(2) claim
must be dismissed.
Lastly, the Court need not spend much time deciphering Zephyr’s peculiar and circular
agency argument. Resp. at 19–20. The crucial question is whether any of the Individual Defendants
were motivated to serve the financial interests of the securities owner who actually passes the stock
7
to the purchaser. Highland Capital, 402 S.W.3d at 742. Zephyr acknowledges that no Defendant
passed title to Zephyr, Resp. at 20, which is expected, as all of Zephyr’s transactions were executed
in the open market, MPSJ at 10. The Individual Defendants had no relationship, interaction, or
coordination with any of the CB&I securities owners who passed their stock to Zephyr, and Zephyr
offers no evidence that the Individual Defendants were motivated to serve the interests of those
owners. Both of Zephyr’s theories of financial motive fail.
Because Zephyr fails to offer any evidence of solicitation or financial incentive, no
Individual Defendant was a seller for purposes of Section 33A(2) liability, and the Individual
Defendants are entitled to summary judgment.
B. Zephyr’s Section 33F claims fail due to the lack of a primary violation.
As explained in the Motion, Plaintiffs’ Section 33F claims fail with their Section 33A(2)
claims. MPSJ at 12. Zephyr agrees that claims for secondary liability cannot survive in the absence
of a primary violation and argues only that it has presented sufficient proof of a primary violation.
Resp. at 20. Because Zephyr has not provided the requisite evidence to establish a primary
violation, the Individual Defendants cannot be secondarily liable under either Section 33F(1) or
Section 33F(2). Summary judgment is therefore appropriate on these claims as well.
II. Zephyr fails to explain how the purchase of a stock option effects the conveyance of
stock.
Zephyr spills much ink to establish a point upon which the Individual Defendants agree: a
claim for statutory fraud under Section 27.01 does not require an actual conveyance of stock, but
the contract must actually effect a conveyance of stock. Resp. 22. Zephyr characterizes the
Individual Defendants’ position as “argu[ing] that Section 27.01 requires a conveyance of stock.”
Id. But as the Individual Defendants explained, the requirement under Section 27.01 is that “the
contract must ‘actually effect the conveyance’ of real estate or stock between the parties,” and
8
“‘the contract must cause stock to be conveyed.’” MPSJ at 13 (quoting Ginn v. NCI Bldg. Sys.,
Inc., 472 S.W.3d 802, 823 (Tex. App.—Houston [1st Dist.] 2015, no pet.)). Zephyr’s option
transactions fail to meet this standard because “the purchase or sale of a stock option does not
convey stock but rather grants a contractual right to purchase or sell stock at some later time.”
MPSJ at 14. Heralded by Zephyr, Tukua Investments, LLC v. Spenst, 413 S.W.3d 786 (Tex. App.—
El Paso 2013, pet. denied), actually supports the Individual Defendants. The court in Tukua
emphasized that the determinative question is whether the parties entered a contract to convey or
sell. Id. at 796–97. Although the contract for the sale of commercial property did not close and
thus there was no actual conveyance of real property, that was of no consequence “[b]ecause a
contract for real estate was executed between the parties.” Id. at 797 (“[T]he parties entered into a
valid contract for the sale of real estate, and as a result, a potential sale or purchase of real estate
was created.”). Tukua does not help Zephyr here because the issue is not that a contract to convey
stock was entered into but did not close; rather, the problem is that the sale or purchase of an option
is a contract for a right to purchase or sell stock at a later time, it is not the actual conveyance of
stock itself. Zephyr takes down its own straw man but fails to explain how an options contract can
be said to effect or cause the conveyance of stock and thereby satisfy Tukua’s standard.
