Templeton v. Fehn et al

Filing 151

MEMORANDUM OPINION AND ORDER FOR SUMMARY JUDGMENT OF DISMISSAL: Attorney Defendants' Motion for Summary Judgment 130 is granted. Plaintiff Daryl Templeton's Cross Motion for Reconsideration 132 is denied. The clerk shall enter judgment dismissing this civil action and awarding the Attorney Defendants costs, by Judge Richard P. Matsch on 10/28/2014. (jsmit)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Senior Judge Richard P. Matsch
Civil Action No. 12-cv-00859-RPM
FOREST DARYL TEMPLETON,
Plaintiff,
v.
H. THOMAS FEHN,
ORLY DAVIDI,
GREGORY J. SHERWIN, and
FIELDS, FEHN & SHERWIN,
Defendants.

MEMORANDUM OPINION AND ORDER FOR SUMMARY JUDGMENT OF
DISMISSAL

While working as a registered representative securities broker in the office of United
Securities Alliance, Inc. (“United Securities”), Plaintiff Daryl Templeton sold securities to
Robert and Lisa Cordaro (“the Cordaros”) totaling $515,000.

Templeton left United

Securities and began working as a registered representative at CapWest Securities, Inc.
(“CapWest”) in September 2005.

One of the Cordaros’ securities, a $100,000 note in

Medical Provider Financial Corporation II (“MedCap II”), matured in June 2007.

On

Templeton’s advice, the Cordaros re-invested the money they received into another $100,000
MedCap note (“the MedCap IV Note”). CapWest was the broker-dealer on that transaction.1

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Medical Capital Holdings, Inc. was the parent company of MedCap II and of MedCap IV.

On November 18, 2009, Investors Recovery Service (“IRS”) submitted a claim to the
Financial Industry Regulatory Authority (“FINRA”) on behalf of the Cordaros against
United Securities, its principals, Templeton and CapWest. The Cordaros sought to recover
the $515,000 they had invested through Templeton, claiming that Templeton sold them
speculative securities without adequate disclosure, in violation of state and federal law.
CapWest had an insurance policy issued by Catlin Specialty Insurance Company
(“Catlin”) that covered Templeton and other registered representatives at CapWest. Catlin
assumed the defense of Templeton and CapWest, subject to a reservation of rights. Catlin
retained the law firm of Markun Zusman & Compton LLP (“Markun Zusman”) to represent
Templeton and CapWest in the Cordaro matter, and to defend other, unrelated FINRA
arbitrations brought against CapWest and other registered representatives.
In March 2010, a receiver appointed pursuant to litigation initiated by the U.S. Securities
& Exchange Commission filed a lawsuit in the U.S. District Court for the District of Oregon
seeking recovery from Templeton, CapWest and many other brokers in connection with
securities they sold investors in Sunwest Management, Inc. Templeton retained the Markun
Zusman firm to represent him in the Sunwest action.
On February 4, 2010, CapWest received the Cordaros’ Statement of Claim and sent it to
Catlin and to H. Thomas Fehn of the law firm of Fields, Fehn and Sherwin. Fehn regularly
did legal work for CapWest.
On February 18, 2010, Dale Hall, president and CEO of CapWest, sent a memo to
Templeton and other CapWest registered representatives notifying them that those named in
the FINRA arbitrations would be required to pay 75% of the legal fees incurred in defending

