Mars v. Wedbush Morgan Securities, Inc.

• Decision Date: 19 June 1991
• Citation: 231 Cal.App.3d 1608,283 Cal.Rptr. 238
• Court: California Court of Appeals Court of Appeals
• Parties: Marshall MARS, Plaintiff and Appellant, v. WEDBUSH MORGAN SECURITIES, INC., Defendant and Respondent. B047375.

Page 238

283 Cal.Rptr. 238

231 Cal.App.3d 1608

Marshall MARS, Plaintiff and Appellant, v. WEDBUSH MORGAN SECURITIES, INC., Defendant and Respondent.

B047375.

Court of Appeal, Second District, Division 4, California.

June 19, 1991.

[231 Cal.App.3d 1610] William R. Hess, Los Angeles, for plaintiff and appellant.

Keesal, Young & Logan, Terry Ross and Michele Fron, Long Beach, for defendant and respondent.

GOERTZEN, Associate Justice.

Plaintiff/appellant Marshall Mars (appellant) appeals from the judgment entered upon the granting of the motion for summary judgment of defendant/respondent Wedbush Morgan Securities, Inc. (respondent). ¹ Appellant had sued First United Securities Group (First United); respondent; and Dennis Kantor, First United's owner, in an attempt to recover investment losses appellant suffered allegedly because of the defendants' actions. ²

For the reasons discussed below, we affirm.

FACTS AND PROCEDURAL HISTORY

On September 9, 1988, appellant filed his complaint against First United, respondent, and Kantor for breach of fiduciary duty, fraud, negligence, unauthorized trading of stock, and excessive trading of stock. Therein, appellant alleged the following. In November 1986, First United, represented by Kantor, became appellant's securities broker. At that time, First United and Kantor promised they would fully inform him of all material facts affecting each trading activity executed for him, would not trade on his account with borrowed funds or increase his financial risks without first discussing the matter with him and obtaining his consent, would trade in accordance with all rules and regulations published by First United in its manuals and contracts, would abide by all applicable local, state and federal laws and regulations, and would accurately report his securities transactions. Beginning in November 1986, through August 1987, appellant invested about $50,000 with First United. In November 1987, appellant ordered First United to sell all his stock and close his account. From November 1986, through November 1987, defendants "falsely reported [appellant's] trading activity; bought and sold securities for [appellant] without his consent and knowledge; caused [appellant] to borrow against equity without his knowledge and consent and without taking into consideration or explaining to [appellant] the financial risks involved; failed to present [appellant] with all material facts affecting each transaction contemplated and entered into by [appellant] at the Defendants' solicitation and/or information; failed to execute sale orders upon demand by [appellant]; and caused [appellant] to trade excessively and without regard for the suitability of the investments made or the profitability of the trades."

On October 27, 1989, respondent filed its motion for summary judgment or, alternatively, for summary adjudication of issues. Respondent admitted that it was a member of the New York, American and Pacific Stock Exchanges and that it had entered into a Clearing Agreement with First United on July 6, 1983. Respondent asserted, however, that it could not be sued for the losses suffered by appellant because according to the terms of the Clearing Agreement between it and First United and the Letter of Understanding between appellant and First United, appellant was a client of First United, not of respondent; consequently, no fiduciary duty existed between it and appellant. Respondent argued that it had fully complied with its duties pursuant to the Clearing Agreement. Respondent further pointed out that appellant had executed a Letter of Understanding with First United, which indicated his acceptance of the arrangement made between respondent and First United and of the fact that he was the client/customer of First United, not respondent.

Included with respondent's motion were copies of the Clearing Agreement between First United and respondent, the Letter of Understanding between appellant and First United, an excerpt of appellant's deposition testimony, and the declaration of Marie Eaton, assistant vice-president of respondent.

By the terms of the Clearing Agreement, respondent was to act as the agent for First United, performing certain administrative duties ³ such as executing transactions in First United's clients' accounts and releasing or depositing monies or securities to or for First United's customers upon authorization from First United; for all purposes the clients were First United's and not respondent's; First United agreed it would notify its clients of the nature of respondent's relationship and secure the clients' agreement of same; and First United would be responsible for complying with all pertinent professional, local, state and federal laws and regulations. The Clearing Agreement further provided that respondent was not to "be responsible to any of [First United's] clients for losses suffered by them except losses suffered as a result of [respondent's] failure to perform the specific duties undertaken ... pursuant to [the] agreement."

