Hussein v. UBS Bank USA

446 P.3d 96

Ahmed D. HUSSEIN, Appellant,

v.UBS BANK USA, Appellee.

No. 20170709-CA

Court of Appeals of Utah.

Filed June 6, 2019

Matthew R. Lewis, Stephen E. Morrissey, Kemper P. Diehl, and Bryan J.E. Caforio, Attorneys for Appellant

Stephen P. Horvat, Salt Lake City, David L. Goldberg, Zachary Denver, Christian T. Kemnitz, and David Luger, Attorneys for Appellee

Judge Gregory K. Orme authored this Opinion, in which Judges Michele M. Christiansen Forster and David N. Mortensen concurred.

Opinion

ORME, Judge:

¶1 Ahmed D. Hussein appeals the district court’s grant of summary judgment in favor of UBS Bank USA. We affirm and remand for the determination of attorney fees reasonably incurred by UBS Bank on appeal.

BACKGROUND¹

¶2 Hussein is an investor who worked as a broker for major brokerage firms in the United States for 15 years before moving to Egypt in 1996 to pursue his own investment opportunities. Until July 2012, he was a director and the second-largest shareholder of Quality Systems, Inc. (QSI), owning 15.7% of the company—an interest "worth hundreds of millions of dollars."

¶3 In 2009, Hussein developed a relationship with a financial advisor (Financial Advisor) from UBS Financial Services, Inc. (UBS-FS), a brokerage firm and UBS subsidiary.² To maintain a relationship with Financial Advisor and receive financial and investment services from UBS-FS, Hussein signed a Client Relationship Agreement (CRA), which governed his relationship with UBS-FS in connection with anticipated margin loans³ between Hussein and UBS Bank.

The Loan Agreements

¶4 In 2009 and 2010, UBS Bank extended two margin loans to Hussein totaling $ 35.5 million. Hussein secured the loans with 1.3 million shares of QSI stock, then valued at $ 77 million, and $ 5 million in diversified assets, but he also pledged his other UBS-FS accounts as collateral.⁴ Without the assistance of legal counsel, Hussein negotiated the terms of the loans and reviewed the loan documentation (the Loan Agreements), which granted UBS Bank the rights to call in the loans at any time and, upon the occurrence of certain events, to liquidate Hussein’s collateral.⁵

¶5 In particular, UBS Bank could "demand full or partial payment of the credit line obligations, at its sole option and discretion without cause, at any time." And if UBS Bank "otherwise deems itself or its security interest in the Collateral insecure, ... then the Credit Line Obligations will become immediately due and payable (without demand) and the Bank may, in its sole and absolute discretion, liquidate, withdraw or sell all or any part of the Collateral." If the collateral "decline[s] speedily in value" or "customarily is sold on a recognized exchange or market," then UBS Bank had the right to sell the collateral and to do so without "prior notice" to Hussein.

¶6 The Loan Agreements also disclosed that UBS Bank and its affiliates were creditors whose "interests may be inconsistent with, and potentially adverse to, [Hussein’s] interests." Furthermore, UBS-FS would "comply with entitlement orders originated by [UBS] Bank" without consent from Hussein, and if UBS Bank asserted control over the collateral, UBS-FS would have to comply with UBS Bank’s entitlement orders even if in conflict with Hussein’s instructions.

¶7 Separately, UBS Bank and UBS-FS had an agreement (the Servicing Agreement) whereby UBS Bank would offer margin loans to UBS-FS’s clients "to be collateralized by [UBS-FS] securities accounts and the securities, financial assets and other investment property ... in which a security interest has been granted to the Bank by the Borrower." UBS Bank would then have "ultimate control over all entitlement orders and other instructions ... made with respect to the Accounts," and UBS-FS would have to "comply with all instructions given by [UBS] Bank without further consent by any Borrower or Pledgor."

¶8 After issuing the loans, UBS Bank sent a letter to Hussein, stating that Financial Advisor could answer any questions about his credit line. And until 2012, Hussein’s only interactions regarding the loans were with UBS-FS employees—not UBS Bank itself.

¶9 Meanwhile, Hussein also opened two Portfolio Management Program accounts (the PMP Accounts) with UBS-FS that held $ 8.7 million in assets. Financial Advisor also suggested a Prepaid Variable Forward (PVF), a financial product aimed at helping Hussein obtain liquidity from his substantial stock holdings in QSI and as an eventual replacement for the loans. Discussions on the PVF proposal continued between Hussein and UBS-FS employees until July 25, 2012, but a PVF was never finalized.

