In this week’s Alabama Law Weekly Update, we report on three cases. In the first case summarized below, the Alabama Supreme Court issued an opinion concerning the enforceability of a promissory note by a creditor against a wife who signed along with her husband for a business loan and who did not personally receive any of the loan proceeds. In the second case, the Eleventh Circuit addressed the extent to which private leave, such as vacation time, personal time, etc. can be combined with the twelve weeks of leave provided by the Family Medical Leave Act to extend the period of time an employee can be away from work under the Act. In the third case, the Eleventh Circuit addressed the requirements a plaintiff must meet to have proper standing to bring claims based on violations of the Securities Act of 1933 or the Securities Exchange Act.
Merchants Bank v. Head, No. 1121142 (Ala. May 30, 2014) (holding that co-maker of a promissory note who signs the note along with her husband receives adequate consideration, even when the loan proceeds are forwarded directly to an account belonging solely to the husband).
A husband and wife executed a promissory note for a business loan in favor of the plaintiff bank. The original note contained the standard provision that both makers understood that they must pay the note even if someone else (i.e. the spouse) agreed to pay the note. The husband had completed the loan application, and the bank had reviewed only his financial information in determining whether to make the loan. The loan proceeds were all wire transferred to an account belonging solely to the husband.
The couple eventually defaulted in making payments on the promissory note. The bank sued the couple, alleging breach of the promissory note. A default judgment was entered against the husband. However, the wife answered the complaint, arguing that the note was unenforceable against her because she had not received adequate consideration for her signature on the promissory note. The Circuit Court entered a judgment in the wife’s favor, and the plaintiff bank appealed.
On appeal, the plaintiff bank argued that the note was supported by sufficient consideration and therefore, the note was enforceable against the wife. The Supreme Court recognized the rule that a promissory note is prima facie evidence of sufficient consideration for the execution thereof, and the burden of proof is on the defendants (here, the wife) to show there was no consideration. The Supreme Court also recited the general law in Alabama that two or more persons who have the same liability on an instrument as makers are jointly and severally liable in the capacity in which they sign the instrument.
The wife argued that there was not adequate consideration for her signature on the loan because she received no benefit from the loan proceeds. The Supreme Court found no legal authority in Alabama for the wife’s argument. The Supreme Court stated that “consideration sufficiently exists or is implied if it arises from any act of the plaintiff from which the defendant or a third party at defendant’s instance derived a pecuniary benefit, if such act is performed by the plaintiff to the desired end, with expressed or implied assent of the defendant.”
In reversing the Circuit Court’s judgment in favor of the wife, the Supreme Court determined that the wife had received adequate consideration for the underlying loan and the note was enforceable against her. The Supreme Court observed that the promissory note, which was signed by both spouses, contained language in which both the husband and wife promised to pay back the loan. The Supreme Court reasoned that the husband and his business had received the funds, the wife’s signature on the original note evidenced her assent to the loan transaction, and thus the wife received the benefit for which she bargained in signing the note.
Dixon v. Public Health Trust of Dade County, 2014 WL 2210579 (11th Cir. May 29, 2014) (holding that an employee who receives twelve weeks of leave does not have a viable claim against the employer under the Family Medical Leave Act).
The plaintiff requested a temporary leave of absence from her employer so she could care for a sick family member. The employer agreed, and the leave of absence began September 25, 2011. The employer’s human resources agency told the employee that it would work it out so that she could combine her own private and FMLA leave so that the leave would extend into March of the following year. Nevertheless, the employer terminated the employee’s employment when she failed to return to work on December 22, 2011. The plaintiff subsequently filed suit in the district court for various claims under the Family Medical Leave Act.
The district court dismissed the plaintiff’s FMLA claims with prejudice on the basis that she had been provided with the minimum 12 workweeks of leave to which she was entitled under the FMLA. On appeal, the plaintiff argued that the district court failed to account for the employer’s promise to allow her to combine her private and FMLA leave so that her leave would be extended beyond twelve weeks.
The Eleventh Circuit affirmed the district court’s dismissal of the plaintiff’s Family Medical Leave Act claims. It noted that the FMLA statute grants employers the right to require employees to substitute any of the accrued paid vacation leave, personal leave, or family leave of the employee for leave provided under the FMLA. In other words, once the employee received twelve weeks of leave, be it paid or unpaid, personal or family, vacation or medical, she had no viable FMLA claims against her former employer.
Licht v. Watson, 2014 WL 2121219 (11th Cir. May 22, 2014) (holding that United States district court lacks subject matter jurisdiction over a corporate shareholder’s or officer’s claims based on violations of the Securities Act of 1933 or the Securities Exchange Act unless the plaintiff was a purchaser or seller of stock).
The plaintiff, a corporate officer and shareholder, brought claims under the Securities Act of 1933 and the Securities Exchange Act against numerous defendants whom the plaintiff alleged had engaged in fraudulent conduct to affect the price of the corporation’s stock. More specifically, the plaintiff accused the defendants of having orchestrated a “pump-and-dump” scheme using the corporation’s stock. According to the plaintiff, the defendants fraudulently induced the corporation to issue large quantities of stock to the defendants at heavily discounted prices. The defendants then began a public relations campaign to “pump” up the value of the corporation’s stock, only to “dump” their shares soon afterwards by unexpectedly selling off their stock en masse. The plaintiff alleged that the result of this scheme was that the corporation’s stock plummeted, thereby harming shareholders such as the plaintiff and damaging the reputation of the corporation and its officers in the business community.
The district court dismissed the plaintiff’s Securities Act and Securities Act claims on the basis that it lacked subject matter jurisdiction over these claims because the plaintiff failed to allege that he was a buyer or seller of corporate securities in connection with the defendants’ alleged fraudulent actions.
The plaintiff appealed the dismissal of his claims. On appeal, the plaintiff argued that he had standing to pursue his claims because he was an officer of the corporation and owned stock in the corporation. He also argued that the buyer-seller requirement which the district court had applied does not preclude relief if a plaintiff can establish a causal connection between the violations of the law and the plaintiff’s loss.
The Eleventh Circuit affirmed the district court’s dismissal of the plaintiff’s Securities Act and Securities Act claims. The court acknowledged a longstanding rule that only purchasers and sellers of securities can invoke the subject matter of the courts under Section 10(b) of the Securities Exchange Act, SEC Rule 10b-5, and Section 12 of the Securities Act. The court recognized that the application of this rule has the effect of excluding certain categories of plaintiffs from bringing claims, including (1) people who did not purchase stock as a result of the defendants’ conduct; (2) people who did not sell stock as a result of the defendants’ conduct; and (3) “shareholders, creditors, and perhaps others related to an issuer who suffered loss in the value of their investment.”