Burdick v. Horner Townsend & Kent, Inc.

• Decision Date: 23 January 2015
• Docket Number: No. 20110479.,20110479.
• Citation: Burdick v. Horner Townsend & Kent, Inc., 345 P.3d 531, 2015 UT 8 (Utah 2015)
• Court: Utah Supreme Court
• Parties: J. Frank BURDICK; Jimmy V. Henrie; Grant B. Howell; Ella Dean Hunter; Terry L. Jordan; Richard Manus ; Teresa Manus; Michael Marquez; Teri Marquez; Lurene Swinburne, Personal Representative, for and on Behalf of the Estate of Robert D. Swinburne; and Wylma Temples, Appellants, v. HORNER TOWNSEND & KENT, INC.; Jeffrey C. Campbell; Five Star Financial Group, Appellees.

345 P.3d 531

2015 UT 8

J. Frank BURDICK; Jimmy V. Henrie; Grant B. Howell; Ella Dean Hunter; Terry L. Jordan; Richard Manus ; Teresa Manus; Michael Marquez; Teri Marquez; Lurene Swinburne, Personal Representative, for and on Behalf of the Estate of Robert D. Swinburne; and Wylma Temples, Appellants

v.HORNER TOWNSEND & KENT, INC.; Jeffrey C. Campbell; Five Star Financial Group, Appellees.

No. 20110479.

Supreme Court of Utah.

Jan. 23, 2015.

Fred R. Silvester, Spencer C. Siebers, Salt Lake City, for appellants.

John P. Harrington, Sherilyn A. Olsen, Salt Lake City, for appellees.

Associate Chief Justice NEHRING authored the opinionthe Court, in which Chief Justice DURRANT, Justice DURHAM, Justice PARRISH, and Justice LEE joined.

Associate Chief Justice NEHRING, opinion of the Court:

INTRODUCTION

¶ 1 Disappointed investors filed suit against their investment agent, Jeffrey Campbell, and his former employer, Hornor, Townsend & Kent, Inc.(HTK), alleging that Mr. Campbell and HTK were liable for losses sustained in an investment scam.Mr. Campbell pleaded guilty to the sale of unregistered securities related to the investment scam and was ordered to pay restitution.The district court granted summary judgment in favor of HTK on plaintiffs' claims of securities violations, negligent misrepresentation, and negligent training and supervision.The district court also granted summary judgment in favor of HTK regarding a release signed by one investor.Plaintiffs appeal the grant of summary judgment on the above issues.The district court also denied plaintiffs' motion for reconsideration where they raised claims for negligence, control-person liability, and material aid.Additionally, plaintiffs appeal the rejection of reasonable attorney fees with respect to the resolution of the claims against Mr. Campbell.We affirm in part and reverse and remand in part.

BACKGROUND

I.FACTUAL BACKGROUND

¶ 2 HTK is a broker-dealer licensed to sell securities in the state of Utah.HTK licenses registered representatives to sell securities and other investment products.In July 2001, Mr. Campbell became a registered representative of HTK.Before becoming a registered representative of HTK, Mr. Campbell created a “doing business as” entity named Five Star Financial Group (FSFG), which, according to Mr. Campbell, was for marketing purposes.Mr. Campbell intended FSFG to allow him to change his broker-dealer affiliation without having to change his business name in order to maintain name recognition.FSFG never became a separate legal entity, but was a marketing name for Mr. Campbell.FSFG maintained an office at 70 W. Main Street, Price, Utah.In addition to Mr. Campbell, FSFG consisted of Frank Wheeler, Mary Alger, and Fred Davis.Mr. Davis, Mr. Wheeler, and Ms. Alger were also registered representatives of HTK.

¶ 3 In mid–2002, Mr. Campbell was approached by Michael Fitzgerald about selling investments in Beverly Hills Development Corporation(BHDC).BHDC sold investments in the form of promissory notes, supposedly backed by real estate, which would be developed and sold to repay investors at a rate of return of 12 percent per annum.Mr. Campbell inquired whether the BHDC notes were securities, to which Mr. Fitzgerald responded that the promissory notes were not securities.Following his meetings with Mr. Fitzgerald, Mr. Campbell called his supervisors at HTK, informed them he was investigating the possibility of selling BHDC notes, and inquired how that would affect his current relationship with HTK.Mr. Campbell met with one of his supervisors, Monty Andrus, in person.Mr. Andrus was a registered principal of HTK operating under the name Cambridge Financial whose primary responsibilities included hiring agents after initial approval by HTK, conducting yearly compliance interviews and site visits, and supervising registered agents within his region.Mr. Andrus's region included FSFG and its registered agents.At their meeting, Mr. Campbell informed Mr. Andrus that he was surrendering his securities license in order to sell BHDC notes and that the surrender was to avoid “a possible conflict with the sale of [BHDC] promissory notes.”Mr. Campbell submitted a resignation letter on October 17, 2002, requesting inactivation of his securities license, while maintaining his ability to sell insurance investments through Penn Mutual Life Insurance (Penn Mutual).Mr. Campbell then began selling BHDC notes and was paid $10,000 per month.