Instead, Zephyr claims that the cases cited by the Individual Defendants fail to account for
a change in the statutory language between Section 27.01 and its predecessor and “blindly” cite
the interpretation in Stanfield v. O’Boyle, 462 S.W.2d 270 (Tex. 1971), as if the amendment never
occurred. Resp. at 22–24. But these cases do no such thing. The Supreme Court in Stanfield
concluded that Article 4004 “is applicable only when a conveyance of the property has been made,
and not where there is merely a contract to convey.” 462 S.W.2d at 271 (internal quotation marks
omitted). In contrast to Stanfield, Evans v. Wilkins, No. 14-00-00831-CV, 2001 WL 1340356 (Tex.
9
App.—Houston [14th Dist.] Nov. 1, 2001, no pet.), and Ginn, 472 S.W.3d 802, require only that
the contract in question actually effect the conveyance of real estate or stock; they do not require
that an actual conveyance take place. Ginn, 472 S.W.3d at 823; Evans, 2001 WL 1340356, at *3.
The lack of merit in Zephyr’s contention is underscored by the fact that the court in Ginn
relied on Tukua—the gold standard for interpreting Section 27.01 according to Zephyr—to
conclude that “the contract must cause stock to be conveyed.” 472 S.W.3d at 823 (emphasis
added). Evans and Ginn are thus in accord with Tukua and do not “blindly” cite the interpretation
in Stanfield. Zephyr’s lesson on legislative history and statutory interpretation is irrelevant, as the
cases relied on by the Individual Defendants fully respect Section 27.01 as it reads today. Rather
than try to distinguish the cases cited by the Individual Defendants, Zephyr claims they are wrong
because they overlooked a change in the statutory language from 1983 that has no bearing on these
courts’ holdings.
Because the option contracts in question do not effect the conveyance of stock, the options
do not constitute stock transactions subject to Section 27.01, and the Individual Defendants are
entitled to summary judgment as a result.
CONCLUSION
For these reasons, the Court should grant the Motion for Partial Summary Judgment and
enter summary judgment in favor of the Individual Defendants on all TSA and statutory fraud
claims against the Individual Defendants.
10
Respectfully submitted,
BAKER BOTTS L.L.P.
By: /s/ David D. Sterling
David D. Sterling
Texas Bar No. 19170000
Paul R. Elliott
Texas Bar No. 06547500
Amy Pharr Hefley
Texas Bar No. 24046046
910 Louisiana St.
Houston, Texas 77002
Tel: (713) 229-1234
Fax: (713) 229-1522
david.sterling@bakerbotts.com
paul.elliott@bakerbotts.com
amy.hefley@bakerbotts.com
Nicole R. Czajkoski
Law Office of Nicole Rodriguez Czajkoski
State Bar No. 24046744
336 North Main St., Suite 205
Conroe, Texas 77301
Tel: (936) 701-1010
Fax: (936) 873-8659
nicole@conroelawfirm.com
COUNSEL FOR DEFENDANTS
CHICAGO BRIDGE & IRON COMPANY N.V.,
PHILIP K. ASHERMAN, RONALD A.
BALLSCHMIEDE, AND WESTLEY STOCKTON
C ERTIFICATE OF S ERVICE
I hereby certify that on the 7th day of January 2021, a true and correct copy of the
foregoing was served on all known counsel of record by the electronic filing system.
