Motion for Summary Judgment in BLOOMINGKEMPER, RONALD KEITH vs. EVANS, KIRK W| Trellis.Law

On June 19, 2014 a Motion-Secondary was filed involving a dispute between Bloomingkemper, Ronald Keith, and Evans, Kirk W, for MALPRACTICE/LEGAL in the District Court of Harris County.

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CAUSE NO. 201 -35398

RONALD KEITH BLOOMINGKEMPER, § IN THE DISTRICT COURT

Plaintiff,

113 JUDICIAL DISTRICT

KIRK EVANS,

Defendant. HARRIS COUNTY, TEXAS

DEFENDANT’S REPLY TO
PLAINTIFF’S RESPONSE TO MOTION FOR SUMMARY JUDGMENT

Defendant Kirk Evans files this reply in connection with Defendant’s Motion for Summary

Judgment. In support thereof, defendant would respectfully show the Court as follows:

INTRODUCTION

The plaintiff’s response now tacitly concedes that the trial court record is literally

filled with evidence that Bloomingkemper was a “control person” under the Texas Securities Act

and that he personally provided $200,000 to the sellers of a massive Ponzi scheme. To distract

the Court from the actual trial court record, Plaintiff has completely changed positions and is

now attempting to obtain a massive “do over” in formulating why he believes he would have

won an appeal.

Plaintiff makes three completely new arguments, all of which fail as a matter o

law. The basic arguments are as follows:

New Argument:

Even if Bloomingkemper might not have won his appeal, he would stillget a new trial for

technical reasons.

Reality:

Bloomingkemper cannot satisfy the legal requirements for obtaining a new trial. Even so, he

fails to provide any evidence he would prevail with a new trial.
New Argument:

As a matter of law, Bloomingkemper wins on the issue of “awareness” and “scienter,” both of

which are legally required to prove direct or indirect aid to a seller of securities.

Reality:

This issue was repeatedly briefed and argued at the trial court level and Bloomingkemper lost

and was found to be lacking in credibility. The record is replete with testimony demonstrating

that Bloomingkemper knew the sellers were selling and lying about the scheme, yet he personally

gave them $200,000. In his own words, Bloomingkemper thought this was “reckless.”

New Argument:

As a matter of law, Bloomingkemper wins on the issue of “control,” because the sellers of the

securities were “selling away.”

Reality:

This issue was repeatedly briefed and argued at the trial court level and Bloomingkemper lost

and was found to be lacking in credibility. The record is filled with testimony demonstrating that

Bloomingkemper was in a position of control and exercised actual control over the sellers.

3. Plaintiff’s tact throughout this entire case has been that the testimony of Agent

Vanessa Walther was the magic elixir that would have washed away the entire judgment against

him and the slew of damning factual findings by Judge Baker. Plaintiff’s own motions contains

38 paragraphs, not one of which mentions any other legal justification for overturning the

judgment besides the supposed testimony of Agent Walther.

4. Now, in his response, the plaintiff is instead arguing that he would have been

entitled to a new trial, without providing one shred of evidence that he would have won a retrial.

Plaintiff also attempts to rehash a handful of the arguments that were made and rejected at the
trial court level on numerous occasions. Each of these points is addressed below.

Argument & Authority

I. BLOOMINGKEMPER COULD NOT OBTAIN A NEW TRIAL BECAUSE THE REQUIREMENTS
OF RULE 34.6 WERE NOT MET.

5. Bloomingkemper’s new argument is that the missing portion of the transcript,

standing alone, was sufficient to warrant a new trial. This is legally and factually baseless.

6. “[B]efore a new trial can be ordered, there must be a finding that “the parties

cannot agree on a complete reporter's record.” Kirtley v. State, 56 S.W.3d 48, 50–52 (Tex. Crim.

App. 2001); see also Dunn v. Bank-Tec S., 134 S.W.3d 315, 329 (Tex. App.—Amarillo 2003, no

pet.) (finding appellants did not satisfy 34.6(f)(4)’s prerequisites when appellants did not suggest

or illustrate that the parties could not agree on a complete reporter’s record).

7. Here there is no such finding. In fact, the trial court found the opposite to be true.

The trial court specifically made factual findings after a hearing on this very issue and ruled that

(1) the record could be corrected with a short deposition, and (2) that the parties were in

agreement to conduct this deposition.1 See Plaintiff Ronald Bloomingkemper’s Response to

Defendant Kirk E. Evans Motion for Summary Judgment at Exhibit “E” (Findings of Fact, May

10, 2011).

