Maybank v. BB&T Corporation et al
Filing
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OPINION AND ORDER GRANTING Plaintiff's 15 Motion to Remand, and this action is hereby REMANDED to the Court of Common Pleas in Greenville County, South Carolina for further proceedings. The court further DENIES Plaintif f's 34 Motion for Costs and Expenses. Clerk's Notice: Attorneys are responsible for supplementing the State Record with all documents filed in Federal Court. Signed by Honorable J Michelle Childs on 8/3/2012.(mbro)
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH CAROLINA
GREENVILLE DIVISION
Francis P. Maybank,
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)
Plaintiff,
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)
v.
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BB&T Corporation, Branch Banking and )
Trust Company, Successor in merger to
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Branch Banking and Trust Company of SC, )
Sterling Capital Management, LLC,
)
Successor in merger to BB&T Asset
)
Management LLC, Ross Walters, and
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Anthony Mahfood,
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Defendants.
)
___________________________________ )
Civil Action No. 6:12-cv-00214-JMC
OPINION AND ORDER
Plaintiff Francis P. Maybank (“Maybank”) brought this action against defendants BB&T
Corporation, Branch Banking and Trust Company, and Sterling Capital Management, LLC
(collectively, “BB&T”), Ross Walters (“Walters”), and Anthony Mahfood (“Mahfood,” and
together with BB&T and Walters, “Defendants”) alleging several causes of action arising from
Defendants’ provision of financial investment advice to Maybank. Maybank alleges that he lost
a substantial amount of money in several investments he made as a result of following two
strategic investment plans created by Walters and Mahfood. Maybank initially filed suit against
Defendants in state court. Defendants removed the case to federal court on the ground that
Maybank fraudulently joined Mahfood and Walters.
Currently before the court is Maybank’s
Motion to Remand [Doc. 15] under 28 U.S.C. § 1447 and Motion for Costs and Expenses [Doc.
34] pursuant to 28 U.S.C. § 1447(c) and Rule 54(d)(2) of the Federal Rules of Civil Procedure.
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For the reasons stated herein, the court grants Maybank’s Motion to Remand and denies his
Motion for Costs and Expenses.
FACTUAL AND PROCEDURAL BACKGROUND
Maybank owned his own trust and asset management company for many years. In 2001,
BB&T acquired Maybank’s company through a stock exchange. Pursuant to the acquisition
agreement and to provide for a smooth transition for Maybank’s clientele, Maybank worked for
BB&T until 2006. Maybank and defendants Walters and Mahfood became familiar with one
another over the five years of working together.
In preparation for his retirement, Maybank alleges that he engaged Walters and Mahfood
to devise an investment plan that reflected Maybank’s goals of diversification, steady income,
tax sheltering, and the ability to protect his wealth for his heirs. He contends, however, that the
plan was actually very aggressive, risky, and involved a complex system of derivative trading
with BB&T’s stock – a plan which he characterizes as an uncommon investment approach for
someone beginning retirement. According to Maybank, diversification and low-risk investments
were not objectives of the devised plan. Defendants claim that, despite Maybank’s current
complaints regarding the performance of his investments, the plan implemented by Defendants
achieved many of Maybank’s investment goals including the provision of tax sheltering
opportunities and steady dividend income before the downturn of the economy.
Maybank moves to remand this case to South Carolina state court pursuant to 28 U.S.C. §
1447 on the ground that this court lacks subject matter jurisdiction because there is not complete
diversity, as plaintiff Maybank and defendants Walters and Mahfood are all residents of South
Carolina.
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LEGAL STANDARD
Federal courts are courts of limited jurisdiction. The party invoking federal jurisdiction
has the burden of proving the jurisdictional requirements for diversity jurisdiction. See Strawn v.
AT&T Mobility LLC, 530 F.3d 293, 298 (4th Cir. 2008) (holding that in removing case based on
diversity jurisdiction, party invoking federal jurisdiction must allege same in notice of removal
and, when challenged, demonstrate basis for jurisdiction). Federal courts may exercise original
diversity jurisdiction only if no plaintiff and no defendant are citizens of the same state. See Wis.
Dep’t of Corr. v. Schacht, 524 U.S. 381, 388, 118 S. Ct. 2047, 2052 (1998). Because federal
courts are forums of limited jurisdiction, any doubt as to whether a case belongs in federal or
state court should be resolved in favor of state court. See Auto Ins. Agency, Inc. v. Interstate
Agency, Inc., 525 F. Supp. 1104, 1106 (D.S.C. 1981) (citing Penn Sec. Co. v. Home Indem. Co.,
418 F. Supp. 292, 294 (M.D. Pa. 1976); Anderson v. Union Pac. Coal Co., 332 F. Supp. 605, 608
(D. Wyo. 1971)).