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those claims. Fehn was identified as “our attorney” in Hall’s memorandum. Pursuant to the
memorandum, $100 was deducted from Templeton’s monthly paychecks.
On April 20, 2010, Markun Zusman filed an Answer to the Cordaros’ Statement of Claim
on CapWest and Templeton’s behalf.
Templeton left CapWest in August 2010. His last payment for defense costs was made
on August 16, 2010.
On September 28, 2010, Tom Fehn submitted a “global settlement” proposal to
representatives of four FINRA claimants, including the Cordaros, with arbitrations pending
against CapWest. The proposal stated:
We have also eliminated the cost of defense element because CapWest is not in a position
to defend itself with respect to all of these claims. Because of these costs, CapWest is no
longer able to pay legal fees to Markun, Zusman and Compton, the law firm appointed by
the insurance company. . . .
Please be aware that any funds available for settlement are derived from a professional
liability policy issue to CapWest by Catlin Specialty Insurance Company. . . .
The amount proposed to settle certain claims is the amount derived by adding up all of
the meritorious claims and dividing them into the insurance proceeds available. This
amounts to approximately 3.6% of the claimed amount. We realize this is a small
amount, but there is nothing that can be done about that. We require 100% acceptance to
make this settlement proposal work. If we cannot settle with all of you, we will be
unable to settle with any of you. If that is the case, CapWest will defend the cases as best
it can on first come, first served basis, and then once its coverage and funds are
exhausted, it will cease business activity.
[Doc. 80, Ex. 9 at 2.] Fehn’s settlement proposal referred only to CapWest’s position and
intentions; it did not once refer to CapWest’s registered representatives. Templeton did not
receive a copy of the proposal.
Markun Zusman withdrew as counsel for CapWest and Templeton by letter to FINRA
dated November 5, 2010. The letter stated that Tom Fehn was CapWest’s current general
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counsel and provided Fehn’s contact information. [Doc. 80, Ex. 10.] Templeton did not
receive a copy of the withdrawal letter. Fehn did.
A hearing on the Cordaros’ FINRA claim was set for March 29, 2011. On November 12,
2010, a lawyer with Markun Zusman notified Templeton that the firm was not representing
him in the Cordaro matter. Templeton notified FINRA by e-mail of his mailing address in
South Dakota.
On February 7, 2011, Templeton e-mailed Dale Hall and Ed Price of CapWest, asking:
Will one of you let me know what is happening regarding the Cordaro arbitration? Is
Tom Fein [sic] representing CapWest & me?
Where does the settlement agreement stand at this time? Is this case part of the
settlement?
If I need to be in Albuquerque at the end of March [for the FINRA hearing] I need to
start adjusting [my] travel plans.
[Doc. 80, Ex. 12.] Hall e-mailed Templeton later that day stating that, “[a]t this moment”
Fehn was representing Templeton, and that “[w]e are working on a final plan with Catlin to
make that permanent.” Hall also said that Fehn was working on a settlement with the
Cordaros. [Id.] Fehn was not copied on this exchange.
On March 14, Templeton sent Hall a financial affidavit that Hall requested for Tom
Fehn’s use in settlement negotiations. Templeton asked Hall to “pass on to Fehn that I am
not working and have received no income since 2009.” [Doc. 80, Ex. 16.]
Templeton e-mailed Hall on March 17, 2011 asking if there was anything new in the
Cordaro matter and if Hall had received the financial affidavit. [Doc. 80, Ex. 18.] Hall
responded that day, stating: “Got the statement. Tom Fehn was to talk to the lawyer this
week. Will let you know.” [Id.]
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On March 21, 2011, Dale Hall e-mailed Talin Kalfayan, a legal assistant at Fehn’s firm,
asking for an update on the Cordaro matter. [Doc. 80, Ex. 20 at 3.] Two days later,
Kalfayan e-mailed Hall and said: “Tom asked me to remind you that we don’t represent
Daryl Templeton. Tom is out this week, but the update is that we are trying to settle the
case.” [Id. at 2.] Hall replied that day: “We should be representing Daryl. I mentioned that
to Tom. If we alienate Daryl our goose could be cooked.” [Id. at 1-2.] Kalfayan responded:
“I will let him [Fehn] know asap.” [Id. at 1.]
On March 25, 2011, Orly Davidi, an associate at Fehn’s firm, reached an oral agreement
with the Cordaros’ representative to settle their claim against CapWest regarding the
MedCap IV Note for $13,500. Davidi advised FINRA that day that the settlement was with
regard to the claim against "CapWest Securities, Inc. only." [Doc. 67, Ex. 13 (emphasis in
original).] The Cordaros’ representative notified FINRA Dispute Resolution that day that
they were dismissing their claims against CapWest with prejudice. [Doc. 80, Ex. 25 at 5.]
As required by FINRA, the Cordaros’ representative sent Templeton notice of the settlement
at the address FINRA had on file; the address was incorrect. [Doc. 130, Statement of
Undisputed Facts (“SUF”) ¶ 24.]
Also on March 25, 2011, Dale Hall advised Templeton that the matter had settled, and
that the arbitration hearing in Albuquerque had been vacated. The FINRA hearing proceeded
