## Facts

- LightPath Technologies, Inc. sought substantial financing to commercialize optical-glass technology and planned an initial public offering (IPO).
- Before the IPO, LightPath proposed a recapitalization requiring shareholder approval, including:
  - A 1-for-5.5 reverse split of Class A common stock (A shares), described as not changing each investor’s proportional ownership interest.
  - Issuance of four contingent “E shares” per pre-IPO A share, convertible into A shares only if specified stock-price and pretax-income milestones were met.
- Proxy materials described the planned IPO offering at $5 per unit (one A share plus two warrants) and included projected valuations based on that offering price.
- Shareholders approved the recapitalization; LightPath completed the IPO.
- LightPath did not meet the milestones; E shares never converted.
- Shareholders sued, alleging the materials implied E shares would be worth $5 post-IPO and failed to disclose that conversion was highly unlikely, asserting fraud-based and securities-related claims.

## Issues

1. Whether shareholders produced legally sufficient evidence of recoverable damages for fraud, securities fraud, and related claims arising from acceptance of contingent E shares.
2. Whether an implied valuation based on the $5 IPO unit price supported a damages theory tied to E-share value.
3. Whether Texas law permits “highest intermediate value” or similarly speculative damages for the claimed loss of contingent, unrealized share value.

## Decision

- The court of appeals affirmed summary judgment for LightPath on all claims.
- The court held shareholders failed to raise a genuine issue of material fact on recoverable damages, an essential element of each asserted cause of action.
- The court rejected damages theories premised on treating the $5 IPO unit price as a representation of E-share value and on speculative, peak-value measures.

## Legal Principles

- Recoverable damages are an essential element of fraud, statutory fraud, securities-fraud, negligent misrepresentation, and similar claims; failure to produce competent evidence of damages supports summary judgment.
- Forward-looking projections and contingent estimates in offering/recapitalization materials do not, without more, constitute fixed representations of a particular security’s value.
- Texas damages law does not extend “highest intermediate value” (associated with conversion-type measures) to securities-fraud claims seeking recovery for unrealized, contingent appreciation.
- Claimed losses based on hypothetical conversion or speculative upside are not recoverable absent evidence of concrete pecuniary harm.

## Conclusion

The court affirmed judgment for the issuer because the shareholders’ damages theories depended on speculative, unrealized value of contingent shares and did not show a legally recognized pecuniary loss traceable to the alleged misstatements or omissions.


Reardon v. LightPath Techs., Inc., 183 S.W.3d 429 (Tex. App.—Houston [14th Dist.] 2005, pet. denied)