OWENS et al v. STIFEL NICOLAUS & COMPANY INC

Filing 99

ORDER granting #58 Motion for Summary Judgment. Ordered by U.S. District Judge HUGH LAWSON on 6/5/2014. (nbp)

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

MARTHA F. OWENS, Individually,
and as the Executrix of the Estate
of Andrew T. Fuller; SUSAN
ROCKETT; DONALD ABNER POPE
JR.; and REFUSE MATERIALS,
INC.,

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

Plaintiffs,
v.
STIFEL, NICOLAUS & COMPANY,
INC. and ANTHONY JOHN FISHER,
Defendants.

ORDER
This case is before the Court on Defendant Stifel, Nicolaus & Company,
Inc.’s (“SNC”) Motion for Summary Judgment as to All Claims by Plaintiff’s
Donald Abner Pope, Jr. (“Pope”) and Refuse Materials, Inc. (“RMI”). (Doc. 58).
After reviewing the pleadings, briefs, affidavits, depositions, and other evidentiary
materials presented, and determining that there is no genuine dispute of the
material facts relating to Plaintiffs’ claims against SNC, the Court finds that SNC
is entitled to judgment as a matter of law and GRANTS Defendant’s motion.

I.

FACTS
Defendant SNC is a securities broker-dealer firm. SNC employed

Defendant Anthony John Fisher (“Fisher”) from April 2009 until February 8, 2012.
(DSOMF ¶ 1).1 SNC terminated Fisher for violating company policy by engaging
in private transactions outside the firm, or “selling away.” (DSOMF ¶¶ 36-38).
Plaintiff Pope is a partial owner and secretary of Plaintiff RMI, located in
Ocilla, Georgia. (DSOMF ¶ 2; Pope Dep. pp. 5-6). Pope owns the company along
with his father, Donald Pope, Sr., who is not a party to this action. (Pope Dep., p.
7). RMI is an S corporation operating a floor installation business valued at
around one million dollars. (First Am. Compl. ¶ 4; DSOMF ¶ 4; Pope Dep., p. 7;
Roberts Dep., p. 19). RMI maintains investment accounts. (Pope Dep., p. 8).
Pope handles all of RMI’s investment decisions, including the investments that
are the source of the pending litigation. (DSOMF ¶ 5; Pope Dep., pp. 8-10).
Fisher first contacted Pope sometime around June or July 2011. (DSOMF
¶ 11; Pope Dep. pp. 36, 40). Fisher obtained Pope’s contact information from
Hugh Roberts (“Roberts”). (DSOMF ¶ 7; Roberts Dep. p. 46). Fisher and Roberts
became acquainted with one another in approximately 1998 through a common
client. (DSOMF ¶ 9; Roberts Dep., pp. 44-45). Roberts is a certified public
accountant who serves both Pope individually and RMI and who Pope has
known since he was a small child. (DSOMF ¶ 7; Pope Dep. pp. 36-37; Roberts
1

“DSOMF” refers to Defendant’s Statement of Material Facts. The cited
paragraphs are those admitted by Plaintiff.
2

