Full opinion text
ANDERSON, Circuit Judge, with whom RONEY, Chief Judge, and HILL, FAY and COX, Circuit Judges, concur: Ernest Ross and George Miller (referred to in this opinion as appellants) sued various parties connected with the issuance of the First Mortgage Residential Facilities Revenue Bond (Mount Royal Towers, Inc. Project) Series 1981 bonds. In an action based primarily on Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, Ross and Miller claimed the defendants had engaged in a fraudulent scheme to issue the tax-exempt bonds, which would be unmarketable absent the fraud. After certification of a class and substantial discovery, the district court granted summary judgment for the defendants and against the appellants on the securities claims. The appellants appeal from that judgment, and also from the dismissal of their claim based on RICO, see 18 U.S.C. § 1961 et seq., and their various pendent state law claims based on the Alabama Blue Sky Act, Ala.Code §§ 8-6-18, 8-6-19 (1977), Alabama statutory fraud provisions, Ala.Code §§ 6-5-100 to 6-5-104 (1977), negligence and breach of contract. We affirm. I. BACKGROUND This case concerns the issuance on September 30, 1981, of bonds with a face value of $29,950,000. The bonds were issued by the defendant Special Care Facilities Financing Authority of the City of Vestavia Hills (“the Authority”) to pay for the construction of a residential and medical facility for the elderly. The facility, known as Mount Royal Towers, was to be located in Vestavia Hills, a suburb of Birmingham, Alabama. The bond issue came at the end of a long series of attempts to finance the project. Originally, the project was to be conventionally financed, but in 1978, Arthur Rice, the developer and a defendant in this action, decided to finance the project through tax-exempt bonds. To this end, Mount Royal Towers, Inc. was incorporated as an Alabama nonprofit corporation. After Rice first contacted another Alabama city about sponsoring the bonds, he approached the defendant City of Vestavia Hills. Vestavia Hills agreed to sponsor the project by forming the Authority and issuing the bonds on behalf of the facility. Rice then went about setting up the deal. In 1979, he negotiated with the firm of Underwood, Neuhaus to underwrite the bond issue, but in the beginning of 1980 Underwood declined on account of poor conditions in the bond market which hindered marketing even “safe” bonds. After exploring the financing market, Rice then turned to another firm, Henderson, Few & Company, which had been associated with the earlier effort, for a revised bond issue of approximately $19,000,000. In December of 1980, Henderson, Few & Company decided against underwriting the issue, again due to poor conditions in the market. The plan had contemplated using the bond revenues to construct the project, and then using the occupancy fees (i.e., the price of an apartment unit) to repay the bonds. When Rice was advised of Henderson, Few & Company’s decision to abandon the underwriting at least temporarily, Rice was also cautioned that the proposed occupancy fees were already as high as the Birmingham market would bear, and that the projected revenue from the fees was insufficient to service bonds with interest rates high enough to be attractive to the bond market. Thus the feasibility of the issue as then structured was called into question. At the end of December, 1980, the defendant Board of Trustees of Mount Royal Towers passed a resolution abandoning the project. Immediately following the abandonment of the project by Henderson, Few & Company, Rice determined to restructure the deal. At the beginning of 1981, he formed a joint venture, defendant Total Concept Retirement Communities, to act as the developer of the new version of the project. The joint venture was composed of a company owned by Rice (the Wellington Corporation), a subsidiary of the new underwriter for the deal, Hereth, Orr & Jones (the Finerock Corporation), and an Atlanta brokerage firm (Robinson-Hall, Inc.). In addition to Hereth, Orr & Jones, a new bond counsel, Jones, Bird & Howell, and a new feasibility consultant, Laventhol & Hor-wath, were added. Peter Wright, a Jones, Bird attorney, drafted the joint venture agreement. Bank South, N.A., was the indenture trustee. All of these parties were defendants in the action. Under the previous version of the deal, the occupancy fees ranged from $17,000 to $87,000, depending on the type of apartment. The amount of the bond issue was raised under the new version of the deal from $19,000,000 at 11V2% to $29,950,000 at 15V2 to 17%, reflecting increased interest rates and other costs. To provide repayment of this increased amount, the occupancy fees for the apartments were increased. Thus, under the new plan, the units ranged from $54,000 to $172,000, not including monthly fees for services. Under the earlier plans the occupancy fee (the major cost of becoming a resident) was only partially refundable if the resident moved within four years and was not refundable at all after four years or if the resident died after one year. Under the new price structure, the entire occupancy fee was to be refundable upon terminating the residency contract or the death of the resident, although the refund was conditioned upon resale of the unit and was subordinated to the bonds. Marketing efforts for the previous version had begun in January, 1978. From the beginning the project was structured to require “pre-sales” of 50% of the units. By late 1979, there were applications and initial deposits for 135 of the units, but this number began to decline during 1980, reaching approximately half that number at the time the previous version of the deal was abandoned in December 1980. With the restructuring of the project, marketing began anew. Initially, a deposit of $1,000 was required; however, fifteen applicants who had previously applied and had forfeited $100 were not required to make any additional deposit. After falling initially with the increase in prices, the number of units reserved rose from 17% in April, 1981, to 24% in June, to 32% in July. Beginning around this time, no deposit was required to reserve a unit; of the 103 units (50% of the total) which were “pre-sold” at the time of the closing of the bond issue, 15 had applications secured with only the aforesaid $100 and an additional 33 had applications without any deposit at all. The bonds, in the amount of $29,950,000, were issued on September 30, 1981. The tax-exempt bonds bore interest rates from 15/2% to 17%. The official statement for the issue disclosed, inter alia the price structure of the units, the status of the marketing program of the facility, and the project’s complete reliance for repayment of the bonds on the sales of the apartments. Using the proceeds from the bond issue, Mount Royal Towers was constructed. However, sales of the apartment units ultimately proved insufficient to sustain the project. On April 15, 1984, Mount Royal filed a petition for reorganization under Chapter 11 and the bonds went into default in September, 1984. Under the reorganization, the facility has continued to operate, and the proceeds of a bankruptcy approved sale have been distributed to the bondholders to partially satisfy the outstanding indebtedness. Ernest Ross and George Miller each had bought the bonds without seeing the disclosure materials. They brought suit