Donnell v. Taylor et al

Filing 356

MEMORANDUM DECISION granting 345 Motion for Joinder; granting 349 Motion for Leave to File; granting 252 Motion for Summary Judgment; denying 286 Motion for Summary Judgment; granting in part and denying in part 290 Motion for Partial Summary Judgment; denying as moot 312 Motion to Strike; granting in part and denying in part 314 Motion for Summary Judgment; granting 317 Motion for Joinder. Signed by Judge Ted Stewart on 09/08/2011. (tls)

IN THE UNITED STATES COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION

ALBERT WIRTH, and Florence T. WIRTH,
Plaintiffs,

MEMORANDUM DECISION AND
ORDER

vs.

ROGER E. TAYLOR, et al.,

Case No. 2:09-CV-127 TS

Defendant.
_____________________________________
ANNETTE KAY DONNELL, an individual,
Plaintiff,
vs.
ROGER E. TAYLOR, et al.,
Defendant.

This matter is before the Court on a number of Motions, including: a Motion for
Summary Judgment filed by Defendants Franklin Forbes Advisors, Inc., LBS Fund, L.P. and
LBS Advisors, Inc., and LBS Management, Inc. (collectively the “LBS Defendants”); (2) a
Motion for Partial Summary Judgment filed by Plaintiff Annette Kay Donnell (“Donnell”) and
AK Limitless, LLC (collectively the “Donnell Plaintiffs”) against Jeffrey Roylance (“Roylance”)
1

and Summit Capital Advisors, Inc. (“Summit”); a Cross Motion for Summary Judgment filed by
Roylance and Summit; a Motion for Partial Summary Judgment against Roger Taylor (“Taylor”);
and a Motion to Strike.
For the reasons discussed below, the Court will grant the LBS Defendants’ Motion for
Summary Judgment, deny Plaintiffs’ Motion for Summary Judgment against Roylance and
Summit, grant in part and deny in part the Motion for Summary Judgment filed by Roylance and
Summit, grant in part and deny in part Plaintiffs’ Motion for Partial Summary Judgment against
Taylor, and deny as moot the Motion to Strike.
I. MOTION TO STRIKE
Defendants Roylance and Summit seek to strike the Declaration of Wayne Klein
submitted by Plaintiffs in support of their Motion for Summary Judgment. Klein is the receiver
of Ascendus Capital Management (“Ascendus”) and FFCF Investors, LLC.
Defendants Roylance and Summit argue that Klein is an expert witness and, since
Plaintiffs failed to disclose him as an expert and provide an expert report, his Declaration should
be stricken. In support of their argument, Defendants point to a previous order from the
Magistrate Judge preventing Plaintiffs from relying on undisclosed expert testimony.1 Plaintiffs
argue that Klein is not an expert and that, if he is, the failure to disclose is harmless and
substantially justified.

1

See Docket No. 276.
2

The Court need not resolve the issue of whether Klein is an expert witness. Klein’s
Declaration does little to illuminate the issues in dispute here. Therefore, the Court need not
consider Klein’s declaration and this Motion is moot.
At oral argument, the parties discussed the use of Klein as a witness at trial. That issue is
not currently before the Court and will only be addressed through a motion in limine filed by one
of the parties. The Court notes, however, that Plaintiffs did not object to the Magistrate Judge’s
order preventing them from relying on undisclosed expert testimony. Therefore, that order
remains and any testimony from Klein at trial would be limited to fact testimony.
II. STATEMENT OF FACTS
Many of the facts of this case are in dispute. Below is a brief recitation of the facts that
are relevant to the pending summary judgment motions.
In 2003, Plaintiff Annette Kay Donnell learned of investment opportunities involving
Defendant Roger Taylor (“Taylor”).2 Plaintiff eventually invested a large amount of money with
Taylor, which was initially placed with Ascendus Capital.3 In 2006, Richard Smith (“Smith”)
spoke to Donnell about moving her money from Ascendus to Franklin Forbes Composite Funds
(“FFCF”).4 FFCF was to be managed by Franklin Forbes Advisors, now known as LBS
Advisors, Inc.

2

Docket No. 288, ¶ 1.

3

Id. ¶ 4.

4

Id. ¶ 8; Docket No. 287, Ex. I (Dep. of Richard Smith Vol. II at 389:2-391:17). It should
be noted that Mr. Smith has disputed much of his deposition testimony and has provided a
conflicting affidavit. Docket No. 315, Exs. A & B.
3

Based on the representations made by Smith, Donnell agreed to move her entire Ascendus
investment, which she believed was valued at approximately $1.5 million, to FFCF.5 Donnell
later invested another $401,000 into FFCF.6 Plaintiff Donnell eventually lost a substantial
portion of her investment.7
Smith has testified that he believed that he was the chief operating officer of Summit
Capital Advisors Inc. (“Summit”)8 and that he was paid by Summit for his actions in recruiting
Donnell to move her money to FFCF.9
Defendants (“Summit”) and Jeffrey Roylance (“Roylance”) had a consulting agreement
with Franklin Forbes Advisors, Inc., whereby Summit and Roylance sought to bring investors to
Franklin Forbes Advisors, Inc., which later became LBS Advisors, Inc.10 Summit, in turn, had a
sub-advisor agreement with Roger Taylor, under which Taylor was to bring investors to Summit
to be introduced to LBS.11 LBS paid Summit for these referrals.12 Summit then paid Taylor 66%

5

Docket No. 288, ¶¶ 12-13.

