Thomas M. v. Wachovia Sec.
| Decision Date | 22 December 2010 |
| Docket Number | No. C 08–2064–MWB.,C 08–2064–MWB. |
| Parties | Thomas M. and Nancy N. McGRAW, Donald Harms, Patricia Pestka, and Dale Montross, Plaintiffs,v.WACHOVIA SECURITIES, L.L.C., as Successor–in–Interest to A.G. Edwards, Inc., and Wells Fargo Investment Group, Inc., as Successor–in–Merger to Securities Corporation of Iowa, Defendants. |
| Court | U.S. District Court — Northern District of Iowa |
OPINION TEXT STARTS HERE
Kimberly Pieters Knoshaug, R. Jeffrey Lewis, Lewis Webster Johnson & Van Winkle, Peter S. Cannon, Cannon Law Firm, Des Moines, IA, for Plaintiffs.Adam Hochschild, Richard H. Kuhlman, Bryan Cave LLP, St. Louis, MO, Kevin J. Visser, Simmons Perrine Moyer Bergman PLC, Cedar Rapids, IA, for Defendants.
II.
Standards For Summary Judgment
Timeliness Of The McGraws' Claims
Arguments of the parties
The Theory Or Theories Of Liability
Direct Liability Claims
Necessity of expert testimony
Arguments of the parties
Duty to non-customers
Arguments of the parties
Duty and breach
Arguments of the parties
The duty to monitor
Fiduciary duty
Vicarious Liability Claims
Lovegren's apparent authority
Arguments of the parties
Liability based on employment or agency
Lovegren's apparent authority
Existence and breach of Lovegren's underlying duties
Duty as to representations
Duty as to suitability of investments
Fiduciary duty
III.
In this litigation, bilked investors seek to recover from a securities broker's employers sums that they gave the broker (now deceased) to invest in fictitious “special investments.” Some of the plaintiffs' claims were dismissed on pre-answer motions, and the defendants have now moved for summary judgment on all of the plaintiffs' remaining claims. The defendants assert that, as a matter of law, they owed no duty to the plaintiffs with respect to the money that the plaintiffs gave to the broker; even if they did owe the plaintiffs some duty, the plaintiffs have failed to present competent expert testimony regarding the applicable standard of care; and the claims of some of the plaintiffs are barred by the applicable statute of limitations. For their part, the plaintiffs have moved for partial summary judgment as to the standard of care and duty owed by the defendants to the plaintiffs, based upon the opinions of their expert and the defendants' expert, and breach of that standard of care, as a matter of law, as to their claims of negligent supervision and negligence as to suitability of investments. Not surprisingly, the parties each resist the other's summary judgment motion.
The court will not attempt here an exhaustive dissertation of the undisputed and disputed facts in this case, despite the extensive Statements of Facts submitted by the parties in support of the cross-motions for summary judgment. Rather, the court will set forth sufficient of the facts, both undisputed and disputed, to put in context the parties' arguments concerning their cross-motions for summary judgment.
The remaining plaintiffs in this action are Thomas M. and Nancy N. McGraw (the McGraws), Patricia Pestka, and Dale Montross.1 McGraw, Montross, and Paul Lovegren, a figure at the center of this case, had been fraternity brothers at the University of Northern Iowa. Pestka, who is Thomas McGraw's sister, also met Lovegren at the University of Northern Iowa. Lovegren was subsequently employed as a broker at Securities Corporation of Iowa (SCI) from March 1993 to March 2001, and as a broker for A.G. Edwards & Sons, Inc., from March 2001 to October 2005. It is not entirely clear from the present record whether Lovegren was actually an employee of or an independent contractor with SCI or A.G. Edwards. The McGraws and Pestka made some investments with SCI or A.G. Edwards, or both, for which Lovegren was their broker, and some investments directly with Lovegren that they believed were in accounts with SCI or A.G. Edwards. Montross also made some investments with Lovegren that he believed were with A.G. Edwards. Defendant Wells Fargo Investment Group, Inc., is the successor-by-merger to SCI, and defendant Wachovia Securities, L.L.C., is the successor-in-interest to A.G. Edwards. The court will refer to the current defendants and their predecessors as SCI/Wells Fargo and A.G. Edwards/Wachovia, respectively.