in district court. The cases were consolidated, and a class was certified by order of the district court dated April 8, 1986. The class was composed of bondholders who asserted a “fraud on the market” reliance theory and who purchased Mount Royal bonds prior to their default in 1984. After full discovery, the district court on September 18, 1985, granted motions to dismiss in favor of Yestavia Hills and the Authority. The district court converted Bank South’s motion to dismiss to a motion for summary judgment, which it granted on December 12, 1985. The district court granted summary judgment in favor of one set of defendants on August 18, 1986, and then entered final judgment against the appellants on October 16,1986, granting summary judgment in favor of the remaining defendants. Initially three appeals were consolidated. In No. 86-7350, defendants appealed the April 8, 1986 order certifying the class. In No. 86-7352, Ross and Miller appealed the district court’s September 18 and December 12, 1985 orders in favor of Vestavia Hills, the Authority, and Bank South. In No. 86-7790, Ross and Miller appealed the district court order dated October 16, 1986, granting summary judgment in favor of the remaining defendants. On appeal, a panel of the Eleventh Circuit affirmed the district court’s order certifying the class and affirmed the summary judgment in favor of Bank South and the Mount Royal Trustees and the dismissal in favor of Vestavia Hills and the Special Care Facilities Authority. The panel reversed and remanded with regard to the remaining defendants. Ross v. Bank South, N.A., 837 F.2d 980 (11th Cir.1988). On March 24, 1988, the panel’s decision was vacated and rehearing en banc ordered. Sitting in banc, we now conclude that Ross and Miller have failed to establish their securities law claims against any defendant. We also conclude that the district court did not err in dismissing the RICO claim and did not abuse its discretion in dismissing the pendent state law claims. Thus, the judgment in No. 86-7790 is affirmed. Because we affirm the district court’s grant of summary judgment in favor of all defendants on the securities law claim, we need not address the question in No. 86-7350, the appeal of the district court’s certification of a class. After the panel opinion, appellants settled their claims against the Authority (and related parties), Vestavia Hills and Bank South, and appeal No. 86-7352 was dismissed by order of this court on September 19, 1988. We first address the federal securities law issue, i.e., the fraud on the market theory. We then address the other issues, involving the RICO and state law causes of action. II. FRAUD ON THE MARKET The law to be applied in this case is clear. Reliance is an essential element of a cause of action under Rule 10b-5. See Lipton v. Documation, 734 F.2d 740, 742 (11th Cir.1984), cert. denied, 469 U.S. 1132, 105 S.Ct. 814, 83 L.Ed.2d 807 (1985). The reliance requirement establishes the causal link between the defendant’s activities and the plaintiff’s injuries and prevents federal securities law from affording unlimited liability. Id. Normally, a Rule 10b-5 plaintiff must therefore show the following: (1) a misstatement or omission, (2) of a material fact, (3) made with scienter, (4) on which the plaintiff relied, (5) that proximately caused his injury. Huddleston v. Herman & MacLean, 640 F.2d 534, 543 (5th Cir. Unit A Mar.1981), rev’d on other grounds, 459 U.S. 375, 103 S.Ct. 683, 74 L.Ed.2d 548 (1983). Under certain circumstances, a presumption of reliance may be established where a requirement of actual reliance would make recovery a practical impossibility. Thus, in the case of an omission rather than a misstatement, reliance may be presumed when the plaintiffs could justifiably expect that the defendants would have disclosed the material information. Affiliated Ute Citizens v. United States, 406 U.S. 128, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972). Here, the appellants concede that they did not read the offering documents and thus did not purchase the bonds in reliance on any material misrepresentation or omission in those documents. In a traditional Rule 10b-5 case, that concession would be sufficient to justify dismissal. However, Ross and Miller invoke the version of the “fraud on the market” theory established by the former Fifth Circuit in Shores v. Sklar, 647 F.2d 462 (5th Cir.1981) (en banc), cert. denied, 459 U.S. 1102, 103 S.Ct. 722, 74 L.Ed.2d 949 (1983). In Shores, the court delineated a cause of action based on Rule 10b-5 applicable where the plaintiff has not relied directly on misrepresentations or omissions in the relevant disclosure materials. In Shores, the plaintiff, Bishop, alleged a pervasive scheme by participants in the issuance of a series of industrial revenue bonds to fraudulently induce the public to buy the otherwise unmarketable bonds. The bonds went into default and Bishop brought a class action suit on behalf of the bondholders. Although Bishop, in making out a case under Rule 10b-5, alleged that the issue’s offering circular contained misrepresentations, he admitted that he had never read the circular and had bought the bonds on his broker’s general recommendation. Citing lack of reliance, the district court dismissed the claim. The en banc court reversed. It held that, despite Bishop’s failure to read the offering circular, he did state a cause of action under Rule 10b-5, specifically 10b-5(a) and (c). While 10b-5(b) refers to misrepresentations and omissions, the language of sections (a) and (c) is broader. Because these sections are aimed at broader fraudulent schemes, the court reasoned, the lack of reliance on the offering circular, one specific part of the scheme, was not determinative. When the fraud alleged is so pervasive that absent the fraud the bonds could not have been marketed, the reliance element is established by the buyer’s reliance on the integrity of the market, i.e., the action of the market to furnish only securities that are entitled to be marketed. Under Shores, a plaintiff must show that: (1)the defendants knowingly conspired to bring securities onto the market which were not entitled to be marketed, intending to defraud purchasers, (2) [plaintiff] reasonably relied on the Bonds’ availability on the market as an indication of their apparent genuineness, and (3) as a result of the scheme to defraud, [plaintiff] suffered a loss. Shores, 647 F.2d at 469-70 (footnote omitted). The burden imposed by the first element is a substantial one. Shores is based on the understanding that although it is reasonable to rely on the market to screen out securities that are so tainted by fraud as to be totally unmarketable, investors cannot be presumed to rely on the primary market to set a price consistent with the appropriate risk. Thus, the Shores court defined fraudulently marketed bonds as those that could “not have been offered on the market at any price” absent the fraudulent scheme. Shores, 647 F.2d at 464 n. 2; see Lipton, 734 F.2d at 747 (reading Shores to apply only to situations where but for the fraud the securities would not have been marketable). In other words, the fraud must be so pervasive that it goes to the very existence of the bonds and the validity of their presence on the market. If the plaintiff “proves no more than that the bonds would have been offered at a lower price or a higher rate, rather