/s/ Paul R. Elliott
Paul R. Elliott
11
Preview
Received and E-Filed for Record 1/7/2021 9:45 PM Melisa Miller, District Clerk Montgomery County, Texas Deputy Clerk, Jeff Fiore No. 17-10-12820 ZEPHYR OIL & GAS FUNDING CO. LLC § IN THE DISTRICT COURT OF and ZEPHYR ACQUISITION HOLDINGS § LLC, § § Plaintiffs § § vs. § MONTGOMERY COUNTY, TEXAS § CHICAGO BRIDGE & IRON COMPANY § N.V., PHILIP K. ASHERMAN, RONALD § A. BALLSCHMIEDE, and WESTLEY S. § STOCKTON, § § Defendants § 457TH JUDICIAL DISTRICT THE INDIVIDUAL DEFENDANTS’1 REPLY IN SUPPORT OF THEIR TRADITIONAL AND NO EVIDENCE MOTION FOR PARTIAL SUMMARY JUDGMENT 1 Plaintiffs’ response in opposition to Defendants’ motion raised arguments are within the exclusive jurisdiction of the bankruptcy court including, without limitation, (a) whether Plaintiffs’ claims against CB&I are Section 510(b) Claims in Class 14 under the Bankruptcy Plan, and (b) whether CB&I waived any rights with respect to the discharge and other relief provided in the Plan and the Confirmation Order. CB&I has raised those issues with the bankruptcy court, which has ordered that Plaintiffs are currently prohibited from proceeding against, and the parties shall not seek any rulings with respect to, CB&I in this lawsuit pending further order from the bankruptcy court, with all parties’ rights reserved. Accordingly, this reply is filed only on behalf of the Individual Defendants and only on the remaining, non-bankruptcy defense grounds raised in the motion for partial summary judgment. CB&I reserves all rights. 1 INTRODUCTION Rather than contest the Motion for Partial Summary Judgment (the “Motion” or “MPSJ”), nine of the eleven Plaintiffs voluntarily dismissed their claims, and all Plaintiffs dropped their claims under Section 33(C) of the Texas Securities Act (“TSA”). The only two remaining plaintiffs—Zephyr Oil & Gas Funding Co. LLC and Zephyr Acquisition Holdings LLC (together, “Zephyr”)—make tortured arguments under Section 27.01 of the Texas Business & Commerce Code and Section 33A of the TSA that run contrary to the plain language of those statutes and the uniform case authority interpreting them.2 ARGUMENT I. Zephyr fails to offer any evidence that the Individual Defendants actively engaged in the solicitation of any purchase of CB&I securities by Zephyr. The Individual Defendants are entitled to summary judgment on all of Zephyr’s TSA claims because Zephyr’s claims do not satisfy the statutory requirements for liability. A. Zephyr fails to offer any evidence of solicitation. Texas law is clear that the only people who can be liable under Section 33A(2) are (1) a person who actually passes title to the buyer or (2) a person who actively engages in the solicitation of the securities purchased by a plaintiff. Highland Capital Mgmt., L.P. v. Ryder Scott Co., 402 S.W.3d 719, 740–42 (Tex. App.—Houston [1st Dist.] 2012, no pet.). Zephyr makes no attempt to show that any Defendant actually passed title to Zephyr; instead, Zephyr relies solely on the solicitation prong. But Zephyr badly misunderstands the requirements for solicitation liability. 2 It is true, as Zephyr notes, that Defendants did not move for summary judgment as to the other claims. That is because Defendants recognize that the naked testimony of Daniel Cohen on those claims, no matter how implausible and contrary to the documentary record in this case, is sufficient to create a fact question precluding summary judgment. See Hudnall v. Tyler Bank & Tr. Co., 458 S.W.2d 183, 185 (Tex. 1970) (“If upon a conventional trial of the case the same testimony should be offered, the credibility of all of these persons as witnesses would be in issue. In our review of the summary judgment proofs, however, we must accept the testimony of [nonmovant] as true, and indulge every reasonable inference in favor of his position.”). 2 According to Zephyr, “if there is evidence of ‘direct communication’ between the buyer and the defendant, the buyer’s Section 33A(2) claim goes to the jury.” Resp. at 17. But Section 33A(2) requires a solicitation, not merely a “direct communication.” Highland Capital, 402 S.W.3d at 742 (“[A] ‘seller’ for Section 33A(2) purposes can include ‘[a] person who successfully solicits the purchase, motivated at least in part by a desire to serve his own financial interests or those of the securities owner,’ such as a broker.” (quoting Pinter v. Dahl, 486 U.S. 622, 646–47 (1988) (construing Section 12 of the Securities Act of 1933))) (emphasis added).3 A solicitation requires a contact with a buyer that is aimed at urging the buyer to purchase the security. 