Stein v. Regions Morgan Keegan Select High Income Fund, Inc., 051916 FED6, 15-5903
|Docket Nº:||15-5903, 15-5905|
|Opinion Judge:||CLAY, Circuit Judge.|
|Party Name:||Andrew M. Stein, et al. (15-5903); Canale Funeral Directors, Inc., et al. (15-5905), Plaintiffs-Appellants, v. Regions Morgan Keegan Select High Income Fund, Inc., et al., Defendants-Appellees.|
|Attorney:||H. Naill Falls, Jr., FALLS & VEACH, Nashville, Tennessee, for Appellants. Peter Sean Fruin, MAYNARD, COOPER & GALE, P.C., Birmingham, Alabama, for Appellees. H. Naill Falls, Jr., FALLS & VEACH, Nashville, Tennessee, for Appellants. Peter Sean Fruin, Kathryn Roe Eldridge, MAYNARD, COOPER & GALE, P...|
|Judge Panel:||Before: COLE, Chief Judge; CLAY and GIBBONS, Circuit Judges.|
|Case Date:||May 19, 2016|
|Court:||United States Courts of Appeals, Court of Appeals for the Sixth Circuit|
Argued: April 19, 2016
Appeal from the United States District Court for the Western District of Tennessee at Memphis. Nos. 2:13-cv-02841; 2:13-cv-02839-Samuel H. Mays, Jr., District Judge.
H. Naill Falls, Jr., FALLS & VEACH, Nashville, Tennessee, for Appellants.
Peter Sean Fruin, MAYNARD, COOPER & GALE, P.C., Birmingham, Alabama, for Appellees.
H. Naill Falls, Jr., FALLS & VEACH, Nashville, Tennessee, for Appellants.
Peter Sean Fruin, Kathryn Roe Eldridge, MAYNARD, COOPER & GALE, P.C., Birmingham, Alabama, Kevin C. Logue, Kevin P. Broughel, PAUL HASTINGS LLP, New York, New York, Britt K. Latham, Joseph B. Crace, Jr., BASS, BERRY & SIMS PLC, Nashville, Tennessee, for Appellees.
Before: COLE, Chief Judge; CLAY and GIBBONS, Circuit Judges.
CLAY, Circuit Judge.
Plaintiffs, investors seeking recovery for substantial investment losses, appeal the district court's dismissal of their actions filed pursuant to the Securities Act of 1933, 15 U.S.C. §§ 77k, 77l, and 77o, the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b) and 78t(a), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5, as barred by the applicable statutes of limitations. We agree that these actions were untimely, and AFFIRM, but hold that they were barred by the applicable statutes of repose.
The remaining Plaintiffs on appeal, Andrew M. Stein, Stein Holdings, Inc., Stein Investments, LLC, (collectively, the "Stein Plaintiffs"), Warren Canale, and Canale Funeral Directors, Inc., (collectively, the "Canale Plaintiffs"), invested and lost significant amounts of money in five investment funds: the Regions Morgan Keegan Select High Income Fund, Inc., the RMK High Income Fund, the RMK Advantage Income Fund, the RMK Strategic Income Fund, and the RMK Multi-Sector High Income Fund, all of which are named as Defendants in this action (the "Funds"). The Select Fund is an open-end fund, while the rest are closed-end funds. After the Funds lost nearly 90% of their value in 2007 and 2008, management of the four closed-end funds was turned over to a different investment advisor in July 2008. The remaining funds were deemed "unsalvageable" at an indeterminate date. Some regulatory activity ensued in subsequent years, but Plaintiffs allege no further misconduct by any Defendant after the transfer of the closed-end funds. When Plaintiffs filed this action in 2013, they also named as Defendants the Funds' investment advisor, Regions Investment Management, Inc., and Regions Investment Management's two corporate parents, RFC Financial Holding, LLC and Regions Financial Corporation.
Plaintiffs allege that these catastrophic losses occurred because the Funds were overvalued and heavily concentrated in certain types of risky securities. According to Plaintiffs, Defendants unlawfully concealed the Funds' risks, overvaluation, and lack of diversification from investors and the SEC, and Plaintiffs relied on these material misrepresentations of fact in deciding to invest in the Funds. All Plaintiffs have previously sought recourse for their losses- either in arbitration, in court, or both.