¶ 4 Mr. Campbell sold BHDC notes from his office at FSFG.Mr. Campbell informed the other agents in his office that he had inactivated his securities license in order to sell BHDC notes.Around the time Mr. Campbell inactivated his license, Mr. Andrus told Mr. Wheeler, Ms. Alger, and Mr. Davis they should distance themselves from Mr. Campbell and “cut a clear line so that clients would not perceive that [they] were involved” in the sale of BHDC notes.Neither Mr. Andrus nor Terry Boulter, the compliance officer working with Mr. Andrus at Cambridge Financial, detailed any other specific steps for the remaining HTK registered representatives to take in separating themselves from Mr. Campbell.The other agents attempted to distance themselves by refraining from endorsing BHDC notes in any way or meeting clients together with Mr. Campbell.The remaining HTK agents continued to operate out of the same office building as Mr. Campbell and continued to use the FSFG name through 2003.There was no change in the office configuration, phone or fax numbers, or office signage following the termination of Mr. Campbell's relationship with HTK.Mr. Campbell continued to share computer systems, including access to all customer data, with the other agents in the FSFG office, all of whom were registered representatives of HTK.Ms. Alger continued to use the same shared computer system to prepare paperwork and maintain customer files for Mr. Campbell.At some point in 2003, Mr. Wheeler, Ms. Alger, and Mr. Davis discontinued operating under the FSFG name and began using the Cambridge Financial name.

¶ 5 From October 2002 to September 2003, Mr. Campbell solicited investments from and sold BHDC notes to plaintiffs.Plaintiffs began their investing relationships with Mr. Campbell at different times.Before his affiliation with HTK, Mr. Campbell had been affiliated with another broker-dealer, and during that time sold various investment products to plaintiffsJimmie Henrie, Robert Swinburne, and Ella Dean Hunter.Mr. Henrie, Mr. Swinburne, and Ms. Hunter did not purchase any HTK-approved investment products from Mr. Campbell while he was affiliated with HTK as a registered representative.During his time as an HTK registered representative, Mr. Campbell sold various HTK-approved investment products to plaintiffsFrank Burdick, Wylma Temples, and Richard and Teresa Manus.The remaining plaintiffs—Terry Jordan, Loralyn Thayn, and Michael and Teri Marquez—began their investment relationship with Mr. Campbell only after his resignation from HTK, and they purchased only BHDC notes from Mr. Campbell.

¶ 6Plaintiffs received monthly statements from BHDC, listing the Price, Utah, address of FSFG through January 2004.In February 2004, the BHDC monthly statements began listing the name Michael Fitzgerald and a different address in Alpine, Utah.In March, payments began to slow, and plaintiffs became worried about their investments.On April 1, 2004, Mr. Campbell met with the plaintiffs and informed them that Mr. Fitzgerald's brother, also involved in the BHDC notes, had left the country with their money, which precipitated the litigation in this case.

II.PROCEDURAL BACKGROUND

¶ 7Plaintiffs originally filed suit against HTK, FSFG, Mr. Campbell, and Mr. Wheeler on March 3, 2006.HTK filed a timely answer to plaintiffs' complaint and a cross-claim against Mr. Campbell and Mr. Wheeler, alleging deceptive trade practices, breach of contract against Mr. Wheeler, and indemnification against Mr. Wheeler.Following several rounds of discovery, plaintiffs were granted leave to file a Third Amended Complaint.In the Third Amended Complaint, plaintiffs alleged four securities violations, fraud, fraudulent concealment, negligent misrepresentation, breach of fiduciary duty, civil conspiracy, and negligent training and supervision.The four securities violations alleged were for material misrepresentations and omissions, the sale of unregistered securities, the sale of unsuitable securities, and the sale of securities by an unlicensed broker-dealer.HTK filed a timely answer to the Third Amended Complaint.During discovery, plaintiffs stipulated to and the court ordered dismissal of the claims for civil conspiracy, fraud, fraudulent concealment, breach of fiduciary duty, and the sale of securities by an unlicensed agent or broker-dealer.While discovery was continuing on plaintiffs' claims, Mr. Campbell pleaded no contest to one count of selling unregistered securities, was granted a plea in abeyance, and was ordered to pay restitution.

¶ 8 Following additional discovery, the district court granted HTK's motion for summary judgment against plaintiffGrant Howell on January 11, 2008, based on a release (Release) between Mr. Howell and Penn Mutual Life Insurance, the parent company of HTK.The district court granted summary judgment after ruling the Release was clear and unambiguous.Additional discovery was allowed to determine if the Release was procured by fraud or mistake.Mr. Howell filed a Motion to Set Aside Summary Judgment, which was denied, and the district court granted HTK's Second Motion for Summary Judgment after deciding that the Release was not procured by fraud or mistake.

¶ 9 Mr. Wheeler sought summary judgment against all plaintiffs.Plaintiffs did not oppose Mr. Wheeler's motion for summary judgment; thus, the district court entered summary judgment in favor of Mr. Wheeler and dismissed plaintiffs' claims against him with prejudice.

¶ 10 In April 2009, HTK...