Cromeans v. Morgan Keegan & Company, Inc. et al

Filing 395

ORDER. Third-Party Defendant Cunningham, Vogel & Rost, P.C. ("CVR")'s motion to dismiss the Third-Party Complaint of Morgan Keegan & Company, Inc. ("Morgan Keegan"), 194 , is GRANTED. Morgan Keegan's motion for leave to file an Amended Third-Party Complaint against CVR, 351 , is DENIED, as futile. Morgan Keegan's Third-Party Complaint against CVR is hereby DISMISSED. Signed on 5/13/2014 by District Judge Nanette K. Laughrey. This is a TEXT ONLY ENTRY. No document is attached. (Weber, Alex)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
CENTRAL DIVISION

JOHN W. CROMEANS., JR., et al.,

)
)
Plaintiffs,
)
)
v.
)
)
MORGAN KEEGAN & CO., INC., et al., )
)
Defendants/Third-Party
)
Plaintiff,
)
)
v.
)
)
CUNNINGHAM, VOGEL & ROST, P.C., )
et al.,
)
)
Third-Party Defendants.
)

No. 2:12-CV-04269-NKL

ORDER
Pending before the Court are Third-Party Defendant Cunningham, Vogel & Rost,
P.C. (“CVR”)’s motion to dismiss the Third-Party Complaint of Morgan Keegan &
Company, Inc. (“Morgan Keegan”), [Doc. # 194], and Morgan Keegan’s motion for
leave to file an Amended Third-Party Complaint against CVR, [Doc. # 351]. For the
reasons set forth below, CVR’s motion to dismiss is GRANTED, and Morgan Keegan’s
motion for leave to amend is DENIED, as futile.
I.

Background
On July 15, 2010, the City of Moberly, Missouri (“Moberly”) approved the

issuance of $39 million in municipal bonds by the Industrial Development Authority of
1

the City of Moberly (“the Authority”). The bonds were issued by the Authority to
finance a project that included acquiring and improving a 33 acre parcel of land, as well
as constructing and equipping a sucralose manufacturing and processing facility, all
located within Moberly. CVR served as counsel to both Moberly and the Authority in
connection with the bond issue, and Morgan Keegan served as the underwriter for the
bonds. Approximately 140 persons or entities purchased the bonds. Mamtek failed,
however, and the bonds are now alleged to be worthless.
This putative class action was filed on behalf of the bond purchasers (collectively,
“the Bondholders”) against Morgan Keegan, among others. The claims of the putative
class are based, in substantial part, on alleged material misrepresentations and omissions
contained in the Official Offering Statement published in connection with the sale of the
bonds. The putative class alleges that Morgan Keegan, as underwriter, prepared and
distributed the Official Statement and had a duty to conduct a due diligence investigation
as to the accuracy of its contents. Morgan Keegan subsequently filed a Third-Party
Complaint against CVR, seeking indemnity and contribution from CVR in the event that
Morgan Keegan is found liable to the Bondholders for any misrepresentations in the
Official Statement.
On March 11, 2014, the Court heard oral argument on CVR’s motion to dismiss
and ordered the parties to submit supplemental briefing. On April 9, 2014, Morgan
Keegan moved for leave to file an Amended Third-Party Complaint, and attached its
proposed pleading. CVR opposes the amendment on the ground that the proposed

2

Amended Third-Party Complaint does not cure the deficiencies in Morgan Keegan’s
claims and thus the motion to amend should be denied as futile.
II.

Discussion
The primary, and ultimately dispositive, question presented on CVR’s motion to

dismiss is whether Morgan Keegan has plausibly alleged that CVR is liable directly to the
Bondholders for the conduct that is the basis of Morgan Keegan’s claims for indemnity
and contribution. While there is some dispute as to whether CVR’s alleged liability to
the Bondholders must be identical to Morgan Keegan’s, there is no question that Morgan
Keegan’s claims for indemnity and contribution require some showing that CVR is
originally liable to the Bondholders. See, e.g., Travelers Prop. Cas. Co. of Am. v.
Manitowoc Co., Inc., 389 S.W.3d 174, 179 (Mo. 2013) (“[T]o maintain an action for
contribution, . . . both the party seeking contribution and the defendant against whom
contribution is sought must be . . . tortfeasor[s], originally liable to the plaintiff-injured
party.” (quotation omitted)); Missouri Pac. R.R. Co. v. Whitehead & Kales Co., 566
S.W.2d 466, 468 (Mo. 1978) (“[T]he right to [] indemnity presupposes actionable
negligence of both parties toward a third party.”); Hance v. Altom, 326 S.W.3d 133, 136
(Mo. Ct. App. 2010) (“A prerequisite for a contribution claim to be valid is that both the
party seeking contribution and the defendant against whom contribution is sought must
be tort-feasors that are originally liable to the plaintiff.”).
CVR argues that Morgan Keegan’s Third-Party Complaint must be dismissed, and
its motion for leave to file an Amended Third-Party Complaint must be denied, because
Morgan Keegan does not, and cannot, allege that CVR is liable directly to the
3