The McGraws, Pestka, and Montross each allege that they invested tens of thousands of dollars directly with Paul Lovegren, even though Lovegren was or had been a broker for SCI/Wells Fargo or A.G. Edwards/Wachovia at the pertinent times. More specifically, the McGraws gave Lovegren checks made payable to him in 1996, 1997, 1998, and 1999,2 to invest in what was purportedly a “special” currency investment. The McGraws understood that, because they were unable to invest the minimum of $500,000 to participate in the currency investment on their own, Lovegren was “doing [them] a favor” by “bundling” their money with his own in an investment in a SCI/Wells Fargo account, or later, an A.G. Edwards/Wachovia account. Thomas McGraw believed that the “Articles of Agreement” that he entered into with Lovegren concerning this investment protected his investment by providing that Lovegren personally “guaranteed” the principal “investment.”
As the result of her association with Lovegren, Pestka closed her account with A.G. Edwards/Wachovia in February 2006, then gave Lovegren two checks made payable to him in February and May of 2006, believing that Lovegren would invest the funds in “Bond Management, Inc.,” which was purportedly “a division of A.G. Edwards.” Pestka understood from Lovegren that he was opening an A.G. Edwards “Bond Management” division in Kansas City, after Lovegren had handled her investments at the A.G. Edwards office in Waterloo, Iowa, for some time. Lovegren convinced Pestka to make out the checks for the “Bond Management” investment directly to him, because he said that he was unsure if his accounts were set up and that he could invest her funds more quickly that way. Pestka claims not to have known that Lovegren had left A.G. Edwards/Wachovia in Waterloo before she made her investment in “Bond Management,” because when Lovegren visited Pestka in California in May of 2006, he called Karen Ballhagen, who had been Pestka's “co-broker” at A.G. Edwards/Wachovia, to ask about rates and markets, and Pestka recognized her voice. When Pestka's A.G. Edwards/Wachovia financial advisor, Karen Cady, asked Pestka why she was withdrawing her money, Pestka did not tell her that the money was going to Lovegren. Instead, on Lovegren's instructions, Pestka said that she was investing the money with a “school district,” which Pestka knew was not true.
Similarly, Montross gave two checks made payable to “Bond Management” to Lovegren, one in 2004 and one in 2006, believing that Lovegren would invest the funds in “Bond Management, Inc.,” which was purportedly “a division of A.G. Edwards.” Also in 2006, Montross made one withdrawal from his purported “Bond Management” investment with Lovegren, The defendants contend that Montross was never a brokerage client of A.G. Edwards/Wachovia or SCI/Wells Fargo, but Montross contends that he opened an account with Lovegren at A.G. Edwards, that he signed an account agreement, and that Lovegren told him that he was trading with A.G. Edwards in commodities. He explains, more specifically, that he filled out an application to open an account at “Bond Management” as “a division of A.G. Edwards.”
The McGraws admit that the “Articles of Agreement” and “Statements of Liquidation Value” that they received from Lovegren concerning their “special” currency investment do not refer to or mention the defendants. Similarly, Pestka and Montross admit that there are no documents relating to their “investments” with Lovegren in “Bond Management” that refer to or mention the defendants or their predecessor companies. Nevertheless, the plaintiffs all allege that documents related to their investments with Lovegren were notarized by other employees of SCI/Wells Fargo or A.G. Edwards/Wachovia; that they sent some of their checks for their investments to Lovegren at his offices at SCI/Wells Fargo or A.G. Edwards/Wachovia; that they received documentation of and other communications about their purported “investments” with Lovegren sent from Lovegren's offices and company e-mail accounts at SCI/Wells Fargo or A.G. Edwards/Wachovia; and that they discussed their investments with Lovegren at his offices at SCI/Wells Fargo or A.G. Edwards/Wachovia in proximity to other employees in those offices who could have heard the discussions. Thus, they contend that employees and agents of the defendants either knew of Lovegren's “outside” business activities with the plaintiffs (which they describe as “selling away”), or should have discovered those activities from proper monitoring of incoming and outgoing correspondence and payments to and from Lovegren at his offices at SCI/Wells Fargo or A.G. Edwards/Wachovia.
In about mid–2006, Lovegren disappeared. “Bond Management, Inc.,” in which Pestka and Montross believed that they had invested, and the “special” currency investment, in which the McGraws believed that they had invested, were fictitious. The plaintiffs allege that they did not learn that their investments with Lovegren were fictitious, and that the funds that they had invested with Lovegren were gone, until sometime between June and October of 2006, when they were contacted by the FBI about Lovegren's disappearance. Lovegren's body was discovered in a wooded area in Cedar Falls, Iowa, in May 2007.
The plaintiffs now allege that Lovegren stole, converted, and...
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