“Joinder designed solely to deprive federal courts of jurisdiction is fraudulent and will
not prevent removal.” Anderson v. Home Ins. Co., 724 F.2d 82, 84 (8th Cir. 1983) (citing
Tedder v. F.M.C. Corp., 590 F.2d 115, 117 (5th Cir. 1979)). The party seeking removal based
on alleged fraudulent joinder by the non-moving party must prove “that there is no possibility
that the plaintiff would be able to establish a cause of action against the in-state defendant in
state court; or [t]hat there has been outright fraud in the plaintiff’s pleading of jurisdictional
facts.” Mayes v. Rapoport, 198 F.3d 457, 464 (4th Cir. 1999) (quoting Marshall v. Manville
Sales Corp., 6 F.3d 229, 232 (4th Cir. 1993)) (alterations in original). A claim need not
ultimately succeed to defeat removal; only a possibility of a right to relief need be asserted. Id.
(citing 14A Charles A. Wright et al., Federal Practice & Procedure § 3723 (2d ed.1985)).
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When there is uncertainty, the court is obliged to resolve all issues of fact and law in the
plaintiff’s favor. Marshall, 6 F.3d at 232-33. “This standard is even more favorable to the
plaintiff than the standard for ruling on a motion to dismiss under Fed. R. Civ. P. 12(b)(6).”
Hartley v. CSX Transp., Inc., 187 F.3d 422, 424 (4th Cir. 1999). Indeed, because a claim of
fraudulent joinder presents a jurisdictional inquiry, it must be resolved before the court makes
any determination of the adequacy of the allegations in the complaint for claim dismissal
purposes. See Brantley v. Vaughan, 835 F. Supp. 258, 261-62 (D.S.C. 1993) (discussing Batoff
v. State Farm Ins. Co., 977 F.2d 848 (3d Cir. 1992)).
“[I]n determining whether an attempted joinder is fraudulent, the court is not bound by
the allegations of the pleadings, but may instead consider the entire record, and determine the
basis of joinder by any means available.” Mayes, 198 F.3d at 464 (citations omitted). However,
the court’s subject matter jurisdiction over an action removed from state court is determined as
of the time of the removal. Therefore, the court generally does not consider post-removal
amendments of the complaint in determining the propriety of removal. See Pinney v. Nokia, Inc.,
402 F.3d 430, 443 (4th Cir. 2005) (“Because amendment occurred after removal, we look at the
original complaints rather than the amended complaints in determining whether removal was
proper.”) (citing Pullman Co. v. Jenkins, 305 U.S. 534, 537 (1939)).
DISCUSSION
Fraudulent Joinder of Walters and Mahfood
Maybank requests this court to remand this case to South Carolina state court because
there is not complete diversity among the parties and thus this court lacks subject matter
jurisdiction.
Defendants oppose the motion and assert that Walters and Mahfood were
fraudulently joined simply to defeat federal jurisdiction. Defendants contend that Maybank
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cannot possibly establish any of his alleged claims for breach of fiduciary duty, negligence,
violation of the South Carolina Uniform Securities Act of 2005 (“Securities Act”), or violation of
the South Carolina Unfair Trade Practices Act (“SCUTPA”) against either Walters or Mahfood;
therefore, the only legitimate defendants in the case are the BB&T entities, all foreign
corporations.1
A. Breach of Fiduciary Duty
Generally, a fiduciary duty arises where a party entrusts special confidence in another
such that the latter is bound to act in good faith and with due regard to the interests of the party
entrusting said confidence. See SSI Medical Services v. Cox, 310 S.C. 493, 500, 392 S.E.2d 789,
794 (1990). To establish the existence of a fiduciary relationship, the facts and circumstances
must indicate the party reposing trust in another has some foundation for believing the one so
entrusted will act not in his or her own behalf but in the interest of the party so reposing. Moore
v. Moore, 360 S.C. 241, 251, 599 S.E.2d 467, 472 (Ct. App. 2004). The relationship cannot be
created by the unilateral actions or expectations of one party. See Steele v. Victory Bank, 295
S.C. 290, 294-95, 368 S.E.2d 91, 94 (Ct. App. 1988) (citing 36A C.J.S. Fiduciary (1961)).
South Carolina courts have not addressed whether an investment advisor owes a fiduciary
duty to a client.
