Stevens v. Interactive Fin. Advisors, Inc.

• Decision Date: 29 July 2016
• Docket Number: No. 15-2130,15-2130
• Citation: 830 F.3d 735
• Parties: Leland O. Stevens and Leland O. Stevens, Incorporated, Plaintiffs–Appellants, v. Interactive Financial Advisors, Incorporated and Redtail Technology, Incorporated, Defendants–Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

830 F.3d 735

Leland O. Stevens and Leland O. Stevens, Incorporated, Plaintiffs–Appellants
v.
Interactive Financial Advisors, Incorporated and Redtail Technology, Incorporated, Defendants–Appellees.

No. 15-2130

United States Court of Appeals, Seventh Circuit.

Argued June 1, 2016
Decided July 29, 2016
Rehearing and Rehearing En Banc Denied September 2, 2016

Steven Dennison Smith, Attorney, SD Smith, Esq, PLLC, Blacksburg, VA, for Plaintiffs–Appellants.

James L. Kopecky, Daryl M. Schumacher, Howard J. Rosenburg, Attorneys, Kopecky Schumacher Bleakley Rosenburg PC, Chicago, IL, for Defendants–Appellees.

Before Wood, Chief Judge, and Bauer and Flaum, Circuit Judges.

Bauer, Circuit Judge.

Plaintiff-appellant, Leland O. Stevens (“Stevens”), is a self-employed financial advisor. He claims that defendants-appellees, Independent Financial Advisors, Inc. (“IFA”) and Redtail Technologies, Inc. (“Redtail”) (collectively, “the defendants”), stole his clients' nonpublic personal information. Believing that he had a property right to this private information, Stevens sued the defendants for conversion and other claims on behalf of himself and his eponymous corporation. The district court granted summary judgment for the defendants on some of Stevens' claims, and a jury found for the defendants on the remaining claims. Stevens now appeals the district court's grant of summary judgment, as well as a supplemental jury instruction that the district court gave during trial. We affirm both of the district court's actions.

I. BACKGROUND

After twenty years as an insurance salesman, Stevens wanted to sell investment products. Because neither he nor his company was registered with the Securities and Exchange Commission, Stevens needed to associate himself with a registered investment advisor to sell securities under federal law. See 15 U.S.C. § 80b–3(a) ; 17 C.F.R. § 200.2(e). He did so in 2003, when he associated with IFA, a loosely confederated investment advisory firm. The two parties first entered into an oral agreement whereby Stevens became an individual advisory representative for IFA. The parties eventually memorialized the agreement in a June 2009 written contract. As an independent advisory representative, Stevens could provide investment advice and sell securities under the umbrella of IFA; anyone who purchased securities from Stevens was considered a client of both Stevens and IFA. Though Stevens alone procured the clients, he and IFA shared the fees.

In exchange for sharing clientele and fees with IFA, Stevens had access to IFA's market resources and other proprietary information. This included access to a centralized cloud-based data system, which Redtail operated under IFA's direction. Stevens uploaded client information into this database, including sensitive nonpublic information like names, addresses, and social security numbers. Besides uploading information from clients who purchased investment products from him, Stevens also uploaded information from clients who purchased only insurance products. Because these clients did not purchase securities, they were not IFA clients. IFA did not know that Stevens had entered the non-IFA client information into the database.

In October 2009, IFA learned that Stevens had become involved in a Ponzi

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scheme. IFA severed its association with Stevens and ordered Redtail to block Stevens from accessing the database. It also transferred Stevens' securities-purchasing clients to other independent advisory representatives. Stevens claimed that by blocking access to the nonpublic personal information of his clients, IFA effectively stole his property. He sued the defendants for conversion, violation of the Illinois Trade Secrets Act, tortious interference with business expectancy, and injunctive relief. Because there is complete diversity and because the amount in controversy exceeds $75,000, Stevens properly brought these state law claims in federal court. See 28 U.S.C. §§ 1332(a)(1), 1332(c)(1). He filed suit in the Western District of Virginia, and the case was later transferred to the Northern District of Illinois. All parties agree that Illinois' substantive law governs. See McCoy v. Iberdrola Renewables, Inc. , 760 F.3d 674, 680 (7th Cir.2014).