6

Id. ¶ 14.

7

Id. ¶ 29.

8

Docket No. 287, Ex. I (Dep. of Richard Smith Vol. I at 89:11-90:2).

9

Id., Ex. I (Dep. of Richard Smith Vol. II at 391:18-392:1).

10

Docket No. 268, Ex. A; id., Ex. B at 35:15-21; id. at 83:19-84:16; id. at 132:13-18; id.,
Ex. C at 34:15-35:5; id., Ex. D at 17:23-18:16.
11

Id., Ex. L; id., Ex. D at 57:13-58:1; id., Ex. F at 20:2-21:21 id. at 23:8-12.

12

Id., Ex. D. at 127:20-23.
4

of that money, but Taylor told Summit to pay half of that amount to Smith.13 Summit complied
with this request.14
LBS placed the funds it received with an entity known as GJB Enterprises.
As stated, Donnell invested in FFCF. FFCF became a limited partner in LBS Fund. As a
limited partner of LBS Fund, FFCF made various capital contributions and withdrawals. All of
FFCF’s debits and credits were detailed in monthly statements provided to FFCF. In July 2008,
FFCF faxed LBS fund a document requesting a withdrawal of FFCF’s entire remaining account.
On or about August 1, 2008, LBS Fund issued a check to FFCF for $81,849.52, representing the
entire remaining balance of FFCF’s capital account. In total, FFCF deposited $8,027,550.00 into
its LBS Fund capital account and withdrew—through distributions or
assignment—$9,239,745.63, realizing $1,212,195.62 in earnings during its time of investment
with LBS Fund.
III. SUMMARY JUDGMENT STANDARD
Summary judgment is proper if the moving party can demonstrate that there is no genuine
dispute as to any material fact and it is entitled to judgment as a matter of law.15 In considering
whether a genuine dispute of material fact exists, the Court determines whether a reasonable jury
could return a verdict for the nonmoving party in the face of all the evidence presented.16 The
13

Id., Ex. D at 122:19-125:17.

14

Id., Ex. D. at 128:2-8.

15

FED. R. CIV. P. 56(a).

16

See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986); Clifton v. Craig, 924
F.2d 182, 183 (10th Cir. 1991).
5

Court is required to construe all facts and reasonable inferences in the light most favorable to the
nonmoving party.17
IV. DISCUSSION
A.

LBS DEFENDANTS
The Second Amended Complaint brings a number of claims against the LBS Defendants.

Plaintiffs bring claims against the LBS Defendant for fraud, breach of contract, breach of
fiduciary duty, conversion, accounting, unjust enrichment, negligence, state and federal securities
fraud, and securities control person liability. The LBS Defendants seek judgment on all of these
claims.
1.

Fraud

[I]n order to prevail on a claim of fraud, all the elements of fraud must be
established by clear and convincing evidence. Those elements are: (1) a
representation; (2) concerning a presently existing material fact; (3) which was
false; (4) which the representer either (a) knew to be false, or (b) made recklessly,
knowing that he had insufficient knowledge on which to base such representation;
(5) for the purpose of inducing the other party to act upon it; (6) that the other
party, acting reasonably and in ignorance of its falsity; (7) did in fact rely upon it;
(8) and was thereby induced to act; (9) to his injury and damage.18
The LBS Defendants argue that summary judgment is appropriate on Plaintiffs’ fraud
claim because none of the LBS Defendants had any communication with the Donnell Plaintiffs,
much less communications amounting to a misrepresentation concerning a presently existing

17

See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986);
Wright v. Sw. Bell Tel. Co., 925 F.2d 1288, 1292 (10th Cir. 1991).
18

Secor v. Knight, 716 P.2d 790, 794 (Utah 1986) (citations omitted).
6

material fact. The LBS Defendants also argue that, since LBS Fund repaid FFCF’s entire
investment plus profits, Donnell has failed to establish damages.
Plaintiffs argue that the LBS Defendants entered into a consulting agreement with
Summit and Roylance and, therefore, Summit and Roylance were agents of the LBS Defendants.
Plaintiffs further assert that the LBS Defendants were aware that Taylor was a sub-advisor of
Summit, thus making him an agent of LBS as well. Plaintiffs argue that LBS provided Summit,
Roylance, and Taylor with marketing information that was then presented to potential investors.
Plaintiffs allege this marketing information was incorrect and was relied upon by investors,
including Donnell, when making the decision to invest. Plaintiffs argue that the LBS Defendants
knew that investors would rely on this information. Finally, Plaintiffs state that they were
damaged by their reliance on these materials.
Plaintiffs have presented evidence that Ms. Donnell met with Richard Smith, who spoke
to her about investing in Franklin Ford Composite Fund.19 Ms. Donnell further states that Mr.
Smith provided her with marketing materials during this presentation.20 Ms. Donnell states that
she relied on the representations of Mr. Smith when deciding to invest into FFCF and she
explains the damages that allegedly came from this reliance.21
The Court finds that the LBS Defendants are entitled to summary judgment on Plaintiffs’
fraud claim. There is no evidence that any of the LBS Defendants made any representations to

19

Docket No. 288, ¶ 8.