However, numerous courts in other jurisdictions have acknowledged the
fiduciary nature of the relationship between an investment advisor and a client. See McGraw v.
Wachovia Securities, L.L.C., 756 F. Supp. 2d 1053, 1078 (N.D. Iowa 2010 (noting that “a
fiduciary duty exists between a broker or financial advisor and a customer or other individual if
the individual entrusts the broker/advisor to select and manage his or her investments”) (citations
1 Defendants do not argue that Maybank committed any fraud in pleading any jurisdictional facts
concerning Walters and Mahfood.
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omitted); Pension Comm. of the Univ. of Montreal Pension Plan v. Bank of America Sec., LLC,
716 F. Supp. 2d 236, 242 n.26 (S.D.N.Y. 2010) (commenting that “under New York law, a
defendant's fiduciary duty to a plaintiff is often inferred from a contract between the two parties.
However, once that fiduciary duty is established, the relationship the contract establishes
imposes ‘a duty to act with care and loyalty independent of the terms of the contract.’”); Merrill
Lynch, Pierce, Fenner & Smith, Inc. v. Cheng, 697 F. Supp. 1224, 1227 (D.D.C. 1988) (finding
that a stockbroker may be held to a level of trust and confidence sufficient to establish a breach
of fiduciary duty claim); Robinson v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 337 F. Supp.
107 (N.D. Ala. 1971) (recognizing that “[w]here the broker-dealer is also an investment advisor”
the broker “does occupy a fiduciary relationship” with the client); Johnston v. CIGNA Corp., 916
P.2d 643, 647 (Colo. Ct. App. 1996) (“In general, an investment advisor owes a fiduciary duty to
his or her customers.”). Although not directly on point, the Supreme Court of South Carolina
has previously found that a financial institution owes a fiduciary duty to its customer where the
institution goes beyond the mere provision of transactional services and actually engages in an
advisory role with respect to the customer. See Burwell v. S.C. Nat'l Bank, 288 S.C. 34, 40, 340
S.E.2d 786, 790 (1986). This court does not find it unreasonable to presume that South Carolina
state courts may extend this proposition to individual investment or financial advisors who
provide advice to a client and not merely the execution of discreet transactions at the direction of
the client. But, it is not appropriate for this court to make that determination in this case.
“Because all legal uncertainties are to be resolved in the plaintiff's favor in determining whether
fraudulent joinder exists, a truly “novel” issue such as this cannot be the basis for finding
fraudulent joinder.” Hartley, 187 F.3d at 425. Accordingly, the court finds that Maybank did
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not fraudulently join Walters and Mahfood because there remains a possibility that South
Carolina state courts would recognize the existence of a fiduciary duty in this case.
Defendants argue that the court should assert jurisdiction over this case and deny
Maybank’s request to remand based on their argument that as employees of BB&T, Walters and
Mahfood, can only serve BB&T’s interests as its agents.
In support of their argument,
Defendants attempt to analogize the relationship that financial advisors share with clients to one
that a real estate agent shares with a buyer. These relationships are distinct. A real estate agent
serves the interest of the seller, attempting to secure the highest possible selling price, or the
buyer, attempting to secure the lowest possible purchase price. It is clear that a real estate agent
can never serve these two different “masters” at the same time in a fiduciary capacity because the
interests are mutually exclusive. See McCallum v. Grier, 86 S.C. 162, 168, 68 S.E. 466, 468-69
(1910) (noting that a real estate broker employed by a seller cannot act as an agent for the buyer
because their interest are inconsistent); Harrington v. Mikell, 321 S.C. 518, 521, 469 S.E.2d 627,
629 (Ct. App. 1996) (holding that, because broker was agent for seller, “a fiduciary relationship
did not exist between [buyer] and [broker]”).
Defendants also try to draw comparisons between the instant circumstance and the
relationship of an insurance agent with a customer by relying on an unpublished opinion from
this District wherein the court found that an agent of an insurance company did not have any
independent liability for a breach of fiduciary duty. See Sullivan v. New York Life Ins., No. 3:091937-JFA (D.S.C. Jan. 19, 2010). Sullivan involved a dispute arising from an agent’s failure to
execute the plaintiff’s instructions to invest in the investment products offered by the insurance
company which the agent represented. The agent’s responsibility to the customer was that of a
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mere conduit engaged to complete transactional services. It did not concern allegations of
breach of fiduciary duty arising from an advisory relationship.