Bondholders. In response, Morgan Keegan has been less than clear as to the basis of
CVR’s purported liability to the Bondholders. Although Morgan Keegan argues in its
opposition brief that it “alleges that CVR is liable for the [Bondholders’] purported
damages throughout its pleading,” Morgan Keegan supports this statement with a string
of quotations from its Third-Party Complaint that simply state that CVR is liable to the
Bondholders. [Doc. # 227 at 13]. These bare legal conclusions, however, are neither
entitled to the presumption of truth nor sufficient to withstand CVR’s motion to dismiss.
See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
Nonetheless, considering all of its submissions on this issue and giving Morgan
Keegan the benefit of the doubt, it appears that Morgan Keegan is claiming that CVR is
liable to the Bondholders for misrepresentations, express or by omission, that CVR
allegedly made to Morgan Keegan. E.g., [Docs. ## 156 at 6-10; 227 at 6, 10, 16-17; 333
at 4-6]. Morgan Keegan has also argued that CVR owed a general duty to the
Bondholders to see that the Official Statement contained accurate information. E.g.,
[Docs. ## 156 at 8, 10; 227 at 12]. The latter claim is made most explicitly, and figures
prominently, in Morgan Keegan’s proposed Amended Third-Party Complaint. E.g.,
[Doc. # 351-1 at 9]. Each of these theories is addressed, in turn, below.
A.

Misrepresentation

Morgan Keegan’s claims for contribution and indemnity are based, in substantial
part, on the allegation that CVR negligently or intentionally provided Morgan Keegan
with the same information that was ultimately included in the Official Statement and now
forms the basis of the Bondholders’ claims. See, e.g., [Docs. ## 156 at 8; 351-1 at 114

12]. By alleging that CVR negligently or intentionally provided false information,
Morgan Keegan appears to premise its claims on both negligent and fraudulent
misrepresentation. These are two distinct causes of action that require proof of different
elements, see, e.g., Renaissance Leasing, LLC v. Vermeer Mfg. Co., 322 S.W.3d 112,
131-32, 134 (Mo. 2010), and thus must be addressed separately.
1.

Negligent Misrepresentation

To state a claim for negligent misrepresentation, the plaintiff must allege that:
(1) the speaker supplied information in the course of his business; (2)
because of the speaker’s failure to exercise reasonable care, the information
was false; (3) the information was intentionally provided by the speaker for
the guidance of limited persons in a particular business transaction; (4) the
hearer justifiably relied on the information; and (5) due to the hearer’s
reliance on the information, the hearer suffered a pecuniary loss.
Renaissance Leasing, LLC, 322 S.W.3d at 134. Although liability can extend to indirect
recipients of a negligent misrepresentation, such as the Bondholders in the context of
Morgan Keegan’s claims against CVR, Missouri courts limit this liability “to the ‘narrow
confines’ of § 552 of the Restatement (Second) of Torts.” MidAmerican Bank & Trust
Co. v. Harrison, 851 S.W.2d 563, 564 (Mo. Ct. App. 1993) (quoting Mark Twain Plaza
Bank v. Lowell H. Listrom & Co., Inc., 714 S.W.2d 859, 865 (Mo. Ct. App. 1986)).
Under this section, liability does not extend “to every person who ultimately may
be aware of the misstatement,” Chubb Grp. of Ins. Cos. v. C.F. Murphy & Assocs., Inc.,
656 S.W.2d 766, 784 (Mo. Ct. App. 1983), or even “to every reasonably foreseeable
consumer of financial information,” MidAmerican Bank & Trust Co., 851 S.W.2d at 565.
Rather, section 552 limits liability to losses suffered:
5