than that they would never have been issued or marketed, he cannot recover.” Shores, 647 F.2d at 470. Furthermore, consistent with the principle that the fraud on the market theory does not convert securities law into a form of investor insurance, Shores imposes a scienter requirement: the defendant must have known the securities could not be marketed and must have brought the securities to market with the intent to defraud. The defendants urge this court to overrule Shores and the fraud on the market theory as applied to primary markets. We decline to do so; we need not address the merits of the defendants' argument on this point, because assuming arguendo that Shores reliance is available to the appellants in this case, the district court correctly held that the prima facie case establishing Shores reliance was not established. Appellants allege that defendants marketed the bonds even though they knew or recklessly disregarded the fact that the project could not generate sufficient income to repay the debt. In other words, appellants allege that defendants marketed the bonds knowing that they were not marketable. However, we conclude that appellants have failed to establish the first element of the Shores presumption because we conclude that appellants have failed to generate a genuine issue of fact as to marketability. Since appellants concede lack of traditional reliance, the summary judgment was appropriate. Appellants point to two categories of evidence in an effort to satisfy their burden of adducing a reasonable inference that the bonds were not marketable. First, the appellants argue that Rice and the other defendants must have known that the apartments, and thus the bonds, would be unmarketable, because the underwriter in the previous version of the deal advised them that the unit prices were as high as the market would bear, and yet the price per unit eventually was substantially increased. For purposes of this opinion, we assume that Rice was cautioned, when the previous version was abandoned, that the occupancy fees were already as high as the Birmingham market would bear. However, this caution related only to the deal as then structured. As noted above, the price structures of the two versions of the deal differed substantially with regard to the refundability of the occupancy fees. In the earlier deal the occupancy fee was to be forfeited if the resident moved or died. In contrast, under the deal as finally structured, the occupancy fee was fully refundable with only two conditions: it was refundable only out of the resale proceeds of the unit, and the refund was subordinated to the bondholder’s mortgage. In other words, the occupancy fee in the original version was in the nature of a lump sum prepayment of rent for the right to live there until death. By contrast, the occupancy fee under the final version was more in the nature of a purchase price for a fee simple interest (subject to the conditions above mentioned). That difference would obviously warrant a substantial increase in the occupancy fees. Therefore, the caution against increasing the occupancy fee, which was in the context of the previous deal, could not logically apply to the feasibility of the deal under the new pricing structure. Because this evidence generates no reasonable inference regarding the marketability of the final deal, it does not create a genuine issue of material fact. The appellants offered no other evidence that the price of the apartment units under the final version was so high that they were inherently unmarketable. The appellants’ second category of evidence relates to the pre-offering marketing program. They contend that Rice manipulated the pre-sales program to meet the 50% goal and to make it appear that the sale of the apartment units would be successful. Specifically, the appellants allege that Rice engaged in sham pre-sales to friends and relatives, and that other applications would not validly indicate interest in the units because the purchasers were not required to place a deposit. This summary judgment record does contain reasonable inferences that the pre-offering marketing program was not successful in that 50% pre-sales with deposits were not obtained. However, we do not believe that this evidence carries appellants’ burden of proof. Appellants would have to prove that the pre-offering marketing program sufficiently predicted the failure of the project so as to render the bonds unmarketable at any price. We conclude that all reasonable inferences favorable to appellants fall considerably short of satisfying this burden. For example, most of the facts about which appellants now complain were actually disclosed in the offering documents without any adverse effect on marketability. The documents disclosed the fact that there were no binding presales, that a certain number of pre-sales had no deposit or a reduced deposit, and that the occupancy fee refund was subordinated to the repayment of the bonds. In other words, the bonds sold — i.e., were marketable — with these facts known. Appellants have adduced no other evidence that the bonds, or the underlying apartment units, were not marketable. We hold that the deficiencies in the pre-offer-ing marketing program which are reflected in this summary judgment record do not create a reasonable inference that the bonds or the apartment units were unmarketable. The facts in this case stand in sharp contrast to the pervasive fraud allegedly present in Shores. There, to focus on the disclosure alone, the offering statement allegedly omitted a pending SEC action against the principals, mischaracterized one developer as having extensive land holdings, misportrayed another principal as an experienced developer, and incorporated a materially false and misleading financial statement. See Shores, 647 F.2d at 465-66. Whereas in Shores the misrepresentations went to the concealment of existing factors vital to the viability of the project, here the alleged fraud centers on projections of an uncertain future occurrence, i.e., the sales of the apartments. The fraud alleged here and the reasonable inferences in the summary judgment record do not reach the threshold level required in Shores. The appellants have not adduced evidence sufficient to create a genuine issue of fact with regard to the bonds’ lack of marketability. III. OTHER CLAIMS The appellants also assert violations of RICO and various causes of action under state law. The gravamen of the appellants’ complaint with respect to the RICO claim is that the defendants fraudulently sold the bonds. The complaint avers that the required “predicate acts” consisted of each fraudulent sale of the bonds. However, given our dismissal of the appellants’ federal securities law claim, and because the only predicate acts alleged by appellants are in the nature of securities fraud claims that require the reliance/causation element which we have found to be lacking, appellants are bereft of any surviving predicate act. Therefore, the dismissal of the RICO claim was not error. The district court dismissed the pendent state law claims without prejudice on the ground that the alleged misrepresentations would implicate the legal standards of various states and otherwise involved individualized claims and defenses. See Kirkpatrick v. J.C. Bradford, 827 F.2d 718, 725 (11th Cir.1987), cert. denied sub nom. Paine Webber Group, Inc. v. Parker, — U.S. -, 