20

Id.

21

Id. ¶¶ 14, 16, 26-29.
7

Plaintiffs. While Plaintiffs point to the marketing materials prepared by LBS that were shown to
Donnell by Smith, this link is simply too attenuated to survive summary judgment. There is
nothing to suggest that it was foreseeable that these materials would come into the hands of
Smith or that he would show them to Donnell. Further, the Court finds that Plaintiffs have failed
to demonstrate that any damages flow from the actions of the LBS Defendants. It is undisputed
that LBS reimbursed FFCF for the funds that FFCF invested in LBS. In fact, FFCF realized
earnings with its investment in LBS. Therefore, Plaintiffs cannot trace any injury to LBS.
Rather, any loss of investment by Plaintiffs would be traceable to FFCF.
2.

Securities Claims
a.

Primary Liability

Section 10(b) of the Exchange Act prohibits fraudulent conduct in connection with the
offer, purchase, and sale of securities.22

In order to establish a violation of Section 10(b) and

Rule 10b-523 thereunder, Plaintiffs must show: (1) a material misrepresentation or omission by
the defendant; (2) scienter (3) a connection between the misrepresentation or omission and the
purchase or sale of securities; (4) reliance upon the misrepresentation or omission; (5) economic
loss; and (6) loss causation.24
Utah Code Ann. § 61-1-1 states:
It is unlawful for any person, in connection with the offer, sale, or purchase of any
security, directly or indirectly to:
22

See 15 U.S.C. § 78j(b).

23

17 C.F.R. § 240.10b-5.

24

Stoneridge Invest. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 157 (2008).
8

(1) employ any device, scheme, or artifice to defraud;
(2) make any untrue statement of a material fact or to omit to state a material fact
necessary in order to make the statements made, in the light of the circumstances
under which they are made, not misleading; or
(3) engage in any act, practice, or course of business which operates or would
operate as a fraud or deceit upon any person.
For the same reasons set forth above in relation to Plaintiffs’ fraud claim, Plaintiffs
cannot prevail on their securities claims against the LBS Defendant. There is no evidence that
the LBS Defendants made misrepresentations or omissions to Plaintiffs or that Plaintiffs suffered
any damages as a result of those alleged misrepresentations or omissions.
b.

Control Person and Material Aid Liability

In addition to Plaintiffs’ primary liability claims, Plaintiffs also claim control person
liability. 15 U.S.C. § 78t(a) provides:
Every person who, directly or indirectly, controls any person liable under any
provision of this chapter or of any rule or regulation thereunder shall also be liable
jointly and severally with and to the same extent as such controlled person to any
person to whom such controlled person is liable . . . , unless the controlling person
acted in good faith and did not directly or indirectly induce the act or acts
constituting the violation or cause of action.
Similarly, Utah Code Ann. § 61-1-22(4)(a) states:
Every person who directly or indirectly controls a seller or buyer liable under
Subsection (1), every partner, officer, or director of such a seller or buyer, every
person occupying a similar status or performing similar functions, every employee
of such a seller or buyer who materially aids in the sale or purchase, and every
broker-dealer or agent who materially aids in the sale or purchase are also liable
jointly and severally with and to the same extent as the seller or purchaser, unless
the nonseller or nonpurchaser who is so liable sustains the burden of proof that the
nonseller or nonpurchaser did not know, and in exercise of reasonable care could
not have known, of the existence of the facts by reason of which the liability is
alleged to exist.

9

To establish control person liability “the plaintiff must establish (1) a primary violation of
the securities laws and (2) ‘control’ over the primary violator by the alleged controlling
person.”25
There is evidence to support the conclusion that one of the other Defendants committed a
primary violation of the securities laws. Specifically, Ms. Donnell’s Declaration provides
evidence that Richard Smith made false representations in an attempt to persuade Ms. Donnell to
invest in the Franklin Forbes Composite Fund. However, there is insufficient evidence that the
LBS Defendants had control over Mr. Smith. As stated, Summit and Roylance had a consulting
agreement with LBS Advisors, Inc. Summit, in turn, had a sub-advisor agreement with Roger
Taylor. Taylor directed Summit to pay half of the amount he was to receive for his services to
Smith. While, as discussed below, this may present evidence that Summit controlled Smith, the
link between the LBS Defendants and Smith is simply too attenuated to support a finding of
control person liability. Therefore, summary judgment is proper on this ground.
3.

Breach of Contract

“The elements of a prima facie case for breach of contract are (1) a contract, (2)
performance by the party seeking recovery, (3) breach of the contract by the other party, and (4)
damages.”26

25

Maher v. Durango Metals, Inc., 144 F.3d 1302, 1305 (10th Cir. 1998).

