dissenting:
Because the misrepresentations on which Edward Dunn allegedly relied in investing $500,000 in Ronbotics Corporation were not material and, in any event, did not cause Dunn’s loss, I would affirm the district court’s dismissal of Dunn’s complaint under Federal Rules of Civil Procedure 9(b) and 12(b)(6).
Ronbotics was a small corporation formed to manufacture and develop electric motion platforms for arcade video games and training simulators. In January 2001, Ronbotics approached Dunn about investing in Ronbotics, giving him a “Confidential Information Memorandum” about Ronbotics’ business. The memorandum was a business plan for Ronbotics that expressed its hopes and projections for profit, but it contained no traditional financial data, such as a balance sheet, income statement, or cash flow statement. Moreover, the document stated on its face: Neither the Company nor any of its respective affiliates, employees or representatives makes any representation or warranty, express or implied, as to the accuracy or completeness of any of the information contained in this Memorandum or any other information (whether communicated in written or oral form) transmitted or made available to prospective investors, and each of such persons expressly disclaims any and all liability relating to or resulting from the use of this Memorandum or such other information by a prospective investor or any of their affiliates or representatives.
In addition to the memorandum, Dunn had a single, four-hour meeting in late January 2001 with the principals of Ron-botics, during which the principals expressed enthusiasm about their patented technology, which they said was worth millions of dollars and would justify Dunn’s investment. They also expressed enthusiasm for the future of the company. Based on the memorandum and the single meeting, Dunn invested $500,000 in Ronbotics. He has alleged that in doing so, he relied principally on the value of the patented technology. His complaint asserts, “Dunn’s primary interest in Ronbotics related to Ronbotics’ patented technology, as represented by defendants.” Skeptical even about this value, Dunn demanded a “convertible subordinated note” from Ron-botics in the face amount of $500,000.
After Ronbotics failed as a company, Dunn commenced this action and alleged his reliance on five misrepresentations made by Ronbotics in the Confidential Information Memorandum and at the January 2001 meeting, characterized as follows:
First, Linzmeyer and Borta confirmed the existence [of] the patents and described them as two patents, one for a motion pinball machine, and the other for the electronic motion platform used in Ronbotics’ principal product, the CoasterRider. Second, Linzmeyer and *436Borta stated on more than one occasion at the January meeting that the company owned the patents and had the assigned rights to them. Third, Linz-meyer and Borta made numerous statements to Dunn at the January meeting concerning the value of the patents, including the fact that they were “worth millions,” and that they had been valued between $2 million to $4 million. Linzmeyer and Borta told Dunn that the value of the patents was based not only on their own opinion, but on the opinion of an outside investment firm that had valued the patents.... Fourth, Dunn also inquired of Linz-meyer and Borta at the January meeting what protection Ronbotics had against a competitor misappropriating the Ronbotics’ technology, and Linz-meyer and Borta replied that the Ron-botics patents protected against such misappropriation. Fifth, in describing the value of the patents and in relating to Dunn the other assets of Ronbotics, the Individual Defendants directly and implicitly represented to Dunn that the patents were the most valuable and primary assets of Ronbotics.
Dunn then alleged that these representations were false in the following respects. First, he alleged that no patents had issued at the time the representations were made in January 2001; one patent was not issued until April 16, 2002, and the other was not issued until September 3, 2002. When they did issue, Borta was listed as the inventor and Ronbotics as the assign-ee. Second, Dunn alleges that the valuations conducted about the patents were overstated because they, were based “on unrealistic three-year projections in which sales were projected to exceed $843 million and operating profits were projected in the range of 55 percent of sales.” Finally, the patents were misrepresented because Bor-ta retained a security interest in the patents which would permit the patents to be reassigned to Borta on the occurrence of certain contingencies.
The district court reviewed the complaint in the context of all the arguments presented to it by counsel and concluded in part that the representations on which Dunn relied were not material. As the court explained:
[A] reasonable investor would have considered the total mix of information which included the publicly available information that the patents were pending before the PTO. The court also finds that, although the valuation of the patents by an outside firm may have seemed high, Mr. Linzmeyer’s and Mr. Borta’s statements about the value of the patents were based on this independent valuation and were not misrepresentations.
I would add to what the district court observed a fact most important to the proper disposition of the issue: Despite the fact that the patents had not yet issued, Ronbotics and its principals nonetheless owned the technology when the representations were made, and patent applications protecting the technology were pending. Thus, Dunn’s case hinges on the distinction he draws between pending patent applications and patents. Although this distinction would have been material had the patent applications been denied, the applications were granted, confirming patentability and the right to exclude the world from use of the technology. No competitor used the technology, nor could it have used the technology at the time of the misrepresentations. As a consequence, the procedural status of the patent applications could not and did not significantly alter the total mix of information made available to Dunn. Ronbotics’ business was presented on the basis that *437it had the exclusive right to the technology in the patents, and any prospect for making a profit using that technology was not affected.
The fact that Ronbotics did not disclose that Borta, one of the principals of Ronbot-ics, retained a security interest in Ronbot-ics’ patent rights through a right of assignment upon the event of bankruptcy or other contingencies, was also not material. Dunn expressly subordinated his interest in Ronbotics to “all existing and future secured indebtedness of the Company.” Moreover, Dunn made no inquiry about the company’s secured debt, and its nature and amount are not alleged as misrepresentations in Dunn’s complaint.
It is also apparent from Dunn’s complaint that Ronbotics’ misrepresentations as enumerated above did not cause Dunn’s loss in the way required by Virginia Code Annotated § 13.1-522(a) (stating a securities violation when a person sells a security “by means of’ a misrepresentation). As the majority agrees, “the ‘by means of language in the statute requires some causal connection ...” between the misrepresentation and Dunn’s loss. Sanders v. John Nuveen & Co., Inc., 619 F.2d 1222, 1225 (6th Cir.1980). The majority asserts, however, that mere privity between Ron-botics and Dunn fulfills this requirement. I respectfully disagree. To support its point that privity alone can supply the necessary causal connection, the majority relies on the statement in Basie that “[tjhere is ... more than one way to demonstrate the causal connection.” Basic, Inc. v. Levinson, 485 U.S. 224, 243, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988). Basic, however, was a fraud-on-the-market case, in which a plaintiff can prove causation merely by establishing that the price he paid for the security was too high on the date of sale because the defendants had artificially inflated it. See, e.g., Gebhardt v. ConAgra Foods, Inc., 335 F.3d 824, 832 (8th Cir.2003). Indeed, Basic predicated this relaxation of the causation requirement on the observation that “modern securities markets, literally involving millions of shares changing hands daily, differ from the face-to-face transactions contemplated by early fraud cases.” Id. at 243-44, 108 S.Ct. 978. Here, where we have just such a face-to-face transaction, Basic ’s statement as to causation is inapposite.
Under the circumstances of this case, where the patents eventually issued and the technology was fully and continuously protected, the misrepresentations about them were truly insignificant. Allowing Dunn to recover his entire investment because of a misrepresentation that could not have played a role in his loss obliterates causation entirely. It was a business risk known to Dunn that caused the failure of the company, not any misrepresentation about the procedural posture of the patent applications.
For these reasons and the other reasons more fully described by the district court in its February 20, 2003 order, I would affirm.