Neither of the circumstances relied upon by Defendants is applicable here. In the instant
matter, Walters and Mahfood were not executing transactions with Maybank on behalf of
BB&T, their employer, as a real estate agent would between buyer and seller or as an insurance
agent would when selling his or her company’s products to a customer. Instead, Maybank
alleges that they served as his advisors and were tasked with the responsibility to recommend a
financial strategy appropriate for him based on their expertise. These facts are sufficiently
distinct from the prior cases addressed by the South Carolina courts to prevent their clear
application here. The court cannot say that no claim for breach of fiduciary duty lies in these
facts because South Carolina has not yet passed on the issue.
Based on the record before the court, and “[r]esolving all issues of fact and law in the
plaintiff’s favor,” Marshall, 6 F.3d at 233, the court finds that it may be possible for Maybank to
pursue a claim for breach of fiduciary duty against Walters and Mahfood. Accordingly, the case
is appropriately remanded to state court.
B. South Carolina Uniform Securities Act
The South Carolina Uniform Securities Act of 2005 provides for the enforcement of civil
liability for certain violations of the Securities Act. See S.C. Code. Ann. § 35-1-509(a) (Supp.
2010).2
Section 509(b) allows a buyer to pursue a claim against
2 Maybank’s complaint does not specify which subsection of Section 509 Maybank intends to
use to impose liability against Walters and Mahfood. However, Maybank contends that he could
assert liability against Walters and Mahfood under Sections 509(b) and 509(f) of the Securities
Act. Accordingly, the court will address whether Maybank could possibly have a claim against
Walters or Mahfood pursuant to these subsections.
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the person [who] sells a security in violation of Sections 35-1-301 or 35-1-501 or,
by means of an untrue statement of a material fact or an omission to state a
material fact necessary in order to make the statement made, in light of the
circumstances under which it is made, not misleading, the purchaser not knowing
the untruth or omission and the seller not sustaining the burden of proof that the
seller did not know and, in the exercise of reasonable care, could not have known
of the untruth or omission.
S.C. Code Ann. § 35-1-509(b).
Section 509(f) provides that
A person that receives directly or indirectly any consideration for providing
investment advice regarding securities to another person and that employs a
device, scheme, or artifice to defraud the other person or engages in an act,
practice, or course of business that operates or would operate as a fraud or deceit
on the other person, is liable to the other person.
S.C. Code Ann. § 35-1-509(f).
Additionally, Section 509(g) makes certain other “persons . . . liable jointly and severally
with and to the same extent as persons liable under subsections (b) through (f). S.C. Code Ann.
§ 35-1-509(g).
This provision specifically extends liability to “an individual who is an
employee, or a person occupying a similar status or performing a similar function, of a person
liable under subsections (b) through (f) and who materially aids the conduct giving rise to the
liability” and “a person that is a broker-dealer, agent, investment adviser, or investment adviser
representative that materially aids the conduct giving rise to the liability under subsections (b)
through (f).” S.C. Code Ann. § 35-1-509(g)(3) and (4).
Defendants contend that Maybank does not have a colorable claim against Walters or
Mahfood under either subsection b or f. Specifically, Defendants contend that Walters and
Mahfood could not be liable under Section 509(b) because it only applies to sellers and
Defendants contend that none of them actually sold the security at issue. Defendants interpret
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this provision too strictly. In fact, Defendants do not cite any authority for their interpretation of
the word “sells.”
The South Carolina Securities Act does not define “seller” and South Carolina courts
have not defined the term in the context of the Securities Act. However, in interpreting the use
of the term in similar provisions of the Federal Securities Act of 1933, the United States
Supreme Court has explained that “[t]he statutory terms [“offer” and “sell”], which Congress
expressly intended to define broadly, ... are expansive enough to encompass the entire selling
process, including the seller/agent transaction.” Pinter v. Dahl, 486 U.S. 622, 643 (1988) (citing
United States v. Naftalin, 441 U.S. 768, 773 (1979)) (alterations in original). The court further
noted that “[a] natural reading of the statutory language would include in the statutory seller
status at least some persons who urged the buyer to purchase.” Id. at 644. Because the term
“sells” as used in Section 509(b) is not clearly defined by South Carolina law, the court cannot
accept Defendants’ interpretation, particularly without any reliable authority, as the basis for
finding that Maybank could not possibly hold Walters and Mahfood liable under the statute as a
seller.
The court must also reject Defendants’ arguments concerning the application of Section
509(f).
Defendants assert that Walters and Mahfood are exempt from liability under this
subsection because Section 509(f) “does not apply to a broker-dealer or its agents if the
investment advice regarding securities that is provided is solely incidental to transacting business
as a broker-dealer and no special compensation is received for the investment advice.” S.C.