in Templeton’s absence on March 29, 2011. The United Securities principals had been
dismissed before the hearing. United Securities did not appear.
On April 4, 2011, Orly Davidi sent a draft settlement agreement to the Cordaros’
representatives that included CapWest and Templeton as released parties to the agreement.
Richard Sacks, the Cordaros’ attorney, testified that he and the Cordaros refused to sign the
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agreement because the Cordaros “never agreed to dismiss Forrest Templeton from the case
when we settled it with CapWest as regards MedCap.” [Doc. 80, Ex. 28.]
The FINRA panel issued its decision and entered a $500,000 award, plus interest and
costs, against Templeton and United Securities on April 12, 2011. The panel did not make
any findings of fact and therefore did not separate the investments the Cordaros made
through Templeton when he was at United Securities with the one investment the Cordaros
made through Templeton while he was with CapWest. A copy of the award was sent to
Templeton on April 12, 2011 at an address in Santa Fe, New Mexico.
In an e-mail to Dale Hall on April 15, Templeton asked when he would receive the
Cordaro settlement in writing. [Doc. 80, Ex. 30 at 2.] Hall then contacted Orly Davidi about
the settlement. [Id. at 1.] Davidi responded as follows:
The latest update is that Plaintiff’s attorney is upset that Daryl Templeton is included
in the settlement at all. We told him that Mr. Templeton must be included as he is an
insured under the policy (with respect to the investment MedCap IV at CapWest
Securities, Inc). Plaintiff’s attorney said he would take that news back to his client. We
have not heard from them yet, but the case has already been taken off calendar [sic] at
FINRA.
[Id.]
On April 25, after learning of the FINRA panel’s decision, Dale Hall e-mailed Tom Fehn
and stated: “Did FINRA misread something? I thought [the Cordaro matter] was adjourned
with a settlement.” [Doc. 80, Ex. 31.] Fehn replied that the settlement pertained to CapWest
and Templeton only as to the MedCap IV Note, and that the matter went forward “as to the
rest.” [Id.]
Sometime in late April, Templeton’s mail forwarding service sent the FINRA award
notice from his address in New Mexico to his address in South Dakota. He testified that
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when he received the notice he contacted Markun Zusman because he “wanted some legal
advice about how [the award] came to be . . . . [and] what we could do to proceed to overturn
. . . or resolve it . . . .” [Doc. 87, Ex. I at 103:5-18.] Markun Zusman responded that they
could not get involved “because they were involved with other issues with CapWest at the
time, and they felt there was a conflict there.” [Id. at 104:2-5.] Templeton did not contact
Catlin or the Attorney Defendants.
Templeton e-mailed Dale Hall on April 28, 2011:
Tom Fehn or his firm obtained a settlement with Cordaro regarding the CapWest
[arbitration], on behalf of our [errors & omissions insurance]. Did this settlement include
me, if not why not? It was my understanding from you that Tom was representing
CapWest and Me [sic] in this [arbitration]. If so, will I receive some type of settlement
agreement?
The arbitration went ahead with regard to the United Securities [arbitration] with an
award made to Cordaro. This amounted to a default award on my part because USA and I
did not show up.
I now need to hire an attorney to represent me in an appeal to FINRA explaining my
side of the case.
[Doc. 80, Ex. 32 at 2.] Hall replied as follows:
The way Tom Fehn has explained it to me is that the portion that was a sale with Cap
West is settled with you included in that and we should have settlement paperwork for
that shortly. That sale was, if memory serves me, a $100,000 MedCap order. The sales
that occurred at USA was not [sic]. I was unaware that this case involved two sets of
sales in the claim with two different [broker-dealers]. . . .
The thought of you getting an attorney is only if you wanted to explain that you
believed the case had been settled as it related to you and attempt to get all or a portion of
the award vacated. Don't know if that would work? My understanding is that they would
have to go to civil court to make this a civil award because you are no longer a rep
registered with FINRA. Don't know if they want to do that, but you could argue the
merits there also. Please confirm this with an attorney since I am not an attorney and I am
not able to give you legal advice.
[Id. at 1.]
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On June 20, 2011, Tom Fehn e-mailed Richard Rogers of Catlin, stating:
[the Cordaros] falsely told the arbitration panel that the case had been settled as to
[CapWest] but not as to Templeton for his trades while at [CapWest]. [B]oth had been
settled but not papered because the settlement occurred the day before.
[Doc. 80, Ex. 34.] When Rogers asked for documentation that the Cordaros made a false
statement to the panel, Fehn replied that he was not at the hearing, and that he “sent a draft
agreement a few days after the settlement was reached. It included [Templeton]. I knew he
had to be a part of the deal.” [Id.]
Templeton admitted that he never spoke with any of the Attorney Defendants at any time
regarding the Cordaro arbitration.