486 U.S. at 646 (“The solicitation of a buyer is perhaps the most critical stage of the selling transaction. It is the first stage of a traditional securities sale to involve the buyer, and it is directed at producing the sale.”); see also Joseph E. Reece, Would Someone Please Tell Me the Definition of the Term ‘Seller’: The Confusion Surrounding Section 12(2) of the Securities Act of 1933, 14 Del. J. Corp. L. 35, 105 (1989) (“Pinter apparently requires someone to be an issuer or a paid participant who actually contacted a buyer and urged the buyer to purchase before such participant would meet the first prong of the solicitation test.”). If an alleged seller does not initiate or negotiate the transaction, then that person cannot be liable for solicitation. See Royal Am. Managers, Inc. v. IRC Holding Corp., 885 F.2d 1011, 1016–17 (2d Cir.1989) (holding attorney who was director and member of executive committee of seller, but who did not initiate or negotiate sale, could not be liable under Section 12). In Pinter, the Supreme Court rejected the rule 3 “Texas courts generally cite decisions of the federal courts to interpret the TSA. The Supreme Court of Texas has explained that the Texas Legislature intended the TSA to be interpreted in harmony with federal securities law.” Highland Capital, 402 S.W.3d at 741 (citations omitted). To determine who can be a “seller” for Section 33A(2) purposes, the Highland court examined Section 12 of the Securities Act of 1933 and drew from “analogous federal precedent.” Id. at 741–42. Thus, it defined seller for Section 33A(2) the same way the Unites States Supreme Court did for Section 12. Id. at 742. 3 that solicitation liability can extend to “one whose participation in the buy-sell transaction is a substantial factor in causing the transaction to take place.” 486 U.S. at 649 (internal quotation marks omitted). As the Supreme Court warned, a substantial-factor test would impermissibly extend liability “to participants only remotely related to the relevant aspects of the sales transaction.” Id. at 651. Notwithstanding this clear authority from the Supreme Court, Zephyr cherry-picks portions of opinions from a random assortment of federal cases to support its theory of liability. But none of those cases supports its cause. For example, in Pirani v. Slack Technologies, Inc., the district court merely noted that other district courts have noted that “although the act of signing a registration statement, alone, may not always suffice, it is at least suggestive of solicitation activity.” 445 F. Supp. 3d 367, 384 (N.D. Cal. 2020) (quoting In re Charles Schwab Corp. Sec. Litig., 257 F.R.D. 534, 549 (N.D. Cal. 2009)). The court went on to hold that the plaintiffs had stated a Section 12 claim against the company’s officers and board members—all of whom were “insiders and early investors of the company [who] were able to sell their preexisting shares to the public” in a direct listing—because “all of the Individual Defendants signed the Offering Materials, [] certain defendants solicited sales at the Investor Day, and [] all of the Individual Defendants were financially motivated to solicit sales.” Id. at 373, 384. Zephyr offers no evidence of any of that here, nor could it because there was no such direct offering during the relevant period. See MPSJ Ex. A ¶ 7 Zephyr also selectively quotes from Rosenzweig v. Azurix Corp., 332 F.3d 854, 871 (5th Cir. 2003), for the proposition that “to count as solicitation, the seller must, at a minimum, directly communicate with the buyer.” Resp. at 17. In doing so, Zephyr mischaracterizes the Fifth Circuit’s “solicitation” standard. In Lone Star Ladies Inv. Club v. Schlotzsky’s Inc., the Fifth Circuit adopted 4 the “vendor’s agent” standard, whereby if the alleged seller can incur Section 12 liability if he or she “is sufficiently active in promoting the securities as to essentially become the vendor’s agent.” 