8. Texas Rule of Appellate Procedure 34.6 requires:

An appellant is entitled to a new trial under the following circumstances;

(1) if the appellant has timely requested a reporter’s record;

(2) if, without the appellant's fault, a significant exhibit or a significant portion of

the court reporter's notes and records has been lost or destroyed or-if the

1
The trial court’s use of the word “apparent” does not impact its factual finding on these issues.
Johnson, 176 S.W.3d at 97 (trial court determined record was “apparently” accurate held
sufficient).
proceedings were electronically recorded-a significant portion of the recording has

been lost or destroyed or is inaudible;

(3) if the lost, destroyed, or inaudible portion of the reporter's record, or the lost or

destroyed exhibit, is necessary to the appeal's resolution; and,

(4) if the parties cannot agree on a complete reporter’s record.

Tex. R. App. P. 34.6(f).

9. As a result, without a fact finding that the parties could not agree, a new trial is

legally impermissible. Appellate courts afford great deference to a trial court’s rulings on

questions of fact in determining what constitutes an accurate copy. Quigley v. Willmore, No. 09-

08-00517-CV, 2009 WL 4062180, at *4 (Tex. App.—Beaumont Nov. 25, 2009, no pet.) (mem.

op.); see also Johnson, 176 S.W.3d at 97 (affording almost total deference to a trial court’s

ruling and citing Guzman v. State, 955 S.W.2d 85, 89 (Tex. Crim. App. 1997)).

10. An appellate court would be required to give almost total deference to the trial

court’s finding here and its determination that the record could be compiled and that the parties

were in agreement on compiling the complete reporter’s record. As a result, Bloomingkemper’s

contention that he would have effortlessly obtained a new trial would be a legal impossibility.

This contention cannot defeat summary judgment.

II. THERE IS LITERALLY NO EVIDENCE THAT BLOOMINGKEMPER WOULD WIN A
RETRIAL.

11. The pending motion contains both a traditional motion that Defendant is entitled

to summary judgment as a matter of law and a “no evidence” motion. See Defendant’s Motion

for Summary Judgment at Paragraphs 6 & 10. If Plaintiff somehow miraculously proves that he

is entitled to a new trial as a matter of law, then it is his burden to prove that he would win that

trial. The plaintiff must essentially win the “case within the case.” Borrell v. Williams, (Tex.

App.-Houston [1st Dist.] 2014).
12. Despite this burden, Bloomingkemper makes no attempt whatsoever to prove that

he would have won a retrial. There is not a single piece of evidence or testimony in the record or

otherwise that would prove that Bloomingkemper would prevail in a new trial. In fact, the only

evidence is exactly the opposite. A Harris County district court judge has already heard each of

the arguments that would have been advanced in any appeal, not once, but twice, and Mr.

Bloomingkemper has already lost the "case within the case," not once, but twice.

13. As a result, summary judgment is required as to any claim that Bloomingkemper

would have been entitled to a new trial.

III. THERE IS SUBSTANTIAL EVIDENCE OF “AWARENESS” AND SCIENTER.

14. As stated above, Plaintiff is now attempting to obtain a massive “do over” and

reargue some of the points that Judge Baker already rejected on numerous occasions. The first

argument in the response is that Bloomingkemper was not “generally aware” that he was helping

a Ponzi scheme and that he did not have the requisite scienter in connection with the aid he

provided.

15. Under applicable securities laws, scienter can be proven by reckless conduct.

“Thus, unlike for control person liability, the plaintiff must show that the aider had the requisite

scienter, i.e., intent to deceive or defraud, or reckless disregard." Tex. Civ. Stat. Ann. art.531-

33F(2) comment at 84 (Vernon's Supp. 2003). In re Enron Corp..Sec., 258 F.Supp.2d 576 (S.D.

Tex., 2003).

16. At trial, Bloomingkemper admitted investing his own money in the scheme that

sounded “stupid” and admitted in his own testimony that a person doing so acted recklessly:

Q. You've never heard of it referred to as a pyramid scheme?

A. I mean, the whole thing sounds stupid at the start. Outside of saying
it's stupid, I don't know what else you'd call.

Q. Why does it sound stupid?
A. Who in their right mind thinks that you're going to get 20 percent
return a month on your money?

Q. That's reckless, isn't it?

A. I would think that -- reckless on whose part?

Q. On the person putting his money in there?

A. It's reckless on his part?

Q. Yes.

A. Perhaps.

Q. Well, it's certainly reckless for the guy who's recommending that he's
doing this that's supposed to be a professional, isn't it?

