Barry Klickstein successfully represented plaintiff investor Joseph R. Zimmel in a bankruptcy case on appeal before the 1st Circuit, as well as other investors and the company Access Cardiosystems in actions against its founder Randall Fincke.
Access Cardiosystems, a small startup that manufactured and sold portable external heart defibrillators, secured more than $20 million in investments based in part on a business plan prepared by the defendant in 2002. The business plan asserted that the company's product did not infringe any patents. Zimmel and three other investors sued the defendant under the Massachusetts Uniform Securities Act §410(a)(2), which provides for liability for sales of securities accomplished "by means of" fraud or misrepresentation after Access filed for Chapter 11 bankruptcy in 2005. The Bankruptcy Court found that the defendant made a misrepresentation since patent counsel never offered an opinion on whether Access' product infringed other patents and that the defendant knew or should have known of the falsity of the statement. The Bankruptcy Court found that Zimmel, who received the business plan before making his investment, had established that he was entitled to damages under §410(a)(2) for the defendant's solicitation of an investment "by means of" a material misstatement, awarding him $1.5 million. The defendant appealed.
The 1st Circuit rejected the defendant's arguments on appeal. He argued that his business plan did not contain a false statement, any misrepresentation was cured by a disclaimer in same and that the plaintiff needed to and did not provide proof that his reliance on the misrepresentation was cause of his loss. The 1st Circuit reiterated the underlying purpose of §410(a)(2) of the blue sky law is consumer protection. Barry explained, "The intent of the statute is to place the burden on the promoter who is seeking investments to be punctilious in their representations. You can't be fast and loose."
The case was featured in an article, "Investor can recover damages for misrepresentation over patents: Reliance test rejected for 'blue sky' liability," in the Massachusetts Lawyers Weekly. The full article is online here (subscription).