26

Bair v. Axiom Design, L.L.C., 20 P.3d 388, 391 (Utah 2001) (citing Nuttall v. Berntson,
30 P.2d 738, 741 (Utah 1934)).
10

Plaintiffs’ breach of contract claim against the LBS Defendnats fails for many of the same
reasons Plaintiffs’ other claims fail. Simply put, there is no evidence of a contract between
Plaintiffs and the LBS Defendants and, even if such a contract existed, Plaintiffs have failed to
establish damages. As stated, FFCF received a full return of its principal investment, plus
interest, from LBS fund. Therefore, summary judgment is appropriate.
4.

Unjust Enrichment

“A proper claim for unjust enrichment requires that the party show (1) a benefit conferred
on one person by another, (2) an appreciation or knowledge by the conferee of the benefit, and
(3) the acceptance or retention by the conferee of the benefit under such circumstances as to
make it inequitable for the conferee to retain the benefit without payment of its value.”27
Here, no benefit was conferred from Plaintiffs to the LBS Defendants. Further, there was
no acceptance or retention by the LBS Defendants of any alleged benefit. LBS Fund fully repaid
FFCF’s investment. Therefore, summary judgment is appropriate.
5.

Conversion

“A conversion is an act of wilful interference with a chattel, done without lawful
justification by which the person entitled thereto is deprived of its use and possession.”28
Here, the Donnell Plaintiffs have failed to demonstrate that the LBS Defendants
interfered with Plaintiffs’ possessory interest in any property. At most, Plaintiffs have shown
that they invested in FFCF, which in turn was invested in LBS Fund. However, it is undisputed

27

Smith v. Grand Canyon Expeditions Co., 84 P.3d 1154, 1162 (Utah 2003).

28

Allred v. Hinkley, 328 P.2d 726, 728 (Utah 1958).
11

that LBS Fund returned all of FFCF’s principal, plus earnings. Therefore, the LBS Defendants
did not convert any of Plaintiffs’ property. Any claim for conversion would be against FFCF.
6.

Breach of Fiduciary Duty

The LBS Defendants assert that there was no fiduciary duty between themselves and
Plaintiffs. Breach of fiduciary duty requires the existence of a fiduciary relationship. There are
generally two types of fiduciary relationships:
(1) [T]hose specifically created by contract such as principal and agent, attorney
and client, and trustee and cestui que trust, for example, and those created by
formal legal proceedings such as guardian and/or conservator and ward, and
executor or administrator of an estate, among others, and (2) [T]hose implied in
law due to the factual situation surrounding the involved transactions and the
relationship of the parties to each other and to the questioned transactions.29
If any fiduciary relationship exists here, it would be the second type. The Utah Supreme
Court has stated that a fiduciary relationship may be found “‘when one party, having gained the
trust and confidence of another exercises extraordinary influence over the other party.’”30
There is no invariable rule which determines the existence of a fiduciary
relationship, but it is manifest in all the decisions that there must be not only
confidence of the one in the other, but there must exist a certain inequality,
dependence, weakness of age, of mental strength, business intelligence,
knowledge of the facts involved, or other conditions, giving to one advantage over
the other.31

29

First Sec. Bank of Utah N.A. v. Banberry Dev. Corp., 786 P.2d 1326, 1332 (Utah 1990)
(citation omitted).
30

State Bank of S. Utah v. Troy Hygro Sys., Inc., 894 P.2d 1270, 1275 (Utah Ct. App.
1995) (quoting Von Hake v. Thomas, 705 P.2d 766, 769 (Utah 1985)).
31

First Sec. Bank of Utah N.A., 786 P.2d at 1333 (citation omitted).
12

Here, there is no evidence of a fiduciary relationship with Plaintiffs and the LBS
Defendants. Even if a fiduciary relationship existed, Plaintiffs cannot point to any damages
resulting from a breach of that fiduciary duty because FFCF received a full return of its principal,
plus earnings. Therefore, summary judgment is appropriate on this claim.
7.

Negligence

To prevail on a negligence claim, a plaintiff must establish four essential elements: (1)
that the defendant owed the plaintiff a duty, (2) that the defendant breached that duty, (3) that the
breach of duty was the proximate cause of the plaintiff’s injury, and (4) that the plaintiff in fact
suffered injuries or damages.32
Plaintiffs have failed to present evidence of a duty between the LBS Defendants and
Plaintiff. Further, Plaintiffs have failed to show any proof of damages in relation to any alleged
duty owed by the LBS Defendants. Therefore, this claim too must fail.
8.

Accounting

For the same reasons set forth above, Plaintiffs’ claim for an accounting must fail.
Plaintiffs have failed to present any evidence that the LBS Defendants owe them any money.
Therefore, summary judgment will be granted on this ground as well.
B.

ROYLANCE AND SUMMIT
Plaintiffs also bring a number of claims against Defendants Roylance and Summit. The

parties have filed cross Motions for Summary Judgment seeking judgment on these claims.

32

Thurston v. Workers Comp. Fund of Utah, 83 P.3d 391, 394-95 (Utah Ct. App. 2003).
13

1.

Securities Claims

Plaintiffs argue that Summit and Roylance are liable for violations of both state and
federal securities laws. Defendants assert that Summit and Roylance cannot be held liable under
these provisions.
a.