A. I would think so, yes.

See Defendant’s Motion for Partial Summary Judgment (“Evan’s MSJ, Exhibit E”), Exhibit “E.”

(Transcript, February 19, 2003) at 183:7-25.

16. The very language of the Texas Securities Act is satisfied with proof of reckless

conduct:

F. Liability of Control Persons and Aiders.

(2) A person who directly or indirectly with intent to deceive or defraud or
with reckless disregard for the truth or the law materially aids a seller,
buyer, or issuer of a security is liable under Section 33A, 33B, or 33C
jointly and severally with the seller, buyer, or issuer, and to the same
extent as if he were the seller, buyer, or issuer.

Texas Securities Act Sec. 33(F) (emphasis added).

17. Also, the record is filled with evidence that Bloomingkemper was “generally

aware” of his role in aiding the sellers – he gave them $200,000 when he knew they were lying:

Q. Tell me why you put your money in the program.

A. Well, I'm sick and tired of Mr. Garrett and Mr. Sims lying about how
much money they were making, luring agents away to sell their products. So, I
called Mr. Sims, and I said, you know, what's the best deal you can give me. And
he said 90 days, we can pay you "X" number of dollars. If you'll put in 200,000,
we'll give you 2 million. I said, well, here's my money, put your money where
your mouth was. And 90 days later, it didn't happen.

See Evans MSJ, Exhibit “E” at p. 241:14-242:1.

18. Additional evidence that he was generally aware is as follows:

a. Bloomingkemper personally invested $200,000 in the scheme and got his money back when
he did not receive a promised $2,000,000 a few months later and he complained. See Evans
MSJ, Exhibit “E” at p. 182.

b. Bloomingkemper claims that once the scheme was discovered, they tried to talk to all the
reps and fire those involved. See Evans MSJ, Exhibit “E,” at p. 236). Both Mr. Curby
and Mr. Hinojosa deny such an interview or even a letter. See Evans MSJ, Exhibit “E” at
p. 137, 138. Demonstrating actual knowledge of the scheme, sold by means of untrue
statements, and control over the sellers.

19. It is frankly difficult to imagine more compelling evidence of “awareness” and

“scienter.” Bloomingkemper funded a Ponzi scheme with $200,000 when he knew the sellers were

“lying,” the scheme was “stupid,” and he admits that these actions were “reckless.”

Bloomingkemper repeatedly lost on these points at the trial court and he could not prevail on these

issues on appeal. Summary judgment in favor of Evans is required accordingly.

IV. “SELLING AWAY” ALLEGATIONS DO NOT EXTINGUISH CONTROL PERSON LIABILITY.

20. Plaintiff next attempts to rehash more arguments that were heard and rejected by

Judge Baker. Bloomingkemper asserts that because the “sellers” of the Ponzi scheme were

“selling away;” i.e., selling a product that they were not authorized to sell; that this automatically

means that no control person liability exists. Unfortunately for Bloomingkemper, this is not the

law.

21. The determination of a “control person” and whether the “good faith” defense

applies is a fact-intensive inquiry. See Raymond W. Henney and Andrew J. Lievense, Secondary

Liability and “Selling Away” in Securities Cases, MICHIGAN BUSINESS LAW JOURNAL (2010) at

p. 52. In Texas, itis a question for the trier of fact. See Texas Pattern Jury Charge 105.16 &
105.17.

22. Broker-dealers have a legal and regulatory duty to maintain proper internal

controls and supervisory policies over their registered representatives. See e.g., FINRA Rule

3010. In addition, a registered representative’s violation of FINRA Rules 3040 and 3270 does

not relieve a control person of his duty to supervise the stockbroker/registered representative.

Accordingly, a control person cannot simply rely on these rules to avoid potential liability arising

from its representatives’ unauthorized activities. Failure to supervise is one of the predominant

theories used to hold control persons liable in selling away cases:

c. Lustgraaf v. Behrens, 619 F.3d 367 (8th Cir. 2010) (reversing dismissal of
securities claim in “selling away” case).

d. Twiss v. Kury, 25 F.3d 1551 (11th Cir. 1994) (finding liability in “selling away”
case even after the brokers had been terminated).

e. See, e.g., PFS Investments, Inc., Exchange Act Release 42,069, 67 S.E.C. Docket
1502, 1998 WL 422161, at *6 (July 28, 1998) (“[T]he procedures in place at the compliance
departments . .. were not reasonably designed to detect selling away activities. .. . [The firm
therefore] failed reasonably to supervise . . .with a view towards preventing violations of the
securities laws, within the meaning of Section 15(b)(4)(E) of the Exchange Act.”).