(a) by the person or one of a limited group of persons for whose benefit and
guidance [the speaker] intends to supply the information or knows that the
recipient intends to supply it; and
(b) through reliance upon it in a transaction that [the speaker] intends the
information to influence or knows that the recipient so intends or in a
substantially similar transaction.
Restatement (Second) of Torts § 552(2) (1977).
Morgan Keegan’s Third-Party Complaint and proposed Amended Third-Party
Complaint never specifically allege that CVR supplied information with the knowledge
or intent that it would be provided to the prospective bond purchasers and influence their
investment decision. The closest Morgan Keegan’s pleadings come to such an allegation
is the bare assertion that CVR “was aware that Morgan Keegan, as the bond underwriter,
would rely on the investigations and representations of the City, . . . the Authority,
CV&R and others as Morgan Keegan fulfilled its responsibilities as underwriter.” [Doc.
# 351-1]. To the extent that this conclusory allegation can be construed as claiming that
CVR knew Morgan Keegan intended to supply the information it received from CVR
directly to the Bondholders to guide their purchase decision, it is, in the context of
Morgan Keegan’s other allegations, insufficient to state a plausible claim.
The only specific representation made by CVR identified in either Morgan
Keegan’s original Third-Party Complaint or proposed Amended Third-Party Complaint is
an e-mail dated May 20, 2010 from Tom Cunningham of CVR to Reena Gordon,
Mamtek’s COO. 1 See [Docs. ## 156 at 6; 196-1 at 1; 351-1 at 10]. In this e-mail,

1

Because this correspondence is specifically described in Morgan Keegan’s Third-Party
Complaint and, as the only specific misrepresentation identified therein, is central to Morgan

6

Cunningham wrote to inform Gordon that representatives from Morgan Keegan would be
contacting her “to initiate their due diligence process . . . and to assure that [Cunningham
had] correctly conveyed the sum and substance of [Mamtek] in the context of describing
the proposed funding.” [Doc. # 196-1 at 1].
It is apparent from this e-mail that CVR did not know that Morgan Keegan would
simply relay CVR’s representations about Mamtek to the Bondholders. Rather, it is clear
that CVR understood Morgan Keegan was conducting its own due diligence review of
Mamtek that involved independently verifying any representations CVR had made about
Mamtek at the start of this process. This is consistent with Morgan Keegan’s allegation
that it “undertook its own due diligence review of Mamtek.” [Docs. ## 156 at 6; 351-1 at
9]. The fact that this e-mail does not support the proposition that CVR knew the
information it supplied to Morgan Keegan would be relayed to the Bondholders and
influence their purchase decision is particularly significant, considering that Morgan
Keegan’s pleadings do not contain any other well-pled factual allegations that might
warrant a contrary finding.
Morgan Keegan’s remaining allegations fail to show, and are in fact inconsistent
with, a claim that CVR is liable to the Bondholders for negligent misrepresentation. In
particular, Morgan Keegan alleges that CVR served as counsel to Moberly, the Authority
and the Moberly Area Economic Development Corporation (“EDC”), as well as financial

Keegan’s claims, the Court may consider this document without converting CVR’s motion to
dismiss to a motion for summary judgment. See McCready v. eBay, Inc., 453 F.3d 882, 891 (7th
Cir. 2006) (“[D]ocuments attached to a motion to dismiss are considered part of the pleadings if
they are referred to in the plaintiff’s complaint and are central to his claim.” (quotation omitted)).

7

advisor to Moberly, and that CVR acted as an agent of these entities at all relevant times.
[Docs. ## 156 at 2; 351-1 at 2]. Morgan Keegan then alleges that “the Authority was
making an independent analysis of the pros and cons of the proposed transaction,” which
CVR undertook “on behalf of the Authority.” [Doc. # 351-1 at 4-5]; see also [Doc. # 156
at 4]. Morgan Keegan also alleges that CVR received information that it shared “with the
City, the EDC and the Authority,” but not Morgan Keegan. [Doc. # 351-1 at 6]. Finally,
Morgan Keegan alleges that CVR conducted an independent investigation of Mamtek
and sought various assurances from Mamtek’s intellectual property counsel without
informing Morgan Keegan of these efforts and “provided some (though not all)
information from [its investigation of Mamtek] to Morgan Keegan.” [Doc. # 351-1 at 67, 8]; see also [Doc. # 156 at 6].
These allegations belie any inference that CVR undertook the efforts described
above with the knowledge or intent that the results would be supplied directly, and
without further verification, to prospective bond purchasers to guide their purchase
decision. Morgan Keegan specifically alleges that CVR undertook its independent
analysis of Mamtek on behalf of its client, the Authority, and provided the information it
obtained to its clients. There is simply no basis for inferring that CVR, in performing an
investigation and seeking various assurances on behalf of its clients as described in
Morgan Keegan’s pleadings, had any purpose other than protecting the interests of its
clients, let alone knowledge or intent that the results of an investigation it performed for
the benefit of its clients would be given to and relied upon by the bond purchasers. To
the extent that Morgan Keegan’s allegations suggest that CVR could have reasonably
8