Control Person and Material Aid Liability

Plaintiffs argue that Roylance is liable because he had control over individuals and
entities who committed primary violations of the securities laws and materially aided those
individuals and entities. Defendants Summit and Roylance argue, however, that they were not
control persons.
15 U.S.C. § 78t(a) provides:
Every person who, directly or indirectly, controls any person liable under any
provision of this chapter or of any rule or regulation thereunder shall also be liable
jointly and severally with and to the same extent as such controlled person to any
person to whom such controlled person is liable . . . , unless the controlling person
acted in good faith and did not directly or indirectly induce the act or acts
constituting the violation or cause of action.
Similarly, Utah Code Ann. § 61-1-22(4)(a) states:
Every person who directly or indirectly controls a seller or buyer liable under
Subsection (1), every partner, officer, or director of such a seller or buyer, every
person occupying a similar status or performing similar functions, every employee
of such a seller or buyer who materially aids in the sale or purchase, and every
broker-dealer or agent who materially aids in the sale or purchase are also liable
jointly and severally with and to the same extent as the seller or purchaser, unless
the nonseller or nonpurchaser who is so liable sustains the burden of proof that the
nonseller or nonpurchaser did not know, and in exercise of reasonable care could
not have known, of the existence of the facts by reason of which the liability is
alleged to exist.

14

To establish control person liability “the plaintiff must establish (1) a primary violation of
the securities laws and (2) ‘control’ over the primary violator by the alleged controlling
person.”33
Plaintiffs have presented evidence to establish primary violations of the securities laws.
Plaintiffs have also established evidence from which a fact-finder could find that Summit and
Roylance controlled the alleged primary violator. Specifically, the evidence shows that Summit
and Roylance had an agreement with LBS, whereby they were supposed to bring investors to
LBS. Summit, in turn, had a sub-advisor agreement with Roger Taylor under which Taylor was
to bring investors to Summit. Taylor then directed that a share of the money he was paid for his
services was to be paid to Richard Smith. There is also evidence suggesting that Smith had a
managerial role in Summit. From this, a finder of fact could infer that Defendants Summit and
Roylance exercised control over those individuals who allegedly committed primary violations of
the securities laws, particularly Smith.
This evidence, however, is largely in dispute. Therefore, the Court finds that summary
judgment in favor of either party is improper and both Motions for Summary Judgment will be
denied on this ground.
b.

Primary Liability

In addition to control person and material aid liability, Plaintiffs argue that Summit and
Roylance committed primary violations of both state and federal securities laws by engaging in

33

Maher, 144 F.3d at 1305.
15

fraud in connection with the sale of securities. Defendants argue, however, that they are entitled
to summary judgment on this claim because they never met with or spoke to Plaintiffs.
Section 10(b) of the Exchange Act prohibits fraudulent conduct in connection with the
offer, purchase, and sale of securities.34 In order to establish a violation of Section 10(b) and
Rule 10b-535 thereunder, Plaintiffs must show: (1) a material misrepresentation or omission by
the defendant; (2) scienter (3) a connection between the misrepresentation or omission and the
purchase or sale of securities; (4) reliance upon the misrepresentation or omission; (5) economic
loss; and (6) loss causation.36
Utah Code Ann. § 61-1-1 states:
It is unlawful for any person, in connection with the offer, sale, or purchase of any
security, directly or indirectly to:
(1) employ any device, scheme, or artifice to defraud;
(2) make any untrue statement of a material fact or to omit to state a material fact
necessary in order to make the statements made, in the light of the circumstances
under which they are made, not misleading; or
(3) engage in any act, practice, or course of business which operates or would
operate as a fraud or deceit upon any person.
Roylance and Summit argue that Plaintiffs’ claims of direct violations of the securities
laws fail because Roylance and Summit did not make any statements to Plaintiffs. Defendants
point to the recent Supreme Court decision of Janus Capital Group, Inc. v. First Derivative
Traders,37 to support its argument. In Janus, the Court addressed liability under Rule 10b-5,
34

See 15 U.S.C. § 78j(b).

35

17 C.F.R. § 240.10b-5.

36

Stoneridge Invest. Partners, LLC, 552 U.S. at 157.

37

131 S.Ct. 2296 (2011).
16

which makes it unlawful for any person to “make” any untrue statement of a material fact in
connection with the purchase or sale of securities. The Court held that “[f]or purposes of Rule
10b-5, the maker of a statement is the person or entity with the ultimate authority over the
statement, including its content and how to communicate it.”38 The Court refused to “expand
liability beyond the person or entity that ultimately has authority over a false statement.”39
Plaintiffs’ precise theory of Summit and Roylance’s primary violations is difficult to
decipher. In their Reply brief, Plaintiffs continue to assert that Summit and Roylance can be held
liable under a control person liability theory. In this regard, Janus helps their case.40 As set forth
above, there are genuine issues of material fact on Plaintiffs’ control person liability claims and
that claim survives summary judgment.
Plaintiffs also assert that Summit and Roylance engaged in primary violations of the
securities laws. In support, Plaintiffs point to a series of meetings where Roylance discussed
investments in FFCF. The problem with this theory, however, is that Donnell was not in
attendance at these meetings. Therefore, Plaintiff cannot claim any reliance or loss causation
arising out of any alleged misrepresentations or omissions made at these meetings. Such claims
would naturally belong to those who actually attended the meetings. Thus, Plaintiffs’ claims
against Summit and Roylance for primary violations of Section 10(b) and Rule 10b-5 fail.
Therefore, the Court will grant Summit and Roylance summary judgment on this claim.
38

Id. at 2302.