23. In assessing liability to broker-dealer firms, the focus is typically on whether the

firm “should have known” about the broker’s outside activities. This involves determining if the

broker-dealer firm has reasonable supervisory policies to prevent and detect misconduct and

more importantly, whether the firm actually implements such policies in a reasonable manner.

For example, in Battle v. Northeast Securities, Inc., FINRA No. 06-04110 (March 18, 2008), the

panel found that the broker-dealer firm had reasonable supervisory policies in place, however

found that there was no evidence that the firm had reasonably implemented such policies.

24. This was exactly the case with Mr. Bloomingkemper. The record at trial

demonstrates, not merely that Bloomingkemper “should have known” about the scheme, but that

he actually knew about it, invested in it and failed to implement policies to stop it:
a. Hinojosa (one of the “sellers”) testified that he would not have sold the
product to any of the Plaintiffs if U.S.A., N.M.A., or Bloomingkemper had
admonished them or threatened them with firing. See Evans MSJ, Exhibit
“E,” at p. 137.

b. Bloomingkemper had control over the sellers and the power to terminate them.
See Evans MSJ, Exhibit “E,” at p. 142. (“Q. So, it was your belief they had
that control over you? A. They had the ability to terminate me, yes.”).
Demonstrating control over the sellers. See also Evans MSJ, Exhibit “E,”
at p. 267:20 – 268:20.

c. The Court even acknowledged that Mr. Bloomingkemper made this point in
his testimony:

Q: Won't you admit that because whatever stroke you had with the insurance
company that you have at least indirect control over what Mr. Hinojosa does or
doesn't say that you can threaten with him?
MR. EVANS: Asked and answered and a legal conclusion.
THE COURT: I think he's already said that he had the right to recommend the
termination. So, I think your point has been made. See Evans MSJ, Exhibit E, at
p. 270.

d. According to the underlying plaintiffs’ expert, when Bloomingkemper found
out Mr. Byrum (another “seller”) was involved in the scheme, as
Bloomingkemper admits in his deposition, Bloomingkemper should have
conducted an investigation, notified investors, and fired Mr. Byrum. See Evans
MSJ, Exhibit “F” (Plaintiffs’ Reply to Defendants’ Supplement to Closing
Brief and Motion to Exclude Expert) at p. 2 # 14.

e. According to the underlying plaintiffs’ expert, the standard of care
required the representative, the supervisors and the broker/dealer to do due
diligence to determine whether or not the representations in the contract were
correct, if there is a bond, ifthere is actually currently trading going on,
who is did it, do they have the resources to carry on, etc. See Evans MSJ,
Exhibit “F” (Plaintiffs’ Reply to Defendants’ Supplement to Closing Brief and
Motion to Exclude Expert) at p. 2 # 12.

f. Bloomingkemper claims that once the scheme was discovered, they tried
to talk to all the reps and fire those involved. (See Evans MSJ, Exhibit E,
at p. 236). Both Mr. Curby and Mr. Hinojosa deny such an interview or
even a letter. See Evans MSJ, Exhibit “E” at p. 137, 138.

25. Another important factor in determining broker-dealer liability is whether or not

there were red-flags that should have prompted follow up investigation of potential misconduct.

Broker-dealer firms may be liable for failure to supervise if there are indications of irregularities
that they overlooked or ignored. For example, in Chandler v. FSC Securities Corporation,

FINRA No. 05-04443 (July 2, 2007), the arbitration panel found the firm liable in a selling away

case holding that it ignored and failed to investigate numerous red-flags, such as, the broker’s U5

had allegations of “bogus business” and “forgery” and he made repeated attempts to designate his

office as a “branch” and his correspondence frequently suggested that it was a “branch.”

Furthermore, a broker with history of discipline issues or other red flags should be supervised

more than a broker with a clean record. Accordingly, a broker-dealer firm must investigate red-

flags and must implement proper supervisory measures to address the situation.

26. Here, not only were there “red flags,” Bloomingkemper was a reckless personal

investor in a scheme he thought was “stupid” sold by liars. He threatened the sellers with going

to the FBI to get his personal money back. See Evans MSJ, Exhibit E, at p.182:9 – 183:25 and p.

241:14 – 242:7.

27. In any event, Bloomingkemper repeatedly lost this issue at the trial court level and

there is substantial evidence to support Judge Baker’s fact finding as to control person liability.