[SUF ¶ 17.]

The Attorney Defendants were never

formally engaged by Catlin to represent CapWest and Templeton in the Cordaro arbitration
pursuant to the Catlin Policy; indeed, the e-mails between Rogers of Catlin and Hall of
CapWest in March and April 2011 show that Rogers adamantly refused to engage Attorney
Defendants for any of the FINRA arbitrations.
On December 27, 2013, Templeton filed a motion for partial summary judgment for a
finding that he had an attorney-client relationship with the Attorney Defendants. [Doc. 80.]
That motion was denied at a hearing on July 15, 2014.

[Doc. 117.]

The Attorney

Defendants then moved for summary judgment on Templeton’s professional negligence and
breach of fiduciary duties on the basis that they did not owe Templeton a duty. [Doc. 130 at
2-3.] The Attorney Defendants also moved for summary judgment on Templeton’s negligent
misrepresentation claim on the basis that the Attorney Defendants did not once communicate
with Templeton, either orally or in writing. Templeton subsequently asked the Court to
reconsider his motion for partial summary judgment. [Doc. 132.] The parties agree that the

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existence of an attorney-client relationship between them is a question of law the Court must
decide under California law.
With the additional evidentiary submissions and legal contentions made by the parties
during this round of pleadings, it is clear that there was no attorney-client relationship
between Templeton and the Attorney Defendants.

There was no express contract of

representation between them. The Attorney Defendants did not enter an appearance on
Templeton’s behalf in the Cordaro matter. The record does not show that Templeton ever
paid the Attorney Defendants to represent him in the Cordaro matter, either directly or
through Catlin or CapWest. Templeton did not once speak or correspond with any of the
Attorney Defendants, let alone receive legal advice from them regarding the Cordaro matter.
There is no evidence showing that Templeton ever disclosed confidential or sensitive
information to the Attorney Defendants. By contrast, Templeton had a formal retainer
agreement with Markun Zusman and was in fairly-regular contact with attorneys from that
firm when it represented him and CapWest in the Cordaro matter. And when Templeton
learned of the FINRA award against him, he did not contact any of the Attorney Defendants;
he contacted Markun Zusman, instead. Orly Davidi’s passing attempt to include Templeton
in the Cordaros’ settlement with CapWest as to the MedCap IV Note does not suffice to
establish an attorney-client relationship. The Attorney Defendants were general counsel for
CapWest in all of the FINRA arbitrations against it. The Attorney Defendants tried to get the
Cordaros to agree to include Templeton in the CapWest settlement because Dale Hall wanted
to be sure that Templeton would not “cook” CapWest’s “goose.”
Even if Templeton subjectively believed that the Attorney Defendants were representing
him, that belief was unreasonable. Templeton’s potential exposure in the arbitration was
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significant, and he was undoubtedly aware of it.