238 F.3d 363, 370 (5th Cir. 2001) (holding, in the context of a firm commitment underwriting, that plaintiff could “show that an issuer’s role was not the usual one; that it went farther and became a vendor’s agent”). That is the same standard the Fifth Circuit applied in Rosenzweig. 332 F.3d at 871. There, the plaintiffs purchased stock in Azurix on the secondary market before Enron took the company private. Id. at 858. The plaintiffs later sued Azurix, Enron, and six former Enron and Azurix officers and directors under Section 12. Id. The plaintiffs’ sole argument with respect to the individual defendants was that they had signed a registration statement, which the plaintiffs contended met the solicitation standard because there was “a ‘complex entanglement’ with Azurix and Enron, from which it could be inferred that the companies participated in a ‘concerted course of action to market Azurix.’” Id. at 871. Relying on Lone Star Ladies, the Fifth Circuit affirmed dismissal of the Section 12 claims against the individual defendants (as well as the corporate defendants), reasoning that the plaintiffs failed to allege “that any of the defendants assumed the ‘unusual’ role of becoming a ‘vendor’s agent,’ or otherwise actively solicited the plaintiffs to purchase.” Id. (emphasis added) (citation omitted). That was the context in which the court commented that “[t]o count as ‘solicitation,’ the seller must, at a minimum, directly communicate with the buyer.” Id. Nothing in Rosenzweig supports Zephyr’s suggestion that merely communicating with the buyer is enough; rather, it confirms that active solicitation of a sale is required. The Fifth Circuit’s dismissal of a Section 12 claim that alleged nothing more than the signing of a registration statement does not support Zephyr’s proposed rule that “if there is evidence of ‘direct communication’ between the buyer and the defendant, the buyer’s Section 5 33A(2) claim goes to the jury even under the Fifth Circuit’s heightened standard.” Resp. at 17. Nor does In re Charles Schwab Corp., 257 F.R.D. 534, where the court found that the complaint stated a Section 12 claim because it alleged that the defendants had signed a registration statement and participated in the written and oral communications used to market the mutual fund’s shares. Id. at 549–50. Ultimately, Zephyr tries to fashion a rule whereby any direct, in-person communication is sufficient to create a fact issue on solicitation. This rule has no basis in law. If anything, Zephyr gets it backwards: direct communication is necessary for a fact issue on solicitation, but it is not sufficient to create one. Zephyr offers evidence of communications between Daniel Cohen and Defendant Asherman but fails to offer evidence that these conversations qualify as solicitation. Resp. at 18. To “solicit” means “to ask or seek earnestly or pleadingly,” Webster’s New World Dictionary (2d College ed. 1979) (emphasis added), which hardly describes any of Cohen’s alleged conversations with the Individual Defendants. During Cohen’s conversations with Asherman that Cohen himself initiated, CB&I’s nuclear projects and other business projects were discussed. Id. At no time did Cohen and Asherman discuss transactions in CB&I securities, nor is it clear that Asherman even knew Cohen was contemplating stock transactions. See id. Zephyr may be able to point to direct conversations with Asherman, but it cannot show that any one of them involved Asherman “ask[ing] or seek[ing] earnestly or pleadingly” for Cohen to purchase CB&I securities. As to Defendants Ballschmiede and Stockton, Zephyr offers no evidence of any direct communications with Cohen, let alone solicitations. See Resp. at 18–19. Zephyr simply has no evidence that the Individual Defendants initiated contact with Cohen and asked, sought or urged him to buy CB&I securities. Pinter, 486 U.S. at 646. Zephyr lacks any evidence of a negotiation of any kind, Royal Am. Managers, Inc., 885 F.2d at 1016–17, or conduct 6 causing the Individual Defendants to rise to the level of the vendor’s agent, Lone Star Ladies, 238 F.3d at 370. Zephyr asks this Court to adopt the rule that mere discussions with an investor who later buys securities based on such discussions establishes Section 33A(2) liability. But such a rule resembles the substantial-factor test that Pinter expressly rejected. 