Summary judgment in Evans’ favor is required as a result.

V. UNDER APPLICABLE APPELLATE STANDARDS, THIS COURT CANNOT CONSIDER THE
EXTRANEOUS EVIDENCE SUBMITTED BY BLOOMINGKEMPER.

28. It is extremely important to emphasize once again that all of the extraneous

evidence submitted in Bloomingkemper’s response is legally irrelevant for determining how a

court of appeals would rule on a given appellate record. The only items that an appellate court

would review would be in the appellate record, not separate affidavits of Bloomingkemper or his

expert. On top of that, under the applicable appellate standards, an appellate court does not even

look at evidence favorable to Bloomingkemper unless it first determines that there is no evidence

to support Judge Baker’s factual findings.

29. Defendant specifically objects and moves to strike all evidence attached to
Bloomingkemper’s response that is not part of the appellate record.

VI. PLAINTIFF’S COMPLAINTS ABOUT THE AUTHENTICITY OF THE TRANSCRIPT ARE
UNFOUNDED.

30. Plaintiff also objects to the authenticity of the trial court transcript. Trial

transcripts and reporters’ records are authenticated in the Texas Appellate Courts as follows:

8.11 Certification. When electronically filing an Official Reporter’s
Record in a court that has implemented the Texas Appeals Management
and E-filing System Records Submission Portal (TAMES RSP), the court
reporter’s or court recorder’s login and password will serve as the court
reporter’s or court recorder’s signature on a certification page. The court
reporter or court recorder must also include one of the following three
things: (1) a scanned image of the court reporter’s or court recorder’s
signature; (2) a public key-based digital signature; or (3) “/s/” and the
court reporter’s or court recorder’s name typed in the space where
the signature would otherwise appear.

See Texas Supreme Court, Uniform Format Manual for Reporters’ Records, 2010.

31. The Texas Rules of Evidence specifically provide for authentication under these

circumstances:

Rule 902:

(4) Certified Copies of Public Records. A copy of an official record—or a copy of
a document that was recorded or filed in a public office as authorized by law—if
the copy is certified as correct by:

(A) the custodian or another person authorized to make the certification; or
(B) a certificate that complies with Rule 902(1), (2), or (3), a statute, or a rule
prescribed under statutory authority.

The transcript is certified in the precise manner authorized by the rules promulgated by the Texas

Supreme Court, which has statutory authority to promulgate these rules.

32. In addition, Rule 902 provides further authorization for this type of certification:

(11) Presumptions Under Statutes or Other Rules. Any signature,
document, or other matter declared by statute or by other rules prescribed
pursuant to statutory authority to be presumptively or prima facie genuine
or authentic.

Tex. R. Evid. 902(11). Rule 901 provides a further basis for authentication:
Rule 901:

(10) Methods Provided by a Statute or Rule. Any method of authentication or
identification allowed by a statute or other rule prescribed under statutory
authority.

17. The method of certification in the current exhibit is specifically authorized by rule

8.11 and plaintiff’s arguments to the contrary are unfounded.

18. In any case, Defendant has also obtained and filed the entire reporters record

certified and signed by the Court of Appeals. To the extent required, defendant seeks leave to

substitute the copy of the transcript bearing the certification from the Court of Appeals. There is

no conceivable prejudice to the plaintiff. The content of the documents is identical.

WHEREFORE, PREMISES CONSIDERED, Defendant Kirk Evans respectfully

requests that the Court enter summary judgment in his favor and that a take nothing judgment be

entered as to all of plaintiff’s claims and that the Court grant such other relief, both at law and in

equity, to which he may show himself justly entitled.

Respectfully submitted,

STILES LAW FIRM

David (Trey) M. Stiles III
__________________________________________
David (Trey) M. Stiles, III
State Bar No. 00788473
3411 Richmond Avenue, Suite 400
Houston, Texas 77046
(713) 987-7110
trey@treystileslaw.com
CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy of the foregoing document, Defendant’s Reply
to Plaintiff’s Response to Motion for Summary Judgment was delivered to all parties on May 25,
2016.

Brian D. Womac By e-file service
Angeline V. Kell and email to angie@womaclaw.com
8301 Katy Freeway
Houston, Texas 77024

David (Trey) M. Stiles III
__________________________________________
David (Trey) M. Stiles III

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Document Filed Date

May 25, 2016

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June 19, 2014

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Motion-Secondary: BLOOMINGKEMPER, RONALD KEITH vs. EVANS, KIRK W

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