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

Filing 39

ORDER Granting 30 Motion for Partial Summary Judgment. Signed by Hon. Thelton E. Henderson on 6/27/2016. (tehlc2, COURT STAFF) (Filed on 6/27/2016)

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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,
v.

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MUTUAL SECURITIES, INC.,

Case No. 15-cv-03354-TEH
ORDER GRANTING PLAINTIFFS’
MOTION FOR PARTIAL
SUMMARY JUDGMENT

Defendant.

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

United States District Court
Northern District of California

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

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

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

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in Supp. of Mot. for Partial Summ. J. (“Reply”) (Dkt. No. 33).

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On May 18, 2016, this Court requested clarification from the parties on the breadth

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of Plaintiffs’ motion. Order Re: May 23, 2016 Hr’g (“Clarification Order”) (Dkt. No. 34).

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On the basis of Plaintiffs’ response to the Clarification Order, the Court vacated oral

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argument on Plaintiffs’ motion for partial summary judgment pursuant to Civil L.R. 7-

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1(b). Id.; see also Dkt. No. 36. Having carefully considered the parties’ written

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arguments, the Court hereby GRANTS Plaintiffs’ motion, for the reasons set forth below.

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BACKGROUND
This class action is related to another class action separately filed in this Court:

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Milliner v. Bock Evans Financial Counsel, Ltd., No. 15-cv-1763 TEH (the “Bock Evans

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Class Action”).1 The Bock Evans Class Action was brought by the same Plaintiffs as the

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Default has been entered in the Bock Evans Class Action. No. 15-cv-1763 TEH, Dkt.
No. 66 (N.D. Cal. May 18, 2016).

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present class action, to challenge the “‘one size fits all’ investment approach implemented

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by their investment advisor, Defendant Bock Evans Financial Counsel, Ltd. (‘BEFC’).”

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Mot. at 2. Plaintiffs brought the present class action against Defendant MSI because of

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MSI’s relationship with BEFC; namely, because “BEFC required that clients hire

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Defendant MSI as their custodial and supervising broker-dealer.” Id. According to

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Plaintiffs, “[o]ne reason that BEFC requires clients to use MSI is because [Thomas] Bock

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and [Mary] Evans, the principal executive officers of BEFC, are also licensed with and

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registered principals of MSI.” Id. And Plaintiffs now allege that “the value of the BEFC

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portfolios under MSI’s supervision have gone from $60 million to $4.17 million in just a

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few years, a drop of roughly $55.83 million, or 93%.” Id.

United States District Court
Northern District of California

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The crux of Plaintiffs’ class action claims against MSI, and the heart of the present

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motion, is a “Brokerage Agreement” that MSI required Plaintiffs to enter into as clients of

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BEFC. Plaintiffs explain:

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MSI . . . requires that clients enter into a Brokerage Agreement
describing the “features and policies associated with the
account,” and the “various services” that MSI “agree[s] to
provide.” Through this Brokerage Agreement, MSI expressly
promises that: “As your broker/dealer, we will: determine the
suitability of any investment recommendations and advice.”

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Id. Plaintiffs now move for partial summary judgment regarding whether the quoted

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language from the Brokerage Agreement (the “suitability clause”) created a duty for MSI:

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“Plaintiffs seek a ruling from this Court establishing that Defendant MSI owed Plaintiffs a

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contractual duty to ‘determine the suitability of any investment recommendations and

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advice,’ in accordance with the express terms of their Brokerage Agreement.” Id. at 1

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(emphasis in original).

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LEGAL STANDARD

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Under Federal Rule of Civil Procedure (“Rule”) 56, summary judgment is

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appropriate “if the movant shows that there is no genuine dispute as to any material fact

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and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). Rule 56
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provides for “partial summary judgment” where the movant seeks resolution of only

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portions of certain claims or defenses. Id. Material facts are those that “might affect the

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outcome of the suit.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A

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dispute as to a material fact is genuine “if the evidence is such that a reasonable jury could

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return a verdict for the nonmoving party.” Id.

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The party seeking summary judgment bears the initial burden of “informing the

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district court of the basis for its motion, and identifying those portions of ‘the pleadings,

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depositions, answers to interrogatories, and admissions on file, together with the affidavits,

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if any,’ which it believes demonstrate the absence of a genuine issue of material fact.”