486 U.S. at 654. Even if Zephyr could show solicitation, it fails to provide evidence that any Individual Defendant “successfully solicit[ed] the purchase, motivated at least in part by a desire to serve his own financial interests or those of the securities owner,” such as a broker. Id. at 646–47. This element requires a showing that the alleged seller expected to benefit from the buyer’s purchase. See id. at 647 (“The person who gratuitously urges another to make a particular investment decision is not, in any meaningful sense, requesting value in exchange for his suggestion or seeking the value the titleholder will obtain in exchange for the ultimate sale.”). Zephyr fails to show that Asherman requested value in exchange for his discussion of CB&I stock or sought value from Zephyr in exchange for the ultimate sale of CB&I stock. It is not enough for Zephyr to offer evidence that the Individual Defendants had an incentive to maintain a high CB&I stock price. If that were the case, Section 12 and 33A liability would extend to nearly all officers and directors of publicly traded U.S. corporations, who typically hold company stock and options and who frequently discuss the company with investors, since under Zephyr’s theory they are “motivated” for the company’s stock price to increase. Because Zephyr lacks evidence that the Individual Defendants were sellers who acted for their own financial benefit, Zephyr’s Section 33A(2) claim must be dismissed. Lastly, the Court need not spend much time deciphering Zephyr’s peculiar and circular agency argument. Resp. at 19–20. The crucial question is whether any of the Individual Defendants were motivated to serve the financial interests of the securities owner who actually passes the stock 7 to the purchaser. Highland Capital, 402 S.W.3d at 742. Zephyr acknowledges that no Defendant passed title to Zephyr, Resp. at 20, which is expected, as all of Zephyr’s transactions were executed in the open market, MPSJ at 10. The Individual Defendants had no relationship, interaction, or coordination with any of the CB&I securities owners who passed their stock to Zephyr, and Zephyr offers no evidence that the Individual Defendants were motivated to serve the interests of those owners. Both of Zephyr’s theories of financial motive fail. Because Zephyr fails to offer any evidence of solicitation or financial incentive, no Individual Defendant was a seller for purposes of Section 33A(2) liability, and the Individual Defendants are entitled to summary judgment. B. Zephyr’s Section 33F claims fail due to the lack of a primary violation. As explained in the Motion, Plaintiffs’ Section 33F claims fail with their Section 33A(2) claims. MPSJ at 12. Zephyr agrees that claims for secondary liability cannot survive in the absence of a primary violation and argues only that it has presented sufficient proof of a primary violation. Resp. at 20. Because Zephyr has not provided the requisite evidence to establish a primary violation, the Individual Defendants cannot be secondarily liable under either Section 33F(1) or Section 33F(2). Summary judgment is therefore appropriate on these claims as well. II. Zephyr fails to explain how the purchase of a stock option effects the conveyance of stock. Zephyr spills much ink to establish a point upon which the Individual Defendants agree: a claim for statutory fraud under Section 27.01 does not require an actual conveyance of stock, but the contract must actually effect a conveyance of stock. Resp. 22. Zephyr characterizes the Individual Defendants’ position as “argu[ing] that Section 27.01 requires a conveyance of stock.” Id. But as the Individual Defendants explained, the requirement under Section 27.01 is that “the contract must ‘actually effect the conveyance’ of real estate or stock between the parties,” and 8 “‘the contract must cause stock to be conveyed.’” MPSJ at 13 (quoting Ginn v. NCI Bldg. Sys., Inc., 472 S.W.3d 802, 823 (Tex. App.—Houston [1st Dist.] 2015, no pet.)). Zephyr’s option transactions fail to meet this standard because “the purchase or sale of a stock option does not convey stock but rather grants a contractual right to purchase or sell stock at some later time.” MPSJ at 14. Heralded by Zephyr, Tukua Investments, LLC v. Spenst, 413 S.W.3d 786 (Tex. App.