Charlotte B Milliner et al v. Mutual Securities, Inc.

Filing 34

ORDER Regarding May 23, 2016 Hearing. Motion Hearing reset for 6/20/2016 10:00 AM in Courtroom 2, 17th Floor, San Francisco. Further Case Management Conference reset for 6/20/2016 10:00 AM in Courtroom 2, 17th Floor, San Francisco. Signed by Hon. Thelton E. Henderson on 5/18/2016. (tehlc2, COURT STAFF) (Filed on 5/18/2016)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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CHARLOTTE B. MILLINER, et al.,

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Plaintiffs,

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v.
MUTUAL SECURITIES, INC.,

Case No. 15-cv-03354-TEH
ORDER REGARDING MAY 23, 2016
HEARING

Defendant.

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United States District Court
Northern District of California

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On April 18, 2016, Plaintiffs filed a Motion for Partial Summary Judgment Re:

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Existence of Contractual Duty to Determine Suitability (“Mot.”). Dkt. No. 30. Defendant

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Mutual Securities Inc. (“MSI”) timely opposed the motion, Plaintiffs timely replied in

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support of the motion, and the matter is currently set for hearing on May 23, 2016. Opp’n

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to Pls.’ Mot. for Partial Summ. J. (“Opp’n”) (Dkt. No. 32); Pls.’ Reply in Supp. of Mot. for

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Partial Summ. J. (“Reply”) (Dkt. No. 33).

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Plaintiffs request a very narrow ruling: “Plaintiffs seek a ruling from this Court

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establishing that Defendant MSI owed Plaintiffs a contractual duty to ‘determine the

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suitability of any investment recommendations and advice,’ in accordance with the express

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terms of their Brokerage Agreement.” Mot. at 1 (emphasis in original). MSI does not

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appear to contest the veracity of this narrow statement, since it agrees that “if MSI or one

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of its agents were to make investment recommendations or give investment advice to the

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Plaintiffs or the putative class members, then MSI and/or its agents would have a duty to

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make suitability determinations with respect to such recommendations or advice.” Opp’n

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at 4-5. Thus, there appears to be no genuine dispute of material fact that the quoted

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language from the Brokerage Agreement (the “suitability clause”) created a duty. See Fed.

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R. Civ. P. 56(a) (“The court shall grant summary judgment if the movant shows that there

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is no genuine dispute as to any material fact and the movant is entitled to judgment as a

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matter of law.”).

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However, the parties do dispute whether the contractual duty created by the

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suitability clause extends to the investment advice Plaintiffs received from Bock Evans

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Financial Counsel, Ltd. (“BEFC”). See Reply at 1 (“MSI wants to exclude from its

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suitability duty all recommendations and advice that it received from MSI’s affiliated

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investment advisors.”); id. at 8 (“There is no language that excludes investment

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recommendations and advice from Thomas Bock, Mary Evans, or [BEFC].”); Opp’n at 1

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(“Plaintiffs have not alleged, nor can they allege, that MSI actually made investment
recommendations or gave investment advice relating to the Plaintiffs’ or the putative class

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United States District Court
Northern District of California

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members’ accounts.”); id. at 2 (“MSI has some supervisory obligations over Bock and

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Evans as individually associated persons of MSI, but its obligations to Plaintiffs were

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significantly less because they were advisory clients of BEFC.”).

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Consequently, it appears that the narrow ruling Plaintiffs request would do little to

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move this case forward, as it would not address what appears to be the ultimate issue: the

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scope of the duty created by the suitability clause. It is not clear whether Plaintiffs’

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arguments about the scope of MSI’s contractual duty indicate that Plaintiffs seek summary

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adjudication of this broader issue, but Plaintiffs have not, in any case, provided sufficient

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legal argument to support a broader ruling. Accordingly, IT IS HEREBY ORDERED that

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the May 23, 2016 hearing is VACATED, and the parties shall meet and confer on whether

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the Court should treat Plaintiffs’ motion as seeking: (i) a narrow ruling on whether MSI

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had a contractual duty to “determine the suitability of any investment recommendations

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and advice,” as presented in Plaintiffs’ motion and proposed order; or (ii) a broader ruling

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on the scope of the duty created by the suitability clause and, more specifically, whether

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that duty extends to the investment advice Plaintiffs received from BEFC.

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If the parties do not agree that the Court should treat Plaintiffs’ motion as seeking

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the broader ruling, then Plaintiffs shall file a statement, on or before May 25, 2016, on

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whether the Court should enter a ruling on the narrow question presented in their motion or
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whether Plaintiffs seek to withdraw their motion. If Plaintiffs state that the Court should

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enter a ruling on the narrow question presented in their motion, then the Court is prepared

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to rule on the motion without further briefing or oral argument. Civil L.R. 7-1(b).

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If the parties do agree that the Court should treat Plaintiffs’ motion as seeking the

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broader ruling, then Plaintiffs shall file a statement, on or before May 25, 2016, reflecting

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this agreement. If the parties so agree, then IT IS HEREBY ORDERED that the May 23,

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2016 hearing is continued to June 20, 2016, and the parties shall submit supplemental

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briefs by June 8, 2016, not to exceed 15 double-spaced pages, addressing the following

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questions:

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United States District Court
Northern District of California

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For Both Parties
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The parties agree that the scope of the suitability clause is determined by

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the parties’ objective intent. Mot. at 10; Opp’n at 4. How is that intent not

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in dispute, and therefore not properly left to determination by a jury?

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2.

Do the Registered Investment Advisor Agreements between Plaintiffs and

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BEFC have any bearing on the scope of the suitability clause? If so, what

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do those agreements say about MSI’s role or duties regarding the

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investment advice Plaintiffs were to receive from BEFC?

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3.

How, if at all, does the fact that MSI conducts business as a “hybrid”

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broker-dealer have any bearing on MSI’s role or duties regarding the

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investment advice Plaintiffs received from BEFC?

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For Plaintiffs
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Do Plaintiffs contend that the investment advice they received from BEFC

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is covered by the suitability clause because: (i) Thomas Bock and Mary

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Evans were acting as MSI’s affiliated investment advisors when they gave

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Plaintiffs investment advice; (ii) Thomas Bock and Mary Evans were

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acting as MSI’s agents when they gave Plaintiffs investment advice; (iii)

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the suitability clause covered any advice Plaintiffs received while MSI was

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their broker-dealer, regardless of the source; or (iv) some, none, or all of

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the above? Please explain.

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For Defendant
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If MSI did not intend for the suitability clause to apply to the advice

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Plaintiffs received from BEFC, then why didn’t the clause contain the sort

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of conditional language that MSI identifies elsewhere in the Brokerage

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Agreement? See Opp’n at 5-6.

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IT IS SO ORDERED.

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United States District Court
Northern District of California

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Dated: 05/18/16

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THELTON E. HENDERSON
United States District Judge

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