foreseen that the information it provided would be used in this manner, this is insufficient
to expose CVR to liability to the Bondholders for negligent misrepresentation. See, e.g.,
MidAmerican Bank & Trust Co., 851 S.W.2d at 565. Absent any allegation that CVR
knew the information would be relayed to the Bondholders and influence their purchase
decision, Morgan Keegan has failed to allege that CVR is liable to the Bondholders under
a theory of negligent misrepresentation.
Rather than addressing CVR’s relationship to the Bondholders, Morgan Keegan’s
allegations and arguments focus on its purported reliance on CVR’s representations in
fulfilling its responsibilities as underwriter. E.g., [Docs. ## 156 at 7; 351-1 at 10; 227 at
16-17]. While this may or may not be relevant in the context of a direct claim by Morgan
Keegan against CVR, it fails to establish the connection between CVR and the
Bondholders that is necessary for Morgan Keegan to state a claim for indemnity or
contribution. Although Morgan Keegan alleges that it relied on CVR’s representations
and, as a result, communicated information provided by CVR to the Bondholders, this
reflects an independent decision on the part of Morgan Keegan. In other words, the
allegation that Morgan Keegan elected to convey information provided by CVR to the
prospective bond purchasers is not the same as an allegation that CVR knew Morgan
Keegan would relay this information to this class of individuals to guide them in this
transaction. Consequently, regardless of whether Morgan Keegan’s allegations would
support an actionable, direct claim by Morgan Keegan against CVR, Morgan Keegan has
failed to state a claim for contribution or indemnity based on CVR’s allegedly negligent
misrepresentations.
9

2.

Fraudulent Misrepresentation

Morgan Keegan alternatively alleges that CVR intentionally provided the same
inaccurate information to Morgan Keegan that is now the basis for the Bondholders’
claims. Morgan Keegan thus appears to claim that CVR is liable to the Bondholders for
fraudulent misrepresentation.
The elements of fraudulent misrepresentation are: (1) a representation; (2)
its falsity; (3) its materiality; (4) the speaker’s knowledge of its falsity or
ignorance of its truth; (5) the speaker’s intent that it should be acted on by
the person in the manner reasonably contemplated; (6) the hearer’s
ignorance of the falsity of the representation; (7) the hearer’s reliance on
the representation being true; (8) the hearer’s right to rely thereon; and (9)
the hearer’s consequent and proximately caused injury.
Renaissance Leasing, LLC, 322 S.W.3d at 131-32. Liability to indirect recipients of a
fraudulent misrepresentation is less restricted than in cases involving mere negligence,
due to the heightened culpability that arises from the speaker’s requisite intent to deceive.
See Mark Twain Plaza Bank, 714 S.W.2d at 865; Restatement (Second) of Torts § 552
cmt. a. In this context, Missouri courts have adopted and applied the rule as stated in the
Restatement (Second) of Torts § 533. Wagner v. Mortg. Info. Servs., Inc., 261 S.W.3d
625, 640 (Mo. Ct. App. 2008); Freeman v. Myers, 774 S.W.2d 892, 894 (Mo. Ct. App.
1989). Under this section, a speaker may be liable to indirect recipients of a fraudulent
misrepresentation if the speaker “intends or has reason to expect that its terms will be
repeated or its substance communicated to the other, and that it will influence his conduct
in the transaction or type of transaction involved.” Restatement (Second) of Torts § 533.
Although fraudulent misrepresentation is less demanding with respect to the
speaker’s state of mind as to indirect recipients of the representation, it is also a fraud
10

claim and therefore subject to the heightened pleading standards of Rule 9(b). Freitas v.
Wells Fargo Home Mortgage, Inc., 703 F.3d 436, 439 (8th Cir. 2013). Consequently, to
state a claim for fraudulent misrepresentation, “[t]he plaintiff must plead such matters as
the time, place and contents of false representations, as well as the identity of the person
making the misrepresentation and what was obtained or given up thereby.” Id. (quotation
omitted). Put differently, “Rule 9(b) requires plaintiffs to plead the who, what, when,
where, and how,” of the alleged fraud. Id. (quotation omitted).
The only specific representation made by CVR identified in Morgan Keegan’s
pleadings is the May 20, 2010 e-mail from Tom Cunningham of CVR to Mamtek’s COO.
However, for the same reasons discussed above, this e-mail does not support, and in fact
is contrary to, the proposition that CVR had some reason to expect that the information it
provided to Morgan Keegan would be relayed directly to the bond purchasers and guide
their investment decision. Rather, this e-mail shows that CVR believed Morgan Keegan
was conducting its own due diligence review that involved verifying the accuracy of what
CVR had previously conveyed. Consequently, there is no basis for concluding from this
e-mail that CVR may be liable to the Bondholders for fraudulent misrepresentation.
Morgan Keegan otherwise fails to identify any specific representations made by
CVR, and instead relies on broad allegations that CVR investigated Mamtek and
“provided some (though not all) information from those investigations to Morgan
Keegan.” [Doc. # 351-1 at 8]; see also [Doc. # 156 at 6] (“CV&R undertook
investigations . . . and . . . provided some information from those investigations to