Dep. p. 19). Fisher introduced himself to Pope as an employee of SNC. (Pope
Dep. p. 40).
Fisher approached Pope to solicit an investment in Cardiac Network, Inc.
(“CNI”), a medical technology company working to develop a new cardiac
monitoring device. (Wolensky Decl., Ex. D). Fisher provided Pope materials
outlining CNI’s business plan. (Pope Dep., p. 39). At some point Fisher
insinuated that he would be on the board of CNI but never explained his direct
relationship with CNI to Pope. (Pope Dep., p. 41).
After several conversations with Fisher about a potential investment, and
after discussing the decision with his father, Pope, on behalf of RMI, agreed to
invest $270,000 in CNI. (DSOMF ¶ 13; Pope Dep., pp. 38-39). Pope made no
personal investment in CNI. (DSOMF ¶ 27; Pope Dep., p. 10). Pope inquired
whether RMI needed to set up an SNC account. (Pope Dep., p. 40). Fisher told
Pope an SNC account was not necessary. (Pope. Dep., p. 40). Neither Pope nor
RMI ever established investment accounts at SNC. (DSOMF ¶ 32; Pope Dep.,
pp. 8-9, 41; Pope’s Resp. to First Req. for Admis., Req. 1; RMI’s Resp. to First
Req. for Admis., Req. 1). Fisher is the only SNC employee with whom Pope
communicated about investing in CNI. (DSOMF ¶ 35; Pope Dep., p. 40).
Fisher explained to Pope how the investment would work, including where
to wire the money. (Pope Dep., p. 17). He directed Pope to communicate with
Judy Crowhurst, who was involved in CNI’s business development, about the
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other specifics of the investment. (Pope Dep., p. 14). On August 17, 2011, Judy
Crowhurst emailed Keisha Davis, an employee of RMI, attaching a sample
convertible note, a securities purchase agreement, and wiring instructions. (Pope
Dep., Ex. 3). On August 18, 2011, Keisha Davis returned a completed Accredited
Investor Questionnaire to Judy Crowhurt. (Pope Dep., Ex. 3). Keisha Davis filled
out the questionnaire on behalf of Pope and RMI, and Pope signed the form.
(Pope Dep. p. 20, Ex. 3). That same day, Pope, after reading the contents of the
proposed agreement, executed a Securities Purchase Agreement, entered into
exclusively between RMI and CNI. (DSOMF ¶¶ 13, 16; Pope Dep., p. 19, Ex. 4).
The Securities Purchase Agreement specifically states that the agreement was
not effected by or through a broker-dealer in a public offer. (DSOMF ¶ 17; Pope
Dep., Ex. 4). Fisher played no role in managing any account owned by Pope or
RMI. (RMI’s Response to First Interrogs., Interrog. 2).
Then, at the direction of Fisher, Pope wired $270,000 on August 18, 2011
from an RMI account at Colony Bank to an escrow account managed by the Law
Offices of Brandon S. Chabner. (DSOMF ¶ 14; Pope Dep. pp. 16-17, Ex. 3). In
exchange, RMI received a convertible promissory note from CNI. (DSOMF ¶ 20;
Pope Dep., Ex. 6). The agreement bears the signature of Brian Calhoun, the
president of CNI. (Pope Dep., Ex. 6). By the terms of the note, RMI invested
$270,000 for a period of six months. When the note came due on February 18,
2012, RMI was to receive ten percent interest and 27,000 shares of CNI stock.
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(DSOMF ¶ 20; Pope Dep., Ex. 6). RMI never received the stock certificates from
CNI or any other return on its investment. (DSOMF ¶¶ 21, 28; Pope Dep.,
p. 24).
In October 2011, Judy Crowhurst began communicating with Keisha Davis
about RMI making a second investment in CNI. (Pope Dep., Ex. 7). Fisher,
likewise, started calling Pope daily, purportedly from his SNC office. (Pope Dep.,
p. 28). Fisher explained to Pope that the second investment was for paying the
patent filing fees. (Pope Dep., p. 27). Fisher alternatively stated that the funds
were intended for CNI’s purchase of intellectual property from Dennis
Montgomery at Pacific Coast Innovations. (Pope Dep., p. 27, 35-36).
Despite his misgivings and the contradictory information Pope received
from Fisher, Pope entered into a second Securities Purchase Agreement with
CNI for $75,000 on November 14, 2011. (DSOMF ¶ 23; Pope Dep., pp. 28-33).
The second agreement contains the same language as the first regarding the
lack of involvement of a broker-dealer in a public offering. (DSOMF ¶ 24; Pope
Dep., Ex. 10). Pope wired the $75,000 to the Law Offices of Brandon S. Chabner
on November 14, 2011 (DSOMF ¶ 22; Wolensky Declr., Ex. D). RMI then
received a convertible promissory note from CNI due May 14, 2012 in the
amount of $75,000, promising ten percent interest and 15,000 shares of CNI
stock. (DSOMF ¶ 26; Pope Dep., Ex. 9).

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CNI failed to repay RMI according to the terms of either promissory note.
(DSOMF ¶ 28; Pope Dep., p. 30). Nor did CNI issue the promised stock
certificates. (DSOMF ¶ 21; Pope Dep., p. 31).
Plaintiffs Pope and RMI filed their First Amended Complaint on August 8,
2013, alleging Defendant SNC is liable for damages resulting from fraud and
misrepresentation of the investment potential in CNI and negligent or negligent
per se in the hiring and supervision of Defendant Fisher. (Doc. 27). Plaintiffs
further claim that SNC’s alleged wilful and wanton misconduct gives rise to
liability for punitive damages under O.C.G.A. § 51-12-5.1. Defendant moves for
judgment in its favor on all claims asserted by these Plaintiffs.
II.