A reasonable person in Templeton’s

position would not rely exclusively on the assurances of a non-lawyer former business
associate like Dale Hall to believe that attorneys with whom he never corresponded were
representing his interests. Templeton’s passivity in protecting his rights perplexes the Court.
In all likelihood, this all could have been avoided by a couple of telephone calls or e-mails.
Templeton argues that even if an attorney-client relationship did not exist, the Attorney
Defendants still owed him a duty as a non-client because he was the intended beneficiary of
the services the Attorney Defendants provided CapWest. [Doc. 131 at 17-18.] “An essential
predicate for establishing an attorney's duty of care under an ‘intended beneficiary’ theory is
that both the attorney ... and the client ... intended [the non-client plaintiff] to be the
beneficiary of legal services [the attorney] was to render.”

Zenith Ins. Co. v. Cozen

O’Connor, 148 Cal. App. 4th 998, 1010 (Cal. App. 2007) (emphasis in original). Here,
although Dale Hall told Tom Fehn that the Attorney Defendants should be representing
Templeton, the record does not support the conclusion that, in entering into an attorney-client
relationship, CapWest and the Attorney Defendants both intended Templeton to be the
beneficiary of the Attorney Defendants’ legal services. CapWest intended that CapWest
would be the beneficiary of the Attorney Defendants’ services, and as late as March 2011,
Tom Fehn was specifically denying that the Attorney Defendants were representing
Templeton. Templeton is a far cry from the type of intended beneficiary this doctrine is
meant to protect. Accordingly, the Attorney Defendants did not owe Templeton a duty of
care under an intended beneficiary theory.
Templeton did not have an express or implied attorney-client relationship with the
Attorney Defendants, and the Attorney Defendants did not owe Templeton a duty of care
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under an intended beneficiary theory. In the absence of a duty, Templeton’s professional
negligence and breach of fiduciary duty claims fail as a matter of law.
The Attorney Defendants argue that Templeton’s negligent misrepresentation claim
should be dismissed because Templeton does not identify any misrepresentation made by the
Attorney Defendants to him. [Doc. 130 at 9-11.] An essential element of a negligent
misrepresentation claim is that the defendant make a misrepresentation of a past or existing
material fact. Apollo Capital Fund, LLC v. Roth Capital Partners, 70 Cal. Rptr. 3d 199, 213
(Cal. App. 2007). “[A] positive assertion is required; an omission or an implied assertion or
representation is not sufficient.” Id.
In his Amended Complaint, Templeton based his negligent misrepresentation claim on
the allegation that the Attorney Defendants “were negligent in conveying information to
[him] regarding the pending claim by the Cordaros, as well as the resolution or lack of
resolution of such by settlement agreement, as well as [Templeton’s] urgent need to be
present at the March 29, 2011 arbitration hearing.” [Doc. 20 ¶ 58.]

In his Response,

Templeton premises his claim on the fact that the Attorney Defendants breached their duties
under the California Rules of Professional Conduct to keep him informed about
developments in the arbitration. [Doc. 131 at 23.] Templeton’s claim is quite clearly based
on the Attorney Defendants’ omissions, not on any “positive assertions” they made to him.
Indeed, Templeton acknowledges that he never once communicated with any of the Attorney
Defendants. [SUF ¶ 17.] Summary judgment is warranted in the Attorney Defendants’ favor
on Templeton’s negligent misrepresentation claim.
In the absence of underlying liability, Templeton’s Seventh Claim for Relief against the
Attorney Defendants for exemplary damages under Colorado law must be dismissed.
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Upon the foregoing, it is
ORDERED that the Attorney Defendants’ Motion for Summary Judgment [Doc. 130] is
granted, and it is
FURTHER

ORDERED

that

Plaintiff

Daryl

Templeton’s

Cross

Motion

for

Reconsideration [Doc. 132] is denied. The clerk shall enter judgment dismissing this civil
action and awarding the Attorney Defendants costs.
Dated: October 28, 2014
BY THE COURT:

s/Richard P. Matsch
___________________
Richard P. Matsch
Senior District Judge

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