United States Court of Appeals for the Fifth Circuit United States Court of Appeals Fifth Circuit No. 19-10622 FILED May 29, 2024 Jason Cory, Lyle W. Cayce Clerk Plaintiff—Appellee,

versus Michael Stewart; Tammy O’Connor,

Defendants—Appellants,

versus Greg Furst; Thomas Farb,

Defendants—Appellees.

Appeal from the United States for the Northern District of Texas USDC No. 3:16-cv-01731-B

Before Richman, Chief Judge, Higginbotham, and Willett, Circuit Judges. Per Curiam: Tammy O’Connor and Michael Stewart (the Sellers) sold their company, Red River Solutions, LLC, to Atherio, Inc., a company led by Jason Cory, Greg Furst, and Thomas Farb (together, the Executives). The Case: 19-10622 Document: 94-1 Page: 2 Date Filed: 05/29/2024

No. 19-10622 Membership Interest Purchase and Contribution Agreement gave the Sellers nearly half their compensation upfront; they would get the rest—around $3.5 million—in ownership units and future payments. As things go, Atherio bellied-up and the Sellers received none of the promised $3.5 million. So the Sellers sued the Executives, alleging extra and intracontractual fraud under federal securities law, Delaware common law, and the Texas Securities Act. The district court granted summary judgment to the Executives on all claims. The Sellers appealed. We affirm summary judgment on the extracontractual and TSA fraud claims. But the district court erred in applying our summary- judgment standard to the federal securities law and Delaware common law claims; we reverse the summary judgment grants on those claims and remand. I Atherio was a “roll-up” company, raising cash to purchase multiple companies that, when combined, create a sum greater than its parts. 1 To start, Atherio secured a “middleman” lender, Prudent Capital, to spot the nascent Atherio company-buying funds while Atherio raised investor dollars. 2 The first stop on its “roll-up” tour—Red River. The Sellers sold Red River to Atherio for $6.75 million: $3.25 million upfront, a $1.5 million future payment, and $2 million worth of Atherio ownership units. 3 The deal closed in early 2013, enshrined in the Membership Interest Purchase and Contribution Agreement. Importantly,

1 “The mechanics [of a roll-up] are relatively simple: an investor or strategic platform enters a fragmented industry . . . [and] buys several similar businesses in quick succession. Soon, a marketplace of many small businesses is replaced by a larger chain or conglomerate, and the investor has ‘rolled up’ the sector.” David Working, The Anatomy of a Roll-Up, ZACHARY SCOTT (April 30, 2019), https://zacharyscott.com/the-anatomy- of-a-roll-up/. 2 Notably, Prudent was a primary lender that gets paid back before any other claimant once Atherio raised the necessary capital (or failed to). 3 While negotiating this deal, Atherio CEO Cory allegedly made three extracontractual misrepresentations. Because the Sellers cannot pursue extracontractual fraud claims, see infra section III(A), we omit the specifics. 2 Case: 19-10622