11

Morgan Keegan.”). These vague statements do not identify the what, when, where and
how of the alleged fraud, and thus fail state a claim under Rule 9(b).
Finally, Morgan Keegan’s proposed Amended Third-Party Complaint is decidedly
more centered on allegations that CVR failed to disclose to Morgan Keegan information
it acquired through the course of its investigation. See [Doc. # 351-1 at 6-9]. To the
extent that Morgan Keegan claims CVR is liable to the Bondholders for fraudulent
omission, this claim fails for the same reason as Morgan Keegan’s claim for fraudulent
misrepresentation. Under Missouri law, fraudulent omission is not an independent tort,
but rather “[a] variation of fraudulent misrepresentation.” Moses.com Sec., Inc. v.
Comprehensive Software Sys., Inc., 406 F.3d 1052, 1064 (8th Cir. 2005); see also
Gannon Joint Venture Ltd. P’ship v. Masonite Corp., No. 4:07CV1242 JCH, 2008 WL
2074108, at *4 (E.D. Mo. May 14, 2008). This variation provides that “ ‘[s]ilence or
nondisclosure of a material fact, when used as an inducement to another, can be an act of
fraud[,]’ but only when an individual has a duty to speak.” Wild v. Trans World Airlines,
Inc., 14 S.W.3d 166, 167 (Mo. Ct. App. 2000) (quoting Andes v. Albano, 853 S.W.2d
936, 943 (Mo. 1993)) (emphasis added).
Consequently, Morgan Keegan fails to state a claim for fraudulent omission
because Morgan Keegan has not alleged that CVR omitted any information with the
intent or expectation that its omission would influence the bond purchasers’ investment
decision. As an omission of a material fact only satisfies the first element of fraudulent
misrepresentation, and thus does not relieve a party from establishing the other essential
elements, the absence of a plausible allegation that CVR expected or intended any
12

omission to influence the bond purchasers’ investment decision is fatal to Morgan
Keegan’s claim.
In addition, as discussed above, Morgan Keegan specifically alleges that CVR
acquired the omitted information through investigations performed on behalf of its clients
and that CVR provided the results of these investigations to its clients. Morgan Keegan
has not cited any authority suggesting that an attorney has a legal duty to disclose to
third-parties information revealed through an investigation performed on behalf of a
client, absent some intent by the attorney to influence a third-party’s conduct in a
transaction. Furthermore, a duty to speak so broadly defined, that is not limited by the
requirement of intent or reason to expect to influence a third-party, would appear contrary
to basic principles of the attorney-client relationship. See, e.g., Fox v. White, 215 S.W.3d
257, 260 (Mo. Ct. App. 2007) (“The attorney, with limited exceptions,[] owes no
actionable duty to strangers or non-parties to the attorney-client relationship in the way
legal responsibilities are performed.”). Thus, Morgan Keegan has failed to plausibly
allege that CVR is liable to the Bondholders for fraudulent misrepresentation, either
indirect or by omission.
B.

Whether CVR Owed a Duty to the Bondholders to Ensure the
Accuracy of the Official Statement

At oral argument, Morgan Keegan did not focus on its misrepresentation claims.
Instead, it relied primarily on the theory that CVR had ultimate authority over the
contents of the Official Statement and, as a result, had a duty to the Bondholders to
ensure the accuracy of that document. Based on Morgan Keegan’s representations during
13

that hearing, the Court requested supplemental briefing on the nature and origin of this
duty.
When pressed to provide some authority for the existence of this duty, however,
Morgan Keegan began by revising the question posed by the Court and seemingly
reverted to a theory of misrepresentation. Specifically, Morgan Keegan elected, at the
outset of its supplemental brief, to “assume[] that the Court seeks case law that shows
that attorneys who assume broader roles in investigating circumstances underlying a bond
offering and preparing offering documents can be liable to persons or entities who relied
on the information provided by the attorney when the attorney knows, or should know,
that the information to be contained in the [Official Statement] is materially misleading.”
[Doc. # 333 at 2]; see also [Doc. # 333 at 3] (“Morgan Keegan alleges that CVR
intentionally or negligently misrepresented facts which now form the basis of [the
Bondholders’] intentional fraud, negligence, and Missouri Securities Act claims, and
Morgan Keegan’s third-party petition.”).
The authorities presented by Morgan Keegan in its supplemental brief appear to
confirm that Morgan Keegan was relying on a theory of misrepresentation. The only
potentially relevant decisions cited by Morgan Keegan in its brief concerned fraudulent
or negligent misrepresentation, and those cases specifically discussed the element of
influencing another party’s conduct, an allegation that is not present in Morgan Keegan’s
Third-Party Complaints against CVR. See Mehaffy, Rider, Windholz & Wilson v. Cent.
Bank Denver, N.A., 892 P.2d 230, 235-37 (Colo. 1995) (“[B]y issuing legal opinion
letters for the purpose of inducing respondent to purchase the . . . Bonds, petitioners may
14