Code Ann. § 509(f)(2). Defendants arguments presupposes that the BB&T entity employing
Walters and Mahfood are broker-dealers. As defined in the statute, a “‘[b]roker-dealer’ means a
person engaged in the business of effecting transactions in securities for the account of others or
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for the person's own account,” but expressly excludes a bank or financial institution engaged in
specific activities described in the Federal Securities Exchange Act of 1934, 15 U.S.C. §
78c(a)(4) and (5). See S.C. Code Ann. § 35-1-102(4). Based on the current record in this case,
the court cannot conclude that the exception is applicable here.
Defendants further argue that Walters and Mahfood could not be liable under this section
of the Securities Act because they did not receive any special consideration for providing
investment advice in connection with Maybank’s purchase of the securities at issue. If the
broker-dealer exception is not applicable here, Defendants have not demonstrated that no
colorable claim exists against Walters and Mahfood for violations of Section 509(f).
As
provided in the statute, liability attaches to any “person that receives directly or indirectly
consideration for providing investment advice.”
Id.
The statute does not indicate what
constitutes direct or indirect consideration, and Defendants have not cited any authority
explaining what constitutes indirect and direct compensation under Section 509(f). Defendants
only offer conclusory arguments that Walters and Mahfood never received direct or indirect
compensation for advising Maybank.
Additionally, Defendants ignore that Walters and
Mahfood could be jointly liable for a violation of Section 509(f) by the BB&T entities if Walters
and Mahfood are found to have materially aided in BB&T’s conduct. See S.C. Code Ann. § 351-509(g)(3) and (4). Therefore, Defendants have failed to meet the heavy burden of proving
there is no possibility of Maybank having a State Securities Act claim against the individual
defendants. Accordingly, the court cannot find that Maybank fraudulently joined Walters and
Mahfood, and this case should be remanded.
Because the court grants Maybank’s request for remand on the grounds that he has a
possibility of pursuing claims against Walters and Mahfood for breach of fiduciary duty and
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violations of the Securities Act, the court need not address the propriety of the remaining claims
against the individual defendants.
Plaintiff’s Motion for Costs and Expenses
After filing his Motion to Remand, Maybank filed a subsequent motion seeking an award
of the attorney’s fees he incurred in his efforts to remand this case to state court on the grounds
that Defendants’ removal of this action to federal court lacked an objectively reasonable basis
and was made solely for the purpose of delay.
A court “may require payment of just costs and any actual expense, including attorney
fees” for cases remanded by the district court for lack of subject matter jurisdiction. 28 U.S.C. §
1447(c). The Supreme Court of the United States has held that “[a]bsent unusual circumstances,
courts may award attorney’s fees under § 1447(c) only where the removing party lacked an
objectively reasonable basis for seeking removal. Conversely, when an objectively reasonable
basis exists, fees should be denied.” Martin v. Franklin Capital Corp., 546 U.S. 132, 141
(2005). The Supreme Court found that fee shifting was appropriate in some cases, noting that:
[t]he process of removing a case to federal court and then having it remanded
back to state court delays resolution of the case, imposes additional costs on both
parties, and wastes judicial resources. Assessing costs and fees on remand reduces
the attractiveness of removal as a method for delaying litigation and imposing
costs on the plaintiff. The appropriate test for awarding fees under § 1447(c)
should recognize the desire to deter removals sought for the purpose of
prolonging litigation and imposing costs on the opposing party, while not
undermining Congress' basic decision to afford defendants a right to remove as a
general matter, when the statutory criteria are satisfied.
Martin, 546 U.S. at 140.
This court acknowledges the burdens of removing and later remanding the same case;
however, this specific situation does not warrant an award of attorney’s fees. As discussed in
detail above, many of the claims made by Maybank and the arguments made by Defendants have
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not been addressed by South Carolina courts. Accordingly, Defendants had an objectionably
reasonable basis for removing the case to federal court. Therefore, the court denies Maybank’s
request for costs and expenses.
CONCLUSION
Based on the record and the arguments of the parties, the court finds Maybank could
possibly establish a state law cause of action against Walters and Mahfood and, therefore, this
court lacks subject matter jurisdiction over this case. Accordingly, the court GRANTS Plaintiff’s
Motion to Remand [Doc. 15], and this action is hereby REMANDED to the Court of Common
Pleas in Greenville County, South Carolina for further proceedings. The court further DENIES
Plaintiffs’ Motion for Costs and Expenses [Doc. 34].
IT IS SO ORDERED.
United States District Judge
August 3, 2012
Greenville, South Carolina
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