108 S.Ct. 1221, 99 L.Ed.2d 421 (1988); Simon v. Merrill, Lynch, 482 F.2d 880, 883 (5th Cir.1973). The district court also ruled that consideration of these claims in conjunction with the federal claims would result in confusion to the jury. The appellants argue that the dismissal of the state law claims should be reversed because the district court did not discuss whether the state law claims would be time-barred. See Pharo v. Smith, 625 F.2d 1226, 1227 (5th Cir.1980) (remanding when dismissed pendent state law claim time-barred and record unclear as to whether trial court considered this factor). The district court, in deciding whether to dismiss pendent state law claims, should consider whether a plaintiff’s state law claims will be time-barred if dismissed, although this is not a determinative factor. Id. However, the appellants did not point out to the district court at the time of dismissal that the claims would be time-barred. In fact, appellants’ briefs on appeal do not represent that the claims were actually time-barred at the time of dismissal. Therefore, the district court did not abuse its discretion, and there is no need for remand on this issue. IV. CONCLUSION In order to invoke the Shores presumption of reliance, plaintiffs must overcome what the Shores court intended to be a high threshold. Because the evidence offered by the appellants does not create a genuine issue of material fact with regard to the marketability of the bonds, summary judgment was appropriate. Likewise, there was no error in the dismissal of the RICO and pendent state law claims. Therefore, we affirm the judgment in favor of all of the defendants. AFFIRMED. . The appellants have not asserted on appeal, and thus have abandoned, their claim based on § 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(a). . Under Ala.Code § 11-62-1 et seq., public corporations may be organized to assist certain nonprofit organizations in financing the construction of health care facilities. Such a public corporation may make loans to the organization in order to construct the facility and issue revenue bonds payable from the revenue of the loans. . Alston & Bird, a successor firm of Jones, Bird & Howell, was the defendant in this case. . "Pre-sales” were not completed sales of the apartment units, but rather were indications of interest in the units in the form of applications. Under the previous version of the deal, a “pre-sale” application was accompanied by a $1,500 deposit, of which all but a $100 processing fee was refundable. . The appellees emphasize that the bondholders have recouped an amount exceeding the face value of their bonds. In Banc Brief of Appel-lees Rice and Wellington at 7. The appellants dispute this; however, even were the recovery through bankruptcy proceedings to exceed the face amount, that would not automatically foreclose appellants' being able to demonstrate damages. . Because the appellants voluntarily dismissed the appeal in No. 86-7352 and their appeal in No. 86-7790 as to the defendants Bank South, N.A., Vestavia Hills, and the Authority (and related parties), these defendants were not parties to the rehearing en banc. . This case was decided prior to the close of business on September 30, 1981, and is binding precedent under Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir.1981). .Shores established the fraud on the market theory with respect to the issuance of securities in an undeveloped or primary market. Preceding Shores, the fraud on the market theory had been established with respect to the trading of previously issued securities, i.e., the secondary market. See, e.g., Blackie v. Barrack, 524 F.2d 891 (9th Cir.1975), cert. denied, 429 U.S. 816, 97 S.Ct. 57, 50 L.Ed.2d 75 (1976); see also Lipton v. Documation, Inc., 734 F.2d 740 (11th Cir.1984), cert. denied, 469 U.S. 1132, 105 S.Ct. 814, 83 L.Ed.2d 807 (1985) (adopting Blackie fraud on the secondary market theory). The fraud on the market theory with respect to secondary markets was recently reviewed and upheld by the Supreme Court. See Basic, Inc. v. Levinson, 485 U.S. 224, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988). . Rule 10b-5 provides: Employment of manipulative and deceptive devices. It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, (a) To employ any device, scheme, or artifice to defraud, .... (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security. 17 C.F.R. § 240.10b-5. . While the standard for scienter in Shores was expressed in terms of "knowing" and "intending to defraud," the scienter requirement in this circuit for an action under Rule 10b-5 "is satisfied by proof that the defendants acted with severe recklessness." Broad v. Rockwell International Corp., 642 F.2d 929, 961-62 (5th Cir.1981) (en banc). . Thus, the holding of Shores v. Sklar remains the law of this circuit. . Substantial discovery has been afforded appellants, and they have failed "to make a showing sufficient to establish the existence of an element essential to [their] case.” Celotex Corp. v. Catrett, 477 U.S. 317, 324-25, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). . See note 14, infra. .Appellants argue that there is a reasonable inference that 50% pre-sales was essential to marketability, that there is a reasonable inference that this was not reached, and therefore that there is a reasonable inference that the bonds were not marketable. The principal flaw in appellants’ argument is the premise that there is a reasonable inference that 50% pre-sales was essential to marketability. The only reasonable inference in this record is the repeated deposition testimony to the effect that 50% pre-sales was satisfactory evidence of the feasibility of the project. However, that evidence does not reasonably support the inference of the converse, i.e., that anything short of 50% pre-sales would establish that the project was not feasible. Rather, the evidence is that the feasibility consultant, considering the pre-sale marketing program (with its 33 to 48 applications with reduced or no deposit) and considering the other evidence of feasibility concluded that the project was feasible. There is no evidence that the pre-sale program was so disastrous that it predicted the failure of the project with sufficient clarity to render the bonds unmarketable. The only evidence to support appellants’ claim that the pre-sale program was a "sham,” other than facts actually disclosed in the offering documents, was the fact that all of the pre-sales with no deposit failed to materialize into actual sales, and the fact that three of the pre-sales were made to employees (and a daughter of an employee) in the developer’s office, and that eight more pre-sales were made by the principal saleswoman to persons she referred to in her deposition as dear friends or about whom she otherwise indicated some degree of friendship. . In fact, the feasibility study contained substantial evidence that sale of the apartment units was feasible, and that the bonds were marketable. . Thus, appellants have failed to establish that the bonds as they were priced were unmarketable. A fortiori, appellants have failed to establish that the bonds were unmarketable at any price. . Appellants also allege that the bonds were unmarketable because their tax-exempt status was fraudulently obtained. We decline to engage in an analysis of appellants’ assertions because the possible deficiencies with respect to tax-exempt status about which appellants now speculate clearly had no causal connection at all with the marketability of the bonds or apartments or any loss to appellants. The tax-exempt status was evidenced by an Internal Revenue Service determination letter, which has not been rescinded or amended. There is no evidence that any bondholder has been taxed on the interest. There is no evidence anyone questioned the tax-exempt status during the relevant time period.
