Universal Express Inc fka USXP

[Doogrof]

IN THE UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT


CASE NO. 07-2407-CV

UNITED STATES SECURITIES AND
EXCHANGE COMMISSION,

Plaintiff/Appellee,

v.
RICHARD A. ALTOMARE and
CHRIS G. GUNDERSON,

Defendants/Appellants.

On Appeal From The United States District Court For The
Southern District Of New York, Case No. 04-Civ-2322,
Hon. Gerard E. Lynch, U.S. District Judge


JOINT REPLY BRIEF OF THE APPELLANTS

ARTHUR W. TIFFORD LAWRENCE A. GARVEY (LG 9113)
Tifford and Tifford, P.A. Law Offices of Cushner & Garvey, LLP
Attorneys for Altomare Attorneys for Gunderson
1385 N.W. 15th Street 155 White Plains Road, Suite 207
Miami, FL 33125 Tarrytown, NY 10591

[phone] [phone]
FAX: [phone] FAX: [phone]
[e-mail]


TABLE OF CONTENTS
Page
Argument............................................................................. 4
I. The District Court Erred When It Determined
Appellants Were Liable For The Sales Of
Unregistered Shares Of Universal’s Stock..... 4
II. The District Court Invaded The Province Of The
Jury By Summarily Determining That Altomare
And Gunderson Had Violated The Anti-Fraud
Provisions Of The Federal Securities Acts...... 6
Conclusion............................................................................. 8

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TABLE OF AUTHORITIES
Pages
STATUTE
§ 1125(e), Bankruptcy Code, 11 U.S.C. § 1125(e).............
CASES
4, 5
Celotex Corp. v. Catrett, 477 U.S. 317 (1986)...................
Securities and Exchange Commission v. Manor
Nursing Centers, Inc., 458 F. 2d 1082
(2nd Cir. 1972)............................................................
6, 7
7

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ARGUMENT


I.
The District Court Erred When It Determined That The Shares Of Stock
Issued By Universal Were Not Exempt From The Registration
Requirements Of the Federal Securities Acts.
Before the District Court, Appellants Richard A. Altomare (“Altomare”) and
Chris G. Gunderson (“Gunderson”) contended that, due to the exemption established
by § 1125(e) of the Bankruptcy Code, 11 U.S.C. § 1125(e), they could not be
penalized under the federal securities laws for the issuance of unregistered shares of
stock of Defendant Universal Express, Inc. (“Universal”). The District Court rejected
that contention on the ground that Altomare and Gunderson, during the course of
Universal’s bankruptcy reorganization, had not possessed “interests in the debtor”
which they had exchanged for such unregistered shares of Universal’s stock.

The District Court’s ruling flowed from an erroneous construction of the
foregoing statute. Under the facts of this case, the District Court should have
construed § 1125(e) of the Bankruptcy Code, 11 U.S.C. § 1125(e), in the following
manner:

A person,,, that participates, in good faith and in
compliance with the applicable provisions of [the
Bankruptcy Code], in the offer, issuance, sale, or purchase
of a security, offered or sold under the plan, of the debtor...
is not liable on account of such ... participation, for
violation of any applicable law, rule, or regulation
governing... the offer, issuance, sale, or purchase of
securities.

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Had the District Court so construed § 1125(e) of the Bankruptcy Code, 11

U.S.C. § 1125(e), it would have ineluctably concluded that Altomare and Gunderson
could not be penalized under the federal securities laws for their efforts, as authorized
by Universal’s plan of reorganization, to capitalize and re-capitalize Universal.
Accordingly, that portion of the District Court’s final judgment which
sanctioned Altomare and Gunderson for the sales of unregistered shares of Universal’s
stock should be reversed.

II.
The Distrrict Court Invaded The Province Of The Jury By Summarily
Determining That Altomare And Gunderson Had Violated The Anti-
Fraud Provisions Of The Federal Securities Acts.
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During their deposition examinations, Altomare and Gunderson testified that

they had acted in good faith when they had caused Universal to issue shares of its

stock to the investing public. In addition, in opposition to the SEC’s motion for

summary judgment, Gunderson executed and file an affidavit in which he declared

that he and Altomare had acted in good faith when they had caused Universal to issue

shares of its stock to the investing public. Although he had never heard a word of

their testimony, the District Judge summarily rejected their “good faith” defenses and

found that they had violated the anti-fraud provisions of the federal securities acts.

The District Court’s summary disposition of the “good faith” defense

interposed by Altomare and Gunderson cannot be reconciled with the Supreme

Court’s decision in Celotex Corp. v. Catrett, 477 U.S. 317 (1986). Justice

Rehnquist’s opinion for the Supreme Court in Celotex declared:

Under Rule 56(c), summary judgment is proper “if the
pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and
that the moving party is entitled to a judgment as a matter
of law.” In our view, the plain language of Rule 56(c)
mandates the entry of summary judgment, after adequate
time for discovery and upon motion, against a party who
fails to make a showing sufficient to establish the existence
of an element essential to that party’s case, and on which
that party will bear the burden of proof at trial. In such a
situation, there can be “no genuine issue as to any material
fact”, since a complete failure of proof concerning an
essential element of the nonmoving party’s case necessarily

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renders all other facts immaterial. The moving party is
“entitled to a judgment as a matter of law” because the
nonmoving party has failed to make a sufficient showing on
an essential element of her case with respect to which she
has the burden of proof...

477 U.S. at 322-323.

The deposition testimony of Altomare and Gunderson and the affidavit of
Gunderson satisfied the Celotex test: taken together, that testimony and the Gunderson
affidavit constituted a “showing sufficient to establish the existence of an element
essential to” their defense at trial: good faith. Indeed, in Securities and Exchange
Commission v. Manor Nursing Centers, Inc., 458 F. 2d 1082, 1096-1097 (2nd Cir.
1972), this Court recognized that “good faith” is a defense to the SEC’s claim of a
violation of the anti-fraud provisions of the federal securities law, which defense had
been rejected by the District Court in that case following a five (5) day non-jury trial.

CONCLUSION

The District Court’s Final Judgment should be reversed. The cause should be
remanded with instructions to: (a) enter summary judgment in favor of Altomare and

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Gunderson with respect to the SEC’s unregistered stock sales claim, and (b) afford

Altomare and Gunderson a jury trial with respect to the SEC’s securities fraud claims.

Respectfully submitted,

ARTHUR W. TIFFORD LAWRENCE A. GARVEY (LG 9113)
Tifford and Tifford, P.A. Law Offices of Cushner & Garvey, LLP
Attorneys for Altomare Attorneys for Gunderson
1385 N.W. 15th Street 155 White Plains Road, Suite 207
Miami, FL 33125 Tarrytown, NY 10591

[phone] [phone]
FAX: [phone] FAX: [phone]
by S/Arthur W. Tifford by S/Lawrence A. Garvey
ARTHUR W. TIFFORD LAWRENCE A. GARVEY

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