Hedquist v. Merrill Lynch, Pierce, Fenner

• Decision Date: 21 March 2007
• Docket Number: No. A06A1785.,A06A1785.
• Citation: Hedquist v. Merrill Lynch, Pierce, Fenner, 643 S.E.2d 864, 284 Ga. App. 387 (Ga. App. 2007)
• Court: Georgia Court of Appeals
• Parties: HEDQUIST et al. v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. et al.

284 Ga. App. 387

643 S.E.2d 864

HEDQUIST et al. v.MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. et al.

No. A06A1785.

Court of Appeals of Georgia.

March 21, 2007.

Jones, Jensen & Harris, Richard E. Harris, Atlanta, for appellants.

Rogers & Hardin, Brett A. Rogers, Jill E. Steinberg, Atlanta, for appellees.

BERNES, Judge.

John H. Hedquist III("JHHIII"), individually and as trustee of the John H. Hedquist III & Associates Profit Sharing Plan & Trust, and John H. Hedquist, Jr.("JHHJR") appeal from the trial court's dismissal of their amended complaint for failure to state a claim upon which relief could be granted.This case came before the Supreme Court of Georgia and Court of Appeals on one previous occasion after the trial court dismissed appellants' claims.SeeHedquist v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,272 Ga. 209, 528 S.E.2d 508(2000)("Hedquist II");Hedquist v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,236 Ga.App. 181, 511 S.E.2d 558(1999)("Hedquist I").On remand, the trial court ruled that the law of the case barred appellants' claims and dismissed them for a second time.For the following reasons, we affirm in part and reverse in part.

"When reviewing the grant of a motion to dismiss for failure to state a claim, we review the dismissal de novo, construing the complaint's allegations and all possible inferences therefrom in favor of the plaintiff."Daly v. Mueller,279 Ga.App. 168, 630 S.E.2d 799(2006).So viewed, the record reflects that at all times relevant to this dispute, Barton Industries, Inc.("Barton") was a publicly held corporation involved in the oil services industry.In the fall of 1990, appellants owned common stock in Barton.AppelleeMerrill Lynch, Pierce, Fenner & Smith, Inc.("Merrill Lynch") became interested in Barton stock and came into contact with appellants in order to better follow Barton stock and to determine if appellants were interested in selling a portion of their stock or buying more.Merrill Lynch later became further involved as an intermediary in a potential merger between Barton and another corporation.

The instant dispute arose out of allegations by appellants that Merrill Lynch concealed and misrepresented to them Barton's true financial condition, causing them to hold onto their stock rather than sell it at a time when the stock still had value.According to appellants, once the true financial condition of Barton was discovered, their stock became worthless.

Appellants filed suit against Merrill Lynch and its principal agent who handled the Barton account, Suzanne Cook, alleging claims for fraud, negligent misrepresentation, and violations of Georgia's and Florida's Racketeer Influenced and Corrupt Organizations ("RICO")statutes.¹They also sued several others, including Jack Camarda and Paul Brostrom, two Barton shareholders who allegedly made false representations to JHHIII about Barton's financial health.Subsequently, appellants voluntarily dismissed their suit without prejudice, and later filed a renewal action against the same defendants.However, after filing their renewed action, appellants voluntarily dismissed their claims against Cook with prejudice.

The trial court thereafter entered an order granting Merrill Lynch's motion to dismiss appellants' claims for failure to state a claim.The trial court reasoned that because appellants' claims against Merrill Lynch were predicated on the purported acts of Cook and thus were based on a respondeat superior theory of liability, appellants' dismissal of their claims against Cook with prejudice also barred their claims against Merrill Lynch.In the same order, the trial court also granted summary judgment to Camarda and Brostrom on the fraud and negligent misrepresentation claims brought against them.

We affirmed the trial court's order in Hedquist I,236 Ga.App. 181, 511 S.E.2d 558.In reaching that result, we made three specific rulings.First, we ruled that appellants' tort claims for fraud and negligent misrepresentation against Merrill Lynch were predicated solely on the alleged misconduct of Cook, and, therefore, could not be maintained following appellants' voluntary dismissal of their claims against Cook with prejudice.Id. at 183(1), 511 S.E.2d 558.Second, we ruled that appellants' Georgia and Florida RICO claims against Merrill Lynch failed to state a claim because appellants"failed to allege two separate and distinct, criminal `predicate acts' committed by Merrill Lynch."Id. at 183-184(1), 511 S.E.2d 558.Third and finally, we ruled that the trial court properly granted summary judgment to Camarda and Brostrom on the fraud and negligent misrepresentation claims, because JHHIII could not establish that he reasonably relied on the alleged false statements.Id. at 184(2), 511 S.E.2d 558.