TJOFLAT, Circuit Judge, specially concurring: In Shores v. Sklar, 647 F.2d 462 (5th Cir. May 1981) (en banc), cert. denied, 459 U.S. 1102, 103 S.Ct. 722, 74 L.Ed.2d 949 (1983), the former Fifth Circuit held that when a pervasive scheme of fraud has resulted in the issuance of unmarketable securities, a plaintiff can satisfy the reliance requirement under Rule 10b-5, 17 C.F.R. § 240.10b-5 (1988) merely by showing that he relied on the integrity of the market to exclude unmarketable securities. In essence, Shores made a Rule 10b-5 plaintiff’s burden of proving reliance much lighter. Shores also created much confusion and elicited much criticism. We granted rehearing en banc in this case to reconsider the holding in Shores. The majority today affirms the district court’s grant of summary judgment in favor of the appellees by finding that the appellants have not met the “substantial” evidentiary burden of Shores; therefore, the majority declines to address the validity of the Shores holding. Ante at 729-30. I concur in the result reached by the majority, but I would reach that result by a different route. In my view, the evidence in this case does, in fact, satisfy the requirements of Shores. The Shores holding, however, is fundamentally flawed and should be overruled. Because the appellants’ cause of action is based entirely on Shores, I concur only in the result affirming the judgment in favor of the appellees. Although the majority purports to refrain from directly addressing Shores, it adds a substantial gloss to the Shores holding and in effect reverses it. I dissented in Shores and am still convinced that it was wrongly decided. The majority’s reformulation of Shores does nothing to enhance my dim view of the Shores holding. Whether interpreted correctly or incorrectly, Shores has no basis in reason and cannot command the investing community’s or the general public’s respect. With Shores, the former Fifth Circuit, and thus this court, embarked on a path of confusion, and I fear that the majority today only pushes us farther down that path. It is time for this court to reverse its course. I write to explain the need for such a reversal. This concurrence consists of four parts. In part I, I summarize the salient facts in this case. In part II, I discuss Shores, the majority’s interpretation of Shores, how that interpretation effectively reverses Shores, and what I believe to be the correct interpretation. I then show that under this correct interpretation, the appellants have produced sufficient evidence to withstand summary judgment on the issue of marketability. Having shown that this case presents an appropriate opportunity for reexamining Shores, I consider in part III the traditional requirement of reliance in Rule 10b-5 actions and how Shores relaxes that requirement. I then discuss why the Shores extension of the fraud-on-the-market theory to primary markets for newly issued securities incorrectly relaxes the reliance requirement. I do this by showing (1) that reliance on primary markets is inherently unreasonable; (2) that Shores creates serious problems in the context of a jury trial; (3) that the calculation of damages in a Shores action is problematic; and (4) that Shores arbitrarily punishes some defrauders while passing over others who might have created even more egregious fraudulent schemes. Finally, in part IV, I address the argument that the doctrine of stare decisis should preclude any reevaluation of Shores. I. This case arose out of the sale of revenue bonds for the purpose of financing the construction of Mount Royal Towers — a residential/medical facility for the elderly, to be located near the City of Vestavia Hills, Alabama. In 1979, appellee Arthur Rice entered into an agreement with the City of Vestavia Hills. Under this agreement, Vestavia Hills was to create a municipal authority for issuing the bonds — Special Care Facilities Financing Authority. The bonds were to be repaid solely from funds generated by the sale of apartments in Mount Royal Towers. Rice sought to retain the services of two firms as underwriters for the bond issue, but both firms found the project too risky in light of sluggish markets for bonds and for similar apartment units. In December 1980, the Mount Royal Towers board of trustees abandoned the project, citing insufficient progress in obtaining pre-sale commitments and in securing conventional financing. Rice, possibly seeking to protect his personal investment, proceeded with the project. Rice finally succeeded in creating a joint venture (Total Concept Retirement Communities) to develop the project. The venture consisted of Wellington Corporation (owned by Rice), Finerock Corporation (a subsidiary of Herreth, Orr & Jones — the new underwriter), and Robinson-Hall, Inc. (an Atlanta brokerage firm). Rice also secured bond counsel, Jones, Bird & Howell (now Alston & Bird). The venture essentially required two steps. First, Herreth, Orr & Jones determined that the bond issue should be raised from $18,000,000 to $29,000,000 with a proportional increase in the price of the apartment units. Second, the venture required that fifty percent of the units be pre-sold in order to ensure the success of the bond issuance. By eliminating deposit requirements and selling to friends and family, Rice managed to secure commitments on fifty percent of the units. The bonds were issued in September 1981. A disclosure statement pointed out that the bonds were extremely risky and that only the Mount Royal project’s income secured repayment. Neither appellee Ernest Ross nor appellee George Miller, the named plaintiffs in this case, read the disclosure statement prior to purchasing the bonds. In April 1984, Mount Royal filed for Chapter 11 reorganization. In October 1985, after a bankruptcy sale of the Mount Royal complex, the bondholders received $18,000,000 in satisfaction of the outstanding balance. The district court granted summary judgment in favor of all defendants. A panel of this court affirmed with regard to Bank South (the indenture trustee), the City of Yestavia Hills, Special Care Facilities Financing Authority, and the Mount Royal trustees. Ross v. Bank South, N.A., 837 F.2d 980, 1003-04 (11th Cir.1988). The panel reversed the district court, however, with regard to the remaining defendants— Rice, the underwriter, the bond counsel, the feasibility consultant, and the joint venture (“the appellees”). Because no challenge was made on appeal to the dismissal of Bank South, the issuing defendants, or the Mount Royal trustees, the only question before this court is whether to affirm the district court’s grant of summary judgment in favor of the appellees. II. A. Shores arose out of the sale of tax-exempt revenue bonds for the construction of a facility to manufacture mobile homes in Frisco City, Alabama. Neither the manufacturer who was to use the completed facility nor the underwriter of the bonds was financially