Maybank v. BB&T Corp.

• Decision Date: 03 June 2016
• Docket Number: Opinion No. 27640,Appellate Case No. 2014–002638
• Citation: 787 S.E.2d 498,416 S.C. 541
• Court: South Carolina Supreme Court
• Parties: Francis P. Maybank and Jane H.P. Maybank, as trustee for the Francis P. Maybank Family Insurance Trust, Plaintiffs, of whom Francis P. Maybank is the Respondent/Appellant, v. BB&T Corporation, Branch Banking and Trust Company, Successor in merger to Branch Banking and Trust Company of SC, and Sterling Capital Management, LLC, Successor in merger to BB&T Asset Management, LLC, Appellants/Respondents.

416 S.C. 541

787 S.E.2d 498

Francis P. Maybank and Jane H.P. Maybank, as trustee for the Francis P. Maybank Family Insurance Trust, Plaintiffs,of whom Francis P. Maybank is the Respondent/Appellant,

v.BB&T Corporation, Branch Banking and Trust Company, Successor in merger to Branch Banking and Trust Company of SC, and Sterling Capital Management, LLC, Successor in merger to BB&T Asset Management, LLC, Appellants/Respondents.

Appellate Case No. 2014–002638

Opinion No. 27640

Supreme Court of South Carolina.

Heard November 3, 2015

Filed June 3, 2016

Rehearing Denied July 13, 2016

C. Mitchell Brown, D. Larry Kristinik, Brian P. Crotty, Michael J. Anzelmo, all of Columbia, and William S. Brown, of Greenville, all of Nelson Mullins Riley and Scarborough, LLP, for Appellants/Respondents.

Mitchell Willoughby, John M.S. Hoefer, Tracey C. Green, Chad N. Johnston, all of Willoughby and Hoefer, P.A., of Columbia, and Bruce W. Bannister, of Bannister, Wyatt and Stalvey, LLC, of Greenville, for Respondent/Appellant.

ACTING CHIEF JUSTICE HEARN:

This appeal arises from a total verdict of $17,199,306 rendered in favor of Francis P. Maybank for claims sounding in contract, tort, and the South Carolina Unfair Trade Practices Act (UTPA). Maybank brought this action alleging he received faulty investment advice from Branch Banking and Trust (BB&T) Company (the Bank) through BB&T Wealth Management (Wealth Management) and BB&T Asset Management (Asset Management), all operating under the corporate umbrella of BB&T Corporation (collectively, Appellants). Appellants appeal on numerous grounds, and Maybank appeals the trial court's denial of prejudgment interest. We affirm in part and reverse in part.

FACTUAL/PROCEDURAL BACKGROUND

I. BACKGROUND

Because of the numerous BB&T entities involved and their intertwined relationships, we begin by briefly highlighting the role of each Appellant. The Bank is a subsidiary of BB&T Corporation and is its largest asset—comprising ninety-eight percent of the corporation's holdings. The Bank offers traditional banking services along with insurance, trust, and wealth management services. Wealth Management oversees financial portfolios, keeping abreast of clients' financial situations, needs, and risks. Asset Management, an independent corporate entity, through investment advisors or brokers, makes recommendations about investment strategies and products as well as assists clients in entering investments with third parties.

In 1999, the Bank offered well-established commercial middle-market lending, investment counseling, insurance, and trust services. As part of an effort to offer increasingly sophisticated and diversified financial products, it acquired Scott & Stringfellow brokerage firm, which specialized in corporate finance, equity underwriting and distribution, and advisory services.

The Bank continued to follow an expansion strategy, and in 2001, it became interested in acquiring Southeastern Trust Company (Southeastern), an independent investment firm with offices in Greenville, Columbia, Charleston, and Anderson, which had been founded by Maybank. Southeastern served as the trustee or personal representative for clients' wills and trusts in addition to acting as investment manager and advisor to individuals, companies, and profit-sharing trusts.

Raised in South Carolina, Maybank graduated from Harvard University and moved to New York City in 1957 to work for Fiduciary Trust Company. He later operated his own trust firm on Wall Street for many years, returning to South Carolina in 1989 to found Southeastern. In November 2001, Maybank sold his interest in Southeastern to the Bank, receiving 246,000 shares of BB&T Corporation stock in exchange. As a result of the acquisition, all of Southeastern's employees began working for the Bank, including Maybank, who became a senior vice president in the Trust Department with a five-year employment contract and an annual salary of $100,000. His duties included promoting the Bank's services to Southeastern's existing customers and overseeing client transition to the Bank. This was a shift from his previous work experience as a trust officer. In order to avoid substantial capital gains taxes due to the high value of the BB&T Corporation stock, Maybank placed his newly acquired stock in his brokerage account with Scott & Stringfellow. This allowed him to defer the tax liability and to enjoy annual dividends of approximately $400,000.