Appellants filed a petition for writ of certiorari with the Supreme Court of Georgia.In their petition, appellants conceded that this Court had addressed several substantive issues relating to Merrill Lynch and other defendants, but nevertheless sought review only regarding the issue of whether appellants' dismissal of their claims against Cook with prejudice barred their fraud and negligent misrepresentation claims against Merrill Lynch.

The Supreme Court granted certiorari to address the following question: "Did the Court of Appeals err in holding that tort claims against an employer, which are based on the doctrine of respondeat superior, must be dismissed if the allegedly negligent employee has been dismissed with prejudice?"The Supreme Court subsequently reversed this Court's decision on that narrow question, holding that the voluntary dismissal of an employee does not constitute an adjudication on the merits barring prosecution of a plaintiff's respondeat superior claims against the employer.Hedquist II,272 Ga. 209, 528 S.E.2d 508.The Supreme Court, however did not address this Court's other rulings regarding the RICO claims against Merrill Lynch and the tort claims against Camarda and Brostrom.Seeid.

On remand, this Court issued an opinion and remittitur order returning the case to the trial court.In the opinion, we stated:

In [Hedquist I], this Court affirmed the trial court's dismissal of all claims against Merrill Lynch, Pierce, Fenner & Smith, Inc.After granting certiorari, the Supreme Court of Georgia reversed our judgment to the extent this Court held that a plaintiff's voluntary dismissal with prejudice of an allegedly negligent employee constitutes an adjudication on the merits of a plaintiff's claims brought against the employer under the doctrine of respondeat superior.

Accordingly, our prior judgment is vacated, the judgment of the Supreme Court of Georgia is made the judgment of this Court, and the judgment of the trial court is reversed.

(Footnote omitted.)Hedquist v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,243 Ga.App. 555, 533 S.E.2d 757(2000)("Hedquist III").

Approximately four years after the appealed case was returned to the trial court, appellants filed an amended complaint.The amended complaint alleged the same fraud, negligent misrepresentation, and Georgia and Florida RICO claims against Merrill Lynch, but omitted the tort claims previously alleged against Camarda and Brostrom.

Merrill Lynch moved to dismiss appellants' amended complaint, and the trial court granted the motion based on the law of the case rule.Specifically, the trial court held that this Court's previous ruling in Hedquist I—that appellants' RICO claims failed as a matter of law because appellants could not establish two predicate acts—was undisturbed by, and not inconsistent with, the Supreme Court's decision in Hedquist II and, therefore, was law of the case.Consequently, the trial court concluded that appellants could not proceed with their RICO claims, since there had been a binding ruling by this Court that they could not establish two predicate acts, a necessary component of a RICO claim.See, e.g., Martinez v. Heinrich,521 So.2d 167, 168(Fla.App.1988)(essential to RICO claim is evidence that defendant engaged in at least two predicate acts of racketeering activity);Aon Risk Svcs. v. Commercial & Military Systems Co.,270 Ga.App. 510, 516(5)(b), 607 S.E.2d 157(2004)(same).

For the same reasons, the trial court held that this Court's ruling in Hedquist I that reasonable reliance could not be established was the law of the case.As such, the trial court also dismissed appellants' fraud and negligent misrepresentation claims.See, e.g., Newitt v. First Union Nat. Bank,270 Ga.App. 538, 546(5), 607 S.E.2d 188(2004)(in order to prove negligent misrepresentation, plaintiff must establish that he or she reasonably relied upon the false information);GCA Strategic Investment Fund, Ltd. v. Joseph Charles & Assoc.,245 Ga.App. 460, 464(3), 537 S.E.2d 677(2000)(essential element of fraud claim is that plaintiff justifiably relied on the false representations).

Appellants contend that the trial court erred in concluding that their fraud, negligent misrepresentation, and RICO claims against Merrill Lynch were barred by the law of the case rule."Under the law of the case rule, any ruling by the Supreme Court or the Court of Appeals in a case shall be binding in all subsequent proceedings in that case in the lower court and in the Supreme Court or the Court of Appeals, as the case may be."(Punctuation and footnote omitted.)Security Life Ins. Co. etc., v. Clark,273 Ga. 44, 46(1), 535 S.E.2d 234(2000).SeeOCGA § 9-11-60(h);Caring Hands, Inc. v. Ga. Dept. of Human Resources,222 Ga.App. 608, 609(1), 475 S.E.2d 660(1996).Moreover, when the Supreme Court reviews a decision by the Court of Appeals, "any portions of the Court of Appeals' decision that are not considered by the Supreme Court are unaffected by the Supreme Court's opinion" and "bec[o]me the law of the case."Security Life Ins. Co.,273 Ga. at 46-47(1), 535 S.E.2d 234.SeeFord v....