secure or experienced in projects of this sort. They managed, however, to induce Frisco City to create an Industrial Development Board for the purpose of issuing tax-exempt bonds, the proceeds of which would be used to build the facility. The Board would then lease the facility to the manufacturer and use the lease proceeds to satisfy the bond obligations. The offering circular that was issued omitted and misrepresented a number of crucial facts. For example, the circular failed to mention the SEC investigation of the underwriter for violations of the securities laws and misrepresented the qualifications and assets of the manufacturer. Shores, 647 F.2d at 465-66. When the bonds were ultimately marketed, the plaintiff in Shores bought four of them. When he purchased them, he neither saw the offering circular nor knew that one existed; rather he relied on his broker’s assurances. Id. at 467. A little over a year after this purchase, the manufacturer defaulted on his lease of the facility. The plaintiff consequently sought relief under the Securities Act of 1933, 15 U.S.C. § 77a et seq. (1982), the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq. (1982), and Rule 10b-5, 17 C.F.R. § 240.10b-5 (1988). The district court dismissed his suit because he did not, and could not, allege any reliance on the offering materials. The former Fifth Circuit, sitting en banc, held that Rule 10b-5(b) required proof of actual reliance on the omissions or misrepresentations in the offering materials but that under subsections (a) and (c) of the Rule, reliance could be implied in certain cases. The court determined that when an offering circular is only one component of a more pervasive fraudulent scheme, [t]he requisite element of causation in fact would be established if [the plaintiff] proved the scheme was intended to and did bring the Bonds onto the market fraudulently and proved he relied on the integrity of the offerings of the securities market. Shores, 647 F.2d at 469. Thus, the court held that to meet his burden of proof in such a case, a plaintiff must show that: (1) the defendants knowingly conspired to bring securities onto the market which were not entitled to be marketed, intending to defraud purchasers, (2) [the plaintiff] reasonably relied on the Bonds’ availability on the market as an indication of their apparent genuineness, and (3) as a result of the scheme to defraud, he suffered a loss. Id. at 469-70 (footnote omitted). The court then concluded that the plaintiff had met his burden under the new test. The majority finds in the instant case that the appellants did not adduce “evidence sufficient to create a genuine issue of fact with regard to the bonds’ lack of marketability” and thus did not satisfy the first prong of the Shores test. Ante at 731. Although I believe that the Shores analysis is flawed, the evidence in this case clearly creates a genuine issue of fact with regard to marketability under the Shores test. B. Marketability, as envisioned by the Shores court, is an elusive concept. The court failed to specify whether the marketability test should apply to the securities that were actually issued or to some theoretical security that could be issued at any combination of price and interest rate. If the former interpretation is correct, then we should determine whether, in the absence of fraud, the bonds would have been issued given the actual price and interest rate at which they were issued. The majority, however, apparently accepts the latter interpretation; it characterizes an unmarketable bond as one that “could ‘not have been offered on the market at any price’ absent the fraudulent scheme.” Ante at 729 (quoting Shores, 647 F.2d at 464 n.2) (emphasis added). Thus, the majority today focuses on what I term the economic unmarketability of the bonds: could the bonds, because of the enormous risk of nonpayment, have been brought onto the market at any combination of price and interest rate if the true risk of nonpayment had been known? See ante at 730-31 (evaluating only facts that relate to risk of nonpayment). Stated this way, one can easily see the error in the majority’s approach: no matter how great the risk of nonpayment, a bond can virtually always be sold at some combination of price and interest rate. See Fischel, Use of Modern Finance Theory in Securities Fraud Cases Involving Actively Traded Securities, 38 Bus.Law. 1, 12 (1983) (“Virtually all securities will sell for some positive price.”). Because a bond creates a legal right to repayment in the future, so long as that right is enforceable, a bond can never be completely worthless — even if a bondholder must become a bankruptcy creditor and seek only the salvage value of the bond. Consequently, the majority today creates a test that in both theory and practice cannot be met and negates any remedial effect that Shores might have had. Correctly interpreted, Shores established a test for what I call factual unmarketability, which focuses on the bonds as issued. Under this interpretation, a bond is unmarketable if, but for the fraudulent scheme, some “regulatory” entity (whether official or unofficial) would not have allowed the bond to come onto the market at its actual price and interest rate. For example, in Shores, if the Town of Frisco City had received all relevant information, it presumably never would have created an industrial development board to finance the project. Thus, one can point to an entity that would have prevented the issuance of the bonds in Shores had all relevant information been available to it. Cf. Arthur Young & Co. v. United States Dist. Court, 549 F.2d 686, 695 (9th Cir.) (“the purchaser of an original issue security relies, at least indirectly, on the integrity of the regulatory process and the truth of any representations made to the appropriate agencies and the investors at the time of the original issue”), cert. denied, 434 U.S. 829, 98 S.Ct. 109, 54 L.Ed.2d 88 (1977). This is the only reasonable interpretation of the first prong of the Shores test: “securities ... which were not entitled to be marketed.” 647 F.2d at 469 (emphasis added). Even an extraordinarily risky security is entitled to be marketed; but a security that presumably would never have been issued by an entity but for the fraud is not “entitled” to be on the market. In the present case, Rice twice failed to retain an underwriter for the Mount Royal project. When Rice finally was able to retain Herreth, Orr & Jones as underwriter, Rice was required to pre-sell fifty percent of the units as a condition to issuance of the bonds. To this end, Rice not only eliminated the deposit requirement, but also began selling to friends and relatives in sham transactions. Here, as in Shores, the bonds were actually issued by a city (Vestavia Hills) and a municipal issuing authority (Special Care Financing Authority). Thus, here, as in Shores, one can point to entities that presumably would have prevented the issuance of the bonds had all relevant information been available to them. Consequently, the bonds arguably were not “entitled” to be on the market and hence were unmarketable under Shores. 