39

Id. at 2303.

40

Id. at 2304 (rejecting broad construction of Rule 10b-5 because Congress had
established liability for control persons).
17

Plaintiffs further argue that their claims under the Utah Uniform Securities Act remain
because Utah law allows for a private right of action against aiders and abettors. The Utah Act is
modeled after the Uniform Securities Act.41 As stated above, Utah Code Ann. § 61-1-22(4)(a)
states:
Every person who directly or indirectly controls a seller or buyer liable under
Subsection (1), every partner, officer, or director of such a seller or buyer, every
person occupying a similar status or performing similar functions, every employee
of such a seller or buyer who materially aids in the sale or purchase, and every
broker-dealer or agent who materially aids in the sale or purchase are also liable
jointly and severally with and to the same extent as the seller or purchaser, unless
the nonseller or nonpurchaser who is so liable sustains the burden of proof that the
nonseller or nonpurchaser did not know, and in exercise of reasonable care could
not have known, of the existence of the facts by reason of which the liability is
alleged to exist.
Courts interpreting similar provisions have found that such provisions create two types of
liability for securities fraud: control person liability and aiding and abetting liability.42 Plaintiffs
have provided sufficient information to survive summary judgment on a claim for aiding and
abetting under Utah law. Therefore, Summary Judgment is inappropriate on Plaintiffs’ claims
for aider and abettor liability under the Utah Uniform Securities Act.

41

Gohler v. Wood, 919 P.2d 561, 566 (Utah 1996).

42

See Arthur Young & Co. v. Reves, 937 F.2d 1310, 1325 (8th Cir. 1991) (interpreting
Arkansas law); see also Lillard v. Stockton, 267 F. Supp. 2d 1081, 1122 n.10 (N.D. Okla. 2003)
(discussing Oklahoma law).
18

c.

Broker-Dealer Liability

A person may sue a person who transacts business in Utah as a broker-dealer without a
license.43 A broker-dealer “means a person engaged in the business of effecting transactions in
securities for the account of others or for the person’s own account.”44
It is undisputed that Summit and Roylance did not have a license to act as a broker-dealer.
Defendants argue that they are entitled to summary judgment on this claim because they did not
sell any securities to Plaintiffs. This argument, however, ignores Plaintiffs’ claim for control
person liability under Utah Code Ann. § 61-1-22(4)(a). That provision provides for liability
against those who directly or indirectly control a seller liable under § 61-1-22(1). Section 61-122(1), in turn, applies to a person who sells a security in violation of § 61-1-3(1). That provision
states that “[i]t is unlawful for a person to transact business in this state as a broker-dealer or
agent unless the person is licensed under this chapter.”45 Therefore, Defendants are not entitled
to summary judgment on this claim. Further, for the reasons set forth above in relation to
Plaintiffs’ control person liability claim, Plaintiffs are not entitled to summary judgment on this
claim either.

43

Utah Code Ann. §§ 61-1-22(1)(a) & -3(1).

44

Id. § 61-1-13(1)(c).

45

Id. § 61-1-3(1).
19

2.

Unjust Enrichment and Conversion

Defendant Summit moves for summary judgment on Plaintiffs’ unjust enrichment and
conversion claims, arguing that it did not receive anything from Plaintiffs. Plaintiffs, however,
argue that they are entitled to summary judgment on these claims.
“A proper claim for unjust enrichment requires that the party show (1) a benefit conferred
on one person by another, (2) an appreciation or knowledge by the conferee of the benefit, and
(3) the acceptance or retention by the conferee of the benefit under such circumstances as to
make it inequitable for the conferee to retain the benefit without payment of its value.”46 “A
conversion is an act of wilful interference with a chattel, done without lawful justification by
which the person entitled thereto is deprived of its use and possession.”47
The Court finds that there are genuine issues of material fact which prevent summary
judgment in favor of either party on this claim.
4.

Breach of Fiduciary Duty

Plaintiffs argue that they are entitled to summary judgment because Summit and
Roylance breached their fiduciary duty to Donnell. Defendants, however, contend that they are
entitled to summary judgment on Plaintiffs’ breach of fiduciary duty claim, arguing that there
was no such duty.
Breach of fiduciary duty requires the existence of a fiduciary relationship. There are
generally two types of fiduciary relationships:

46

Smith, 84 P.3d at 1162.