Canale Funeral Arbitration
Plaintiffs' contracts with Morgan Keegan & Co., Inc.-which underwrote and provided services to the Funds but is not a defendant in this case-contained an arbitration clause covering "all controversies between you and Morgan Keegan (or any of Morgan Keegan's present or former officers, directors, agents or employees) which may arise from any account or for any cause whatsoever." (Stein R. 13–2 at Page ID 500; Canale R. 15–1, Client Agreement at Page ID 581.) In early 2008, Canale Funeral filed a statement of claim before the Financial Industry Regulatory Authority ("FINRA") alleging common law negligence and unsuitability, breach of fiduciary duty and breach of loyalty, breach of contract, common law fraud and misrepresentation, and violations of the Tennessee Blue Sky Laws and the Tennessee Consumer Protection Act. Canale Funeral's factual allegations were largely the same as in this action: the Funds made misrepresentations about the Funds' diversification, valuation, and degree of risk, on which Canale Funeral relied in deciding to invest in the Funds. These claims were denied with prejudice on July 10, 2009.
Stein Plaintiffs' Arbitration
On August 29, 2008, the Stein Plaintiffs filed a statement of claim against Morgan Keegan & Co., Inc. before FINRA alleging that the Funds' illiquidity, risk, and valuation had been misrepresented. Unlike Canale Funeral, the Stein Plaintiffs alleged violations of federal securities laws, including various sections of the Securities Act of 1933, the Securities Exchange Act of 1934, and SEC Rule 10b-5, nearly all of which they invoke again in this action. In their statement of claim, the Stein Plaintiffs also asserted violations of the Tennessee Securities Act, National Association of Securities Dealers (NASD) conduct rules, unsuitability, breach of fiduciary duty, negligence, failure to supervise, breach of contract, fraud, vicarious liability, and civil conspiracy. FINRA granted $2, 500, 000 in damages for unsuitability, negligence, and failure to supervise but denied all other claims, including the federal law claims, on February 19, 2010.
Stein Plaintiffs' 2008 Lawsuit
On August 29, 2008-the same day that they filed their FINRA claim-the Stein Plaintiffs filed a complaint in Tennessee state court, which did not name any Defendant in the present action, making largely the same factual claims and alleging violation of federal securities laws and the Tennessee Securities Act, civil conspiracy, and professional negligence. After the case was removed to the United States District Court for the Western District of Tennessee, but before the defendants had answered or filed a motion to dismiss, the Stein Plaintiffs voluntarily dismissed the case. On December 31, 2008, the district court entered an order and judgment dismissing the case without prejudice.
The Rice Action
On February 25, 2009, some nineteen investors filed suit in Alabama state court over their losses from the Funds in a case called Grantland Rice II, et al. v. Regions Financial Corporation, et al. An amendment to the amended complaint filed on January 5, 2010 added the Stein Plaintiffs and Warren Canale (but not Canale Funeral) as plaintiffs. The second amended Rice complaint, which named only Regions Financial Corporation and Regions Investment Management of the current Defendants, described the collapse of the Funds, and alleged the same misrepresentations with respect to risk, liquidity, and diversification.1 The Rice plaintiffs framed their claims solely in terms of state law, claiming common-law misrepresentation and fraudulent concealment, violation of several states' securities laws, negligent supervision, and conspiracy. After the trial court denied a motion to dismiss, the Rice defendants sought mandamus relief, which the Alabama Supreme Court granted in Ex parte Regions Fin. Corp., 67 So.3d 45 (Ala. 2010). The Alabama Supreme Court, applying Maryland law, held that the Rice plaintiffs' claims were derivative and directed the trial court to dismiss the suit because the plaintiffs had not complied with Alabama procedural requirements for initiating a derivative action. Id. at 55–56. The trial court entered an order dismissing the action with prejudice on January 17, 2011.
Actions by other plaintiffs
Plaintiffs in this action were hardly the only RMK investors to seek recourse in the courts. Two class actions, In re: Morgan Keegan Open-End Mutual Fund Litig., No. 2:07-cv-2784, and Willis, et al. v. Morgan Keegan & Company, Inc. et al., No. 2:07-cv-2830, were filed in the United States District Court for the Western District of Tennessee in December 2007. After numerous suits were filed in various fora, the Judicial Panel on Multidistrict Litigation transferred the remaining lawsuits to the United States District Court for the Western District of Tennessee in February 2009. The district court provisionally certified a class for settlement purposes in In re: Morgan Keegan on November 30, 2015. The district court approved the settlement in Willis and certified the class action on August 5, 2013.
On October 25, 2013, the Stein Plaintiffs and the Canale Plaintiffs each filed nearly identical six-count complaints in the United States District Court for the Western...
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