Brady v. Ashcroft
| Decision Date | 18 January 2022 |
| Docket Number | WD84470 |
| Parties | SEAN A. BRADY, Respondent, v. JOHN R. ASHCROFT and DAVID M. MINNICK, Appellants. |
| Court | Missouri Court of Appeals |
Appeal from the Circuit Court of Cole County The Honorable Jon E Beetem, Judge.
Before: Alok Ahuja, P.J., Mark D. Pfeiffer, J., and W. Ann Hansbrough, Sp.J.
The Securities Division of the Office of the Secretary of State filed an administrative petition requesting that the Commissioner of Securities order civil penalties restitution, and other remedies against Sean A. Brady. The petition alleged that Brady had violated multiple provisions of the Missouri Securities Act of 2003, § 409.1-101 et seq., [1] while acting as an investment adviser.
While the Securities Division's administrative petition was pending, Brady filed a petition for a writ of prohibition in the Circuit Court of Cole County, contending that the Commissioner lacked authority to take enforcement action against him. The circuit court granted a writ of prohibition barring the Commissioner from proceeding. The circuit court concluded that the Commissioner lacked regulatory jurisdiction over Brady because he was no longer a "registrant" subject to the strictures of the Securities Act. The court also concluded that the administrative enforcement action was barred because Brady had reached a settlement with the private investors he was accused of defrauding.
The Commissioner appeals. Because we conclude that the Commissioner has statutory authority to proceed against Brady on at least some of the legal theories asserted in the Securities Division's petition, we reverse the circuit court's judgment.
We recite the underlying facts as alleged in the Securities Division's administrative petition. We assume these facts to be true for purposes of the present appeal.
Between 2012 and 2017, Brady was employed as an investment adviser representative and broker-dealer agent with First Allied Securities, Inc. Brady was based in the St. Louis area. He was registered with the Commissioner of Securities under the Securities Act.
First Allied terminated Brady's employment on October 20, 2017 based on Brady's violations of First Allied policies and procedures, including falsifying client signatures on documents. First Allied filed a Uniform Termination Notice for Securities Industry Registration (Form U-5) with the Financial Industry Regulatory Authority ("FINRA"), a private investment-industry self-regulatory agency. FINRA investigated Brady's termination, and subsequently barred him from the securities industry on May 20, 2018. First Allied's termination of Brady's employment caused his registration with the Commissioner to become ineffective. See § 409.4-404(c).
Brady's alleged acts of misconduct involve his dealings with ten investors, nine of whom were Missouri residents, and one a Florida resident. Brady and First Allied entered into settlement agreements with all ten of the affected investors in 2019. Each of the settlements contained a broad release clause, in which the investors released all claims against Brady and First Allied based on the underlying transactions at issue here, on their own behalf and on behalf of "anyone claiming through or under them."
On April 22, 2020, the Enforcement Section of the Secretary of State's Securities Division filed its Petition for Order to Cease and Desist and Order to Show Cause Why Restitution, Civil Penalties, Costs and Other Administrative Relief Should Not Be Imposed. The petition was filed before the Commissioner. See 15 CSR 30-55.010(1)(A). The Securities Division's claims relate to transactions which occurred between 2010 and September 2017, in which Brady recommended and sold various real estate investment trusts ("REITs") and variable annuities to the ten investors. The petition alleged that Brady: forged the investors' signatures on transaction documents; invested the investors' money in REITs and variable annuities without the investors' knowledge or consent; directed the investors' funds to investments which were unsuitable given the investors' investment objectives and risk tolerance; and made misrepresentations to the investors concerning the financial instruments in which he advised them to invest. The petition alleged that Brady's actions constituted dishonest and unethical practices in violation of § 409.4-412(d), employed a device to defraud in violation of § 409.5-502, and subjected Brady to discipline under § 409.6-604. (In the remainder of this opinion we frequently omit the reference to chapter 409 in our citation to relevant provisions of the Securities Act.)