47

Allred, 328 P.2d at 728.
20

(1) [T]hose specifically created by contract such as principal and agent, attorney
and client, and trustee and cestui que trust, for example, and those created by
formal legal proceedings such as guardian and/or conservator and ward, and
executor or administrator of an estate, among others, and (2) [T]hose implied in
law due to the factual situation surrounding the involved transactions and the
relationship of the parties to each other and to the questioned transactions.48
Plaintiffs argue that a fiduciary duty is imposed on Summit and Roylance by statute,
pointing to the Investment Advisors Act of 1940. However, Plaintiffs have not brought claims
under that Act. Therefore, its application here is questionable. Further, Summit and Roylance
were not Plaintiffs’ investment advisors. Therefore, any fiduciary duty based on their role as
investment advisors was owed to individuals other that Plaintiffs and any such claim for a
violation of that duty would belong to those individuals, not Plaintiffs.
Plaintiffs further argue that a fiduciary relationship may be found under the common law.
The Utah Supreme Court has stated that a fiduciary relationship may be found “‘when one party,
having gained the trust and confidence of another exercises extraordinary influence over the other
party.’”49
There is no invariable rule which determines the existence of a fiduciary
relationship, but it is manifest in all the decisions that there must be not only
confidence of the one in the other, but there must exist a certain inequality,
dependence, weakness of age, of mental strength, business intelligence,
knowledge of the facts involved, or other conditions, giving to one advantage over
the other.50

48

First Sec. Bank of Utah N.A., 786 P.2d at 1332 (citation omitted).

49

State Bank of S. Utah, 894 P.2d at 1275 (quoting Von Hake, 705 P.2d at 769).

50

First Sec. Bank of Utah N.A., 786 P.2d at 1333 (citation omitted).
21

Here, there are insufficient facts to support Plaintiffs’ claims that Summit and Roylance
owed them a fiduciary duty. It is difficult to see how Roylance and Summit gained the
confidence and trust of Plaintiffs where they never met with or spoke to Plaintiffs. Therefore, the
Court finds that Defendants are entitled to summary judgment on this claim.
C.

TAYLOR
Plaintiffs also bring a number of claims against Roger Taylor on which they seek

summary judgment. Talyor is proceeding pro se in this matter and has responded to Plaintiffs’
Motion for Partial Summary Judgment. As Taylor is proceeding pro se, the Court will construe
his filings liberally.51
1.

Fraud

Plaintiffs bring claims against Taylor for fraudulent nondisclosure and fraudulent
concealment. A party is liable for fraudulent nondisclosure if he “omi[ts] . . . a material fact
when there is a duty to disclose for the purpose of inducing action on the part of the other party,
with actual, justifiable reliance resulting in damage to that party.”52 “[A] claim for fraudulent
nondisclosure rests on three elements: (1) a legal duty to communicate, (2) undisclosed material
information, and (3) a showing that the information was known to the party who failed to
disclose.”53 The elements for fraudulent concealment are the same.54
51

Van Deelen v. Johnson, 497 F.3d 1151, 1153 n.1 (10th Cir. 2007).

52

Taylor v. Gasor, Inc., 607 P.3d 293, 294 (Utah 1980).

53

Moore v. Smith, 158 P.3d 562, 572 (Utah Ct. App. 2007).

54

Smith v. Frandsen, 94 P.3d 919, 923 (Utah 2004) (quoting Hermansen v. Tasulis, 48
P.3d 235, 242 (Utah 2002) (“[I]n order to establish fraudulent concealment, ‘a plaintiff must
22

There is evidence to support summary judgment on this claim in Plaintiffs’ favor.
However, Defendant Taylor has presented a Declaration and a sur-reply which dispute many of
Plaintiffs’ allegations. While Taylor’s filings do not comply with local rule, as he is proceeding
pro se the Court will consider them and construe them liberally. Taylor’s Declaration and other
filings largely dispute the facts as presented by Plaintiffs. Specifically, Taylor asserts that he: had
no contact with Plaintiff during the relevant time, had no control over Smith, did not manage
FFCF, and had no control over Plaintiffs’ money. These disputes preclude summary judgment
on this claim.
2.

Breach of Fiduciary Duty

Whether a duty exists is a question of law to be determined by the court.55 A fiduciary
relationship may be found “‘when one party, having gained the trust and confidence of another
exercises extraordinary influence over the other party.’”56
There is no invariable rule which determines the existence of a fiduciary
relationship, but it is manifest in all the decisions that there must be not only
confidence of the one in the other, but there must exist a certain inequality,
dependence, weakness of age, of mental strength, business intelligence,
knowledge of the facts involved, or other conditions, giving to one advantage over
the other.57

prove the following three elements: (1) the nondisclosed information is material, (2) the
nondisclosed information is known to the party failing to disclose, and (3) there is a legal duty to
communicate.’”).
55

DeBry v. Valley Mortg. Co., 835 P.2d 1000, 1004 (Utah Ct. App. 1992).

56

State Bank of S. Utah, 894 P.2d at 1275 (quoting Von Hake, 705 P.2d at 769).

57

First Sec. Bank of Utah N.A., 786 P.2d at 1333 (citation omitted).
23

As with Plaintiffs’ fraud claim, the disputed issues of fact preclude summary judgment on
this claim.
3.

Conversion

“A conversion is an act of wilful interference with a chattel, done without lawful
justification by which the person entitled thereto is deprived of its use and possession.”58
For the same reasons set forth above, summary judgment is not appropriate on Plaintiffs’
conversion claim. Defendant Taylor disputes that he had access to or control of Plaintiffs’
money.
4.

