Owens v. Stifel

MARTHA F. OWENS, Individually, and as the Executrix of the Estateof Andrew T. Fuller; SUSAN ROCKETT; DONALD ABNER POPE JR.;and REFUSE MATERIALS, INC., Plaintiffs, v. STIFEL, NICOLAUS & COMPANY, INC. andANTHONY JOHN FISHER, Defendants.

Civil Action No. 7:12-CV-144 (HL)

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF GEORGIA VALDOSTA DIVISION

SO ORDERED: June 18, 2014

ORDER

This case is before the Court on Defendant Stifel, Nicolaus & Company, Inc.'s ("SNC") Motion for Summary Judgment as to Plaintiffs'¹ Negligence and Negligence Per Se Claims. (Doc. 62). Also before the Court is Plaintiffs Martha Owens' ("Owens") and Susan Rockett's ("Rockett") Motion for Partial Summary Judgment Regarding Defendant SNC's Counterclaim for Indemnification. (Doc. 66). After reviewing the pleadings, briefs, affidavits, depositions, and other evidentiary materials presented by both parties, the Court GRANTS Defendant'smotion for summary judgment on Plaintiffs' allegations of negligence per se. (Doc. 62). However, the Court finds that there are genuine disputes of material fact involving Plaintiffs' negligence claims. Accordingly, the Court DENIES Defendant's motion for summary judgment on Plaintiffs' negligence claims (Doc. 62). Because issues of fact remain regarding Plaintiffs' negligence claims, the Court must DENY Plaintiffs' motion for summary judgment on Defendant's counterclaim for indemnification. (Doc. 66).

I. FACTS

Defendant SNC is a securities broker-dealer firm. (Mazor Dep., p. 216-17). SNC employed Defendant Anthony John Fisher ("Fisher") from April 2009 until February 8, 2012. (DSOMF ¶ 1).² SNC ultimately terminated Fisher for violating company policy by engaging in private transactions outside the firm, or "selling away," and for forging documents. (Mazor Dep., p. 6, 27, 133).

Prior to hiring Fisher, Branch Manager Michael Mazor conducted a pre-hire investigation. (Mazor Dep., p. 115-116). As part of the hiring process, SNC's Compliance department completed a Compliance Interview on March 11, 2009, which included a review of Fisher's Compliance Registration Depository report ("CRD"). (DSOMF ¶¶ 3-4; Mazor Dep., p. 116; Doc. 64-4). Neither Mazor nor any other SNC employee contacted any of Fisher's past employers. (Mazor Dep.,p. 117). In his deposition Mazor testified that he relied "upon the CRD information and our interviews, and there was nothing disclosed about Anthony Fisher prior to us terminating him. So when he was at Morgan Stanley possibly doing these private placements, it was not disclosed on his CRD at the time." (Mazor Dep., p. 117, 229). It is unclear from the record whether SNC performed a criminal background check on Fisher. However, Mazor admitted that SNC did not learn about Fisher's arrest history until after his termination. (Mazor Dep., p. 15).

Owens and Rockett first began working together as teachers over 42 years ago. (PSOMF ¶¶ 1, 3; Rockett Dep., p. 18). For the past 14 years, Rockett has served as Owens' personal assistant. (PSOFM ¶ 4). She is on call to Owens 24 hours a day, seven days a week. (Rockett Dep., p. 16). Rockett helps Owens manage both her personal affairs and the affairs of the estate of Owens' late father, Andrew T. Fuller. (Doc. 80-17). Following a period of hospitalization for severe depression, Owens signed a General Durable Power of Attorney on March 11, 2010, appointing Rockett as her agent so that Rockett could continue to transact business for her. (Doc. 37-2; Roberts Dep., p. 29-31).

Plaintiffs began investing with Fisher in approximately 2000 when Fisher was employed at Raymond James & Associates, Inc. (PSOFM ¶ 6; Roberts Dep., p. 33-34). Plaintiffs followed Fisher from Raymond James to Morgan Stanley. (Roberts Dep., p. 34). Then, when Fisher left Morgan Stanley and became employed at SNC in April 2009, Plaintiffs transferred their investmentaccounts from to SNC. (PSOMF ¶ 7; Doc. 80-1). Owens opened two accounts with SNC on May 8, 2009, one for herself individually and one for the Estate of Andrew T. Fuller ("the Estate"), for which she served as Executrix. (Doc. 80-17). Owens transferred all of her Morgan Stanley holdings to SNC, including 110,000 shares of Cardiac Network, Inc. ("CNI") stock. (Docs. 80-1; 80-13). CNI is a medical technology company involved in the development of a new cardiac monitoring device. (Docs. 60-4; 68-4). Owens' account statements show significant losses in CNI investments prior to Owens moving her accounts from Morgan Stanley to SNC. (Docs. 80-1; 80-6).