The Securities Division's administrative petition requested multiple forms of relief. It prayed that the Commissioner order Brady to cease and desist from engaging in similar misconduct. It also requested that the Commissioner order Brady to pay civil penalties for violations of §§ 4-412(d)(5), 4-412(d)(13), and 5-502. The petition requested that Brady be ordered "to pay restitution for any loss" with interest, and that he be ordered "to disgorge at least $422, 872 as profits in the form of commissions" arising from his violations of the Securities Act. Finally, the petition prayed that the Securities Division recover from Brady its costs of investigation, and "such other relief as [the Commissioner] deems just."
Brady filed a Motion to Dismiss the Securities Division's petition on July 10, 2020, arguing that the Commissioner lacked subject matter jurisdiction, that the Securities Division's claims were barred by the statute of limitations, and that the Securities Division should not be allowed to obtain restitution for investors in excess of the settlement amounts to which those investors had previously agreed. The Commissioner denied Brady's Motion to Dismiss on July 22, 2020. The case was scheduled for a final administrative hearing commencing on August 25, 2020.
On August 6, 2020, Brady filed a petition for a writ of prohibition in the Circuit Court of Cole County, seeking to prohibit the Commissioner from conducting further proceedings in the administrative enforcement action. Following briefing and argument, the circuit court granted a writ of prohibition barring the Commissioner from proceeding further in the administrative case. The circuit court held that the Commissioner did not have jurisdiction over Brady under § 4-412(c), because the statute only applies to current "registrants," or those who have held registration within the year prior to the filing of an administrative petition. The circuit court also held that Missouri's common law rule against double recovery prevented the Commissioner from seeking relief on behalf of the investors whom Brady had defrauded, given that those investors had settled their personal claims directly with First Allied and Brady. The circuit court ordered that the Commissioner and the Secretary of State "cease, desist, and refrain from taking any further action against Relator Sean A. Brady in the Enforcement Action other than dismissing the Enforcement Action Petition and all of its claims with prejudice."
The Commissioner appeals.
"The writ of prohibition, an extraordinary remedy, is to be used with great caution and forbearance and only in cases of extreme necessity." State ex ret. Douglas Toyota III, Inc. v. Keeter, 804 S.W.2d 750, 752 (Mo. 1991) (citing Derfelt v. Yocom, 692 S.W.2d 300, 301 (Mo. 1985)). The Missouri Supreme Court has limited "the use of prohibition to three, fairly rare categories of cases." State ex rel. Riverside Joint Venture v. Missouri Gaming Comm'n, 969 S.W.2d 218, 221 (Mo. 1998) (citing State ex rel. Noranda Aluminum, Inc. v. Rains, 706 S.W.2d 861, 862- 63 (Mo. 1986)).
First, prohibition lies where a judicial or quasi-judicial body lacks personal jurisdiction over a party or lacks jurisdiction over the subject matter the body is asked to adjudicate. Second, prohibition is appropriate where a lower tribunal lacks the power to act as contemplated. Third, prohibition will issue in those very limited situations when an "absolute irreparable harm may come to a litigant if some spirit of justifiable relief is not made available to respond to [an administrative agency's or] a trial court's order," or where there is an important question of law decided erroneously that would otherwise escape review on appeal and the aggrieved party may suffer considerable hardship and expense as a consequence of the erroneous decision.
Id. (citations omitted); see also State ex rel. Zimmerman v. Blanc, 548 S.W.3d 396, 401 (Mo. App. W.D. 2018).
A writ of prohibition is discretionary. State ex rel. Rosenberg v. Jarrett, 233 S.W.3d 757, 760 (Mo. App. W.D. 2007). The circuit court's judgment granting such a writ is accordingly reviewed for an abuse of discretion. A circuit court abuses its discretion when its "ruling is clearly against the logic of the circumstances then before the court and is so unreasonable and arbitrary that it shocks the sense of justice and indicates a lack of careful, deliberate consideration." Hancock v. Shook, 100 S.W.3d 786, 795 (Mo. 2003). "If reasonable persons can differ as to the propriety of the trial court's action, then it cannot be said that the trial court abused its discretion." Id. (citation omitted).
State v. Carpenter, 605 S.W.3d 355, 359 (Mo. 2020) (quoting State v. Taylor, 298 S.W.3d 482, 492 (Mo. 2009)); see also Bohrn v. Klick, 276 S.W.3d 863, 865 (Mo. App. W.D. 2009) (...
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