As You Sow v. Aig Financial Advisors, Inc., 3:06-01171.

• Decision Date: 26 March 2008
• Docket Number: No. 3:06-01171.,3:06-01171.
• Citation: 584 F.Supp.2d 1034
• Parties: AS YOU SOW, as Sponsor of the As You Sow 401(k) Retirement Savings Plan, Deborah Niedermeyer, Trustee for the Deborah Niedermeyer Individual 401(k), Brian K. Allen, Trustee for the Brian Allen Photo Individual 401(k), Herbert E. Pounds, Jr., PC, as Sponsor of the Herbert E. Pounds, Jr., PC 401(k) Plan, RCSIM, Inc., as Sponsor Of the RCSim, Inc., 401(k) Plan, Robert C. Rosson, Edgar C. Phillips and James Edward Simpson, Plaintiffs, v. AIG FINANCIAL ADVISORS, INC., and Spelman & Co., Inc., Defendants.
• Court: U.S. District Court — Middle District of Tennessee

584 F.Supp.2d 1034

AS YOU SOW, as Sponsor of the As You Sow 401(k) Retirement Savings Plan, Deborah Niedermeyer, Trustee for the Deborah Niedermeyer Individual 401(k), Brian K. Allen, Trustee for the Brian Allen Photo Individual 401(k), Herbert E. Pounds, Jr., PC, as Sponsor of the Herbert E. Pounds, Jr., PC 401(k) Plan, RCSIM, Inc., as Sponsor Of the RCSim, Inc., 401(k) Plan, Robert C. Rosson, Edgar C. Phillips and James Edward Simpson, Plaintiffs, v. AIG FINANCIAL ADVISORS, INC., and Spelman & Co., Inc., Defendants.

No. 3:06-01171.

United States District Court, M.D. Tennessee, Nashville Division.

March 26, 2008.

COPYRIGHT MATERIAL OMITTED

MEMORANDUM

WILLIAM J. HAYNES, JR., District Judge.

Plaintiffs, As You Sow, as Sponsor of the As You Sow 401(k) Retirement Savings Plan; Deborah Niedermeyer, Trustee for Deborah Niedermeyer Individual 401(k); Brian K. Allen, Trustee for the Brian Allen Photo Individual 401(k); Herbert E. Pounds, Jr., PC, as Sponsor of the Herbert E. Pounds, Jr., PC 401(k) Plan; RCSIM, Inc., as Sponsor of the RCSIM, Inc., 401(k) Plan, Robert C. Rosson, Edgar C. Phillips and James Edward Simpson, citizens of several states filed this action under 28 U.S.C. § 1332, the federal diversity statute against the Defendants: AIG Financial Advisors, Inc., ("AIG") and Spelman & Co., Inc. ("Spelman"), Delaware corporations. Plaintiffs assert claims under the Tennessee Securities Act, Tenn. Code Ann. § 48-1-101 et seq. as well as various state common law claims for negligent and grossly negligent supervision and fraud. Plaintiffs' claim arise from their placement of their "retirement assets" with Barry Stokes and his 1 Point Solutions, LLC, company ("1 Point Solutions") during the period from 2002 through 2006. In essence, Plaintiffs contend that Stokes and 1 Point Solutions misappropriated their assets. Plaintiffs allege that Stokes and 1 Point Solutions were agents of the Defendants and that each Defendant is liable as a "control person" under Tennessee securities law and are also liable for Plaintiffs' common law claims under the doctrine of respondent superior and agency for Stokes's theft of Plaintiffs' retirement assets.

Before the Court is the Defendants' motion to dismiss (Docket Entry No. 8), contending, in sum, that Plaintiffs' claims are preempted by the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1111 et seq. In addition, Defendants argue that as plan sponsors or plan trustees, Plaintiffs lack standing to maintain their TSA claims because Plaintiffs were neither purchasers nor sellers of securities nor are they injured parties under the TSA. Defendants further assert that neither of them is "control person" under the TSA nor was Stokes acting within the scope of his relationship with Defendants when he stole the Plaintiffs' assets that were placed with 1 Point. Defendants insist that they did not owe any legal duty to Plaintiffs to justify their common law claims. Finally, Defendants contend that Plaintiffs' first amended complaint lacks the requisite degree of particularity as to the time, place or content for their fraud claims.

In response, Plaintiffs assert, in essence, that ERISA is inapplicable to their claims because the Defendants are not ERISA fiduciaries and Sixth Circuit and other circuits allow an ERISA plan to assert state law claims against non-fiduciaries. Plaintiffs contend that as the actual purchasers of the stock for its members, Plaintiffs possess standing to assert their claims. In addition, Plaintiffs argue that Tennessee's securities law has a broader definition of a "controlling person" than federal securities law and does not require the Defendants' actual participation in their registered agent's conduct. Finally, Plaintiffs assert that their common law claims are adequately pled.