647 F.2d at 469. C. When determining whether to grant a motion for summary judgment, a court must view the evidence in a light most favorable to the nonmoving party and must resolve all doubtful issues in favor of the nonmovant. Hinesville Bank v. Pony Express Courier Corp., 868 F.2d 1532, 1535 (11th Cir.1989). Moreover, a court must act with caution in granting such a motion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986). Given these well-established principles and in light of the correct interpretation of Shores stated above, I would hold that, with regard to the marketability of the bonds, appellants have adduced sufficient evidence to create a genuine issue of material fact. III. Because the instant case should survive summary judgment under the Shores analysis, I now examine the validity of Shores, since overruling Shores would re-suit in a summary judgment in favor of the appellees anyway. I begin by reviewing the role that reliance has played in Rule 10b-5 actions and then discuss my concerns with the Shores court’s relaxation of the reliance requirement. To state a claim under Rule 10b-5, plaintiffs have always been required to prove reliance on a defendant’s fraud. The Supreme Court has recently reaffirmed the importance of reliance as an element of a Rule 10b-5 cause of action. See Basic Inc. v. Levinson, 485 U.S. 224, -, 108 S.Ct. 978, 989, 99 L.Ed.2d 194 (1988). Over the years, however, courts have attempted to mitigate the harshness of this requirement in circumstances that make proof of actual reliance virtually impossible. See, e.g., id. at -, 108 S.Ct. at 990; Affiliated Ute Citizens v. United States, 406 U.S. 128, 153-54, 92 S.Ct. 1456, 1472, 31 L.Ed.2d 741 (1971). In Rule 10b-5 suits alleging misrepresentation, a plaintiff still must prove actual reliance. See Shores, 647 F.2d at 471; Dupuy v. Dupuy, 551 F.2d 1005, 1014 (5th Cir.), cert. denied, 434 U.S. 911, 98 S.Ct. 312, 54 L.Ed.2d 197 (1977). When a plaintiff has proven a breach of a duty to disclose material information, however, he is not required to prove actual reliance: a rebuttable presumption of reliance arises. See Affiliated Ute Citizens, 406 U.S. at 153-54, 92 S.Ct. at 1472. Many courts now presume reliance on the basis of the fraud-on-the-market theory. The Supreme Court in Basic explained that, in an open and developed securities market, the price of a company’s stock is determined by the available material information regarding the company and its business.... Misleading statements will therefore defraud purchasers of stock even if the purchasers do not directly rely on the misstatements_ The causal connection between the defendants’ fraud and the plaintiffs’ purchase of stock in such a case is no less significant than in a case of direct reliance on misrepresentations. 485 U.S. at -, 108 S.Ct. at 988-89 (quoting Peil v. Speiser, 806 F.2d 1154, 1160-61 (3d Cir.1986)). Thus, most courts now recognize that, in an efficient securities market, competing judgments of knowledgeable buyers and sellers cause the market to reflect an accurate price based on all available information. See, e.g., Lipton v. Domination, Inc., 734 F.2d 740, 748 (11th Cir.1984), cert. denied, 469 U.S. 1132, 105 S.Ct. 814, 83 L.Ed.2d 807 (1985). Consequently, an investor is entitled to rely on the market price of securities and may recover under Rule 10b-5 if fraud has affected that price. Blackie v. Barrack, 524 F.2d 891, 907 (9th Cir.1975), cert. denied, 429 U.S. 816, 97 S.Ct. 57, 50 L.Ed.2d 75 (1976). This brings me to Shores. The Shores court, citing Blackie and other fraud-on-the-market cases, applied the theory to a fraud that occurred in a primary market— one in which the securities had just been issued — despite the fact that the theory had only been used in cases involving fraud on well-developed markets. Essentially, Shores held that Rule 10b-5’s reliance requirement was satisfied if an investor relied on the primary market’s integrity to prevent the issuance of unmarketable securities. I find the Shores extension to be flawed for four reasons: (1) Shores encourages a form of reliance that is inherently unreasonable; (2) it creates tremendous practical difficulties at a jury trial; (3) it mandates a damage award that is inconsistent not only with Shores’ own reasoning, but also with the fundamental policy of the securities acts; and (4) it punishes some defrauders while passing over others who might have created even more egregious fraudulent schemes. I will address each of these concerns in order. A. As I noted above, courts have been willing to imply or presume reliance in situations that would make proof of reliance difficult, if not impossible. See Basic, 485 U.S. at -, 108 S.Ct. at 990; Affiliated Ute, 406 U.S. at 153-54, 92 S.Ct. at 1472. Courts, however, have always required that a plaintiff’s reliance be “justified” or “reasonable.” See L. Loss, Fundamentals of Securities Regulation 957-58 (2d ed. 1988); see, e.g., Bruschi v. Brown, 876 F.2d 1526, 1529 (11th Cir.1989); Straub v. Vaisman & Co., 540 F.2d 591, 596-98 (3d Cir.1976). The former Fifth Circuit held that a plaintiff’s reliance is reasonable if he did not “intentionally refuse[] to investigate ‘in disregard of a risk known to him or so obvious that he must be taken to have been aware of it, and so great as to make it highly probable that harm would follow.’ ” Dupuy, 551 F.2d at 1020 (quoting W. Prosser, Torts § 34, at 185 (4th ed.1971)). In other words, the plaintiff must not have been reckless in relying on the market. See Gower v. Cohn, 643 F.2d 1146, 1156 (5th Cir. Unit B May 1981); see also Shores, 647 F.2d at 470 n. 6. The adoption in many courts of the fraud-on-the-market theory and its presumption of reliance has not eliminated the reasonableness requirement. The Shores court, in fact, made reasonableness the second prong of its test. See supra note 13. The fundamental flaw of Shores, however, is its failure to recognize what adoption of the fraud-on-the-market theory in a given context implies. Courts applying the theory must presume that investors can reasonably rely on the market to set an accurate price. Because all relevant information is accurately taken into account in well-developed markets, and because investors commonly rely only on market prices in making their investment decisions, courts essentially have determined that investors may reasonably rely on the prices set by well-developed markets. The Third Circuit recognized this presumption of reasonableness in Zlotnick v. Tie Communications, 836 F.2d 818 (3d Cir.1988). In Zlotnick, the court correctly noted that the fraud-on-the-market theory raises three presumptions: (1) that the misrepresentation affected the market price, (2) that the purchaser relied on the security’s price, and (3) that the reliance was reasonable. 836 F.2d at 822. Because the fraud-on-the-market theory presumes reasonable reliance, courts must be very careful when applying this theory to markets other than well-developed, secondary markets; a court must closely examine the reasonableness of relying on the market in question. For example, the court in Cammer v. Bloom, 711 F.Supp. 1264, 1280-87 (D.N.J.1989), closely examined the over-the-counter market to determine whether it was an efficient market capable of supporting the fraud-on-the-market presumptions. See also Stinson v. Van Valley Dev. Corp., 714 F.Supp. 132, 137 (E.D.Pa.1989) (market for new issue does not warrant application of fraud-on-the-market theory). The Shores court, however, failed to conduct such an analysis. Instead, the court merely applied the theory to the primary market and added a reasonableness requirement to its three-prong test. Because fraud-on-the-market implies reasonableness, the second prong of the Shores test is nonsensical. Moreover, as I discuss next, the presumption of reasonable reliance on the primary market is simply invalid. As I note above, Shores fails to state whether its unmarketability test focuses on the actual bonds issued (factual unmarketa-bility) or on hypothetical bonds that could be issued at any combination of price and interest rate (economic unmarketability). I have shown that the former interpretation is correct, but reliance on a primary market to exclude either type of unmarketable bond is unreasonable. 