Arioli v. Prudential-Bache Securities, Inc.

Decision Date14 May 1992
Docket NumberNo. 87-70312.,87-70312.
PartiesEdward ARIOLI, Sandra L. Arioli, Dean E. Huber, Mary Ann Huber, John J. Laga, Jr., Denise Laga, Robert E. Wolfe, Lawrence A. Brainard, Rebecca S. Brainard, the Edward Arioli Revocable Trust, the Sandra L. Arioli Revocable Trust, the Dean E. Huber Revocable Trust, the Mary Ann Huber Revocable Trust, the John J. Laga, Jr. Revocable Trust and the Denise Laga Revocable Trust, Plaintiffs, v. PRUDENTIAL-BACHE SECURITIES, INC., Ronald J. Chewning, Terrence W. Sullivan, Equitec Venture Leasing Investors, 1984 Polaris Aircraft Trust VIII, 1984 Polaris Aircraft Trust IX, 1985 Polaris Aircraft Investors XII-A & XII-B, 1984 Polaris Aircraft Investors V Program, Daniel Properties VII, Franklin Stonemill Associates, Bordeaux Partners, Ltd. and Almahurst Bloodstock II, Defendants.
CourtU.S. District Court — Western District of Michigan

COPYRIGHT MATERIAL OMITTED

Stephen M. Ryan, MacDonald & Goren, Birmingham, Mich., for plaintiff, Arioli.

Lyle D. Russell, Jr., Frank & Stefani, Troy, Mich., for plaintiff, Brainard.

Michael G. Vartanian, Dickinson Wright, Detroit, Mich., for defendant Chewning.

OPINION AND ORDER

GADOLA, District Judge.

Plaintiffs Edward Arioli, Sandra L. Arioli the "Ariolis", Dean E. Huber, Mary Ann Huber the "Hubers",1 John J. Laga and Denise Laga the "Lagas",2 individually and as trustees for their respective revocable trusts which are also plaintiffs, Robert E. Wolfe,3 Lawrence A. Brainard and Rebecca S. Brainard the "Brainards" filed their initial complaint January 30, 1987. Subsequently, through various amended complaints by different parties, plaintiffs filed a joint, second amended complaint November 18, 1988, against defendants Prudential-Bache Securities, Inc. "Prudential", Ronald J. Chewning and Terrence W. Sullivan.4

Defendants filed separate motions for partial summary judgment against the Brainards and the Ariolis December 29, 1988. The Brainards filed a motion for partial summary judgment that same day. Defendants have acknowledged that the claims in their motions are identical for all the plaintiffs and therefore treat the motions as one. Pursuant to a January 31, 1990 stipulation and order, the Brainards and the Ariolis have filed a joint response to the two motions dated May 1, 1990. Defendants filed a reply to the joint response May 23, 1990.

By this court's August 17, 1990 order, the defendants' motion and the Brainards' motion were referred to Magistrate Judge Paul J. Komives for a report and recommendation. On October 22, 1990, the magistrate judge issued his report and recommended denying in part defendants' motions for partial summary judgment and denying in part the Brainards' motion for partial summary judgment. Defendants filed objections to the report and recommendation November 5, 1990. The Ariolis responded January 22, 1991. Defendants filed supplemental briefs November 30, 1990, and July 2, 1991. The Ariolis filed supplemental responses October 15, 1991, October 23, 1991, and January 7, 1992. The Brainards filed responses September 26, 1991, and January 10, 1992. Because this court concurs in the result but differs in its interpretation of the law, the magistrate judge's report is rejected.

FACTS

Each of the plaintiffs established one or more securities accounts at Prudential through which they purchased various limited partnerships, stock and options recommended by Sullivan, an account executive at Prudential. Sullivan operated out of Prudential's Bingham Farms, Michigan branch office where Chewning was the branch office manager.

Plaintiffs were introduced to Sullivan by Edward Arioli. Sandra Arioli became acquainted with Sullivan when Sullivan was working at Dean Witter Reynolds Securities, Inc. "Dean Witter". At that time, Edward Arioli owned a controlling interest in a small, closely-held medical supply business called Mid-States Medical Supply Company "Mid-States". Mid-States' minority shareholders included Dean Huber. Robert Wolfe and John Laga were Mid-States employees. With Edward Arioli as their leader, Dean Huber and John Laga built a successful business, which Edward Arioli caused to be sold to a publicly-held company called Foster Medical for stock and cash. Each of the shareholders of Mid-States and certain key employees received employment contracts with Foster Medical and lump-sum, cash distributions as well as Foster Medical stock. They continued to work for Foster Medical after the buyout under the purchase agreement.