The Letter of Understanding informed appellant that an account in his name had been opened with respondent, on a "correspondent broker" basis, respondent would provide "order execution and certificate clearance on [First United's] instructions," respondent would not be involved with or have responsibility for decisions regarding transactions in appellant's account, appellant would continue as First United's customer, First United would be responsible for all activities in connection with appellant's account, and any inquiries or complaints should be directed to it. The bottom half of the letter, entitled "Account Agreement, Taxpayer Certification, and Beneficial Ownership Election," among other things, stated: "I understand and agree that my account is to be handled in the manner described above." Appellant executed this letter on October 22, 1986.

In his deposition testimony, appellant stated that he did not believe he had ever contacted respondent with respect to anything involving his account.

The declaration of Ms. Eaton, respondent's assistant vice-president, reiterated the terms of the Clearing Agreement and the Letter of Understanding. Ms. Eaton also declared that the "entry of orders, any instructions regarding the deposit or withdrawal of securities or money, and all transactions regarding [appellant's] account were done pursuant to instructions received ... from First United and its agents;" during the period October 1986, through January 1988, respondent did not sell securities to appellant; and that prior to filing the lawsuit, respondent had received no complaints from appellant in connection with the services respondent had agreed to provide.

Appellant filed a motion for leave to file an amended complaint, which was denied.

In opposition to the motion for summary judgment, appellant argued that respondent had violated various federal securities laws which had not been pleaded in the complaint, and, in sum, countered that as a clearing broker, respondent could be held liable for the unlawful acts of the broker; and that as triable issues of fact existed as to the exact relationship between First United and respondent, the motion for summary judgment should be denied. Appellant filed no counter declarations or affidavits of any kind.

On December 1, 1989, the hearing on the motion was held. The court granted the motion for summary judgment, finding that any case which appellant might have was against First United, not respondent. Judgment in favor of respondent was entered on December 1, 1989.

This timely appeal followed.

STANDARD OF REVIEW

"Summary judgment is properly granted only when the evidence in support of the moving party establishes that there is no issue of fact to be tried. [Citations.] [p] The moving party bears the burden of furnishing supporting documents that establish that the claims of the adverse party are entirely without merit on any legal theory. [Citation.] The affidavits of the moving party are strictly construed and those of his [or her] opponent liberally construed, and doubts as to the propriety of summary judgment should be resolved against granting the motion. [Citation.] Issue finding rather than issue determination is the pivot upon which the summary judgment law turns. [Citation.]" (Mann v. Cracchiolo (1985) 38 Cal.3d 18, 35-36, 210 Cal.Rptr. 762, 694 P.2d 1134, internal quotation marks and ellipses omitted.)

"This task is limited to addressing those issues or theories of liability raised in plaintiff's complaint. The papers filed by the party opposing summary judgment must also be directed to the issues raised in the complaint; therefore, the opposing papers may not create issues outside of the pleadings. [Citations.]" (Fireman's Fund Ins. Co. v. City of Turlock (1985) 170 Cal.App.3d 988, 994, 216 Cal.Rptr. 796.)

With these rules in mind, we turn to the case before us.

DISCUSSION

In granting the motion, the court found, as a matter of law, that as a clearing broker, respondent owed no duty to appellant other than those respondent undertook to perform as a clearing broker; as First United's agent, respondent was not liable for First United's conduct; no evidence of wrongdoing was alleged or established on the part of respondent in connection with its duties as a clearing broker; and that respondent did not act negligently towards appellant. We are in accord.

The Clearing Agreement between respondent and First United and the Letter of Understanding between appellant and First United establish that appellant was a client of First United, not respondent. When appellant executed the Letter of Understanding, he agreed that First United would continue to be responsible for all activities in connection with his account. As noted by the court in Van Luven v. Rooney Pace, Inc. (1987) 195 Cal.App.3d 1201, 1203, 241 Cal.Rptr. 248, "an introducing broker [here, First United] is the firm...