be liable to respondent for negligent misrepresentation.” (emphasis added)); Haberman v.
Wash. Pub. Power Supply Sys., 744 P.2d 1032, 1067-68 (Wash. 1987) (“Conceivably, the
professionals could have intended that intervenors, as institutional investors, benefit from
the information so as to induce them to purchase bonds, . . . .” (emphases added)); see
also Bennett v. Durham, 683 F.3d 734, 738 (6th Cir. 2012) (“[A]n attorney who
knowingly drafted false or misleading documents would face other problems. He might
be liable for fraud, . . . .”). Accordingly, these cases do not support the proposition that
CVR owed any general duty to the Bondholders to ensure the accuracy of the Official
Statement.
The remaining cases cited by Morgan Keegan in its supplemental brief also
provide no support for Morgan Keegan’s ultimate authority theory or the proposition that
CVR had any independent duty to ensure the accuracy of the Official Statement. The
cited decisions all involved the interpretation of federal securities law, for instance
whether the defendant was sufficiently involved in the sale of or offer to sell a security to
be considered a seller within the meaning of the Securities Act of 1933. See Wasson v.
S.E.C., 558 F.2d 879, 885-86 (8th Cir. 1977); see also Cronin v. Midwestern Okla. Dev.
Auth., 619 F.2d 856, 862 (10th Cir. 1980), (considering the theoretical reach of aider and
abettor liability under federal securities law), implied overruling recognized by Anixter v.
Home-Stake Prod. Co., 77 F.3d 1215 (10th Cir. 1996). Furthermore, in several instances,
Morgan Keegan simply quotes a court’s generic description of a plaintiff’s allegations in
a decision that did not otherwise consider, explain, or endorse the legal or factual basis of
the claim. See T.J. Raney & Sons, Inc. v. Fort Cobb, Okla. Irrigation Fuel Auth., 717
15

F.2d 1330, 1333 (10th Cir. 1983); Rosenthal v. Dean Witter Reynolds, Inc., 908 P.2d
1095, 1103 (Colo. 1995); Sec. Bank & Trust Co. of Ponca City, Okla. v. Fabricating,
Inc., 673 S.W.2d 860, 861-62 (Tenn. 1983). No ruling or reasoning in any of these
decisions provides support for the existence of a general duty owed by CVR to the
Bondholders to ensure the accuracy of the contents of the Official Statement.
Nonetheless, Morgan Keegan maintains that it has alleged that “CVR conducted
its own investigation with respect to the statements that [the Bondholders] assert are
materially false or misleading in the Official Statement,” that “CVR acted negligently,”
and that “[t]his is all that is required to state a claim for contribution.” [Doc. # 227 at 15].
Negligence alone, however, is not sufficient to establish CVR’s liability to the
Bondholders. CVR’s alleged negligence can only render it liable to the Bondholders if
its negligent conduct breached a duty that CVR owed to the Bondholders. See, e.g.,
Blevins v. Am. Family Mut. Ins. Co., 423 S.W.3d 837 (Mo. Ct. App. 2014).
Morgan Keegan argues that CVR “had a foreseeable duty to subsequent
purchasers to ensure” the accuracy of the Official Statement and that this “is precisely the
same basis for Plaintiffs’ assertions of liability against Morgan Keegan.” [Doc. # 227 at
12]. The critical difference, however, is that CVR is not alleged to have made any
material misrepresentations or supplied any false information to the Bondholders for the
purpose of guiding their decision to purchase the bonds. Cf. [Doc. # 41 at 19] (“The
statement that Morgan Keegan reasonably believed the information contained in the
Official Offering Statement was accurate and complete . . . was supplied by Morgan
Keegan in the course of business and intentionally provided as a guide in business
16

