## Facts

- Terrence Donohoe and other investors invested in an oil-drilling venture they claimed was promoted through fraudulent misrepresentations about the project’s prospects.
- The venture involved COPCO and its principals, Jack Nortman and C. Morando Berrettini, working with Dennis Bridges and his drilling-related companies.
- Bridges served as the operational lead for drilling and investor-facing aspects; he later entered bankruptcy, and his companies suffered default judgments.
- Investors alleged COPCO principals knew, or recklessly disregarded, that the project lacked realistic prospects, yet solicited investments.
- The investors asserted federal securities fraud theories (including control-person liability), a civil RICO claim, and state-law claims.
- The district court granted summary judgment against the investors on most claims for lack of evidence of scienter; a remaining federal claim without scienter was dismissed as time-barred, and the case was dismissed with prejudice.
- In a prior appeal, the Seventh Circuit remanded solely for consideration of whether Nortman and Berrettini could be liable as “control persons” for Bridges’s fraud and, if so, whether they could establish a good-faith defense.
- On remand, the district court again granted summary judgment for Nortman and Berrettini, concluding that even if they were control persons, the good-faith defense was established on the undisputed record.

## Issues

1. Whether Nortman and Berrettini could be held liable as federal securities-law “control persons” for Bridges’s fraudulent conduct toward investors.
2. Assuming they were control persons, whether the record created a genuine dispute of material fact that they lacked good faith or directly or indirectly induced Bridges’s violations, thereby defeating the statutory good-faith defense at summary judgment.

## Decision

- The Seventh Circuit affirmed summary judgment for Nortman and Berrettini on the control-person claim.
- The court assumed, without definitively deciding, that Nortman and Berrettini could qualify as control persons.
- The court held that the undisputed evidence established the good-faith defense and lack of inducement as a matter of law.
- The court found no record evidence that Nortman or Berrettini knew of, participated in, or encouraged Bridges’s misrepresentations, or helped prepare false offering materials.
- The court relied on undisputed indications of responsible conduct, including investigation of Bridges’s background, ongoing monitoring of his work, and substantial personal financial investment in the venture.

## Legal Principles

- Under federal securities control-person provisions (including Exchange Act § 20(a)), a control person may be jointly and severally liable for a primary violator’s securities-law violations unless the control person proves both good faith and lack of direct or indirect inducement of the violation.
- Control-person liability is not strict liability; control persons are not insurers against all wrongdoing by those subject to their influence.
- Summary judgment is appropriate when no genuine issue of material fact exists; the nonmovant must point to specific evidence supporting a triable issue on elements that would defeat an established defense, including lack of good faith or inducement.

## Conclusion

The Seventh Circuit upheld judgment for the alleged control persons because the investors failed to produce evidence linking them to Bridges’s fraud, and the undisputed record supported a finding that they acted in good faith and did not induce the securities-law violations.


Donohoe v. Consolidated Operating & Production Corp., 30 F.3d 907 (7th Cir. 1994)