SUMMARY JUDGMENT STANDARD
Federal Rule of Civil Procedure 56 requires that summary judgment be

granted “if the movant shows that there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P.
56(a). “The moving party bears ‘the initial responsibility of informing the . . . court
of the basis for its motion, and identifying those portions of the pleadings,
depositions, answers to interrogatories, and admissions on file, together with the
affidavits, if any, which it believes demonstrate the absence of a genuine issue of
material fact.’” Hickson Corp. v. N. Crossarm Co., 357 F.3d 1256, 1259 (11th Cir.
2004) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548
(1986) (internal quotations omitted)). Where the moving party makes such a
6

showing, the burden shifts to the non-movant, who must go beyond the pleadings
and present affirmative evidence to show that a genuine issue of material fact
does exist. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257, 106 S.Ct. 2505
(1986).
The applicable substantive law identifies which facts are material. Id. at
248. A fact is not material if a dispute over that fact will not affect the outcome of
the suit under the governing law. Id. An issue is genuine when the evidence is
such that a reasonable jury could return a verdict for the non-moving party. Id. at
249–50.
In resolving a motion for summary judgment, the court must view all
evidence and draw all reasonable inferences in the light most favorable to the
non-moving party. Patton v. Trial Guar. Ins. Corp., 277 F.3d 1294, 1296 (11th
Cir. 2002). But, the court is bound only to draw those inferences which are
reasonable. “Where the record taken as a whole could not lead a rational trier of
fact to find for the non-moving party, there is no genuine issue for trial.” Allen v.
Tyson Foods, Inc., 121 F.3d 642, 646 (11th Cir. 1997) (quoting Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348 (1986)).“If
the evidence is merely colorable, or is not significantly probative, summary
judgment may be granted.” Anderson, 477 U.S. at 249-50 (internal citations
omitted).

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III.

ANALYSIS
A.

Fraud

Plaintiffs allege in their First Amended Complaint that Defendant
fraudulently and materially misrepresented the investment potential in CNI and
provided false counsel. (Doc. 27). Plaintiffs also claim that in providing false
counsel regarding investment in CNI, Defendant intended to induce Plaintiffs to
rely on this misinformation to their detriment. (Doc. 27). Under Georgia law, to
prevail on a fraud claim Plaintiffs must set forth evidence of five elements: (1) a
false representation by Defendant; (2) scienter; (3) Defendant’s intention to
induce Plaintiffs to act or refrain from acting; (4) justifiable reliance by Plaintiffs
on the representation; and (5) damages to Plaintiffs. Johnston v. Correale, 272
Ga. App. 502, 504 (2005). Here, there is no evidence that SNC made any
representation to these particular Plaintiffs, false or otherwise. See Alexander v.
A. Atlanta Autosave, Inc., 272 Ga. App. 73, 75 (2005) (fraud claim failed where
plaintiff had no direct contact with defendant and where there was no evidence
that defendant made any representation upon which plaintiff relied). Accordingly,
Plaintiffs’ fraud claims must fail as a matter of law.
1.

Actual Authority

In order for Plaintiff’s fraud claim to survive summary judgment, there must
be some evidence that Fisher had either actual or apparent authority to solicit
new investors for CNI on behalf of SNC. “The relationship of principal and agent
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arises wherever one person, expressly or by implication, authorizes another to
act for him or subsequently ratifies the acts of another on his behalf.” O.C.G.A.
§ 10-6-1. A principal is bound only by the acts of an agent acting within the scope
of his authority. Gymco Constr. Co. v. Architectural Glass & Windows, Inc., 884
F.2d 1362, 1366 (11th Cir. 1989). The actions of the principal create the agency
relationship. Satisfaction & Serv. Housing, Inc. v. SouthTrust Bank, Inc., 283 Ga.
App. 711, 713 (2007).
Despite Plaintiffs’ protestations to the contrary, the record contains no
evidence that Fisher had actual authority to arrange transactions between RMI
and CNI. SNC maintains a Compliance Policies and Procedures Manual that
conforms with Financial Industry Regulatory Authority (“FINRA”) rules regarding
outside business activity: “Employees are not permitted to engage in private
securities transactions . . . whether or not there is compensation paid for effecting
the transaction unless approved, in writing, by the Compliance Director or his/her
designee. This includes a personal investment as well as playing any role in the
investment.” (Wolensky Decl., Ex. E; DSOMF ¶37) (emphasis added). The policy
manual defines “private securities transactions” as “any securities transaction
outside the regular course or scope of an employee’s employment.” (Wolensky
Decl., Ex. E; DSOMF ¶ 38).
Sometime