— El Paso 2013, pet. denied), actually supports the Individual Defendants. The court in Tukua emphasized that the determinative question is whether the parties entered a contract to convey or sell. Id. at 796–97. Although the contract for the sale of commercial property did not close and thus there was no actual conveyance of real property, that was of no consequence “[b]ecause a contract for real estate was executed between the parties.” Id. at 797 (“[T]he parties entered into a valid contract for the sale of real estate, and as a result, a potential sale or purchase of real estate was created.”). Tukua does not help Zephyr here because the issue is not that a contract to convey stock was entered into but did not close; rather, the problem is that the sale or purchase of an option is a contract for a right to purchase or sell stock at a later time, it is not the actual conveyance of stock itself. Zephyr takes down its own straw man but fails to explain how an options contract can be said to effect or cause the conveyance of stock and thereby satisfy Tukua’s standard. Instead, Zephyr claims that the cases cited by the Individual Defendants fail to account for a change in the statutory language between Section 27.01 and its predecessor and “blindly” cite the interpretation in Stanfield v. O’Boyle, 462 S.W.2d 270 (Tex. 1971), as if the amendment never occurred. Resp. at 22–24. But these cases do no such thing. The Supreme Court in Stanfield concluded that Article 4004 “is applicable only when a conveyance of the property has been made, and not where there is merely a contract to convey.” 462 S.W.2d at 271 (internal quotation marks omitted). In contrast to Stanfield, Evans v. Wilkins, No. 14-00-00831-CV, 2001 WL 1340356 (Tex. 9 App.—Houston [14th Dist.] Nov. 1, 2001, no pet.), and Ginn, 472 S.W.3d 802, require only that the contract in question actually effect the conveyance of real estate or stock; they do not require that an actual conveyance take place. Ginn, 472 S.W.3d at 823; Evans, 2001 WL 1340356, at *3. The lack of merit in Zephyr’s contention is underscored by the fact that the court in Ginn relied on Tukua—the gold standard for interpreting Section 27.01 according to Zephyr—to conclude that “the contract must cause stock to be conveyed.” 472 S.W.3d at 823 (emphasis added). Evans and Ginn are thus in accord with Tukua and do not “blindly” cite the interpretation in Stanfield. Zephyr’s lesson on legislative history and statutory interpretation is irrelevant, as the cases relied on by the Individual Defendants fully respect Section 27.01 as it reads today. Rather than try to distinguish the cases cited by the Individual Defendants, Zephyr claims they are wrong because they overlooked a change in the statutory language from 1983 that has no bearing on these courts’ holdings. Because the option contracts in question do not effect the conveyance of stock, the options do not constitute stock transactions subject to Section 27.01, and the Individual Defendants are entitled to summary judgment as a result. CONCLUSION For these reasons, the Court should grant the Motion for Partial Summary Judgment and enter summary judgment in favor of the Individual Defendants on all TSA and statutory fraud claims against the Individual Defendants. 10 Respectfully submitted, BAKER BOTTS L.L.P. By: /s/ David D. Sterling David D. Sterling Texas Bar No. 19170000 Paul R. Elliott Texas Bar No. 06547500 Amy Pharr Hefley Texas Bar No. 24046046 910 Louisiana St. Houston, Texas 77002 Tel: (713) 229-1234 Fax: (713) 229-1522 david.sterling@bakerbotts.com paul.elliott@bakerbotts.com amy.hefley@bakerbotts.com Nicole R. Czajkoski Law Office of Nicole Rodriguez Czajkoski State Bar No. 24046744 336 North Main St., Suite 205 Conroe, Texas 77301 Tel: (936) 701-1010 Fax: (936) 873-8659 nicole@conroelawfirm.com COUNSEL FOR DEFENDANTS CHICAGO BRIDGE & IRON COMPANY N.V., PHILIP K. ASHERMAN, RONALD A. BALLSCHMIEDE, AND WESTLEY STOCKTON C ERTIFICATE OF S ERVICE I hereby certify that on the 7th day of January 2021, a true and correct copy of the foregoing was served on all known counsel of record by the electronic filing system. /s/ Paul R. Elliott Paul R. Elliott 11