Securities Claims
a.

Control Person and Material Aid Liability

15 U.S.C. § 78t(a) provides:
Every person who, directly or indirectly, controls any person liable under any
provision of this chapter or of any rule or regulation thereunder shall also be liable
jointly and severally with and to the same extent as such controlled person to any
person to whom such controlled person is liable . . . , unless the controlling person
acted in good faith and did not directly or indirectly induce the act or acts
constituting the violation or cause of action.
Similarly, Utah Code Ann. § 61-2-22(4)(a) states:
Every person who directly or indirectly controls a seller or buyer liable under
Subsection (1), every partner, officer, or director of such a seller or buyer, every
person occupying a similar status or performing similar functions, every employee
of such a seller or buyer who materially aids in the sale or purchase, and every
broker-dealer or agent who materially aids in the sale or purchase are also liable
jointly and severally with and to the same extent as the seller or purchaser, unless
the nonseller or nonpurchaser who is so liable sustains the burden of proof that the
nonseller or nonpurchaser did not know, and in exercise of reasonable care could

58

Allred, 328 P.2d at 728.
24

not have known, of the existence of the facts by reason of which the liability is
alleged to exist.
To establish control person liability “the plaintiff must establish (1) a primary violation of
the securities laws and (2) ‘control’ over the primary violator by the alleged controlling
person.”59
There is evidence from which a finder of fact could find a primary violation of the
securities laws and Defendant Taylor’s denials do not alter this. However, Defendant Taylor
disputes that he controlled any primary violators. Taylor asserts that Donnell’s dealings were
with Richard Smith and that Taylor did not control Smith. Therefore, summary judgment is
inappropriate. Summary judgment is similarly inappropriate on Plaintiffs’ material aid theory.
b.

Primary Liability

Section 10(b) of the Exchange Act prohibits fraudulent conduct in connection with the
offer, purchase, and sale of securities.60 In order to establish a violation of Section 10(b) and
Rule 10b-561 thereunder, Plaintiffs must show: (1) a material misrepresentation or omission by
the defendant; (2) scienter (3) a connection between the misrepresentation or omission and the
purchase or sale of securities; (4) reliance upon the misrepresentation or omission; (5) economic
loss; and (6) loss causation.62

59

Maher, 144 F.3d at 1305.

60

See 15 U.S.C. § 78j(b).

61

17 C.F.R. § 240.10b-5.

62

Stoneridge Invest. Partners, LLC, 552 U.S. at 157.
25

Utah Code Ann. § 61-1-1 states:
It is unlawful for any person, in connection with the offer, sale, or purchase of any
security, directly or indirectly to:
(1) employ any device, scheme, or artifice to defraud;
(2) make any untrue statement of a material fact or to omit to state a material fact
necessary in order to make the statements made, in the light of the circumstances
under which they are made, not misleading; or
(3) engage in any act, practice, or course of business which operates or would
operate as a fraud or deceit upon any person.
As with all of the other claims, there are disputed issues of fact concerning Taylor’s
alleged securities violations.
d.

Broker-Dealer Liability

A person may sue a person who transacts business in Utah as a broker-dealer without a
license.63 A broker-dealer “means a person engaged in the business of effecting transactions in
securities for the account of others or for the person’s own account.”64
It is undisputed that Defendant Taylor did not have a license to act as a broker-dealer.
Even considering Defendant Taylor’s denial of many of the facts which make up Plaintiffs’
Motion for Partial Summary Judgment, the evidence reflects that Defendant Taylor acted as a
broker-dealer. As he acted as a broker-dealer without a license, Plaintiffs are entitled to
summary judgment on this claim.

63

Utah Code Ann. §§ 61-1-22(1)(a) & -3(1).

64

Id. § 61-1-13(1)(c).
26

V. CONCLUSION
It is therefore
ORDERED that the LBS Defendants’ Motion for Summary Judgment (Docket No. 252)
is GRANTED. It is further
ORDERED that Plaintiffs’ Motion for Partial Summary Judgment Against Roylance
(Docket No. 286) is DENIED. It is further
ORDERED that Summit and Roylance’s Cross Motion for Summary Judgment (Docket
Nos. 314) is GRANTED IN PART AND DENIED IN PART. It is further
ORDERED that Plaintiffs’ Motion for Partial Summary Judgment Against Roger Taylor
(Docket No. 290) is GRANTED IN PART AND DENIED IN PART. It is further
ORDERED that Defendants’ Motion to Strike (Docket No. 312) is DENIED AS MOOT.
It is further
ORDERED that Defendants’ Motions for Joinder (Docket Nos. 317 & 345) are
GRANTED. It is further
ORDERED that Plaintiffs’ Motion for Leave to File Memorandum in Opposition to
Taylor Sur-Reply (Docket No. 349) is GRANTED.
Pursuant to the Court’s standard practice, the Court will refer this matter to settlement by
separate order.

27

DATED September 8, 2011.
BY THE COURT:

_____________________________________
TED STEWART
United States District Judge

28