around

May

2011,

Fisher

completed

a

referral

form

recommending CNI to SNC. (Honovich Dep., p. 20). That request then went to
9

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 further 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).
Fisher approached Pope about RMI investing in CNI just a few weeks
following SNC’s decision not to promote CNI, in June or July of 2011. Fisher had
no actual authority to do so. Fisher’s actions in soliciting an entity that was not a
client of SNC to invest in a company SNC specifically decided not to endorse is
the very definition of “selling away” and clearly placed him outside the scope of
his employment with SNC. Plaintiffs’ own expert concurs that Fisher violated
SNC policy by peddling CNI. (Report of Gregory B. Wood, p. 4).
2.

Apparent Authority

Since there is no evidence that Fisher as an agent of SNC had actual
authority to entice RMI to invest in CNI, the Court next must analyze whether
SNC cloaked Fisher with apparent authority to conduct the transactions in
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question. To recover under the theory of apparent authority, Plaintiffs must point
to evidence that “(1) the apparent principal represented or held out the apparent
agent; and (2) justifiable reliance upon the representation led to the injury.”
Fortune v. Principal Financial Group, Inc., 219 Ga. App. 367, 370 (1995)
(citations and punctuation omitted). “Apparent authority is that which the
principal’s conduct leads a third party reasonably to believe the agent has.”
Bresnahan v. Lighthouse Mission, 230 Ga. App. 389, 391 (1998). There must be
evidence of more than a plaintiff’s belief that there is an agency relationship.
Fortune, 219 Ga. App. at 370. “In other words, ‘apparent authority is not
predicated on whatever a third party chooses to think an agent has the right to
do, or even upon what the agent says he can do, but must be based on acts of
the principal which have led the third party to believe reasonably the agent had
such authority.’” Holy Fellowship Church of God in Christ v. Brittain, 240 Ga. App.
436, 438 (1999); see also Ellis v. Fuller, 282 Ga. App. 307, 309 (2006) (holding
that evidence of a mere assumption of agency has no probative value and is
insufficient to find agency exists). Further, an “agent’s success in misleading the
third party as to the existence of actual authority does not in itself make the
principal accountable.” Restatement (Third) of Agency § 2.03, cmt. c (2006).
An agent who exceeds the scope of his authority does so at his own risk;
however, the principal may later affirm or ratify the agent’s actions. O.C.G.A.
§§ 10-6-21 and 10-6-51. In order for ratification to be effective, “the principal
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must know of the agent’s act and, with full knowledge of all the material facts,
accept and retain the benefits of the unauthorized act.” Bresnahan, 230 Ga. App.
at 392.
The record contains no evidence that SNC made any representation to
either Pope or RMI regarding Fisher’s authority to invite RMI to invest in CNI. In
fact, Plaintiffs have produced no evidence that SNC even knew these Plaintiffs
existed. Neither Pope nor RMI maintained an investment account with SNC. The
only connection between the parties is Fisher. Plaintiffs contend that SNC vested
Fisher with apparent authority on the premise of Fisher’s employment as a broker
for SNC and the issuance of an SNC e-mail account and telephone number that
Fisher allegedly used on occasion to contact Plaintiffs. Plaintiffs further state that
in deciding to invest in CNI, RMI relied on Fisher’s status as an SNC employee.
Plaintiffs’ conduct and admissions belie those assertions.
In his deposition, Pope testified that Fisher contacted him about RMI
making an investment upon a recommendation received from Hugh Roberts, who
served as an accountant for both Pope and RMI. Pope testified during his
deposition that Fisher identified himself as an employee of SNC. He called from
what Pope believed to be an SNC telephone line and e-mailed Pope on at least
one occasion from an SNC e-mail address. However, neither Pope nor RMI ever
established an account with SNC, signed any form of contract with SNC, or
interacted with any other employee of SNC. Pope once asked Fisher whether
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RMI needed to open an SNC account. Fisher told him no, and there is no
evidence that Pope inquired further. The purchase agreement signed by Pope on
behalf of RMI was entered into exclusively between RMI and CNI, with no
mention of SNC. SNC provided no documentation to RMI or Pope about CNI. All
documentation about CNI originated through CNI and conversations and e-mail
exchanges with CNI employees. While Fisher facilitated the transactions with
RMI and CNI, Plaintiffs point to no evidence that RMI relied on any investment
advice from Fisher other than his original pitch about CNI. Even when Pope
began to doubt the soundness of RMI’s investment in CNI, Pope agreed to sign a
second note for $75,000 without receiving further advice from any party. In short,
Pope ultimately engaged in investment decision making on behalf of RMI based
on instinct and on the recommendation of Hugh Roberts, not on any
representation by SNC. See Fortune, 219 Ga. App. at 370 (no apparent authority
where evidence showed plaintiffs invested based on reputation of the insurance
agent in their common church and the agent’s representation as to his authority).
The parties do not dispute that RMI ultimately invested and lost $ 345,000
in its dealings with CNI. However, Plaintiffs have presented no evidence linking
SNC or any representation made by SNC to that loss. SNC did not vest Fisher
with any authority, actual or apparent, to solicit outside investment in CNI.
Additionally, SNC received no benefit from the investment and did not profit in
any way from Fisher’s unauthorized activity such that SNC can be said to have
13