In 2004, the Bank created Wealth Management, which included the Trust Department in which Maybank worked.

The former Southeastern clients who transferred to the Bank's Trust Department became Wealth Management clients. Around the same time, the Bank, through Asset Management, began to market “alternative investment strategies” to clients with substantial net worth and highly concentrated stock positions.

In order to effectuate these alternative investment strategies, clients executed a wealth management agreement (WMA), establishing a contractual relationship between the Bank and Asset Management. Under the WMA, the Bank served as the advisor for the designated assets and thereby had the ability to advise and provide professional guidance on available BB&T products. Wealth Management portfolio advisors served as liaisons between clients and Asset Management. Specifically, Wealth Management oversaw the portfolio account, serving as its custodian. By signing the WMA, a client hired Asset Management to handle the discretionary account and serve as the account's investment advisor. Under its terms, the Bank had total discretion to invest in securities from the Wealth Management portfolio.¹

One of the new strategies touted by the Bank and Asset Management included a variable prepaid forward contract (Prepaid) that was directed at customers with concentrated stock positions. A Prepaid is an investment contract by which a stock is sold to an investment bank for an upfront payment of approximately seventy-five to ninety percent of its value. Significantly, title to the stock is not transferred for two to three years, thereby deferring capital gains taxes and allowing the customer to receive dividends and the benefit of appreciation. A Prepaid provides four meaningful benefits for its holder: (1) protection against a collapse of the stock, (2) immediate liquidity, (3) an opportunity to partially participate in future gains, and (4) an opportunity to receive dividends.²

In mid–2006, Maybank attended a meeting between a long-time client of his and representatives from Wealth Management and Asset Management. The purpose of the meeting was to discuss the client's concentrated position in a particular stock and the advisability of Prepaids. Kristopher Kapoor attended the meeting as a portfolio manager for Asset Management to address proceeds in the event the client decided to purchase a Prepaid. Anthony Mahfood, a Wealth Management advisor, was also present. Although Maybank had previous knowledge about Prepaids through written presentations circulated within BB&T, it was this meeting that piqued Maybank's personal interest in this alternative investment product.

In light of his concentrated position in BB&T Corporation stock, Maybank spoke with Kapoor following the meeting about his interest in entering into a Prepaid, along with his investment objectives and risk tolerance.³ As of 2006, the 246,000 shares of BB&T stock he had received in 2001 remained in his brokerage account with Scott & Stringfellow. At Kapoor's recommendation, Maybank communicated with Mahfood, who then asked Shawn Gibson, a member of Asset Management's alternative investment team, to prepare illustrations of the anticipated Prepaid's terms.

In July 2006, Maybank was given a Concentrated Stock Risk Management Addendum (Addendum), which outlined a general description of the strategies of various single-stock products, including a Prepaid. Also included within the Addendum was the fee schedule to use the services of “BB&T professionals,” which explained a “one-time-upfront advisory fee from your Account, based upon the principal value of the investments.” The Addendum stated it was an addition to the WMA between the Bank, the advisor, and Maybank, even though Maybank had not yet executed a WMA with the Bank and Asset Management.

On August 11, 2006, Wealth Management presented Maybank with a letter (Approval Letter), which approved Maybank entering into a Prepaid with BB&T.⁴ The Approval Letter was written by Mahfood to Patricia Oliver, the Executive Vice President, Secretary, and General Counsel for BB&T Corporation, but signed by both Mahfood and Oliver. Express authorization by BB&T Corporation was necessary because the BB&T Code of Ethics prohibited BB&T employees from using BB&T Corporation stock in any transaction deemed to be speculative, including Prepaids. The letter stated “a [Prepaid] may allow Mr. Maybank to reduce the risk of his concentrated position in BB&T, while raising cash to create a diversified portfolio.” It further stated “implementation of this [Prepaid] will protect Mr. Maybank from an extraordinary reduction in the overall value of his investment portfolio and resulting net worth. It will also help him achieve important diversification goals we have discussed throughout the financial planning process.” Oliver signed the Approval Letter as Executive Vice President, Secretary, and General Counsel for BB&T Corporation. A handwritten note under Oliver's signature stated: “This approval by General Counsel is conditioned on Mr. Maybank not purchasing additional shares of BB&T Corporation under proceeds from the [Prepaid].”

After being presented with the Approval Letter, Maybank executed a Prepaid with Bear Stearns—a three-year contract in which Maybank pledged 220,000 shares of BB&T Corporation stock with a value of $9,318,364 in exchange for upfront proceeds of $7,120,000. The Bank charged Maybank $32,614 for the advice and recommendation to enter into the first...