Munjak v. Signator Investors, Inc.

Page 1086

316 F.Supp.2d 1086

John MUNJAK, et al., Plaintiffs, v. SIGNATOR INVESTORS, INC., et al., Defendants.

No. CIV.A.02-2108-CM.

United States District Court, D. Kansas.

March 29, 2004.

COPYRIGHT MATERIAL OMITTED

Benny J. Harding, Overland Park, KS, for Plaintiffs.

Charles A. Getto, McAnany, Van Cleave & Phillips, P.A., Kansas City, KS, Charlie J. Harris, Jr., Julie Westcott, William Perry Brandt, Berkowitz Stanton Brandt Williams & Shaw LLP, Robert B. Best, Jr., Husch & Eppenberger, LLC, Jonathan H. Gregor, Mark A. Olthoff, Shughart Thomson & Kilroy, PC, Kansas City, MO, Lawrence D. Greenbaum, McAnany, Van Cleave & Phillips, P.A., Roeland Park, KS, Robert B. Rogers, Berkowitz Stanton Brandt Williams & Shaw LLP, Prairie Village, KS, for Defendants.

MEMORANDUM AND ORDER

MURGUIA, District Judge.

This matter comes before the court on Defendants' Joint Motion for Summary Judgment (Doc. 94). Defendants The Heartland Gallogly Agency of John Hancock Signator Financial Network ("HGA"), and Stephen D. Godfrey ("Godfrey") seek dismissal of plaintiffs John and Linda Munjak's case in its entirety.¹

I. Background

On February 29, 2000, in response to a flyer at John Munjak's ("Munjak") place of employment, plaintiffs John and Linda Munjak attended an investment seminar at the offices of defendant HGA. Defendant Godfrey conducted the seminar, describing various retirement investment strategies and offering a free consultation for attendees who signed up for a private meeting. At the seminar, Godfrey handed out a document, which plaintiffs refer to as the "American Funds brochure," that depicted illustrations of investment strategies.

On March 15, 2000, plaintiffs met with Godfrey at the HGA offices to discuss plaintiffs' current assets, which included Munjak's pension and 401(k) from his employment at the Southwestern Bell Company ("SBC") as well as SBC stock, and their investment objections and expectations. Plaintiffs contend that Munjak stated that he did not wish to sell his SBC stock. Godfrey informed plaintiffs that he would use the information from the meeting to prepare a recommended investment plan. On March 27, 2000, plaintiffs met again with Godfrey at the HGA offices to review Godfrey's recommendations. Godfrey presented plaintiffs with a document entitled "Investment Portfolio Design for Linda and John Munjak" ("IPD"). Plaintiffs contend that the IPD represented the exact plan that Godfrey was to follow in investing their assets. Defendants deny this assertion and point out that the statement "For Illustration Purposes Only" appears throughout the IPD. The IPD presented retirement capital projections and suggested mutual funds for plaintiffs to invest in along with Morningstar analyses and ratings of the suggested funds. During the March 27 meeting, Godfrey explained how plaintiffs would compensate Godfrey, and Munjak again stated that he did not want to sell his SBC stock.

On May 3, 2000, Munjak signed a Financial Planning Agreement ("FPA") with Godfrey, which provided the terms of Godfrey's services in providing financial advice about Munjak's SBC pension and 401(k). Munjak also signed a Consolidated IRA Application ("CIA") with Charles Schwab & Company, Inc. Based upon the terms contained in these two agreements, the parties disagree about whether Godfrey had discretion to conduct transactions in Munjak's account without Munjak's approval. Defendants contend that the FPA indicates that Godfrey did not have such discretion, while plaintiffs assert that the CIA contains a provision authorizing Godfrey to direct Schwab in trades in Munjak's account.²

In June 2000, Munjak received approximately $249,000 from his 401(k) and profit sharing plan and placed them in a Schwab IRA account, which Godfrey managed. Munjak also transferred his SBC stock into a separate Schwab account that plaintiffs contend Godfrey did not manage.³ Godfrey began managing plaintiffs' funds in July 2000, but plaintiffs contend that he invested the funds differently than the plan presented in the IPD. Defendants assert that the IPD was for illustration purposes only and did not represent an exact investment plan. Plaintiffs received monthly statements that listed the funds in their account. Godfrey also met with plaintiffs quarterly to discuss their account, although in the first quarter of 2001, plaintiffs could not attend the meeting and state that they intentionally did not return Godfrey's assistant's phone call to determine whether Godfrey would attempt to contact them again.