In time, the defendants moved for summary judgment. The district court granted the defendants' motion on the claims relating to the information of clients who had purchased securities from Stevens. The district court noted that federal securities law prevented a financial institution like IFA from disclosing the nonpublic information of its clients to a nonaffiliated third party like Stevens. See 15 U.S.C. § 6801 ; 17 C.F.R. § 248.10. This prevented Stevens from having an absolute, unconditional right to immediate possession of the property, as required to sustain a conversion claim under Illinois law. See In re Karavidas , 376 Ill.Dec. 413, 999 N.E.2d 296, 310 (2013) (quotation marks and citations omitted). Unable to fulfill this element of a conversion claim, the district court held that the entire claim failed as a matter of law.

The district court did not grant summary judgment for the conversion claim related to the information of the non-IFA clients (those who purchased only insurance from Stevens). The same restrictions governing the sale of securities do not govern the sale of insurance, and relevant state law does not proscribe IFA from sharing that information with Stevens. Those claims instead went to trial. During its deliberations, the jury sent the district court a question in writing, “Can we consider [filing] the lawsuit a demand for property?” The district court stated that filing a lawsuit does not constitute a demand for the purposes of a conversion claim under Illinois law. The jury then returned a verdict in favor of the defendants.

Stevens appealed.

II. DISCUSSION

Stevens' arguments on appeal only relate to his conversion claims. To prove conversion under Illinois law, a plaintiff must show that: (1) he has a right to the property at issue; (2) he has an absolute and unconditional right to the immediate possession of the property; (3) he made a demand for possession; and (4) the defendant wrongfully and without authorization assumed control, dominion, or ownership over the property. In re Karavidas , 376 Ill.Dec. 413, 999 N.E.2d at 310 (quotation marks and citations omitted). Stevens presents two arguments on appeal. First, he argues that the district court erred by holding that he could not prove that he had an absolute and unconditional right to the immediate possession of the nonpublic information of the IFA clients. Thus, granting summary judgment on the conversion claim relating to IFA clients was erroneous. Second, he argues that filing a lawsuit satisfies the demand element of the conversion claim, and that the district court erred by instructing the jury differently.

We disagree with both of Stevens' arguments. First, the district court properly

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understood relevant federal securities law and correctly applied this law to Stevens' conversion claim regarding the IFA clients. Second, Stevens forfeited his argument regarding the district court's answer to the jury question because he did not object to the district court's response at trial. Regardless, the district court committed no error; it properly described what constitutes—or, more precisely, what does not constitute—a demand under Illinois conversion law.

A. Summary Judgment For Claims Related to IFA Clients

Once IFA terminated its relationship with Stevens in 2009, it could not provide him with the nonpublic information of the IFA clients under federal law. As a result, Stevens did not have an absolute and immediate right to immediate possession of the information. See Horbach v. Kaczmarek , 288 F.3d 969, 978 (7th Cir.2002) (citations omitted) (under Illinois law, “[t]he essence of conversion is the wrongful deprivation of one who has a right to immediate possession of an object unlawfully held” (quotation marks omitted)). He could not sustain a conversion claim as a matter of law, so summary judgment for the defendants was appropriate.

We review the grant of summary judgment de novo , construing the facts in the light most favorable to the non-moving party—here, Stevens. E.g. , Roberts v. Columbia Coll. Chicago , 821 F.3d 855, 861 (7th Cir.2016) (citation omitted). Summary judgment is appropriate and the moving party is entitled to judgment as a matter of law where “there is no genuine dispute as to any material fact.” Fed. R. Civ. P. 56(a) ; accord. Hummel v. St. Joseph Cty. Bd. of Comm'rs , 817 F.3d 1010, 1015–16 (7th Cir.2016). Here, summary judgment for the defendants on the claims related to the IFA clients was appropriate...