ratified Fisher’s actions. Accordingly, the Court grants Defendant’s motion for
summary judgment on the issue of fraud.
B.

Negligence and Negligence Per Se

Plaintiffs next set forth a claim that Defendant breached its duty to exercise
reasonable care in investigating CNI, offering investment advice, and monitoring
the health and viability of the company. (Doc. 27). Plaintiffs additionally assert
that SNC owed them a duty to adequately supervise, train, and monitor the
actions of its agent, Fisher. (Doc. 27). Defendant’s failure to exercise reasonable
care, therefore, was the proximate cause of Plaintiffs’ ultimate financial loss.
A negligence claim is predicated on a finding that the actor owes a duty to
the complaining party. CSX Transportation, Inc. v. Williams, 278 Ga. 888, 889
(2005); Oswell v. Nixon, 275 Ga. App. 205, 207 (2005) (“An essential element of
a tort claim is the existence of a duty owed by the defendant to the purported
plaintiff.”) Stock brokers must exercise good faith in executing their duty to their
clients to make known all material facts concerning a transaction. Minor v. E.F.
Hutton & Co., 200 Ga. App. 645, 647 (1991); see also Glisson v. Freeman, 243
Ga. App. 92, 99 (2000). However, that duty only “extends to those persons, or
the limited class of persons who the professional is actually aware will rely upon
the information prepared.” Badishce Corp. v. Caylor, 257 Ga. 131, 133 (1987).
An employer is not liable for the tortious acts of an employee where the
employee veers outside the scope of his employment. Drury v. Harris Ventures,
14

Inc., 302 Ga. App. 545, 546-47 (2010) (held that summary judgment is
appropriate where agent on a private enterprise). “The question of whether the
servant at the time of an injury to another was acting in the prosecution of his
master’s business and in the scope of his employment is for determination by the
jury, except in plain and indisputable cases.” Id.
The Court finds that summary judgment in favor of SNC on issue of
negligence is appropriate as to Plaintiffs Pope and RMI. Plaintiffs have failed to
establish that SNC owes a duty to exercise any degree of care toward nonclients. As discussed above, the Court finds the evidence indisputable that Fisher
was acting outside the scope of his employment when he approached RMI about
investing in CNI. Thus, Plaintiffs’ negligence claim fails as a matter of law.
B.

Punitive Damages

Under Georgia law, punitive damages may be awarded “in such tort
actions in which it is proven by clear and convincing evidence that the
defendant’s actions showed wilful misconduct, malice, fraud, wantoness,
oppression, or that entire want of care which would raise the presumption of
conscious indifference to consequences.” O.C.G.A. § 51-12-5.1. Punitive
damages cannot be awarded when there are no actual damages. Morris v.
Pugmire Lincoln Mercury, Inc., 283 Ga. App. 238, 241 (2007). The Court already
determined that Plaintiffs’ fraud claims fail as a matter of law. Further, there is no
evidence that SNC acted in any manner toward these two Plaintiffs, who were
15

not clients of SNC and who were impacted solely by an employee who violated
the brokerage firm’s policies and strayed from the course of his employment.
Since Plaintiffs cannot recover for their underlying tort claims, their prayer for
punitive damages likewise must fail.
IV.

CONCLUSION
For the reasons discussed above, Defendant’s Motion for Summary

Judgment (Doc. 58) for all claims raised by Plaintiffs Pope and RMI is granted.
SO ORDERED this 5th day of June, 2014.

s/ Hugh Lawson______________
HUGH LAWSON, SENIOR JUDGE

aks

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