Lawrence Brainard also owned a business which he had sold to Foster Medical. Brainard was employed by Foster Medical as part of his buyout. Edward Arioli and John Laga, in the course of their employment with Foster Medical, met Lawrence Brainard and recommended Sullivan to him.

Sullivan was introduced to each of the plaintiffs as a vice-president of Prudential, having an expertise in financial planning and tax shelters. Plaintiffs have similar backgrounds and financial situations, i.e., virtually no prior investment experience in stocks, bonds, tax shelters, limited partnerships, or stock or commodity options or commodity futures. Each of the plaintiffs had come into a substantial sum of money, and each needed investment advice and counsel. Plaintiffs allege that Sullivan took advantage of their lack of sophistication or their travel schedules or the stress of business and also allege that Prudential's checks and balances either did not exist or were willfully ignored, both by Sullivan and Chewning.

Plaintiffs filed their second amended complaint November 18, 1989, which alleges

1. claims under the general Anti-Fraud provisions of the Securities Act of 1933 the "the 1933 Act", sections 12(2) and 15, 15 U.S.C. §§ 77l(2) & 77o;
2. claims under the general Anti-Fraud provisions of the Securities and Exchange Act of 1934 the "1934 Act", section 10(b), 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5;
3. claims under the Michigan Uniform Securities Act, Mich.Comp.Laws Ann. § 451.10(a) 451.810(a);
4. claims under the Michigan Consumer Protection Act, Mich.Comp.Laws Ann. §§ 455.901-.922 445.901-.922;
5. claims under the Securities Act of Washington, Wash.Rev.Code § 21.20.005;
6. claims under the Washington Consumer Protection Act, Wash.Rev.Code § 19.86.010;
7. claims under the Racketeer Influenced and Corrupt Organizations Act "RICO", 18 U.S.C. §§ 1961-68; and 8. claims under the common law for
a. fraud and misrepresentation,
b. breach of contract,
c. negligence, and
d. breach of fiduciary duty.
STANDARDS OF REVIEW

Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment may be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." "A fact is `material' and precludes grant of summary judgment if proof of that fact would have the effect of establishing or refuting one of the essential elements of the cause of action or defense asserted by the parties, and would necessarily affect the application of appropriate principles of law to the rights and obligations of the parties." Kendall v. Hoover Co., 751 F.2d 171, 174 (6th Cir. 1984) (quoting Black's Law Dictionary 881 (6th ed. 1979)) (citation omitted). The Court must view the evidence in a light most favorable to the nonmovant as well as draw all reasonable inferences in the nonmovant's favor. See United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962); Bender v. Southland Corp., 749 F.2d 1205, 1210-11 (6th Cir.1984).

The movant bears the burden of demonstrating the absence of all genuine issues of material fact. See Gregg v. Allen-Bradley Co., 801 F.2d 859, 861 (6th Cir. 1986). The initial burden on the movant is not as formidable as some decisions have indicated. The moving party need not produce evidence showing the absence of a genuine issue of material fact; rather, "the burden on the moving party may be discharged by `showing' — that is, pointing out to the district court — that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986). Once the moving party discharges that burden, the burden shifts to the nonmoving party to set forth specific facts showing a genuine triable issue. Fed.R.Civ.P. 56(e); Gregg, 801 F.2d at 861.

To create a genuine issue of material fact, however, the nonmovant must do more than present some evidence on a disputed issue. As the United States Supreme Court stated in Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986),

There is no issue for trial unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If the nonmovant's evidence is merely colorable, or is not significantly probative, summary judgment may be granted.

(Citations omitted); see also Celotex, 477 U.S. at 322-23, 106 S.Ct. at 2552-53; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986). The standard for summary judgment mirrors the standard for a directed verdict under Fed. R.Civ.P. 50(a). Anderson, 477 U.S. at 250, 106 S.Ct. at 2511. Consequently, a nonmovant must do more than raise some doubt as to the existence of a fact; the nonmovant must produce evidence that would be sufficient to require submission of issue to the jury. Lucas v. Leaseway Multi Transp. Serv., Inc., 738 F.Supp. 214, 217 (E.D.Mich.1990), aff'd, 929 F.2d 701 (6th Cir.1991). The evidence itself need not be the sort admissable at trial. Ashbrook v. Block, 917 F.2d 918, 921 (6th Cir.1990). However, the evidence must be more than the nonmovant's own pleadings and affidavits. Id.

Upon a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) or 12(c), all...

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