The Liquidation

¶10 By July 2012, QSI’s stock price had substantially declined, eroding the value of Hussein’s collateral for the loans. On Saturday, July 21, 2012, Financial Advisor informed Hussein that "[u]nfortunately, with the stock closing at $ 23.41 we are looking at a [margin] call on Monday" and that Hussein needed to deliver $ 600,000 in cash or additional collateral in order to prevent such action. He also informed Hussein that selling from the PMP Accounts "would not give us much coverage" and that UBS Bank was "insisting we first sell [the QSI] shares (about 25,000 shares), or bring in cash or additional Collateral that is not [QSI shares]."

¶11 Hussein told Financial Advisor that he did not want UBS-FS to sell the QSI shares because of an ongoing proxy contest⁶ and that he needed time to acquire cash to cover the margin call. He directed Financial Advisor to sell from the PMP Accounts before selling the QSI shares.

¶12 For a period of five days, UBS Bank and UBS-FS did not touch the QSI shares, yet Hussein did not provide any cash or additional collateral to cover the equity shortfall in the account. On July 26, 2012, QSI stock continued to decline, reducing the value of the collateral by $ 23 million. UBS Bank started liquidating Hussein’s QSI shares. After five days, UBS Bank had sold approximately 2,276,756 shares.⁷

¶13 Hussein lost the proxy fight and a substantial percentage of his QSI shares. He eventually filed suit against UBS Bank in an effort to recover his losses.

The District Court’s Decision

¶14 Hussein asserted six causes of action against UBS Bank in the course of alleging that UBS Bank fraudulently induced him to enter into the loans, breached its contractual duties when it liquidated his QSI shares, and violated fiduciary duties it owed to him.

¶15 Following discovery, and relying in large part on the governing documents, UBS Bank moved for summary judgment, arguing that it "acted within the scope of its contractual rights when it liquidated certain collateral that secured $ 35.5 million in loans that Hussein had received from UBS Bank, and did not breach any financial duties in that regard." Hussein responded by arguing that UBS-FS gave him "bad investment advice" as UBS Bank’s agent and that UBS Bank wrongfully liquidated his QSI shares.

¶16 The district court granted UBS Bank’s motion, concluding that there were no genuine issues of material fact because UBS-FS did not render financial advice to Hussein as UBS Bank’s agent. It also concluded that UBS Bank "acted pursuant to its clear and indisputable rights under the Loan Agreements" "to ‘liquidate any part of the Collateral’ without notice to Hussein." Because the Loan Agreements contained an expansive indemnification provision, the district court awarded UBS Bank its costs and attorney fees.

¶17 Hussein appeals.

ISSUES AND STANDARDS OF REVIEW

¶18 Hussein raises two issues on appeal.⁸ First, he contends that the district court improperly granted UBS Bank’s motion for summary judgment because there were genuine disputes of material fact concerning each of his claims against UBS Bank. Summary judgment is proper when "the moving party shows that there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law." Utah R. Civ. P. 56(a). We review a district court’s decision to grant or deny summary judgment for correctness, "view[ing] the facts and all reasonable inferences drawn therefrom in the light most favorable to the nonmoving party." Orvis v. Johnson , 2008 UT 2, ¶ 6, 177 P.3d 600 (quotation simplified).

¶19 Hussein also contends that the district court erred in awarding UBS Bank attorney fees. "Whether attorney fees are recoverable in an action is a question of law, which we review for correctness." Valcarce v. Fitzgerald , 961 P.2d 305, 315 (Utah 1998).

ANALYSIS

I. Summary Judgment

¶20 Hussein challenges the district court’s grant of UBS Bank’s motion for summary judgment on his claims for fraud, constructive fraud, breach of fiduciary duty, breach of contract, tortious interference with contract, and aiding and abetting a breach of fiduciary duty. Essentially, Hussein asserts two theories of liability on the part of UBS Bank. He first contends that UBS Bank induced him into taking out the loans by failing to disclose material facts and to provide investment advice that would have protected him from a margin call (referred to in the briefing as the Advisory Claims). Second, Hussein contends that UBS Bank wrongfully liquidated his QSI shares, breaching the Loan Agreements and the CRA (referred to in the briefing as the Liquidation Claims).

A. The Advisory Claims

¶21 Hussein argues that UBS Bank failed to disclose material facts to him. He also argues that UBS Bank owed him fiduciary duties through its agent, UBS-FS. These assertions are the grounds for his breach of fiduciary duty, fraud, and constructive fraud claims.

¶22 On these claims, the district court concluded that UBS Bank disclosed the potentially adverse relationship UBS Bank and UBS-FS could have with Hussein. The court also concluded that there was no existence of a confidential relationship between UBS Bank and Hussein, determining that the Loan Agreements "established an arms-length borrower/lender relationship" and Hussein "cannot identify any fact which, if proven at trial, would permit a...