1. Assuming for the moment that a bond could be economically unmarketable, a primary market cannot reasonably be expected to exclude such a bond. The cast of characters in a primary market consists of initial investors and parties involved in an issuance, such as the promoter/corporation, the underwriter, the bond counsel, and the issuer. Obviously, initial investors cannot rely on themselves to police the market for unmarketable bonds. Thus, Shores must stand for the proposition that initial investors may reasonably rely on the issuing parties to exclude worthless securities. Such a proposition is patently without justification. All of the parties involved in an issuance have a significant self-interest in marketing the securities at a price greater than their true value. The promoter/corporation and the issuer (if a separate entity) have an obvious interest in marketing the securities regardless of their true fair market value. Likewise, the bond counsel and underwriter, who are often retained under a contingency fee contract, are interested in marketing the securities at an inflated price. The underwriter in particular, who, like an insurer, can spread the risk of loss among many stock or bond subscriptions, has a reduced incentive to investigate thoroughly the true value of the securities it underwrites. Additionally, to determine when a security is worthless is nearly, if not completely, impossible. Thus, to accept the economic unmarketability interpretation of Shores, we must believe that an initial investor may reasonably rely on clearly self-interested (perhaps dishonest) parties to make decisions that are at least burdensome and at most economically irrational. I cannot accept this proposition. 2. Even if we interpret Shores to require factual unmarketability, reliance on the primary market to exclude such securities is equally unreasonable. The participants in the primary market remain the same — the initial investors and the parties involved in issuing the securities. Moreover, the issuing parties are subject to the same self-interest; they all might even be parties to the fraudulent scheme. Therefore, to accept the factual unmarketability interpretation of Shores, we must believe that an investor may reasonably rely on some participant in the issuance process to prevent fraudulently marketed securities from entering the market at the given price and interest rate. In my view, such reliance could never be reasonable. Certainly, an investor might reasonably rely on a state regulatory agency to police a market. See Arthur Young & Co. v. United States Dist. Court, 549 F.2d 686, 695 (9th Cir.), cert. denied, 434 U.S. 829, 98 S.Ct. 109, 54 L.Ed.2d 88 (1977). Also, I recognize that in some cases, such as the present one, we might be able to point to a party who (1) had control over the issuance of the securities, (2) was unaware of the fraudulent scheme, and (3) would have prevented issuance had all relevant information been available. With the aid of hindsight and in-depth discovery, we could conceivably make such a determination. I cannot, however, sanction a rule that would encourage this type of reliance by investors who lack the advantages of hindsight and discovery that we now enjoy. Such reliance would be unreasonable. But this is exactly the sort of reliance that Shores encourages. 3. Whether we adopt the factual or economic unmarketability interpretation, reliance on the primary market to exclude unmarketable securities is simply unreasonable. An investor who so relies takes a great and obvious risk. Cf. Dupuy, 551 F.2d at 1005. Shores created a presumption of reliance that is clearly wrong and then created a reasonableness test that can never be met. B. Shores also creates serious problems in the context of a jury trial. A hypothetical, although by no means atypical, Shores action demonstrates several of these problems. First, suppose we have an exceedingly eager, but dishonest, entrepreneur named Smith who desires to defraud the investing community by issuing worthless bonds. Smith creates a sham corporation and then obtains the services of an underwriter, Jones, and an issuer, the City of Middle-town. Jones insists on some type of security for the bonds, and Smith pledges his interest in a producing oil well that he fraudulently represents as being worth $1,000,000, but is actually worth only $20,-000. Smith never intends to make a single payment on the bonds. When the bonds are issued, certain fraudulent statements are made in a circular, but Johnson, an elderly widow who purchases several bonds, does not read the circular or know of its existence. The bonds are issued for $2,000,000, and Johnson invests $100,000 — most of her life’s savings. When the first interest payment comes due, the bonds go into default, and Johnson brings suit for damages under Shores against Smith and Jones. Whether a court adopts the economic un-marketability approach, as advocated by the majority today, or the factual unmark-etability approach, makes a difference in how the case of Johnson v. Smith will evolve. Therefore, I explore both scenarios. Regardless of which approach the court adopts, however, the results will be equally disappointing. 1. Under an economic unmarketability approach, all cases, notwithstanding today’s decision, should survive summary judgment and go to a jury. Johnson will produce expert testimony to the effect that, because the bonds were doomed to default, they were worthless, hence unmarketable. Smith will produce expert testimony that the bonds had a salvage value (in this case, one cent on the dollar) and thus could have been marketed at some combination of price and interest rate. Since a material issue of fact will exist, the jury will be called upon to determine whether the bonds were marketable. Thus, the trial will result in a “battle of the experts.” Once all of the evidence has been adduced at trial, the court will instruct the jury that Johnson can recover only if the jury finds the bonds unmarketable under Shores. Using the economic interpretation of unmarketability, the court will direct the jury to find for Johnson only if the bonds were completely worthless when issued and to find for Smith if the bonds had at least some value and could have been issued at some combination of price and interest rate. Now we can see the dilemma faced by the jury. The jury is presented with a case in which the plaintiff invested $100,000 and recovered only $1,000 on that investment — a loss of 99% of the original investment. Johnson, moreover, is a plaintiff who will elicit strong feelings of sympathy from the jury. The jury, however, is being asked to grant or deny relief based on whether the bonds had a value of at least one cent when issued — a wholly fortuitous circumstance in the eyes of the jury. T