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Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

United States District Court
Northern District of California

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DISCUSSION
After reviewing the parties’ briefing, it was unclear to the Court whether the issue

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to be decided is as narrow as suggested by Plaintiffs’ motion. The motion requests a very

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narrow ruling: “Plaintiffs seek a ruling from this Court establishing that Defendant MSI

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owed Plaintiffs a contractual duty to ‘determine the suitability of any investment

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recommendations and advice,’ in accordance with the express terms of their Brokerage

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Agreement.” Mot. at 1 (emphasis in original). But MSI admits the veracity of this narrow

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statement, as it agrees that “if MSI or one of its agents were to make investment

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recommendations or give investment advice to the Plaintiffs or the putative class members,

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then MSI and/or its agents would have a duty to make suitability determinations with

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respect to such recommendations or advice.” Opp’n at 4-5.

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What the parties do dispute, however, is whether the contractual duty created by the

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suitability clause extends to the investment advice Plaintiffs received from BEFC. See

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Reply at 1 (“MSI wants to exclude from its suitability duty all recommendations and

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advice that it received from MSI’s affiliated investment advisors.”); id. at 8 (“There is no

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language that excludes investment recommendations and advice from Thomas Bock, Mary

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Evans, or [BEFC].”); Opp’n at 1 (“Plaintiffs have not alleged, nor can they allege, that
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MSI actually made investment recommendations or gave investment advice relating to the

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Plaintiffs’ or the putative class members’ accounts.”); id. at 2 (“MSI has some supervisory

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obligations over Bock and Evans as individually associated persons of MSI, but its

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obligations to Plaintiffs were significantly less because they were advisory clients of

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BEFC.”).

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Given the apparent agreement on the narrow issue actually presented by Plaintiffs’

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motion and concerned “that the narrow ruling Plaintiffs request would do little to move

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this case forward,” the Court therefore ordered the parties to meet and confer on whether it

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would be a better use of judicial resources for the Court to address the ultimate issue in this
case: the scope of the duty created by the suitability clause. Clarification Order at 1-2.

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United States District Court
Northern District of California

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Specifically, the Court ordered that:

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The parties shall meet and confer on whether the Court should
treat Plaintiffs’ motion as seeking: (i) a narrow ruling on
whether MSI had a contractual duty to “determine the
suitability of any investment recommendations and advice,” as
presented in Plaintiffs’ motion and proposed order; or (ii) a
broader ruling on the scope of the duty created by the
suitability clause and, more specifically, whether that duty
extends to the investment advice Plaintiffs received from
BEFC.

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Id. Despite the Court’s concerns, Plaintiffs timely responded to the Clarification Order by

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stating that they “request that the Court enter a ruling on the narrow question presented

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through their Motion.” Resp. to Ct.’s Order Re: May 23, 2016 Hr’g (Dkt. No. 35).

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Accordingly, the Court now addresses the narrow question presented by Plaintiffs’

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motion. And as previewed by the Clarification Order, the Court now holds that there is

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“no genuine dispute of material fact that the quoted language from the [suitability clause]

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created a duty.” Clarification Order at 1. As stated above, MSI admits that some duty was

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created by the suitability clause, because it agrees that “if MSI or one of its agents were to

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make investment recommendations or give investment advice to the Plaintiffs or the

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

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determinations with respect to such recommendations or advice.” Opp’n at 4-5. Thus,

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there is no genuine dispute of material fact that, under the suitability clause, “MSI owed
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Plaintiffs a contractual duty to ‘determine the suitability of any investment

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recommendations and advice’ in accordance with the express terms of their Brokerage

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Agreement.” Mot. at 1 (emphasis in original). Because the parties expressly rejected the

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Court’s invitation to address a much more important question – whether that duty was

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triggered by the advice Plaintiffs received from BEFC – the Court stops its analysis here.

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CONCLUSION
For the reasons set forth above, Plaintiffs’ narrow motion for partial summary
judgment is GRANTED.

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United States District Court
Northern District of California

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IT IS SO ORDERED.

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Dated: 06/27/16

_____________________________________
THELTON E. HENDERSON
United States District Judge

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