Plaintiffs' investments through Godfrey began to decrease in the last several months of 2000 and into 2001. Ultimately, plaintiffs fired Godfrey in July 2001 and filed this suit in March 2002.

II. Summary Judgment Standard

Summary judgment is appropriate if the moving party demonstrates that there is "no genuine issue as to any material fact" and that it is "entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). In applying this standard, the court views the evidence and all reasonable inferences therefrom in the light most favorable to the nonmoving party. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir.1998) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)). A fact is "material" if, under the applicable substantive law, it is "essential to the proper disposition of the claim." Id. (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). An issue of fact is "genuine" if "there is sufficient evidence on each side so that a rational trier of fact could resolve the issue either way." Id. (citing Anderson, 477 U.S. at 248, 106 S.Ct. 2505).

The moving party bears the initial burden of demonstrating an absence of a genuine issue of material fact and entitlement to judgment as a matter of law. Id. at 670-71. In attempting to meet that standard, a movant that does not bear the ultimate burden of persuasion at trial need not negate the other party's claim; rather, the movant need simply point out to the court a lack of evidence for the other party on an essential element of that party's claim. Id. at 671 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)).

Once the movant has met this initial burden, the burden shifts to the nonmoving party to "set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 256, 106 S.Ct. 2505; see Adler, 144 F.3d at 671 n. 1 (concerning shifting burdens on summary judgment). The nonmoving party may not simply rest upon its pleadings to satisfy its burden. Anderson, 477 U.S. at 256, 106 S.Ct. 2505. Rather, the nonmoving party must "set forth specific facts that would be admissible in evidence in the event of trial from which a rational trier of fact could find for the nonmovant." Adler, 144 F.3d at 671. "To accomplish this, the facts must be identified by reference to affidavits, deposition transcripts, or specific exhibits incorporated therein." Id.

Finally, the court notes that summary judgment is not a "disfavored procedural shortcut," rather, it is an important procedure "designed to secure the just, speedy and inexpensive determination of every action." Celotex, 477 U.S. at 327, 106 S.Ct. 2548 (quoting Fed.R.Civ.P. 1).

III. Analysis

A. Federal Securities Law Claim

1. Elements of the Claim

Plaintiffs bring suit under § 10(b) of the Securities Exchange Act of 1934, the anti-fraud provision, which makes it unlawful, in the purchase or sale of a security, to employ "any manipulative or deceptive device or contrivance in contravention" of Securities and Exchange Commission ("SEC") rules or regulations. 15 U.S.C. § 78j(b). The SEC has issued a regulation that more specifically describes the scope of activities that § 10(b) prohibits:

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,

(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or

(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. Therefore, in order to establish a claim under § 10(b), a plaintiff must demonstrate: (1) fraud or deception by one of the above elements; (2) that the conduct occurred in connection with the purchase or sale of a security; (3) that the defendant acted with the intent to deceive or defraud; and (4) that plaintiff relied on the misrepresentation, and sustained damages as a proximate result of the misrepresentation." Anixter v. Home-Stake Prod. Co., 77 F.3d 1215, 1225 (10th Cir.1996) (citing Farlow v. Peat, Marwick, Mitchell & Co., 956 F.2d 982, 986 (10th Cir.1992)); see also Koch v. Koch Indus. Inc., 969 F.Supp. 1460, 1487 (D.Kan.1997) (rev'd in part on other grounds).

a. Fraud or Deception

Defendants contend that plaintiffs have not established the first element of their federal securities law claim because plaintiffs have not demonstrated that defendants engaged in a fraudulent or deceptive act. First, defendants assert, plaintiffs have not even alleged that defendant HGA made any intentionally deceptive statements or engaged in any deceptive actions. Plaintiffs have not responded to defendants' argument. Therefore, in the absence of any evidence that HGA committed a fraudulent or deceptive act, the court dismisses plaintiffs' federal securities law claim against these two defendants.

Godfrey also asserts that plaintiffs have not presented evidence of his alleged acts of fraud or deception. Plaintiffs...