transactions.” (emphasis added)). Similarly, although substantial authority supports the
proposition that the underwriter owes such a duty to prospective investors, see [Doc. # 41
at 8-9] (collecting cases), Morgan Keegan has not presented any authority suggesting that
bond counsel owes a similar duty to this class of persons, even though the Court gave
Morgan Keegan additional time to supply that authority. Nor has the Court been able to
identify any cause of action based on Morgan Keegan’s ultimate authority theory.
The alleged existence of this duty also lacks a well-pled factual basis. With
respect to the CVR’s purported ultimate authority over the Official Statement, Morgan
Keegan’s Third-Party Complaint contains only the bare assertion that “[a]s bond counsel
and financial advisor[2] to these entities [Moberly and the Authority], CV&R directly or
indirectly controlled the representations made in the [] Official Statement.” [Doc. # 156
at 8]. Morgan Keegan’s proposed Amended Third-Party Complaint adds the following,
similarly conclusory assertion:
CV&R assumed responsibility for all the contents of the agreements and
the [] Official Statement. No representation regarding Moberly, the IDA,
or Mamtek would have been included in the [] Official Statement without
approval from CV&R. As such, CV&R had ultimate authority over the
contents of the Official Statement.
[Doc. # 351 at 9]. But these conclusory allegations couched as factual allegations are
contrary to facts actually included in Morgan Keegan’s pleadings, such as Morgan
Keegan’s reference to the following two paragraphs of the Official Statement:

2

Although Morgan Keegan has repeatedly argued and cited some authority to support the
proposition that CVR, as financial advisor to Moberly, owed a fiduciary duty Moberly, e.g.,
[Doc. # 227 at 12 n.6], Morgan Keegan has never drawn any connection between this duty to
Moberly and CVR’s elusive duty to the Bondholders.

17

The Bonds are offered when, as, and if issued by the Authority, subject to
the approval of legality by [CVR] . . . . Certain legal matters will be passed
upon for the Authority by [CVR].
***
Legal matters incident to the authorization, issuance, and sale of the bonds
are subject to the approving legal opinion of [CVR] . . . , whose approving
opinion will be delivered with the Bonds.
[Docs. ## 156 at 7; 351-1 at 10-11]. This language does not suggest that CVR was
responsible for approving or validating all of the factual representations set forth in the
Official Statement. Rather, these provisions show that CVR provided only a legal
opinion concerning the authorization, issuance, and sale of the bonds, which is consistent
with the provision of the letter agreement executed between Morgan Keegan and the
Authority that is also referenced in Morgan Keegan’s pleadings. See [Docs. ## 156 at 4;
351-1 at 5]. Consequently, Morgan Keegan has presented no basis in fact or law that
suggests CVR, by providing this type of approving opinion, assumed full responsibility
for all of the representations made in the offering documents. See also [Doc. # 196-1 at
1] (e-mail from Tom Cunningham of CVR to Mamtek’s COO, dated May 20, 2010)
Finally, the proposed Amended Third-Party Complaint also makes the allegation
that CVR “made and/or validated the statements set forth in the Official Statement
regarding Mamtek’s sucralose plant in China . . . .” [Doc. # 351-1 at 6]. This statement
directly conflicts with Morgan Keegan’s adamant assertion that “the representations in
the [] Official Statement were the representations of the Authority,” [Docs. ## 156 at5;
351-1 at 8]. Morgan Keegan never alleges that CVR had a role in drafting the Official
Statement, and in fact alleges that CVR “anticipated that the underwriter [Morgan
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Keegan] would ‘Circulate First Draft of POS [Preliminary Official Statement].” [Docs.
## 156 at 4; 351-1 at 5]. Furthermore, Morgan Keegan’s suggestion that CVR is
somehow responsible for the representations of its client, the Authority, is contrary to
basic principles of the attorney-client relationship. See Roth v. La Societe Anonyme
Turbomeca France, 120 S.W.3d 764, 776 (Mo. Ct. App. 2003) (refusing to impute to an
attorney his client’s representations made in response to interrogatories and ruling,
“Although an attorney is an agent of his or her client and acts as the client’s alter ego, the
converse is not true.”).
In sum, Morgan Keegan’s conclusory assertion that CVR owed a duty to the
Bondholders to ensure the accuracy of the entire Official Statement, whether premised on
CVR’s purported ultimate authority over this document or otherwise, lacks a plausible
basis in fact or law. Accordingly, Morgan Keegan’s claims for contribution and
indemnity, to the extent that they are premised on this theory, must be dismissed.
C.