A. Analysis of the First Amended Complaint

According to Plaintiffs' first amended complaint,¹ Stokes and 1 Point Solutions had offices in Dickson, Tennessee and provided various financial and investment services for Plaintiffs' retirement account assets. (Docket Entry No 46, First Amended Complaint at ¶ 11). Plaintiffs allege that Stokes was a registered securities representative and investment advisor of AIG and/or Spelman during the years 2002-2006. Plaintiffs entrusted Stokes and 1 Point Solutions that Stokes operated, to use their monies to purchase securities and to provide assistance and investment services for their 401(k) plans and individual retirement plans. These plans typically invested in securities. Plaintiffs alleged that "1 Point Solutions provided plaintiffs with forms that allowed them to select from a list of options the specific securities in which their assets would be invested by 1 Point Solution". Id. ¶ 15. Further, "1 Point Solutions mailed plaintiffs periodic statements purporting to provide details about the securities in which plaintiffs' money had allegedly been invested". Id. 16. In a word, during this time period, Plaintiffs allege that "Stokes stole the money that Plaintiffs transferred to him" and misappropriate Plaintiffs' assets. ¶¶ 17 and 19. Stokes allegedly created fictitious account statements to cover his theft. Id. at ¶ 17.

As to Stokes' relationship with Defendants, Plaintiff alleged that from 2002 to 2006, Stokes was a registered securities representative with the Defendants AIG and/or Spelman. Id. at ¶ 12. Plaintiffs also allege that the Defendants were aware that Stokes was doing business through 1 Point Solutions, id. at ¶¶ 20-28, but that Stokes was the primary violator of the trust that Plaintiffs vested in him at ¶¶ 11, 17, 19 and 34. Plaintiffs allege that under National Association of Securities Dealers ("NASD") rules, Defendants imposed a standard upon the Defendants' to supervise Stokes's securities related activity so as to prevent him from engaging in his improper activities to their detriment. Id. at ¶¶ 29 and 32.

B. Conclusions of Law

In deciding a Rule 12(b)(6) motion to dismiss, the Court can grant the motion only if the complaint's allegation "raise a right to belief above the speculative level." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1964-65, 167 L.Ed.2d 929 (2007). Yet, "the allegations of the complaint should be construed favorably to the pleader" Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974) and the Court must "treat all of the well-pleaded allegations of the complaint as true". Miree v. DeKalb County, Ga., 433 U.S. 25, 27 n. 2, 97 S.Ct. 2490, 53 L.Ed.2d 557 (1977).

1. ERISA Preemption

Defendants argue that ERISA preempts Plaintiffs' state law claims. The Supreme Court has observed that ERISA is "virtually unique with respect to federal statutes in that Congress expressed its clear intent that the federal courts exercise exclusive jurisdiction over claims arising under funds or plans regulated by the ERISA statute." Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983). As the Supreme Court observed:

The statute further states that "the district courts of the United States shall have exclusive jurisdiction of civil actions under this subchapter brought by the Secretary or by a participant, beneficiary, or fiduciary," except for actions by a participant or beneficiary to recover benefits due, to enforce rights under the terms of a plan, or to clarify rights to future benefits, over which state courts have concurrent jurisdiction. § 502(e)(1), 29 U.S.C. § 1132(e)(1). In addition, ERISA's legislative history indicates that, in light of the act's virtually unique preemption provision, see § 514, 29 U.S.C. § 1144, "a body of Federal substantive law will be developed by the courts to deal with issues involving rights and obligations under private welfare and pension plans." 120 Cong. Rec. 29, 942 (1974) (remarks of Sen. Javits).

Id. at 24, n. 26, 103 S.Ct. 2841 (citation omitted and emphasis added).

Yet, ERISA expressly excepts from its preemption "any law of any State which regulates ... securities." 29 U.S.C. § 1144(b)(2)(A). The extent of this statutory exception from ERISA's preemption turns on "the nature of the claim." Smith v. Provident Bank, 170 F.3d 609, 613 (6th Cir.1999) and whether the state law at issue "substantively regulates a relationship or merely provides alternative remedies." Id. at 615.

Here, the TSA extensively regulates the sales of securities and the relationship of securities dealers and their registered agents. Tenn, Code Ann. §§ 48-2-102 through 48-2-126. As to relationship of agents and securities dealers, Tenn. Code Ann. § 48-2-109(a) provides: "it is unlawful for any person to transact business from or in this state as a broker-dealer or agent unless such person is registered as a broker-dealer or agent under this part ...". Tenn Code Ann. § 48-2-109(b) reads: "The registration of an agent is not effective during any period when the agent is not associated with a particular broker-dealer registered under this part." Tennessee regulates securities in great detail. See Tenn. Admin. R & Regs. Ch. 0780-4-1 through 0780-4-4, comprising eighty four (84) pages. Tennessee has a separate set of regulations on securities dealers and their agents. Tenn. Admin. R & Regs. Ch. 0780-4-3.01 through 0780-4-3.15 that total forty nine (49) pages, including the requirements and prohibited acts of agents. See Tenn. Admin. R & Regs. Ch. 0780-4-3.02.

The Court concludes that Plaintiffs' TSA claims are not preempted by ERISA because the TSA extensively regulates the sales and management of securities, including the relationship between agent and securities dealers.

As to Plaintiffs' common law negligence and fraud claims, Plaintiffs pursue state law claims against the Defendants that are non-fiduciaries. Although ERISA provides the exclusive federal remedy for an ERISA plan, Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987), including remedies...