On January 29, 2010, Owens executed a Convertible Loan Agreement with CNI. (Doc. 80-7). By the terms of the agreement, Owens transferred $200,000 to CNI in exchange for the return of the principal plus 12% interest or, in the alternative, shares in common stock equal to the outstanding principal plus any unpaid interest. (Doc. 80-7). Owens later exercised the option to convert the investment to common stock. (Docs. 80-8; 80-23). On July 22, 2011, she received 522,000 shares. Owens entered into a similar agreement on July 14, 2010 for $6,000. (Doc. 80-9). She likewise converted that investment into 32,923 shares on July 22, 2011. (Doc. 80-9).

Todd Newstead, a surveillance manager in SNC's Compliance division, sent an e-mail to Allen Brautigam, an executive with SNC, on July 20, 2010, alerting Brautigam to two brokers Newstead believed warranted review. (Doc. 68-4). One of those brokers was Fisher. The surveillance department initiated a review of Fisher on July 14, 2010, based on unusual activity in both of Owens' accounts. There was some concern about the return of assets on these two accounts, or evidence that Fisher was receiving a high percentage of his commissions from these accounts. (Doc. 68-4; Newstead Dep., p. 35-36). The report further expresses concern about $310,000 wired out of the Owens account to CNI. Compliance contacted Mazor on July 15, 2010, to inquire about Fisher and CNI. (Doc. 68-4). When Mazor questioned Fisher about the compliance inquiry, Fisher responded with an explanation that Owens "owns shares in the open market that have been bought over the last 3 years. . . . She is not an officer of the company nor does she have any personal relationship with the company." (Doc. 75-23). Fisher informed Mazor that Owens brought CNI to him and that Fisher did not solicit the investment. (Mazor Dep. 118, 182, 184, 210). Mazor later confirmed with Compliance that he was aware of the activity in both of Owens' accounts and stated that he was comfortable with Fisher. (Doc. 68-4).

Owens made many additional transfers from her SNC account to an account held by Blade and Blade PA Trust Account, which was associated with CNI: March 17, 2011, $205,000; March 30, 2011, $105,000; April 14, 2011, $220,000; April 27, 2011, $250,000; May 9, 2011, $132,000; May 17, 2011, $118,000. (Doc. 80-11). These transfers total $1,030,000, and correspond with a March 17, 2011 Escrow Agreement between Owens, a company called PacificCoast Innovations ("PCI"), which was developing the technology behind CNI's heart monitor, and Blade & Blade, P.A., the Escrow Agent. (Doc. 80-21). The agreement states that the funds "will either be paid to PCI for the development of the heart monitor or paid to CNI for the conversion of a note." (Doc. 80-21). Fisher facilitated all of these transfers. (Rockett Dep., p. 36, 47, 54, 74).

The Transfer of Funds/Transfer of Securities authorization form Owens, and later Rockett, signed to effectuate each wire transfer contained the following indemnification provision:

The undersigned hereby agrees to indemnify Stifel, Nicolaus & Company, Incorporated, and its parent, subsidiaries and affiliates and their respective past and present officers, directors, employees and agents against any and all loss, liability, claim, damage or expense (including without limitation, judgments, amounts paid in settlement and attorney's fees) arising out of or relating to the transfer or disbursement of cash/securities described herein.

(Doc. 80-11). After every transfer, Owens received a Disbursement Notification verifying the transfer. (Doc. 80-11). Mazor also followed up with a telephone call to verify that Owens intended to make the transaction. (Mazor Dep., p. 102-103, 153; Doc. 80-13).

Then, in May 2011, Fisher completed a referral form recommending CNI to SNC. (Honovich Dep., p. 20). The referral form makes no reference to Fisher's relationship with CNI and does not mention Owens or any other client's prior investment in the company. (Mazor Dep., p. 118, 185). That request then went to John Honovich, a managing director and investment banking liaison with SNC.(Honovich Dep., p. 9). Honovich and his colleague Lauren Harrington conducted a telephone conference on May 11, 2011 with Brian Calhoun and Judy Crowhurst of CNI to learn more about the company and to determine whether SNC would be interested in assisting CNI in attracting additional investment capital. (Honovich Dep., p. 11-12). At the conclusion of the thirty minute conversation, SNC declined to invest any further resources in promoting CNI. (Honovich Dep., p. 41-43). SNC did not move forward in conducting due diligence because the company decided to turn down the opportunity and not to sell any CNI stock. (Honovich Dep., p. 70-72).

Even after SNC made clear that the brokerage firm would not be conducting further business with CNI, Fisher continued to assist Owens and Rockett in making additional investments in CNI. On July 28, 2011, Rockett authorized the wiring of $10,000 from her SNC account to a Bank of America account held by the Law Office of Brandon S. Chabner/Attorney Client Trust Account. (Doc. 80-11). A total of $215,000 was transferred out of the Estate account to the same Bank of America Trust Account: July 28, 2011, $90,000; September 20, 2011, $35,000; September 28, 2011, $45,000; October 6, 2011, $45,000. (Doc. 80-11). Again, after each transaction, Plaintiffs received written notification of the disbursement. (...