Missouri’s Blue Sky Law

Morgan Keegan also argues that CVR is jointly and severally liable for the
Bondholders’ claims under the Missouri Blue Sky Law. Specifically, Morgan Keegan
relies on the provision of this statute establishing joint and several liability as to any
“individual who is an employee of or associated with a person liable under [the Blue Sky
Law] and who materially aids the conduct giving rise to the liability.” Mo. Rev. Stat. §
409.5-509(g)(3). Morgan Keegan maintains that it has stated a claim under this provision
because it “has pled that CVR is associated with the Issuer [the Authority] and that it
materially aided the Issuer in investigating Mamtek and in preparing the Official
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Statement.” [Doc. # 227 at 18]. CVR responds that this provision is not applicable to
CVR in the context of this case because the Authority “did not sell the Bonds to the
Bondholders” and is thus “not a ‘person liable’ under the statutes.” [Doc. # 242 at 10].
Rather, Morgan Keegan purchased the bonds from the Authority, and then sold the bonds
to the Bondholders.
Morgan Keegan has not attempted to explain how, or provided any authority that
suggests, the Authority, as a remote seller, could be liable to the Bondholders under the
Blue Sky Law, such that derivative liability might attach to CVR based on its relationship
with the Authority. The only case on point cited by either party held that, under federal
securities law, “[t]o be liable as a seller, the defendant must be the ‘buyer’s immediate
seller; remote purchasers are precluded from bringing actions against remote sellers.
Thus, a buyer cannot recover against his seller’s seller.’ ” In re WorldCom, Inc. Sec.
Litig., 346 F. Supp. 2d 628, 659 (S.D.N.Y. 2004) (quoting Pinter v. Dahl, 486 U.S. 622,
644 n.21 (1988)). As Morgan Keegan acknowledges that federal law “is often analogized
to state securities laws,” [Doc. 333 at 4], and provides no authority interpreting
Missouri’s Blue Sky Law in a different manner, there is no basis for finding that the
Authority could be liable to the Bondholders under the Blue Sky Law.
Consequently, Morgan Keegan has failed to show that CVR can be held jointly
and severally liable on the claims of the Bondholders based on its association with the
Authority. To the extent that Morgan Keegan’s proposed Amended Third-Party
Complaint attempts to state a claim under section 409.5-509(g)(1), which establishes
joint and several liability as to any “person that directly or indirectly controls a person
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liable,” compare [Doc. # 351-1 at 351-1 at 13] (“CV&R directly or indirectly controlled
the representations made in the [] Official Statement.”), this claim fails for the same
reason. In addition, for the reasons discussed above, Morgan Keegan has not plausibly
alleged that CVR directly or indirectly controlled the representations of its client, the
Authority, which further precludes any claim based on this section.
Finally, in a footnote, Morgan Keegan alternatively claims that CVR is liable
under section 409.5-509(g)(4), which provides for joint and several liability as to any
“person that is a broker-dealer, agent, investment advisor, or investment adviser
representative that materially aids the conduct giving rise to [] liability.” Morgan Keegan
argues that CVR qualifies as an investment adviser as used in this section because it was
the financial adviser to the Authority. Morgan Keegan cites no authority to support this
proposition, which seems debatable in light of the fact that the Blue Sky Law expressly
excludes from the definition of investment adviser “[a] lawyer, . . . whose performance of
investment advice is solely incidental to the practice of the person’s profession.” §
409.1-102(15)(B).
In any event, Morgan Keegan has failed to allege that CVR materially assisted in
the conduct giving rise to liability under the Blue Sky Law in this case. The
Bondholders’ claims are premised on misrepresentations and omissions in the Official
Statement, as well as the transmission of the same misrepresentations and omissions in
various materials disseminated by Morgan Keegan. As discussed above, although
Morgan Keegan alleges that it chose to rely on CVR’s representations concerning these
matters, Morgan Keegan has not plausibly alleged that CVR expected or intended its
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conduct to influence the bond purchasers. There is also no plausible allegation that CVR
drafted any of the documents that form the basis of the Bondholders’ claims or provided
an opinion on the factual accuracy of the contents of those documents. Absent some
argument or authority to the contrary, this Court cannot conclude that CVR materially
assisted the conduct giving rise to the Bondholders’ claims based on the allegation that it
conducted “an independent analysis of the pros and cons of the proposed transaction . . .
on behalf of the Authority,” its client, [Doc. # 351-1 at 4-5].
Consequently, Morgan Keegan has failed to present any theory, in either its
Third-Party Complaint or proposed Amended Third-Party Complaint, under which CVR
might be originally liable to the Bondholders and, as a result, Morgan Keegan’s claims
for contribution and indemnity must be dismissed.
IV.

Conclusion
For the foregoing reasons, Morgan Keegan’s motion for leave to file an Amended

Third-Party Complaint, [Doc. # 351], is DENIED as futile, and CVR’s motion to dismiss
Morgan Keegan’s Third-Party Complaint, [Doc. # 194], is GRANTED. Morgan
Keegan’s Third-Party Complaint against CVR is hereby DISMISSED.

Nanette K. Laughrey
NANETTE K. LAUGHREY
United States District Judge
Dated: 5/13/2014
Jefferson City, Missouri
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